Recovery Act
States' and Localities' Uses of Funds and Actions Needed to Address Implementation Challenges and Bolster Accountability, an E-supplement to GAO-10-605SP (Appendixes) Gao ID: GAO-10-605SP May 26, 2010This supplementary report to GAO-10-605SP provides individual state appendixes for 16 states and the District of Columbia for GAO's work on the sixth of its bimonthly reviews of the American Recovery and Reinvestment Act (Recovery Act).
GAO-10-605SP, Recovery Act: States' and Localities' Uses of Funds and Actions Needed to Address Implementation Challenges and Bolster Accountability (Appendixes)
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Report to the Congress:
United States Government Accountability Office: GAO:
May 2010:
Recovery Act:
States' and Localities' Uses of Funds and Actions Needed to Address
Implementation Challenges and Bolster Accountability (Appendixes):
GAO-10-605SP:
Contents:
Appendix I: Arizona:
Appendix II: California:
Appendix III: Colorado:
Appendix IV: District of Columbia:
Appendix V: Florida:
Appendix VI: Georgia:
Appendix VII: Illinois:
Appendix VIII: Iowa:
Appendix IX: Massachusetts:
Appendix X: Michigan:
Appendix XI: Mississippi:
Appendix XII: New Jersey:
Appendix XIII: New York:
Appendix XIV: North Carolina:
Appendix XV: Ohio:
Appendix XVI: Pennsylvania:
Appendix XVII: Texas:
Appendix XVIII: Program Descriptions:
[End of section]
Appendix I: Arizona:
Overview:
This appendix summarizes GAO's work on the sixth of its bimonthly
reviews of American Recovery and Reinvestment Act of 2009 (Recovery
Act)[Footnote 1] spending in Arizona. The full report covering all of
GAO's work in 16 states and the District of Columbia may be found at
[hyperlink, http://www.gao.gov/recovery].
What We Did:
We reviewed four specific program areas--education, justice, clean
water and drinking water, and public housing--funded under the
Recovery Act. We selected these program areas primarily because they
have received and are in the process of obligating Recovery Act funds.
Our work focused on the status of the program area's funding, how
funds are being used, methods used by the programs to monitor projects
to ensure proper use and safeguarding of Recovery Act funds, and
issues that are specific to each program area. (For descriptions and
requirements of the programs we covered, see appendix XVIII of GAO-10-
605SP.) For education programs, we spoke with Arizona Department of
Education officials and visited a local educational agency (LEA). For
the criminal justice programs, we spoke with the Arizona Criminal
Justice Commission and visited two localities receiving criminal
justice funds. For Clean Water and Drinking Water State Revolving
Funds, we spoke with the Water Infrastructure Finance Authority of
Arizona and visited five clean water and drinking water projects. As
part of our review of public housing, we met with five public housing
agencies. Our work in Arizona also included monitoring the state's
fiscal situation and visiting the cities of Mesa and Flagstaff to
review their use of Recovery Act funds. We chose to visit Mesa and
Flagstaff because they represent different sized cities that are both
facing budget shortfalls due to declines in state funding for
programs, tax revenues, and fees.
To gain an understanding of the state's experience in meeting Recovery
Act reporting requirements,[Footnote 2] we examined documents prepared
by and held discussions with the Governor's Office of Economic
Recovery (OER), the Maricopa County Housing Authority, and the Mesa
Unified School District 4. Further, we spoke with 19 state and local
agencies in the accountability community that have oversight
responsibilities for Recovery Act funds.
What We Found:
* Education. The U.S. Department of Education has made approximately
$1.2 billion in Recovery Act funds available to Arizona for the State
Fiscal Stabilization Fund (SFSF); grants under the Individuals with
Disabilities Education Act (IDEA), as amended, Part B; and grants
under Title I, Part A of the Elementary and Secondary Education Act of
1965 (ESEA), as amended. A large percentage of these funds are being
used to pay employee salaries. Existing monitoring programs for non-
Recovery Act funds have identified problems with LEAs' use of funds;
these illustrate the importance of closely monitoring Recovery Act
funds, but the responsible monitoring groups face staffing issues that
affect the amount of coverage they can provide.
* Department of Justice grants. The U.S. Department of Justice's
Bureau of Justice Assistance has awarded about $25 million directly to
Arizona in Recovery Act Edward Byrne Memorial Justice Assistance Grant
program funding. The Arizona Criminal Justice Commission, which
administers the grants, said they passed through about $18.7 million
to localities to support the state's drug task forces and tandem
prosecution projects, about $4.2 million for statewide criminal
justice projects, and retained about $2 million for administrative
purposes. In addition, 13 local governments received a total of about
$12.6 million in Recovery Act Community Oriented Police Services
Hiring Grants and will use the funding to pay salaries and benefits
for 56 police officers for fiscal years 2009-2011.
* Clean Water and Drinking Water State Revolving Funds. Arizona
received a total of approximately $82 million in Recovery Act funding
for its clean water and drinking water projects, which the Water
Infrastructure Finance Authority of Arizona (WIFA) used to help
finance 46 projects. WIFA has had difficulties monitoring its Recovery
Act funded-projects, but WIFA is taking steps to strengthen its
monitoring.
* Public Housing Capital Fund. Arizona has 15 public housing agencies
that received a total of $12.1 million in Recovery Act funds. All 15
housing agencies obligated 100 percent of their funds by the March 17,
2010, deadline. However, the Department of Housing and Urban
Development (HUD) field office had to work extensively with the
state's two troubled housing agencies to obligate their funds in time.
According to HUD field office officials, they are anticipating new
monitoring requirements; however they do not know the potential impact
of this new monitoring on their capacity to carry out those
requirements.
* Arizona's fiscal condition. Despite receiving about $1.3 billion in
Recovery Act funds in fiscal year 2010, Arizona faced a $2 billion
shortfall, which was resolved with spending reductions and by
acquiring additional debt. Facing continuing economic problems,
Arizona's fiscal year 2011 budget was balanced with reductions in
education, health, and other programs and a voter-approved 1-cent
temporary increase in the state's sales tax. Economic forecasters
estimate Arizona's revenue will not recover to the 2007 level until
2015.
* Cities' use of Recovery Act funds. Of the $57.5 million in Recovery
Act funds awarded to Mesa, federal agencies provided approximately
$16.5 million directly, while the remainder was awarded to state
agencies that in turn passed the funds to the city. Flagstaff received
approximately $2.6 million directly from federal agencies and the
remainder of the total $4 million through state agencies. Officials in
both Mesa and Flagstaff said that Recovery Act funds have helped to
deliver services they otherwise would have been unable to fund, as
well as employing local workers. Additionally, the funds are expected
to provide long-term benefits to the cities.
* Accountability. State agencies recognize the importance of
monitoring Recovery Act funds to protect against fraud, waste, and
abuse, but current practices vary significantly, sometimes due to
staffing shortages. Comprehensive audit activities just began in 2010
because most entities had expended only a fraction of the Recovery Act
funds in 2009. The Single Audit is a significant tool used to oversee
expenditures of Recovery Act funds. The results of the Arizona Auditor
General's fiscal year 2010 Single Audit, scheduled to be released in
2011, will be a more comprehensive first look at Recovery Act funding.
Some local governments are also conducting their own audits specific
to Recovery Act funds.
Educational Institutions Are Using Recovery Act Funds Primarily to Pay
Teachers and Other Staff; Resource Constraints Pose Challenges for
Monitoring To Ensure Proper Use and Safeguarding of Funds:
The U.S. Department of Education has made approximately $1.2 billion
in Recovery Act funds available to Arizona for SFSF education
stabilization funds, IDEA, Part B and ESEA Title I, Part A grants.
Table 1 shows the amounts that have been made available to, and drawn
down by Arizona, for these three grants.
Table 1: Funds Made Available to Arizona for SFSF education
stabilization funds; IDEA, Part B; and ESEA Title I, Part A Grants:
SFSF education stabilization;
Made available to Arizona: $831,869,331; Drawn down by Arizona:
$505,603,597; Percent drawn down of amount made available: 61%.
IDEA, Part B;
Made available to Arizona: $184,178,924; Drawn down by Arizona:
$57,061,531; Percent drawn down of amount made available: 31%.
ESEA Title I;
Made available to Arizona: $195,087,321; Drawn down by Arizona:
$64,736,366; Percent drawn down of amount made available: 33%.
Total;
Made available to Arizona: $1,211,135,576; Drawn down by Arizona:
$627,401,495; Percent drawn down of amount made available: 52%.
Source: U.S. Department of Education, as April 16, 2010.
[End of table]
SFSF funds were provided to the Governor's office, while both the ESEA
Title I, Part A and IDEA, Part B grants were provided to the Arizona
Department of Education (department), which is the state education
agency. The Governor's office has drawn down nearly $506 million of
the $832 million in SFSF education stabilization funds for LEAs and
institutions of higher education. The department has drawn down 33
percent and 31 percent of its ESEA Title I, Part A and IDEA, Part B
funds, respectively. The lower draw down rates for these latter two
programs to date are due, in part, to the LEAs having begun expending
funds over time, rather than in a lump sum, as was the case for SFSF
funds. States have until September 2011 to obligate ESEA Title I, Part
A and IDEA, Part B funds.[Footnote 3]
LEAs are using the largest percentage of funds they receive[Footnote
4] for teacher and other staff salaries; and, lesser amounts for
professional services--such as professional development and hiring
occupational and speech therapists--and purchasing supplies and other
services, such as instructional software and other school materials
and supplies.
Arizona Plans to Meet SFSF Maintenance of Effort Requirements with New
Revenue from a Voter-Approved State Sales Tax Increase:
In order to meet maintenance-of-effort (MOE) requirements under SFSF,
a state must maintain state support for kindergarten through 12th
grade education and institutions of higher education at least at
fiscal year 2006 levels in fiscal years 2009, 2010, and 2011.[Footnote
5] For fiscal years 2009 and 2010, Arizona's budget provided funding
for kindergarten through 12th grade and higher education at least at
2006 levels--$3.46 billion and $987 million, respectively--as required
to meet MOE requirements for SFSF under the Recovery Act. Facing an
estimated $2.58 billion shortfall in the state budget for fiscal year
2011, Arizona plans to maintain education funding at the 2006 level to
meet MOE requirements through new revenue from a voter-approved 1-cent
increase in state sales tax. The added tax is estimated to generate
total revenue of about $918 million in fiscal year 2011.
Agency Past Monitoring Efforts Demonstrate the Importance of
Oversight, but There Are Challenges to Increasing Coverage:
The Arizona Department of Education is responsible for monitoring the
use of federal funds it receives from the IDEA, Part B and ESEA Title
I, Part A grants, including Recovery Act and non-Recovery Act funds.
The department has assigned monitoring responsibility to the
Exceptional Student Services (ESS) Unit for IDEA, Part B program funds
and to the Title I Office for ESEA, which includes ESEA Title I, Part
A funds. The ESS Unit provides funding to support the Arizona
Department of Education's Audit Unit to perform fiscal monitoring of
IDEA, Part B funds. The Audit Unit has not begun monitoring Recovery
Act funds because selections for fiscal year 2010 were made using end
of year completion reports for fiscal year 2008 and, at that time,
LEAs had not received any Recovery Act funds. It plans to begin
monitoring these funds July 1, 2010, and will incorporate added
requirements of the Recovery Act into its monitoring guidelines, such
as prevailing wage rates and Buy American provisions.[Footnote 6] The
Title I Office officials said that they had not performed on-site
monitoring and have not yet modified their monitoring protocols to
reflect Recovery Act requirements. Officials plan to modify the
protocols before the beginning of the next school year and will begin
monitoring Recovery Act funds when the school year begins.
The Audit Unit and the Title I Office's monitoring programs in prior
years have disclosed important internal control weaknesses at some
LEAs over IDEA, Part B and ESEA Title I, Part A funds. These findings
illustrate the importance of closely monitoring Recovery Act funds.
The monitoring conducted by these offices to date on LEAs' use of non-
Recovery Act funds has identified several areas in which some LEAs did
not meet requirements, such as inadequate inventory controls over
fixed assets or improper uses of funds. Table 2 shows the number of
LEAs that did not meet requirements in one or more of the areas
reviewed.
Table 2: Number of LEAs Visited by the Audit Unit for Monitoring IDEA
Funds and Title I Office Staff for Monitoring ESEA Title I Funds, and
Compliance Results:
Audit Unit[B];
Number visited: 32;
Met requirements: 11;
Did not meet requirements: 21;
Percentage meeting requirements: 34%; Percentage not meeting
requirements[A]: 66%.
Title I Office[C];
Number visited: 72;
Met requirements: 33;
Did not meet requirements: 39;
Percentage meeting requirements: 46%; Percentage not meeting
requirements[A]: 54%.
Total;
Number visited: 104;
Met requirements: 44;
Did not meet requirements: 60;
Percentage meeting requirements: 42%; Percentage not meeting
requirements[A]: 58%.
Source: GAO Summary of Arizona Department of Education records.
[A] Actions have been taken or are underway to address these
deficiencies.
[B] Data for the Audit Unit are cumulative since it began performing
monitoring for the ESS Unit and includes results of findings at six
LEAs whose reports have not been issued as of March 25, 2010.
[C] Data for Title I Office staff are for fiscal years 2009 and 2010
and for what had been entered into its monitoring system as of April
8, 2010.
[End of table]
Many of the findings of the Audit Unit and Title I Office identify the
need for LEAs to strengthen their internal controls over fund use. For
example, Audit Unit monitors found that one LEA had incurred about
$39,000 of disallowed expenses because the LEA was unable to produce
the required supporting documentation for payroll and procurement of
supplies. The LEA is reimbursing the Arizona Department of Education
for these expenses.
Monitoring of Funds for All Three Grants Faces Coverage Challenges
Because of Limited Staff:
Both the Audit Unit and Title I Office expressed concerns over their
ability to provide adequate monitoring given current staffing levels.
The Audit Unit's monitoring program is designed to primarily cover
several LEAs that receive the largest amount of grant funds each year
to ensure a large percentage of the grant award is reviewed over a 5-
year period. In addition, it selects a smaller grouping of LEAs to
monitor from among (1) rural districts and nearby charter schools, (2)
smaller urban districts and large urban charters, and (3) potentially
troubled districts and charters identified in audit reports. The Audit
Unit has two auditors to perform on-site fiscal monitoring, and they
are reviewing 24 that expended about $44 million of the nearly $153
million expended by all 445 LEAs in IDEA, Part B funding for fiscal
year 2008. The Title I Office's monitoring program is designed to
perform on-site monitoring of a group of LEAs each year and to ensure
that all LEAs will have had an on-site visit at the completion of 6
years. A total of 401 LEAs expended about $259 million in fiscal year
2009 ESEA Title I, Part A funding. Officials for this program informed
us that the office has 10 staff who are monitoring 62 of these LEAs,
which account for about $35 million of these total funds.[Footnote 7]
Title I Office officials said the office could use 20 staff for
monitoring, but has not been able to fill several vacancies or hire
additional staff due to budgetary constraints.
OER is responsible for monitoring the use of SFSF funds, and OER
officials informed us that they plan to use the office's existing
staff of ten to perform monitoring responsibilities along with their
other responsibilities of coordinating and assessing accountability
over Recovery Act funds at state agencies. Officials stated that OER
will implement a risk-based monitoring plan for selecting recipients
to monitor. This plan, which is currently under review by the U.S.
Department of Education,[Footnote 8] places SFSF fund recipients in
the categories of high, moderate, and low risk based on factors such
as expenditure amounts and prior audit results. Until this risk-based
system is developed, OER will monitor recipients that receive $500,000
or more of SFSF funds and those that receive federal funding for the
first time. OER has determined that 125 recipients comprising 110
LEAs, 11 community colleges, 3 universities, and 1 Teach for America
[Footnote 9] contract meet the $500,000 threshold for fiscal years
2009 and 2010. As of April 2010, OER was awaiting the Arizona
Department of Education's information on the LEAs that are first-time
recipients. From the list of 125 recipients and the list of first-time
recipients, OER will select 36 for on-site visits to be completed by
December 2010. OER officials said that the office was in the process
of hiring additional staff and until these staff are hired, it will
perform 4 on-site visits per month beginning in April 2010 to complete
the 36 recipient on-site visits. The number of recipients it will
monitor, however, could change once the risk-based plan mentioned
above is developed.
Recovery Act Department of Justice Grants in Arizona Are Supporting
Drug Task Forces and Increased Police Forces and Are to Be Subject to
Long-Standing Monitoring Processes:
Recovery Act Edward Byrne Memorial Justice Assistance grants (JAG)
awarded to the Arizona Criminal Justice Commission (ACJC)--the state
agency that coordinates, monitors, and reports on Arizona's criminal
justice programs--totaled about $25 million. These funds were intended
to help ACJC with its work supporting 16 multi-jurisdictional[Footnote
10] drug task forces and prosecution projects. To reduce budget
deficits in the state, the Arizona Legislature has cut about $24.6
million in state funds planned to support the ACJC's mission,
including the 16 drug task forces and prosecution projects from fiscal
years 2008 through 2011. Because of the Recovery Act JAG monies, ACJC
was able to pass funds to localities to support the drug task forces
and prosecution projects at a level similar to what it had been before
the legislature reduced ACJC's budget. According to ACJC officials,
had they not received Recovery Act funds, they would have had to
severely reduce or discontinue at least half of the projects funded
with JAG monies. ACJC has financial and performance monitoring
mechanisms in place for pass-through recipients of JAG monies, and has
continued using those existing mechanisms to monitor Recovery Act JAG
funds. In addition to JAG funds, another Recovery Act Department of
Justice grant for Community Oriented Police Services (COPS) awarded 13
localities in Arizona a total of about $12.6 million in funding for
hiring or retaining police officers.
Localities Are Using Recovery Act JAG Funds to Support Public Safety
Projects:
Of the approximately $25 million in federal funds allocated to ACJC,
officials told us ACJC has passed through about $18.7 million to
localities to support the existing task forces and tandem prosecution
projects which are continuing their work at the pre-Recovery Act
levels and about $4.2 million to the state Attorney General's Office
and the Arizona Department of Public Safety for statewide criminal
justice projects such as prosecution and forensics. These drug task
forces that received the Recovery Act JAG funds accounted for seizures
of 847,665 grams of cocaine; 49,586 grams of heroin; 206,713 grams of
methamphetamine; and 305,082 pounds of marijuana in 2008. As of
February 1, 2010, local pass-through recipients of Recovery Act JAG
funds have expended about 23.5 percent of the $18.7 million they
received from ACJC and state agencies have expended about 31 percent
of the $4.2 million they received from ACJC, as illustrated in Figure
1.
Figure 1: Recovery Act JAG Pass-Through Funds in Arizona:
[Refer to PDF for image: horizontal bar graph]
Funds passed through to localities:
Expended: $4,649,485;
Awarded: $18,742,590.
Funds passed through to the state:
Expended: $1,305,603;
Awarded: $4,246,732.
Source: GAO analysis of ACJC data.
[End of figure]
ACJC retained about $2 million for administrative uses over the 3-year
grant period between fiscal years 2009 and 2011, which it uses to
monitor the expenditures of Recovery Act funds, track performance, and
offer guidance to recipients of the pass-through funds.
ACJC Plans to Continue to Use Its Longstanding Practices, with Some
Modifications to Simplify Reporting, to Monitor JAG Funds:
ACJC uses a variety of approaches to track the funds it provides to
localities, both for the JAG funds it receives and for the more recent
Recovery Act JAG funds. These approaches include the use of the Bureau
of Justice Assistance required performance measurement tool to monitor
performance metrics and long-term benefits achieved, as well as on-
site visits and communication with pass-through recipients. To collect
information for the performance measurement tool, ACJC sends an online
survey to all pass-through recipients. The financial and performance
measures monitored in the online survey are tailored to each
recipient, but all recipients are required to include Recovery Act
recipient reporting metrics such as jobs created and retained. The
survey also includes other performance measures, such as the
percentage of the project completed, as well as descriptions of the
project's activities.
In addition, ACJC officials are developing a system to integrate the
performance data with financial and programmatic information to ease
recipients' Recovery Act reporting obligations and simplify recipient
reporting for ACJC. According to ACJC officials, in large part because
of ACJC's efforts to align Recovery Act reporting requirements with
state reporting requirements, they have not experienced any recipient
reporting problems. ACJC staff also plan on visiting each pass-through
recipient at least one time over the course of the 3-year JAG grant to
ensure that the program funds are being expended in accordance with
the grant guidelines.
Recovery Act JAG pass-through funds are generally a continuation of
the existing JAG program, and the funds are going to the same
recipients for the same purposes as in the past. ACJC, therefore,
considers the pass-through funds to be a low risk for fraud, waste,
and abuse problems because past monitoring efforts have indicated to
ACJC which pass-through recipients have been problematic, and those
recipients with a history of conscientious program management have
been the recipients of ACJC Recovery Act funds.
According to ACJC officials, they are beginning to plan for the end of
Recovery Act funding, beginning in 2012. ACJC has begun notifying all
pass-through recipients that they will need to begin to contribute to
the task force funding starting in fiscal year 2012.
Arizona Has Expanded Community-Based Policing as a Result of
Additional Police Staff Hired with Recovery Act COPS Funds and Expects
Tracking of Those Funds Will Not be Problematic, Although Paying for
Officers Beyond 2012 May Present a Challenge:
Across Arizona, 13 local governments--including Mesa and Flagstaff--
received a total of about $12.6 million in COPS Hiring Recovery
Program (CHRP) funding from the U.S. Department of Justice and plan to
use it to directly pay for the salaries and benefits for 56 police
officers for fiscal years 2009 through 2011. Those 13 local
governments, as part of their CHRP applications, are required to use
their own funding to pay for each newly-hired or retained officer for
1 additional year, through fiscal year 2012. We spoke with officials
in Mesa and Flagstaff about their ability to pay these costs and
neither foresaw having trouble paying for the fourth year. However,
both cities' officials said they are counting on an economic recovery
to build the general funds and pay for the salaries and benefits for
the officers hired with CHRP funds beyond 2012.
The city of Mesa--the only one of the 13 recipients with a population
greater than 150,000--applied for and received funding for the hiring
of 25 of the 56 total officers, or about 45 percent. These 25 officers
represent about a 3 percent addition to the total police force in
Mesa, which is about 800 officers. However, subsequent to their
application approval, the Mesa police department was asked to present
a plan to reduce its budget by 5 to 10 percent. Because of this, Mesa
is researching the possibility of requesting a grant modification so
that it can use the funds to retain 25 officers rather than hire 25
new ones.
Flagstaff applied for and received CHRP funding for six police
officers. As of February 1, 2010, three officers had begun duty on the
Flagstaff police force and three were at the police academy. According
to Flagstaff city officials, the CHRP funds saved the Drug Abuse
Resistance Education program[Footnote 11] in Flagstaff, which the city
would have otherwise eliminated, and allowed the city to use one of
the officers to continue expanding its real-time crime analysis
program.
In terms of tracking the Recovery Act COPS funds, officials in both
Mesa and Flagstaff reported that they assign the Recovery Act funds
separate accounting codes to facilitate tracking of expenditures and
have not experienced any problems with recipient reporting.
Arizona Met the Recovery Act Deadline to Have Its Water Funds Under
Contract and Is Strengthening Its Monitoring to Safeguard Recovery Act
Funds:
The Recovery Act required the U.S. Environmental Protection Agency
(EPA) to allocate $4 billion to states to help communities with water
quality and wastewater infrastructure needs and $2 billion for
drinking water infrastructure needs, with part of the funding targeted
toward green projects.[Footnote 12] EPA provided these funds to the
Clean Water and Drinking Water State Revolving Funds (SRF) in each
state and Puerto Rico and as direct grants to the District of Columbia
and other U.S. territories.
WIFA, an independent Arizona state agency, is authorized to finance
eligible high-priority water infrastructure projects through the
state's Clean Water and Drinking Water SRFs. WIFA loans SRF funds to
communities and recycles the loan repayments back into the revolving
funds to finance future water projects. Generally, WIFA offers
borrowers below-market interest rates on loans for eligible project
costs. The Recovery Act required WIFA to provide additional
subsidization on its Recovery Act-funded SRF loans, which WIFA gave to
its borrowers in the form of principal forgiveness.[Footnote 13] WIFA
reimburses borrowers, or subrecipients, for eligible costs of work
completed on projects as the subrecipients request draws from the
agency's two SRFs.
Arizona had all of its Recovery Act funds awarded to projects that
were under contract by the February 17, 2010, deadline. Additionally,
WIFA established its own state-specific requirement that all projects
begin construction by that date. The state received approximately $82
million in Recovery Act funding for its two SRFs and used
approximately $76 million to help finance 46 projects.[Footnote 14]
The Drinking Water SRF used $50.6 million to help finance 29 projects,
and the Clean Water SRF used $25.4 million to help finance 17
projects. Additionally, Arizona exceeded the Recovery Act's green
reserve requirement, providing $12.7 million (23 percent) of the
Drinking Water funding for improvements such as replacing leaking
pipelines (see Figure 2) and approximately $12.4 million (47 percent)
of the Clean Water funding for improvements such as reclaiming treated
water for use in irrigation. None of the 46 projects, with expected
costs totaling approximately $182 million, were funded completely with
Recovery Act funds. Other funding sources included WIFA's SRF base
program (i.e. non-Recovery Act) funds and subrecipients' own funds. As
of May 1, 2010, subrecipients had drawn down almost $47.7 million, or
63 percent of the Recovery Act funding.
Figure 2: Existing Pipeline to be Repaired as Part of the Town of
Payson's Recovery Act-Funded Drinking Water Project:
[Refer to PDF for image: photograph]
Source: Salt River Project photo provided by Town of Payson.
Note: The Town of Payson is partnering with the Salt River Project to
repair and extend this pipeline to provide the town a renewable
surface water supply. The Salt River Project is one of Arizona's
largest water suppliers and provides power to customers throughout
central Arizona.
[End of figure]
To review the progress of projects supported with Recovery Act funds,
we chose the following five projects to visit, based on geographic
diversity, type and amount of financing, and green component (see
table 3). Because Arizona received more than twice as much money for
its Drinking Water SRF, we emphasized Drinking Water projects over
Clean Water projects.
Table 3: Clean Water and Drinking Water Site Visit Locations:
Location: Buckeye;
SRF: Clean water;
Project description: Wastewater treatment plant upgrades and
expansion[A]; Amount funded (Recovery Act): $6,372,285; Amount funded
(base SRF funds): $5,627,715; Total amount funded by WIFA:
$12,000,000; Project status: Construction started.
Location: Eloy;
SRF: Drinking water;
Project description: Water distribution improvements, including new
water meters with remote monitoring and new water main with storage
tank and booster station[A]; Amount funded (Recovery Act): $2,800,000;
Amount funded (base SRF funds): $1,200,000; Total amount funded by
WIFA: $4,000,000; Project status: Completed.
Location: Flagstaff;
SRF: Drinking water;
Project description: Connect new well and expand well building[A];
Amount funded (Recovery Act): $542,500; Amount funded (base SRF
funds): $232,500; Total amount funded by WIFA: $775,000; Project
status: Completed.
Location: Mesa;
SRF: Drinking water;
Project description: Replace aging water lines in downtown Mesa;
Amount funded (Recovery Act): $1,144,000; Amount funded (base SRF
funds): $286,000; Total amount funded by WIFA: $1,430,000; Project
status: Completed.
Location: Payson;
SRF: Drinking water;
Project description: Surface water project-pipeline repair and
extension[A]; Amount funded (Recovery Act): $4,000,000; Amount funded
(base SRF funds): $6,585,000; Total amount funded by WIFA:
$10,585,000; Project status: Construction started.
Source: GAO summary of WIFA data.
[A] Projects contained a green component. In the cases of Buckeye and
Payson, 100 percent of their Recovery Act funding was identified as
green infrastructure.
[End of table]
In Light of the Recovery Act and other Requirements, WIFA Recognized
the Need to Take Steps to Strengthen Its Monitoring:
According to WIFA officials, they used two methods to monitor project
compliance with Recovery Act requirements. First, they followed
existing agency policies that require WIFA staff to conduct an on-site
project observation when more than 50 percent of its WIFA funding is
drawn and again when more than 85 to 95 percent is drawn. These on-
site visits are intended to enable WIFA to make certain that
subrecipients adhere to the approved schedule, plans, specifications,
and financial assistance agreement for the loan, as well as that
construction is of sufficient quality to ensure a useful life greater
than the loan repayment period. According to WIFA's policies, however,
the subrecipients are still responsible for providing adequate on-site
inspection and engineering review to determine acceptability of the
work and contract compliance.
Under the second method, WIFA officials rely on subrecipients to self-
certify that contractors adhere to Recovery Act requirements,
including the Recovery Act's Davis-Bacon wage rates and Buy American
provisions. According to WIFA officials, subrecipients are required to
certify in their project applications and loan documents that they
understand their responsibilities for complying with Recovery Act
requirements. Further, the officials said they also informed
subrecipients that they must maintain all documentation used to meet
these requirements at the project site for potential EPA audits or
other inspections. WIFA provided subrecipients written guidance on the
Davis-Bacon wage rates and Buy American provisions for subrecipients
and contractors, and EPA trained them through in-state seminars and
Webcasts.
We found a shortcoming in these methods, however. For example, the on-
site project observations, which are triggered by a project's schedule
for drawing down funds, were not always completed when expected
because projects did not draw funds at the same rate construction was
completed. We found projects at Mesa and Eloy, which were completed or
nearly completed, and yet had not been inspected because they had not
drawn 50 percent of their loan from WIFA. When we discussed this with
WIFA officials, they said that in their review of documentation, they
had identified two other projects that had already been completed
without any funds being drawn.
A mid-point on-site project observation visit was especially critical
for Eloy, where we found the contractor had installed some water
meters that were not made in the United States. We brought this to the
attention of Eloy city officials, who assessed how extensive the
problem was and found more than 100 meters that needed to be replaced
with American-made products at the contractor's expense. WIFA
immediately sent an alert to all subrecipients to make them aware of
potential problems with water meters. In the cases above, WIFA did not
have a working "trigger" to let it know that these projects were
nearly complete and to require an inspection for compliance with
Recovery Act provisions and other loan requirements.
WIFA Is Taking Actions to Strengthen Its Monitoring Efforts:
In our discussions with WIFA officials, they recognized the need to
take immediate actions to strengthen their monitoring program because
of weaknesses in their existing processes. The officials also
acknowledged that subrecipients' self-certification cannot always be
relied on and that they will need to perform more detailed checks when
conducting their inspections. Previously, according to these
officials, staff had been spot-checking projects and borrowers'
certifications of Recovery Act requirements but not reviewing the
documentation to support those requirements.
On March 11, 2010, EPA provided Arizona an inspection checklist to
assist in evaluating subrecipients' compliance with Recovery Act
requirements during WIFA on-site reviews or other inspections. WIFA
forwarded the checklist to all subrecipients and scheduled site visits
to familiarize the subrecipients with the new checklist requirements.
A senior loan officer is also assessing all 46 projects against the
new checklist through June. Furthermore, although EPA officials told
us that using this checklist is voluntary, WIFA's executive director
is making it mandatory and has revised its monitoring process so that
inspectors will use the checklist during on-site project observations.
To address the issue of subrecipients not drawing down their funds in
a timely manner, the executive director has begun contacting project
officials. The WIFA officials said they were surprised that
subrecipients were not approaching them earlier to draw on their
Recovery Act funding since the subrecipients had to pay their
contractor invoices and would soon be paying interest on their WIFA
loans. Further, according to these officials, with a bond issue
approaching, they needed to have a general idea of their expected cash
flow so that they could determine their bond request.[Footnote 15]
While the steps WIFA has taken to strengthen its monitoring of
Recovery Act funds appear to address the issues we identified, because
these monitoring changes are still new, it was too early for us to
evaluate their effectiveness.
All Arizona Public Housing Agencies That Received Funds Have Obligated
Them, but Monitoring Requirements Could Pose Workload Capacity
Challenges:
Of the 25 public housing agencies in Arizona, 15 collectively received
$12.1 million in Public Housing Capital Fund formula grants under the
Recovery Act. These grant funds were provided to the agencies to
improve the physical condition of their properties. As of March 17,
2010, the recipient public housing agencies had obligated 100 percent
of the $12.1 million. Also, 13 of the recipient agencies had drawn
down a cumulative total of almost $6.6 million from the obligated
funds, as of May 1, 2010 (see figure 3). We visited five housing
agencies to determine the progress of their projects: the Flagstaff,
Nogales, Pinal County, and South Tucson Housing Authorities and the
Tucson Housing and Community Development Department.
Figure 3: Percentage of Public Housing Capital Fund Formula Grants
Allocated by HUD That Have Been Obligated and Drawn Down in Arizona as
of May 1, 2010:
[Refer to PDF for image: pie-charts and horizontal bar graph]
Funds obligated by HUD: 100% ($12,068,449); Funds obligated by public
housing agencies: 100% ($12,068,449); Funds drawn down by public
housing agencies: 54.5% ($6,580,319).
Number of public housing agencies:
Were allocated funds: 15;
Obligated 100% of funds: 15;
Have drawn down funds: 13.
Source: GAO analysis of data from HUD's Electronic Line of Credit
Control System.
[End of figure]
Agencies Met Deadline for Obligating Funds after HUD Assisted Two
Troubled Housing Agencies:
The Recovery Act requires that housing agencies obligate 100 percent
of their funds within 1 year from when the funds become available; all
15 housing agencies met the March 17, 2010, deadline. However, the HUD
field office worked extensively with the state's two troubled housing
agencies, Eloy and South Tucson, to obligate their funds in time.
Under the Public Housing Assessment System,[Footnote 16] troubled
agencies are required to comply with a memorandum of agreement to
resolve identified deficiencies by certain target dates. According to
officials in the HUD field office, Eloy has been designated a troubled
housing agency for more than 4 years due to long-standing management
capacity problems, while South Tucson has been designated a troubled
housing agency for the past 3 years because their HUD-mandated annual
audits--which are included as part of the city's audit--have been
late. [Footnote 17] Further, any troubled housing agency eligible to
receive Recovery Act capital fund formula grants was evaluated to
determine its level of risk, and both Eloy and South Tucson were
classified as medium risk. In accordance with its monitoring strategy,
HUD required its field office staff to review and approve all award
documents--such as solicitations, contracts, or board resolutions,
where applicable--prior to the troubled housing agency soliciting bids
for any work, obligating Recovery Act funds, or requesting to draw
down funds. [Footnote 18] In addition, a team composed of one HUD
field office staff member and three expert level staff members from
other HUD field offices conducted remote and on-site reviews of the
two troubled housing agencies, providing technical assistance during
their reviews. As a result, both troubled housing agencies met the
obligation deadline in March.
Housing Agencies Are Completing Projects, and Officials Said Lower-
Than-Expected Bids Make Funds Go Further:
The housing agencies we visited were continuing to make progress with
Recovery Act funds. The agencies had completed paving projects in
Nogales; remodeling of unit interiors with new cabinets, hot water
heaters, and plumbing fixtures in Tucson; and window, appliance, and
furnace replacements in Flagstaff. Ongoing Recovery Act projects
include heating, ventilation, and air conditioning system upgrades or
replacements and interior rehabilitation work, such as kitchen and
bathroom renovations. Tucson's housing agency, for example, estimates
its project costs will range from $12,890 for new plumbing fixtures
and painting and patching of all interior walls at one single-family
house to more than $190,000 for installation of a new chilling tower
at a 74-unit building.
Officials from four of the five housing agencies we visited stated
that they received bids that were lower than expected in part due to
economic conditions. Contractors have little work, so they are
submitting lower bids in order to have projects and keep their staff
employed. As a result, housing agencies were able to add projects
eligible for Recovery Act funds before the obligation deadline. For
example, the Nogales Housing Authority was able to add projects to
install security fencing and cameras, replace lighting with more
efficient bulbs in more than 200 units, and repave some damaged
parking lots, and the Flagstaff Housing Authority was able to include
window replacements in its administrative building renovation.
HUD Field Office Staff Have Met Monitoring Requirements to Date but
Future Monitoring Could Test Staff Capacity:
In addition to issuing frequent reminders as the March 17, 2010,
obligation deadline approached, the HUD field office also completed
HUD-mandated on-site and remote reviews of each housing agency that
received the Recovery Act formula grants to determine if it was
administering the program in accordance with all applicable
requirements under the Recovery Act. Field office staff used
checklists that HUD headquarters had developed for these reviews of
both troubled and nontroubled housing agencies. All 15 housing
agencies received a remote review and 8 of those also received an on-
site review. According to officials in the HUD field office, these
systematic reviews across the state identified potential issues and
enabled HUD to provide better guidance to housing agencies on
procurement policies, among other topics. For example, the reviewers
found that many housing agencies needed to amend their written
procurement policies to facilitate the use of Recovery Act funds and
had questions about the Buy American provisions. Following the
reviews, HUD field office staff provided housing agencies written
summaries with deficiencies on noncompliant items and required the
housing agencies to submit documentation to resolve identified
problems.
Conducting these remote and on-site reviews, following up with housing
agency officials on the deficiencies, and continuing coordination
between the field office and the housing agencies have been
challenging. According to the officials, they would have preferred to
have all issues resolved before funds were fully obligated but were
unable to do so, and they did not know what impact this might have.
The officials told us that normally one person in their office
conducts all housing agency reviews. However, to manage the workload
required to meet Recovery Act requirements, the program coordinator
has involved six of the office's eight staff members in conducting and
following up on these reviews.
Addressing remaining issues from the reviews and new monitoring
requirements could pose challenges. For example, the checklists being
used to perform the reviews prior to the obligation deadline are more
detailed than past checklists and require HUD to collect more
documents than it normally requests. In addition, the officials said
that their headquarters is in the process of developing a new
monitoring strategy for after the obligation deadline. They anticipate
new checklists and the responsibility for reviewing expenditures, but
do not yet know the expected scope and depth of the review for Arizona
or its potential impact on their capacity to carry out those
requirements.
Despite Recovery Act Funds, Arizona has Reduced State Spending and
Asked Voters to Increase State's Sales Tax to Address Budget
Shortfalls:
A goal of the Recovery Act is to help stabilize states during the
current recession. According to officials in the Governor's office,
Recovery Act funds are supporting Arizona through difficult budget
deficits as economic forecasts by the state legislature's finance
advisory committee project Arizona state revenue will not return to
2007 levels until 2015.
For fiscal year 2010, Arizona faced a shortfall of about $3.3 billion
in its $9.7 billion budget. Recovery Act funds for fiscal 2010 totaled
$1.3 billion, reducing the shortfall to about $2 billion. The
legislature met in several special sessions and finally closed the
shortfall in March by significantly reducing spending, acquiring
additional debt, and "sweeping" surpluses from state funds.
According to a Joint Legislative Budget Committee analysis, Arizona
anticipates receiving $579.4 million of Recovery Act funds for
education and the increased Federal Medical Assistance Percentage for
Medicaid.[Footnote 19] These Recovery Act funds will help alleviate
strains on the state budget, but even with these funds the state faced
an estimated shortfall of $2.58 billion in fiscal year 2011.
Legislators enacted a balanced state budget through spending
reductions totaling about $876 million and new revenue of about $1.7
billion. The spending reductions were largely in education[Footnote
20] and health care,[Footnote 21] according to a Joint Legislative
Budget Committee staff analysis. The largest source of new revenue is
coming from a voter-approved temporary 1 cent increase to the state
sales tax, effective June 1, 2010. This tax is estimated to produce
approximately $918 million in new revenue in fiscal year 2011, and is
dedicated to health and human services, public safety , and basic
state aid for education.
Arizona's Governor Plans to Use SFSF Government Services Funds to
Continue Providing Some State Services in Corrections, as well as
Health and Children's Services:
The Recovery Act grants states' governors 18.2 percent of the state's
total SFSF allocation to use for public safety and other government
services-this grant is referred to as government services funds.
Arizona's Governor has committed approximately $110 million of
Arizona's $185 million in government services funds as of May 4, 2010,
to fund programs that had been reduced or eliminated in the
legislature's budget balancing efforts for fiscal years 2010 and 2011.
Of the $110 million, the Arizona's Governor has committed
approximately $43.3 million to the Arizona Department of Economic
Security for child protective services, adoption, autism services, and
home and community based services for children with developmental
disabilities. The state's funding for these programs was reduced or
eliminated in fiscal year 2010 and was not restored in the fiscal year
2011 enacted budget, according to Joint Legislative Budget Committee
staff analyses. Arizona Department of Economic Security officials
estimate this funding provides services for approximately 5,733
persons with developmental disabilities or autism. In addition, the
Governor has committed $11.6 million for state subsidies to community
health centers that provide medical and dental visits for the
uninsured. Funding for this program had been substantially reduced in
the fiscal year 2010 state budget, in addition to the reductions to
state heath services discussed above, and was not restored in the
enacted fiscal year 2011 budget, according to Joint Legislative Budget
Committee staff analyses. As of April 16, 2010, the state has drawn
down approximately $72.6 million of the SFSF government services
funds, including $50 million to partially fund 1,305 Arizona
Department of Corrections officers' salaries over five pay periods.
OER Plans to Monitor Subrecipients Use of Funds:
The SFSF government services funds will be monitored in Arizona by
OER. As requested, Arizona provided the U.S. Department of Education
with a draft monitoring plan for SFSF, including the government
services funds, on March 12, 2010, for review. Because much of the
government services funds are funding existing programs such as those
operated by the Arizona Department of Health Services and the Arizona
Department of Economic Security, OER plans to have those agencies
continue monitoring the subrecipients and has begun to review those
agencies' monitoring systems.
Recovery Act-Funded Projects in Mesa and Flagstaff Deliver Services as
well as Employ Local Workers and Are Expected to Provide Long-Term
Benefits:
With local governments in Arizona facing declining revenues and steep
budget reductions, we spoke with two cities, Mesa and Flagstaff, about
their receipt and use of Recovery Act funds. Budget managers we met
with in both cities said that they are facing budget shortfalls this
fiscal year due to declines in state funding for programs, tax
revenues, and fees. Figure 4 highlights demographic and budget
information about the two local governments we visited.
Figure 4: Demographic and Budget Profile for Flagstaff and Mesa:
[Refer to PDF for image: Illustrated table]
Population:
Flagstaff: 60,222;
Mesa: 463,552.
Unemployment rate:
Flagstaff: 5.8%;
Mesa: 8.0%.
General Fund revenues, FY10:
Flagstaff: $44,447,352;
Mesa: $328,040,000.
Change from budget, FY09:
Flagstaff: ($6,007,544);
Mesa: $23,844,475.
State-share revenue, FY10:
Flagstaff: $19,703,503;
Mesa: $140,346,000.
Change from FY09:
Flagstaff: ($2,928,893);
Mesa: ($27,031,000).
City employees, FY10:
Flagstaff: 819;
Mesa: 3,776.
Change from FY09:
Flagstaff: (268);
Mesa: (88).
Sources: GAO analysis of U.S. Census Bureau and U.S. Department of
Labor, Bureau of Labor Statistics (BLS), Local Area Unemployment
Statistics (LAUS) and cities of Mesa and Flagstaff.
Note: City population data are from the latest available estimate,
July 1, 2008. Unemployment rates are preliminary estimates for March
2010 and have not been seasonally adjusted. Rates are a percentage of
the labor force. Estimates are subject to revisions. In Mesa, the
General Fund includes selected federal grants. Also in Mesa, state
shared revenues are comprised of sales tax, income tax, and auto-in-
lieu (which go into the General Fund) and highway user tax and lottery
funds (which go into separate funds). In Flagstaff, state shared
revenues from sales and income taxes go into the General Fund while
shared revenues from highway user taxes go into the Highway User
Revenue Fund. City employees refer to budgeted authorized personnel,
both full-time equivalents and temporary workers.
[End of figure]
According to grant personnel in Mesa and Flagstaff, both cities
actively pursued Recovery Act funds. For example, Mesa secured the
services of a private firm to learn about grant opportunities. Table 4
presents the federal grants that both cities manage, including
Recovery Act funds.
Table 4: Federal Grants that Mesa and Flagstaff Manage, Including
Recovery Act Funds:
Local government: Recovery Act funds awarded (number of programs);
Mesa: $57,507,708 (14); Flagstaff: $4,038,194 (8).
Local government: All federal grants currently managed by the city,
including Recovery Act funds (budgeted); Mesa: $80,110,000; Flagstaff:
$10,761,479.
Source: Cities of Mesa and Flagstaff data.
Note: Data presented in this table reflect figures as of fiscal year
2010, ending June 30, 2010, in both cities. Funds awarded to tribal
nations are not included among Recovery Act funds.
[End of table]
Of the $57.5 million in Recovery Act funds awarded to Mesa, federal
agencies provided approximately $16.5 million directly, while the
remainder was awarded to state agencies, which in turn passed the
funds onto the city. Flagstaff received approximately $2.6 million in
Recovery Act funds directly from federal agencies and the remainder of
the $4 million through state agencies.
Both Cities Sought Funds to Support Short-Term Projects That Use
Partners to Deliver Services:
Both Mesa and Flagstaff sought funds to support short-term projects
that were of high priority but lacked resources. In both cities,
officials prepared a list of priority projects that were shovel ready,
would benefit from Recovery Act funding, and would be complete within
the term of the grant, with the exception of COPS funds,[Footnote 22]
which require an additional year of funding. The formula grants the
cities received support community development, emergency shelter,
health centers, capital improvements, transportation, and criminal
justice operations, while competitive grant awards fund hiring and
retention of law enforcement officers, construction of fire stations,
and hazardous substance cleanup. In partnership with local nonprofit
organizations, community organizations, and other government agencies,
both cities are delivering services to a wider population of the
community than would otherwise have been possible.
For example, in Mesa, the city used Recovery Act Community Development
Block Grant funds on a capital improvement project that would upgrade
a homeless shelter for men, as presented in figure 5.
Figure 5: City of Mesa's Use of Recovery Act Funds:
[Refer to PDF for image: photograph and accompanying information]
Living quarters at the shelter: a bed, shelf, closet rod, and quilt
for each resident.
Case in Point: Mesa‘s Community Development Block Grant:
New Leaf operates the East Valley Men‘s Shelter, an 84-bed
transitional facility serving homeless men. It has a 100 percent
occupancy rate and a 120-day tenancy policy”a homeless man that agrees
to a bed space in the facility will move out after 120 days. During
that period, he will agree to work, save 85 percent of his earnings,
and be drug and alcohol free. Recovery Act funds will support a
capital improvement”adding 10 more beds, a new kitchen, renovated and
expanded bathroom facilities, a physical fitness area, and a storage
area for supplies.
Source: A New Leaf.
[End of figure]
The one-time expansion will allow the facility to serve 30 more
homeless men every year. Mesa partnered with New Leaf, a nonprofit
human services agency, to upgrade the men's shelter, thereby serving
more of its homeless population than the city could reach alone.
Flagstaff officials also said that the city chose to use many grants
to support one-time investments. Figure 6 describes an example of the
Energy Efficiency and Conservation Block Grant awarded to the city to
support previously identified priorities through one-time energy and
water efficient improvements in Flagstaff homes.
Figure 6: City of Flagstaff's Use of Recovery Act Funds:
[Refer to PDF for image: photograph and accompanying information]
The grant will be used to fund retrofits that will result in reduced
energy consumption and water use in the home.
Case in Point: Flagstaff‘s Energy Efficiency and Conservation Block
Grant (EECBG):
Flagstaff residents can reduce energy and water consumption in their
homes under a residential energy efficiency program developed by the
city. The program offers basic home improvements performed by a
licensed contractor, such as insulation of a hot water heater line,
installation of a high efficiency water fixture, and air leak and duct
sealing, along with conservation education and consumption monitoring
and verification. Residents pay a fee, based on household income, for
the service performed in the home. Recovery Act funds will be
leveraged against these fees to subsidize the participants‘ costs and
increase the total number of retrofits provided. Ultimately, the
program aims to change the behavior of Flagstaff citizens to reduce
water and energy consumption in their homes by enabling residents to
track their energy usage.
Source: City of Flagstaff.
[End of figure]
According to officials, the program was designed in concert with
neighborhood-based groups, universities, vendors, and contractors and
developed in partnership with Coconino County to leverage funds,
staffing, advertising, and outreach. These partnerships allow the
program to reach more members of the community--including county
residents and selected neighborhood associations--than would have
otherwise been possible.
Recovery Act Funded Projects Employ Local Workers; Audits and
Performance Measurement Data Will Help to Demonstrate the Recovery
Act's Long-Term Benefits:
Officials in both Mesa and Flagstaff said that Recovery Act funds are
expected to create jobs and have long-term benefits. Over time, data
on these outcomes, as well as fiscal audits of the grants, will become
available. For example, Recovery Act Community Development Block Grant
funds--which will support the expansion of the East Valley Men's
Shelter in Mesa--are expected to create construction-related jobs in
fiscal year 2010. As for long-term benefits, the shelter's increased
capacity will serve more homeless men in their efforts to be fully
employed. Table 5 presents examples of expected short-and long-term
outcomes of Recovery Act supported programs.
Table 5: Examples of Expected Short-and Long-Term Outcomes of Recovery
Act Funded Programs:
City: Mesa;
Funds[A]: Community Development Block Grant; Short-term outcome
(number of jobs paid for with Recovery Act funds): 15; Long-term
outcome (expected): Increased number of beds and helping homeless men
that return to work.
City: Mesa;
Funds[A]: Fire station construction;
Short-term outcome (number of jobs paid for with Recovery Act funds):
160; Long-term outcome (expected): Reduced response times and
increased public safety.
City: Flagstaff;
Funds[A]: WIFA loan: Sinagua well construction[B]; Short-term outcome
(number of jobs paid for with Recovery Act funds): 8; Long-term
outcome (expected): Reliable drinking water source.
City: Flagstaff;
Funds[A]: Energy Efficiency and Conservation Block Grant; Short-term
outcome (number of jobs paid for with Recovery Act funds): 8-12; Long-
term outcome (expected): Energy and water resource savings, household
utility cost savings, and reduced greenhouse gas emissions.
Source: Cities of Mesa and Flagstaff data.
[A] Details of these Recovery Act funds are described in Appendix V.
[B] Details of the Water Infrastructure Finance Authority-funded
program are described on page AZ-15.
[End of table]
In addition, officials with the Flagstaff Sustainability Program
expect to see data on utility cost savings (dollars per year), energy
savings (kilowatt hours per year), and water savings (gallons per
year) once homes are retrofitted.[Footnote 23] With these data, the
city will be able to tell if the program is meeting intended targets
and if the program's educational material is working to result in
behavioral change of the city's population to conserve energy and
water.
Along with performance monitoring, Recovery Act funded projects are
subject to fiscal oversight during each city's annual Single Audit
[Footnote 24] of federal funds received. Audits are performed to check
that the systems in place, or internal controls, ensure that the funds
are spent properly. Most of the Recovery Act funds will be examined
during each city's fiscal year 2010 Single Audit, since most of the
funds were or will be expended during this year. The results of these
audits are expected by December 2010. Officials in both cities
reported that prior Single Audits did not find any problems in the
programs or with the entities that are using Recovery Act funds, so
the officials expect that the funds are a low risk for fraud, waste,
abuse, or mismanagement.
State and Local Agencies in Arizona Are Just Beginning to Audit
Recovery Act Funds Because Few Funds Were Spent in Fiscal Year 2009:
State agencies, local governments, and program managers monitor, to
varying degrees, the use of Recovery Act funds; however, formal
auditing of the funds is important to ensure that the funds are used
in compliance with the provisions of the Recovery Act and federal
agency requirements. We found that the 19 state and local agencies
[Footnote 25] we spoke with in Arizona that have oversight
responsibilities for Recovery Act funds will be undertaking a range of
activities, including both monitoring and auditing. However, because
most entities had expended only a fraction of Recovery Act funds in
2009, they have just started comprehensive audit activities in 2010.
The Single Audit is a significant tool used to oversee expenditures of
Recovery Act funds and ensure accountability of the federal awards. In
Arizona, the Auditor General will be responsible[Footnote 26] for
ensuring that Recovery Act funds granted to state agencies and
universities are included under the state's annual Single Audit. Each
community college and county has its own Single Audit, conducted
either by the Auditor General or by firms contracting with the Auditor
General. School districts will be responsible for their own Single
Audits, generally contracting with independent auditing firms to
conduct the audits. Officials in the Auditor General's office pointed
out that since only a fraction of Recovery Act funds were spent during
fiscal year 2009, most of the funds will be subject to the fiscal year
2010 audit.
In addition to the Single Audit, some local governments have conducted
audits specific to Recovery Act funds. For example, the Phoenix city
auditor reviewed departmental procedures for compiling data for its
Recovery Act recipient reporting and found that the procedures are in
place to ensure accuracy, completeness, and timeliness of the
reporting.[Footnote 27] The city auditor is currently undertaking
another audit that tests the accuracy and completeness of the data on
reported use of funds.
State agencies and local governments also monitor use of the Recovery
Act funds. For example, the OER has developed a plan to oversee state
agencies' use of Recovery Act funds and the Arizona Department of
Education has monitoring programs in place. We will continue to review
how agencies are safeguarding Recovery Act funds in our future work.
State Comments on This Summary:
We provided the Governor of Arizona with a draft of this appendix on
May 5, 2010. The Director of the Office of Economic Recovery responded
for the Governor on May 7 and 12, 2010. Also, on May 7, 2010, we
received technical comments from the State of Arizona Office of the
Auditor General. In general, the state agreed with our draft and
provided some clarifying information which we incorporated.
GAO Contacts:
Eileen Larence, (202) 512-6510 or larencee@gao.gov:
Thomas Brew, (206) 963-3371 or brewt@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Steven Calvo, Assistant
Director; Lisa Brownson, auditor-in-charge; Karyn Angulo; Rebecca
Bolnick; Roy Judy; Jeff Schmerling; and Radha Seshagiri made major
contributions to this report.
[End of section]
Footnotes:
[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009).
[2] Recipients of Recovery Act funds are required to report quarterly
on a number of measures, including the use of funds and estimates of
number of jobs created and retained. Recovery Act, div. A, § 1512. We
refer to the reports required by section 1512 of the Recovery Act as
recipient reports.
[3] States must obligate at least 85 percent of their ESEA Title I,
Part A funds by September 30, 2010, unless granted a waiver, and all
of their funds by September 30, 2011.
[4] LEAs and institutions of higher education must submit applications
for their allocations of the grants, detailing how the funds will be
used. The applications are reviewed by the department for IDEA, Part B
and ESEA Title I, Part A and by OER for SFSF to determine if the
intended uses are allowable and consistent with authorized purposes.
[5] The Recovery Act authorizes the Secretary of Education to waive
MOE requirements if a state demonstrates that it has funded education
at the same or greater percentage of total state revenues than it did
in the preceding year. Recovery Act, div. A, § 14012(c), 123 Stat. 286.
[6] The Recovery Act requires that laborers and mechanics employed by
contractors and subcontractors on projects funded by Recovery Act
funds be paid specified prevailing wages. Recovery Act, div. A, §
1606. In addition, none of the Recovery Act funds may be used for
construction, alteration, maintenance, or repair of public buildings
or work unless certain materials used are produced in the United
States, with certain exceptions. Recovery Act, div. A, § 1605.
[7] According to Title I Office staff, the timing of the on-site visit
affects which expenditure records they will review. For example, if
the visit was early in the school year, the records reviewed will be
from prior year reports whereas if the visit was toward the end of the
school year, they would review current expenditure records. In our
example, we assumed that the records reviewed during fiscal year 2010
visits cover fiscal year 2009 expenditures.
[8] As requested, Arizona provided the U.S. Department of Education
with a draft monitoring plan on March 12, 2010, for review.
[9] Teach for America is an organization whose mission is to eliminate
educational inequities by recruiting recent college graduates to teach
for 2 years in urban and rural public schools in low-income
communities. OER is funding this effort using SFSF government services
funds.
[10] These multi-jurisdictional task forces attempt to leverage state
and federal funds to increase the effectiveness of collaborative
enforcement efforts that address drug, gang, and violent crime
problems throughout Arizona.
[11] The Drug Abuse Resistance Education program is a program whose
mission is to provide children with the skills they need to live drug
and violence-free lives. To do this, the program establishes
relationships between students and law enforcement.
[12] The Recovery Act requires that at least 20 percent of funds
provided to each state's State Revolving Funds be used to fund
projects that include green infrastructure, water or energy efficiency
improvements, or other environmentally innovative activities. Recovery
Act, 123 Stat. 169.
[13] The Recovery Act requires states to use at least 50 percent of
their Recovery Act funds to provide additional subsidization in the
form of principal forgiveness, negative interest loans, or grants.
Recovery Act, 123 Stat. 169.
[14] Arizona was allocated a total of $55.3 million for its Drinking
Water SRF and $26.7 million for its Clean Water SRF, which included
approximately $267,000 in funding for water quality management
planning. States may set aside a portion of their SRF funds for
administrative expenses, technical assistance, and other limited
purposes.
[15] WIFA operates as a bank with the authority to issue bonds on
behalf of communities for basic water infrastructure projects. The
officials told us that they approach their bond rating agencies in
late May and that they will issue bonds in July. They need to know how
much of their loans will be drawn by their borrowers before this time
because the draws affect WIFA's collateral and cash flow in the coming
year.
[16] HUD developed the Public Housing Assessment System to evaluate
the overall condition of housing agencies and to measure performance
in major operational areas of the public housing program, including
the financial condition, management operations, and physical condition
of programs. Housing agencies that are deficient in one or more of
these areas are designated as troubled performers by HUD and are
statutorily subject to increased monitoring.
[17] According to officials at the HUD field office, both Eloy and
South Tucson are taking steps toward being removed from troubled
status, but they will remain on the list until removed by HUD
headquarters. The HUD Inspector General has closed out its findings
for Eloy's previous report on management capacity; however, the
remaining item from its Recovery Act report will not be closed out
until Eloy's contract is completed and expenditures drawn down. South
Tucson has arranged for an independent audit of its capital funds
program so that it can meet future HUD annual deadlines. Any housing
agency that was considered troubled when Recovery Act funding was
allocated is considered troubled for the purposes of the Act.
[18] The Recovery Act provided HUD the authority to decide whether to
provide troubled housing agencies with Recovery Act funds. Although
HUD determined that troubled housing agencies have a need for this
funding, it acknowledged that troubled housing agencies would require
increased monitoring and oversight in order to meet Recovery Act
requirements.
[19] 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. The rate
at which states are reimbursed for Medicaid service expenditures--the
Federal Medical Assistance Percentage--was increased temporarily by
the Recovery Act.
[20] According to Joint Legislative Budget Committee staff documents,
$43 million of these cuts were made to supplemental education
programs, such as support for gifted education and dropout prevention
programs. The remaining reductions in funding for education were made
to the state's formula funding provided to school districts to cover
basic maintenance and operations costs. These reductions leave Arizona
education funding above the 2006 level, as required under the Recovery
Act State Fiscal Stabilization Fund provisions.
[21] Arizona Medicaid officials reported that the reduction in program
eligibility contained in the fiscal year 2011 budget would become
effective on January 1, 2011. However, in May 2010, state legislation
was enacted that restores these eligibility reductions if federal
legislation to extend the temporary increase in the Federal Medical
Assistance Percentage is enacted, providing an additional $394 million
in Recovery Act funds for Arizona.
[22] Details of COPS funds are described on page AZ-11.
[23] Officials also noted that program outcomes are being studied by
the Brookings Institution.
[24] Single Audit is described in further detail on page AZ-29.
[25] Our review focused on the state and local efforts; however,
certain federal agencies--as well as inspectors general--also are
responsible for programs funded by the Recovery Act.
[26] For Arizona, the Auditor General serves as the state's auditor
for the Single Audit; some of the audits are performed by the Auditor
General directly while others are contracted out with independent
accounting firms.
[27] "American Recovery & Reinvestment Act Review, Citywide, Interim
Report, Project Number: 1100071," City of Phoenix, Arizona, November
2009.
[End of Appendix I]
Appendix II: California:
Overview:
This appendix summarizes GAO's work on the sixth of its bimonthly
reviews of American Recovery and Reinvestment Act (Recovery Act)
[Footnote 1] spending in California. The full report covering all of
GAO's work in 16 states and the District of Columbia may be found at
[hyperlink, http://www.gao.gov/recovery].
What We Did:
This appendix is based on GAO's work in California and provides a
general overview of (1) California's uses of Recovery Act funds for
selected programs, (see table 1), (2) the steps California agencies
are taking to ensure accountability for these funds, and (3) the
impacts that these funds have had on creating and retaining jobs. For
descriptions and requirements of the programs we covered, see appendix
XVIII of GAO-10-605SP.
Table 1: Description of Selected Recovery Act Programs:
Recovery Act program: Clean and Drinking Water State Revolving Funds
(SRF); Selected Recovery Act program funding levels and program
purposes:
* The Environmental Protection Agency (EPA) allocated about $439
million in Recovery Act capitalization grants for Clean and Drinking
Water SRF programs to California;
* These funds are to be used primarily for grants and loans to local
governments and other entities for wastewater and drinking-water
infrastructure projects and pollution projects intended to protect or
improve water quality.
Recovery Act program: COPS Hiring Recovery Program (CHRP); Selected
Recovery Act program funding levels and program purposes:
* The Department of Justice (DOJ) awarded approximately $211 million
to 109 law enforcement agencies in California under CHRP;
* CHRP is a competitive grant program that directly funds law
enforcement agencies for hiring, rehiring, or filling previously
unfunded career law enforcement positions and increasing community-
policing capacity and crime-prevention efforts.
Recovery Act program: Edward Byrne Memorial Justice Assistance Grants
(JAG); Selected Recovery Act program funding levels and program
purposes:
* DOJ awarded California with a total of about $225 million in JAG
Recovery Act funds;
* JAG is a federal grant program to state and local governments for
law enforcement and other criminal-justice activities, such as crime
prevention and domestic violence programs, corrections, drug
treatment, justice information-sharing initiatives, and victims'
services.
Recovery Act program: Weatherization Assistance Program; Selected
Recovery Act program funding levels and program purposes:
* The Department of Energy (DOE) allocated approximately $186 million
in total Recovery Act weatherization funding to California to be spent
over a 3-year period;
* This program enables low-income families to reduce their utility
bills by making long-term energy-efficiency improvements to their
homes by, for example, installing insulation or modernizing heating or
air conditioning equipment.
Recovery Act program: Workforce Investment Act of 1998 (WIA)
Dislocated Worker Program; Selected Recovery Act program funding
levels and program purposes:
* The U.S. Department of Labor (Labor) distributed about $222 million
of the over $1billion provided under the Recovery Act for WIA
Dislocated Worker Program activities to California;
* The purpose of the program is to provide employment and training
services to dislocated workers that increase their employment,
retention, skills, and earnings.
Source: GAO.
[End of table]
To determine how California used Recovery Act funds under selected
programs, we met with officials from state agencies in charge of
administering program funds. We also met with recipients and
subrecipients of Recovery Act funds in four local jurisdictions--the
City of Los Angeles (Los Angeles), the County of Sacramento
(Sacramento), the City and County of San Francisco (San Francisco),
and the City of San Diego (San Diego). For the Clean and Drinking
Water SRF programs, we selected five projects to conduct in-depth
reviews: two Clean Water SRF projects and three Drinking Water SRF
projects. These projects were chosen to capture a variety of
characteristics, including green and not-green projects and projects
serving disadvantaged and not-disadvantaged communities.[Footnote 2]
To assess the steps taken by California agencies to ensure
accountability for Recovery Act funds, we interviewed officials from
the California Recovery Task Force (Task Force), which was established
by the Governor in March 2009 and has overarching responsibility for
ensuring that the state's Recovery Act funds are spent efficiently and
effectively and are tracked and reported in a transparent manner. We
also met with California's Recovery Act Inspector General, the
California State Auditor, and selected state agencies to obtain
information or updates on their oversight and auditing activities. In
addition, we reviewed products, such as guidance memorandums, letters,
and reports, issued by these agencies related to the Recovery Act.
To assess the effect Recovery Act funds have had on job creation and
retention, we reviewed the information California recipients reported
on www.recovery.gov (Recovery.gov). As required by the Recovery Act,
recipients of Recovery Act funds must report quarterly on several
measures, including estimates of the jobs created or retained using
Recovery Act funds. To collect this information, the Office of
Management and Budget (OMB) and the Recovery Accountability and
Transparency Board created a nationwide data-collection system to
obtain data from recipients, www.federalreporting.gov
(FederalReporting.gov), and another site for the public to view and
download recipient reports, Recovery.gov. In addition, we met with the
Task Force to obtain current information on the state's experience in
meeting Recovery Act reporting requirements and preparing the state's
quarterly report ending March 31, 2010. We also followed up with the
California Department of Education (CDE) and 10 local educational
agencies (LEA) on issues related to estimating and reporting jobs that
we testified on before the Committee on Oversight and Government
Reform, House of Representatives, on March 5, 2010.[Footnote 3] Our
prior work has focused on three Recovery Act education programs with
significant funds being disbursed--the State Fiscal Stabilization Fund
(SFSF) and Recovery Act funds for Title I, Part A, of the Elementary
and Secondary Education Act of 1965, as amended (ESEA), and the
Individuals with Disabilities Education Act (IDEA), as amended, Part B.
What We Found:
California used Recovery Act funds to expand and preserve existing
services. Several programs we reviewed experienced significant
increases in funding as a result of the Recovery Act, which allowed
California to expand those programs and services. Specifically, the
Recovery Act more than doubled the program budgets for the JAG and
Weatherization Assistance Programs and allowed recipients to increase
capacity and provide additional services to California residents. This
additional funding made available by the Recovery Act has affected the
timing of spending for certain programs, as well as other factors such
as the implementation of new activities and requirements. For example,
since California received a significant increase in JAG funds through
the Recovery Act, the California Emergency Management Agency (Cal
EMA), the state agency administering these funds, needed time to
define new program activities before awarding funds to local
jurisdictions. Cal EMA officials told us that they wanted to carefully
plan for the use of these funds and as a result the agency did not
begin awarding funds until February 2010. Recovery Act funds have also
helped preserve services, but budgetary gaps remain at the state and
local level. The state used about $8 billion in Recovery Act funds to
help balance its state fiscal year 2009-2010 budget, but state
officials do not anticipate receiving this type of general budgetary
relief from Recovery Act funds in the 2010-2011 state general fund
budget, which faces a $21 billion shortfall. Local governments we met
with used Recovery Act funds to preserve services, despite overall
budgetary pressures. For instance, officials from two local
governments we visited--Los Angeles and San Francisco--stated that
CHRP grants were particularly useful in helping them maintain staffing
levels within their law enforcement workforce.
Since the Recovery Act was enacted in February 2009, California state
audit and oversight entities have taken various actions to oversee the
use of Recovery Act funds. In our previous reports on Recovery Act
implementation, we discussed the oversight roles and activities of key
entities in California for Recovery Act funds, including the Task
Force, the Recovery Act Inspector General, and the State Auditor.
State oversight entities, for example, have conducted risk assessments
of internal control systems, provided guidance to recipients of
Recovery Act funds, and issued reports highlighting concerns with the
use of Recovery Act funds. For example, as of May 2010, the State
Auditor has conducted reviews of 32 Recovery Act programs and
published nine products with the results of these reviews. State
agencies are also responsible for, and involved in, oversight and
audits of Recovery Act programs. For example, WRCB officials told us
it is using existing internal controls--which include regular contact
with subrecipients, reviews of reimbursement requests, and a
requirement for subrecipients to conduct financial statement audits--
and has also implemented new procedures, such as enhanced project
inspections using a Recovery Act checklist recently developed by EPA.
According to Recovery.gov, recipients of Recovery Act funds in
California reported funding over 70,000 full-time equivalents (FTE)
during the third reporting period; however, problems continue with
CDE's reporting and review of jobs data, calling the reliability of
California's FTE estimates into question. Of the FTEs reported, over
46,000 were education-related jobs funded by Recovery Act education
programs. However, as we reported in March 2010, LEAs awarded
contracts using Recovery Act funds and either did not report or
underreported vendor jobs associated with these contracts. For
example, after we brought this to the attention of one LEA, it
reported that its vendor jobs estimate increased from 12 to 79 when it
recalculated the jobs associated with all Recovery Act contracts. CDE,
as the prime recipient of Recovery Act education funds, has not issued
detailed guidance to LEAs on collecting and reporting vendor jobs.
According to CDE, it will provide clarifying guidance to LEAs when it
communicates with them regarding the next reporting period. In
addition, our review of 10 large LEAs found that CDE's data-
reliability strategies did not always identify questionable LEA FTE
estimates. Until CDE issues more specific guidance to LEAs on vendor
jobs and follows up with them to help ensure proper implementation; in
addition to revising its approach to assessing the reasonableness of
LEA job estimates, the reliability of California's overall jobs
reporting will continue be in question.
California Is Using Recovery Act Funds to Expand Programs and Preserve
Services:
Recovery Act Funds Allowed California to Expand Services for Some
Programs:
Overall, California expects to receive approximately $85 billion in
Recovery Act funds, including approximately $55 billion for
infrastructure and services such as public safety, education, and
workforce training.[Footnote 4] The Recovery Act provided increased
funding to existing programs such as JAG, Weatherization Assistance,
WIA Dislocated Worker, and Clean and Drinking Water SRF, which allowed
state and local agencies to expand services in these areas. For
instance:
* California state and local governments were allocated about $225
million in JAG Recovery Act funds,[Footnote 5] a significant increase
from the fiscal year 2008 JAG allocations of about $17 million. For
example, Los Angeles received over $11 million in JAG Recovery Act
funds. Los Angeles officials told us that the city was able to
dedicate the additional JAG funds to support gang-reduction efforts
and develop communications infrastructure. Table 2 shows how three
localities we visited are planning to use these funds.
Table 2: Planned Uses of JAG Recovery Act Funds in Los Angeles, San
Francisco, and San Diego:
Locality: Los Angeles;
State pass-through allocation: $375,000; Locality allocation[A]: $11.1
million; Planned uses:
* Support gang-reduction efforts;
* Develop regional communications infrastructure aimed at increasing
response capabilities of law enforcement and crisis personnel;
* Increase efforts of the Los Angeles Police Department's anti-human-
trafficking program through additional investigations to identify
individuals involved in human trafficking.
Locality: San Francisco;
State pass-through allocation: $2.4 million; Locality allocation[A]:
$3.0 million; Planned uses:
* Provide drug treatment to offenders;
* Raise awareness of human trafficking and increase the capacity of
law enforcement to identify victims;
* Develop a probation system using a risk-and needs-assessment
approach;
* Assess trends in drug-related crime and develop integrated
strategies to suppress and prevent drug-related crime;
* Support a regional approach to reducing methamphetamine production
and distribution;
* Provide a prosecutor to support complex cases;
* Provide intensive supervision of probationers;
* Implement a transitional housing voucher program for adults referred
through drug court;
* Expand case-management capacity to high-risk youth referred through
juvenile drug court;
* Provide outreach and crisis-response services;
* Provide support to traumatized individuals, family members, and
community members;
* Partially fund the development of a shared criminal justice case-
management system.
Locality: San Diego;
State pass-through allocation (dollars): n.a.[B]; Locality
allocation[A]: $3.1 million; Planned uses:
* Provide 4-year salaries and benefits for six positions, including a
crime intelligence analyst, a laboratory technician, a criminalist, a
latent print examiner, a probations officer and a management analyst;
* Procure communication equipment, such as cellular phone trackers and
a secondary communication path for patrol vehicles.
Source: GAO analysis of information provided by local law enforcement
entities in Los Angeles, San Francisco, and San Diego.
[A] Los Angeles was allocated $30.5 million in Recovery Act JAG funds.
Of these funds, the city passed approximately $16.4 million to 77
communities, including the cities of Beverly Hills, Long Beach, and
Pasadena, because it served as a fiscal agent for those communities.
Los Angeles used 10 percent (about $3.1 million) to administer the
grant among the 77 communities and $11.1 million for Recovery Act JAG
programs within Los Angeles. Similarly, San Diego received about $6.4
million in Recovery Act JAG funds through the direct local allocation
and retained $3.1 million for Recovery Act JAG programs while passing
along the remaining amount to the other communities for which it
served as fiscal agent.
[B] n.a. = not applicable. As of March 30, 2010, San Diego had not
been awarded any JAG state pass-through funds.
[End of table]
* California was allocated approximately $186 million in Recovery Act
funds to be spent over a 3-year period for weatherization in
California, a large increase over California's annually appropriated
weatherization program, which received about $14 million for fiscal
year 2009. The California Department of Community Services and
Development (CSD)--the state agency responsible for administering the
state's weatherization program--estimates that approximately 43,000
homes will be weatherized with Recovery Act funds. By June 2009,
California had received 50 percent--about $93 million--of its Recovery
Act allocation. CSD retained approximately $16 million to support
oversight, training, and other state activities and has begun
distributing the remaining $77 million throughout its existing network
of local weatherization service providers, including nonprofit
organizations and local governments. Figure 1 shows improvements being
made to a single-family home under the Weatherization Assistance
Program with Recovery Act funds.
Figure 1: Weatherization of a California Home Using Recovery Act Funds:
[Refer PDF for image: 4 photographs]
Measuring carbon monoxide levels at gas water heater in client's home;
Installing new wall heater in client's home;
Removing drywall, plaster and debris in client's home;
Conducting blower door test to determine shell leakage in client's
home.
Source: Pacific Asian Consortium in Employment.
[End of figure]
* California's WIA Dislocated Worker Program received about $222
million in Recovery Act funds, which increased its budget from $168
million in program year 2008-2009.[Footnote 6] We visited two local
workforce investment areas--the Los Angeles Community Development
Department and the San Diego Workforce Partnership, Inc.--both of
which provided more training programs using Recovery Act funds. Both
agencies also directly awarded contracts to institutions of higher
education, such as community colleges, under new authority provided by
the Recovery Act. For instance, the San Diego Workforce Partnership,
Inc. awarded contracts to 13 college campuses to provide training to
adult and dislocated workers. Table 3 provides an overview of the
planned uses of WIA Recovery Act funds for dislocated workers in the
two areas we visited.
Table 3: Planned Uses of WIA Dislocated Worker Program Recovery Act
Funds in Los Angeles and San Diego:
Locality: Los Angeles;
Allocation: $12,922,336;
Planned uses:
* Serve an increased amount of customers through WorkSource Centers;
* Vocational training;
* High-growth initiatives;
* Training through institutions of higher education.
Locality: San Diego;
Allocation: $8,967,124;
Planned uses:
* Job training, including high-growth and green jobs, much of which is
through institutions of higher education in healthcare, bio-
technology, green/clean technology jobs, or infrastructure
construction;
* Training to earn industry-recognized credentials through on-the-job
training, customized training, and individual training accounts.
Source: GAO analysis of Los Angeles Community Development Department
and the San Diego Workforce Partnership, Inc., information.
[End of table]
* The Clean and Drinking Water SRF programs also received a
significant increase in funding from prior years. EPA allocated
approximately $439 million in Recovery Act SRF capitalization grants
to California--about $280 million for the Clean Water SRF and about
$159 million for the Drinking Water SRF. For fiscal year 2008, the
base capitalization grants for the Clean and Drinking Water SRF
programs were about $49 million and $66 million, respectively.
Recovery Act Clean Water SRF funds have been awarded to 83
subrecipients for a total of 109 projects--such as replacing septic
systems with connections to the municipal sewer system--which WRCB
reports are intended to support the federal goal of fishable,
swimmable waters.[Footnote 7] Recovery Act Drinking Water SRF funds
have been awarded to 48 subrecipients for a total of 51 projects that,
according to CDPH, are aimed at helping water systems come into
compliance with federal regulations--thus reducing public health
exposure to contaminants--or install water meters to improve water
conservation in the state. Of the 160 Recovery Act-funded SRF projects
in California, 107 are serving recipients that had never received base
SRF funding in the past from the SRF program that awarded them
Recovery Act funds. We selected 5 of the 160 projects to review the
uses of Recovery Act funds and the expected benefits of these projects
(see table 4).
Table 4: Selected Recovery Act Clean and Drinking Water SRF Projects
and Their Potential Benefits:
Project name: San Jerardo Cooperative Water System Improvements;
Project type: Drinking Water; Estimated project cost: $5,049,030;
Recovery Act award: $2,743,530;
Project description: Install new well improvements, transmission
pipeline, and water storage tanks, and demolish existing wells;
Examples of potential benefits:
* Provide reliable source of safe drinking water;
* Replace existing wells from which untreated water contains excessive
levels of nitrates and trichoropropane;
* Save county expense of temporary filtration system.
Project name: City of Sacramento Water Meter Retrofit Project; Project
type: Drinking Water; Estimated project cost: $22,631,016; Recovery
Act award: $20,000,000;
Project description: Install 16,500 underground water meters; Examples
of potential benefits:
* Encourage water conservation by charging for actual use instead of
flat rate;
* Save energy because city will not need to treat and produce as much
water at its plants.
Project name: Herndon Town Water System Project; Project type:
Drinking Water; Estimated project cost: $619,980; Recovery Act award:
$619,978;
Project description: Replace private water system with connections to
city water system; Examples of potential benefits:
* Provide reliable source of safe drinking water;
* Replace existing 60-year-old, dilapidated, chloroform-contaminated
private water system.
Project name: Herndon Town and Cortland/Fountain Way Sewer Systems
Project; Project type: Clean Water; Estimated project cost: $999,468;
Recovery Act award: $865,386;
Project description: Replace individual private septic systems with
connections to city sewer system; Examples of potential benefits:
* Decrease level of nitrates degrading and contaminating regional
groundwater;
* Residents will become city rate payers eligible for city services
including maintenance and operation of sewer system.
Project name: Tomales Bay Wetland Restoration and Monitoring Program;
Project type: Clean Water; Estimated project cost: $2,010,500;
Recovery Act award: $807,129;
Project description: Integrate restoration of Giacomini Wetland with
water quality monitoring; Examples of potential benefits:
* Reduce pollutant loading to EPA-listed impaired water body;
* Improve water quality for contact and noncontact recreation.
Source: GAO analysis of information provided by Monterey County, the
City of Fresno, the City of Sacramento, and the Tomales Bay Watershed
Council Foundation.
[End of table]
For Certain Programs, Planning for Expanded Activities, Meeting
Recovery Act Requirements, and Prioritizing Available Funding Has
Impacted Spending Timelines:
One year later state and local recipients of Recovery Act funds for
certain programs had either not yet spent or expended only small
percentages of funds. In some cases, this was because significantly
increased funding levels allowed recipients to expand their
capacities, which necessitated additional planning before spending
funds. For example, the Recovery Act substantially increased JAG
funding, and as of January 31, 2010, Cal EMA, the state agency
responsible for administering JAG funds, had not awarded any of the
share of $135 million in JAG funds that is to be passed through the
state to localities, largely because it spent time developing two new
program activities. According to Cal EMA officials, following the
distribution of Recovery Act funds by DOJ, they spent about 3 months
defining program strategies for 2 of the 10 targeted funding areas:
the Intensive Probation Supervision Program and the Court Sanctioned
Offender Drug Treatment Program. These two new program activities
accounted for $90 million of the $135 million in state grant money
available to local jurisdictions. Cal EMA officials stated that they
took the time to initially plan these programs carefully as opposed to
quickly awarding funds and having to fix problems later. As a result,
applications for these funds were not accepted by Cal EMA until the
end of October 2009 and, Cal EMA did not begin awarding funds to local
jurisdictions until February 2010. The State Auditor recently raised
concerns about the pace of awards by Cal EMA noting that as of
February 22, 2010 only 4 subgrants had been awarded.[Footnote 8] Cal
EMA subsequently reported that, as of March 11, 2010, it had awarded
204 of the 226 JAG Recovery Act grants it planned to award local
jurisdictions, for a total of about $117 million of the $135 million.
Cal EMA officials told us that they anticipate JAG Recovery Act funds
will be expended in 2 years, well before the 4 year spending period
ends.
In addition to planning for new activities, we also found that the
state recipient for weatherization funds, CSD, took steps to ensure
compliance with Recovery Act requirements before spending funds. As we
previously reported, Labor determined the state's prevailing wage
rates on September 3, 2009, or almost 3 months after CSD received
funds from DOE. In addition, CSD requires service providers to adopt
an amendment to their Recovery Act weatherization contracts to ensure
that they comply with Recovery Act requirements, including certifying
that they comply with Davis-Bacon provisions, before providing
Recovery Act funds to them to weatherize homes. In February 2010, the
State Auditor raised concerns about CSD's delays in weatherizing homes
and management of the funds.[Footnote 9] Our prior work has also
highlighted delays with the program. Since our last report, CSD
reported that a total of 2,934 homes in California, as of March 31,
2010, had been weatherized with Recovery Act funds, or approximately
75 percent of the 3,912 homes targeted for the first quarter of the
2010 calendar year. We plan to continue to follow California's
progress in using Recovery Act weatherization funds, including CSD's
progress in ensuring service areas have providers in place to continue
weatherizing homes and that prevailing wage rates and other Recovery
Act requirements are instituted.
Lastly, for programs such as the WIA Dislocated Worker Program,
concurrent spending timelines for regular and Recovery Act program
funds have affected when recipients decided to use Recovery Act funds.
Officials from the Employment Development Department (EDD), the state
agency administering WIA funds, noted that as of December 31, 2009,
about 59 percent of the Recovery Act WIA Dislocated Worker funds
allocated to localities had been obligated ($78 million of the total
$133 million allotted) and 23 percent of the funds ($31 million) had
been expended. These officials told us that some local Workforce
Investment Boards (WIB) had yet to spend about 90 percent of their WIA
Dislocated Worker Recovery Act funds, including Los Angeles (91
percent unspent). According to EDD officials, many local WIBs have
been spending their regular program funding before Recovery Act funds
or have been spending the funds concurrently without necessarily
giving priority to Recovery Act funds. Regular WIA formula funds and
WIA Recovery Act funds are both available for expenditure for the same
time period--3 program years for the state and 2 program years for
local areas. As of March 31, 2010, the two areas we visited, Los
Angeles and San Diego, continued to obligate and spend Recovery Act
funds. Los Angeles obligated 93 percent of its allocation (about $12
million) and spent 19 percent ($2.4 million); and San Diego obligated
75 percent (about $6.7 million) and spent 31 percent ($2.8 million).
Both expect to expend 100 percent of their WIA Recovery Act funds
before the June 30, 2011 deadline.
While Budgetary Problems Persist at the State and Local Levels,
Recovery Act Funds Have Helped Preserve Services:
In fiscal year 2009-2010, California used Recovery Act funds to help
balance the state budget and to continue to provide services that may
have otherwise experienced large cuts.[Footnote 10] As discussed in
our prior reports, a portion of the state's Recovery Act funds--over
$8 billion--was used to help balance its fiscal year 2009-2010 budget,
when the state faced a nearly $60 billion budget gap. The fiscal
budget relief provided by Recovery Act funds to the state primarily
came from an increase in the Medicaid Federal Medical Assistance
Percentage (FMAP) that freed up state funds and over $5 billion in
SFSF funds made available in part to help stabilize budgets by
minimizing cuts in education and other government services.
California's current long-term fiscal prospects remain of concern. In
November 2009, the Legislative Analyst's Office (LAO) estimated the
size of the 2009-2010 and 2010-2011 budget shortfall to be about $21
billion.[Footnote 11] According to state officials, they do not
anticipate receiving the same level of budgetary relief as a result of
Recovery Act funds in the 2010-2011 state general fund budget as it
did for the current fiscal year.
Overall, officials we met with from four local governments--Los
Angeles, Sacramento, San Diego, and San Francisco--reported that
Recovery Act funds have helped to preserve services, but they still
need to address budget deficits for the remainder of fiscal year 2010
and next fiscal year. Officials in the localities we visited told us
that they continue to face budgetary problems due to declines in state
revenue and other local revenue sources such as sales and gas taxes
and other fees. For example, San Francisco officials told us that they
recently closed a deficit of about $53 million in fiscal year 2010,
and face an estimated budget shortfall of approximately $483 million
in fiscal year 2011. Los Angeles officials also told us that they
expect the dire budget situation--a deficit of $220 million for the
remainder of fiscal year 2010 and a projected deficit of $485 million
for fiscal year 2011--to continue if structural changes to the city's
operations do not occur. Los Angeles officials noted that the city has
outlined a 3-year plan to address the deficit, which includes sound
fiscal management, a focus on core services such as public works and
safety, and exploring public-private partnerships. (Figure 2
highlights selected information about the four local governments.)
Figure 2: Information about Los Angeles, Sacramento, San Diego, and
San Francisco:
[Refer to PDF for image: illustration and accompanying information]
Locality: Los Angeles;
Estimated population (2008): 3,833,995; Unemployment rate, March 2010
(percent): 13.5%; Budget fiscal year 2010 (dollars in billions): $6.9;
Locality type: Metropolitan city.
Locality: Sacramento;
Estimated population (2008): 1,386,469; Unemployment rate, March 2010
(percent): 13.1%; Budget fiscal year 2010 (dollars in billions): $4.3;
Locality type: County.
Locality: San Diego;
Estimated population (2008): 1,279,329; Unemployment rate, March 2010
(percent): 11.0%; Budget fiscal year 2010 (dollars in billions): $2.9;
Locality type: Metropolitan city.
Locality: San Francisco;
Estimated population (2008): 808,976; Unemployment rate, March 2010
(percent): 10.3%; Budget fiscal year 2010 (dollars in billions): $6.6;
Locality type: City and County.
Sources: U.S. Census Bureau and U.S. Department of Labor (demographic
information); City of Los Angeles, County of Sacramento,City of San
Diego, and City and County of San Francisco (funding information); and
Map Resources (map); and GAO.
Note: Population data are from 2008. Unemployment rates are
preliminary estimates for March 2010 and have not been seasonally
adjusted. Rates are a percentage of the labor force. Estimates are
subject to revision.
[End of figure]
Recovery Act grants have helped local governments maintain services
despite budget cuts. For example, officials in two of the local
governments we visited--Los Angeles and San Francisco--told us that
CHRP funds helped them maintain law enforcement services.[Footnote 12]
In Los Angeles, police department officials told us that cuts were
being made across-the-board to address the city's budget deficit--
public safety represents about 70 percent of the city's budget, which
includes police, fire, and animal control. These officials stated that
the department was facing a budget deficit of about $84 million with a
hiring freeze for civilian personnel, and the receipt of approximately
$16 million in CHRP funds helped mitigate the difficult budget
situation. In particular, CHRP funds helped Los Angeles to hire 50 new
officers, which would not have been funded this fiscal year without
Recovery Act funds. San Francisco was also awarded about $16 million
in CHRP funds to help maintain its law enforcement workforce by hiring
50 new officers to fill vacancies caused by retirements and general
attrition. Officials from the San Francisco Police Department said
that without Recovery Act funds their department would not have been
able to maintain the size of its workforce due to the local budget
situation.
For all of the local governments we visited, officials reported that
Recovery Act grants helped to fund existing programs. For example, San
Diego officials reported that the city had been awarded about $40
million in Recovery Act grants including funding to continue the
city's energy-efficiency improvement efforts. Table 5 shows the types
of on-going programs funded by Recovery Act grants awarded to the four
localities we visited.
Table 5: Amount and Types of Recovery Act Grants Awarded to Selected
Local Governments as of March 31, 2010:
Local government: Los Angeles;
Amount of Recovery Act grants awarded (dollars in millions): $596;
Types of programs funded: Anticrime programs, community development
projects, energy-efficiency projects, homelessness and foreclosure
relief, purchases of buses, and public housing rehabilitation.
Local government: Sacramento;
Amount of Recovery Act grants awarded (dollars in millions): $88;
Types of programs funded: Law enforcement programs such as gang
suppression and prevention of Internet crimes against children, energy-
efficiency improvements, and airport security improvements.
Local government: San Diego;
Amount of Recovery Act grants awarded (dollars in millions): $40;
Types of programs funded: Community development projects, homelessness
prevention programs, energy-efficiency improvements, and law
enforcement.
Local government: San Francisco;
Amount of Recovery Act grants awarded (dollars in millions): $437;
Types of programs funded: Community development projects, workforce
stabilization programs, improvements to local hospitals, energy-
efficiency improvements, public works projects, and airport
improvements.
Source: GAO analysis of information from the City of Los Angeles, the
County of Sacramento, the City of San Diego, and the City and County
of San Francisco.
Note: Funding awards include both Recovery Act formula and competitive
grants directly awarded to localities.
[End of table]
Various State Entities Are Conducting Oversight Activities to Help
Ensure Appropriate Use of Recovery Act Funds:
As California gained more experience in implementing the Recovery Act
during the past year, state oversight entities have taken actions to
evaluate and update controls and guidance related to Recovery Act
funds. For example, the Task Force prepared and issued more than 30
Recovery Act Bulletins to provide instructions and guidelines to state
agencies receiving Recovery Act funds, on topics ranging from Recovery
Act recipient reporting requirements to appropriate cash-management
practices. The California Recovery Act Inspector General conducted
several reviews aimed at determining if departments or local agencies
properly accounted for and used Recovery Act funds in accordance with
Recovery Act requirements and applicable laws and regulations. In
addition, the Inspector General published an advisory on contractor
monitoring, which included suggested steps to ensure that contractors
perform in accordance with contract terms and to reduce the potential
of fraud. The Inspector General also coordinated seven fraud
prevention and detection training events throughout the state for
state and local agencies and the service-provider community, with
presentations from federal agencies on measures to avoid problems and
prevent fraud, waste, and abuse. Over 1,000 state and local agency
staff attended training events, which were also available through a
"Webinar."
As of May 2010, the State Auditor published nine letters or reports on
the results of early testing or preparedness reviews, or both,
conducted on 32 Recovery Act programs at 14 state departments that are
administering multiple Recovery Act programs. These audit reports
resulted in numerous recommendations to state agencies aimed at
improving oversight of Recovery Act funds. Table 6 provides a summary
of several of the State Auditor's findings related to Recovery Act
programs that we have reviewed. Additionally, the State Auditor
volunteered to participate in an OMB Single Audit Internal Control
project. One of the goals of the project is to help achieve more
timely communication of internal control deficiencies for higher-risk
Recovery Act programs so that corrective action can be taken. The
project is a collaborative effort between the states receiving
Recovery Act funds that volunteered to participate, their auditors,
and the federal government. Under the project's guidelines, audit
reports were to be presented to management 3 months sooner than the 9-
month time frame required by the Single Audit Act and OMB Circular No.
A-133 for Single Audits.[Footnote 13] Sixteen states volunteered for
the project, including California, whose auditors issued their interim
reports on internal control for selected major Recovery Act programs
by December 31, 2009 and a corrective action plan to the appropriate
federal agency by January 31, 2010.[Footnote 14]
Table 6: State Auditor Reviews of Selected Recovery Act Programs:
Recovery Act program: JAG;
Administering state agency: Cal EMA;
Selected State Auditor findings and recommendations: Cal EMA is
moderately prepared to administer its JAG Recovery Act award; Cal EMA
should take steps to promptly execute subgrant agreements; Cal EMA
should also plan its monitoring activities to ensure it meets Recovery
Act JAG program requirements; Cal EMA should develop procedures to
ensure reporting requirements are met.
Recovery Act program: Weatherization Assistance Program; Administering
state agency: CSD; Selected State Auditor findings and
recommendations: CSD needs to improve its controls over cash
management for the program; CSD should develop and implement the
necessary standards for performing weatherization activities and
develop a plan for monitoring subrecipients.
Recovery Act program: State Fiscal Stabilization Fund-Education
Stabilization Funds; Administering state agency: CDE; Selected State
Auditor findings and recommendations: CDE should implement adequate
controls to ensure interest is appropriately remitted to the federal
government.
Source: GAO analysis of information provided by the California State
Auditor.
[End of table]
California agency officials and internal auditors from state
departments that manage public safety, workforce, and environmental
programs, are engaged to various degrees in the oversight and auditing
of Recovery Act funds. State agencies we met are using existing
internal controls to monitor and oversee Recovery Act funds, but some
also implemented new procedures specifically for Recovery Act-funded
activities and projects. For instance, CDPH reported using existing
monitoring activities for all SRF projects, which includes on-site
inspections and reviewing reimbursement requests. In addition to
CDPH's normal protocols for overseeing SRF projects, CDPH officials
told us that new processes are in place for Recovery Act-funded
projects including establishing new staff positions utilizing
different administrative classifications for financial reviews of
contracts and claims, periodic reviews of subrecipients' construction
contracts, and additional staff added specifically to handle reporting
and tracking for Recovery Act projects. Table 7 provides an overview
of selected oversight and auditing activities of several of the
agencies administering programs we reviewed.
Table 7: Selected Oversight Activities by State Agencies:
State agency: Cal EMA;
Recovery Act program: JAG;
Oversight activities:
* Cal EMA plans to conduct extended-scope monitoring of approximately
300 of the nearly 1,500 active subrecipients of JAG state awards
passed through the state annually to local agencies;
* Cal EMA has developed a targeted compliance questionnaire and plans
to distribute it to a representative sample of subrecipients receiving
Recovery Act funds to help ensure compliance with Recovery Act
requirements. When fully staffed, the Monitoring Division has the
capacity to review up to 1,400 targeted compliance questionnaires
annually.
State agency: CDPH;
Recovery Act program: Drinking Water SRF; Oversight activities:
* CDPH is following existing monitoring activities for Recovery Act
projects. These activities include obtaining and compiling
subrecipient reports, on-site inspections, and reviewing
reimbursements;
* CDPH implemented new processes including Recovery Act site reviews
in addition to normal project inspections to ensure Recovery Act
requirements have been addressed, utilizing staff positions at
different administrative classifications for financial review of
contracts and claims, periodic reviews of subrecipients' construction
contracts, and additional staff added specifically to handle reporting
and tracking for Recovery Act projects.
State agency: EDD;
Recovery Act program: WIA Dislocated Worker Program; Oversight
activities:
* Each local Workforce Investment Board is visited annually and
reviewed for fiscal and program compliance. Visits include case
reviews and participant interviews;
* At the end of April 2010, EDD completed monitoring reviews of 46 of
the 49 Local Workforce Investment Areas, with the remaining 3 to be
completed in June 2010;
* EDD established separate ledger accounts and cost codes for Recovery
Act funds to ensure proper tracking and accountability.
State agency: WRCB;
Recovery Act program: Clean Water SRF; Oversight activities:
* WRCB is following existing oversight and internal control processes
for Recovery Act SRF projects including: communicating regularly with
subrecipients, reviewing reimbursement requests, and requiring
subrecipients to conduct financial statement audits and certify that
their projects operate correctly or meet performance targets;
* WRCB has implemented new monitoring activities including enhanced
project inspections using a Recovery Act checklist recently developed
by EPA, periodic site visits at various milestones, and review of key
documents such as facilities planning, design, and bid documents.
Source: GAO analysis of information provided by Cal EMA, CDPH, EDD,
and WRCB.
[End of table]
California Reported over 70,000 Jobs for the Third Recipient Report,
but Questions Remain about Education Job Estimates:
According to Recovery.gov, as of April 30, 2010 California recipients
reported funding 70,382 FTEs with Recovery Act funds during the third
quarterly reporting period, which covers the period January 1, 2010,
to March 31, 2010; however, problems identified with the reporting and
review of the jobs data by CDE call into question the reliability of
the data. Recipients are to report the total amount of Recovery Act
funds received, the amount of funds expended or obligated to projects
or activities, a detailed list of these projects or activities, and
estimated job numbers, among other things for any quarter in which
they receive Recovery Act funds directly from the federal government.
The Task Force established a centralized reporting system for Recovery
Act funds received through state agencies, while other recipients that
receive Recovery Act funds directly from federal agencies report
through the national database, FederalReporting.gov.[Footnote 15]
Figure 3 provides further details on the number of FTEs selected state
departments reported. According to the Task Force, it performs data
quality checks on information reported by state agencies every
quarter, such as identifying reports in which FTEs were reported with
no expenditures or instances in which expenditures divided by FTEs
yielded unreasonable costs per FTE. The Task Force works with state
agencies to correct any errors found by these data quality checks.
During the most recent reporting period, the Task Force migrated the
reporting tool it had been using to collect state agency data--the
California ARRA Accountability Tool (CAAT)--to a new platform to
better meet Recovery Act recipient reporting and other federal and
state requirements. Task Force officials stated that the new platform
allowed the state to collect additional information from recipients
and helped reduce human entry errors with features, such as
prepopulated pull-down menus and locks on data fields (e.g., D-U-N-S
numbers). According to Task Force officials, the third reporting
period, using the new platform, went more smoothly than prior periods.
Figure 3: FTEs Reported by California State Program Agencies as
Recipients of Recovery Act Funding as of April 30, 2010:
[Refer to PDF for image: pie-chart]
Department of Community Services and Development (1,141 FTEs): 1.6%;
Department of Transportation (1,516): 2.1%; Employment Development
Department (2,159): 3.1%; Other[A] (19,126): 27.2%; Department of
Education and Governor‘s Office of Planning and Research[B] (46,440):
66.0%.
Total FTEs reported: 70,382.
Source: Recovery.gov.
Notes: Totals may not add to 100 percent due to rounding.
[A] Other includes other state agencies, such as the California Tax
Credit Allocation Committee, CDPH, and WRCB, and recipients that
received Recovery Act funding directly from federal agencies.
[B] Estimates for the Department of Education and the Governor's
Office of Planning and Research were combined because the Office of
Planning and Research acts as the pass-through agency for education
funds under the SFSF.
[End of figure]
Concerns remain about the number of education-related jobs being
reported by CDE, in part, because some LEAs are underreporting vendor
jobs. As we reported on March 5, 2010, seven LEAs we met with awarded
contracts using Recovery Act funds. However, five of the LEAs either
did not report or underreported vendor jobs associated with these
contracts. For example, an official from one of these LEAs reported
that, for the second quarterly report, the number of vendor jobs they
reported increased from 12 to 79 when they recalculated their numbers
after they learned that job estimates needed to be collected from all
vendors awarded Recovery Act contracts.[Footnote 16] According to LEAs
we met with, they received reporting guidance from CDE, but did not
receive clear guidance on calculating and reporting vendor jobs funded
by the Recovery Act. Although CDE has issued several letters to LEAs
with reporting guidance--including stating that jobs counted should
include jobs created or retained by other entities such as sub-
awardees and vendors--and has posted these correspondences to its Web
page, LEAs we met with since our last report continue to be confused
by vendor reporting requirements. We met with one LEA that told us
that it was not aware of the requirement to report vendor jobs and
therefore did not report these jobs despite awarding Recovery Act
contracts to vendors for an estimated $3 million, many of which are
for services. According to officials from the LEA, they never received
specific guidance stating reporting vendor jobs was required, or any
guidance describing how to gather the information or what criteria to
use. Another LEA told us it did not report any jobs associated with
certain IDEA Recovery Act-funded contracts because, according to CDE
guidance, the contractors are considered subrecipients, not vendors,
and therefore the LEA thought the jobs were not required to be
reported. CDE officials stated that, while most of these contractors
would be considered subrecipients rather than vendors, the jobs funded
by them should be reported in either case.
CDE plans to issue additional guidance to LEAs on vendor jobs
reporting. In a letter to the House of Representatives Committee on
Oversight and Government Reform dated April 2, 2010, addressing our
concern on inconsistency of vendor jobs reporting, among other issues,
CDE noted that it will revise its guidance accordingly. CDE stated
that it will provide clarifying guidance when it communicates with
LEAs in May 2010 regarding the next reporting period. In particular,
CDE plans to include language specifying that all vendor jobs must be
reported, not just the jobs of vendors receiving more that $25,000.
[Footnote 17] It is important for CDE, as the prime recipient of
Recovery Act education funds, to review its existing guidance, provide
detailed information to LEAs on vendor jobs reporting prior to the
beginning of the next reporting cycle, and follow up with LEAs on the
proper implementation of its guidance to help ensure California's
overall job estimates are accurate.
Additionally, data reliability strategies used by CDE to review
information submitted by LEAs did not always identify questionable LEA
job estimates. According to CDE officials, they use a variety of data
checks to monitor the accuracy of the Recovery Act information
submitted by LEAs. These strategies included checking LEA jobs data
for reasonableness. For example, CDE reported that it compared the
number of FTEs reported by an LEA to the amount of the LEA's grant
award, using $50,000 as a reasonable amount to fund 1 FTE. According
to CDE, if questionable data were identified, CDE called LEAs to
follow up. However, when we reviewed data reported by several large
LEAs, we found that one LEA--that received over $35 million in
Recovery Act funds and expended over $15 million by the end of the
third reporting period--reported no teacher or administrative jobs.
According to officials from this LEA, although they used Recovery Act
funds for teacher and administrative jobs, they did not report these
jobs because they believed the state would have provided funding for
those jobs if the Recovery Act had not. Therefore, they concluded that
no jobs were created or retained, which is not consistent with OMB's
December 18, 2009 guidance that directs recipients to report the total
number of jobs that were funded in the quarter by the Recovery Act.
[Footnote 18] Subsequent to our meeting with the LEA, CDE officials
contacted the LEA to provide them with guidance. According to CDE
officials, they did not instruct the LEA to correct its jobs estimate
at that time, because the third-quarter reporting system had
closed.[Footnote 19] CDE advised the LEA to use the correct jobs
methodology for the fourth round of reporting and worked with the LEA
to correct the round three jobs data. However until CDE makes
appropriate changes to its data-reliability process, it will not be in
a position to identify this and other types of job estimate errors in
future reporting periods. One approach CDE could pursue would be to
review the reporting data and methodologies of the 10 largest LEAs,
which would account for a large portion of Recovery Act funding, and
could help CDE uncover systemic reporting problems. According to CDE,
it will continue to work on improving its review techniques, including
applying a data check to LEA vendor jobs and placing more focus on
data checks of its 10 largest LEAs.
Finally, during the third reporting cycle, CDE updated its second
quarterly report during the corrections period that ended on March 15,
2010, by instructing LEAs to use OMB revised guidance on calculating
FTEs for job estimates. As we reported in March 2010, CDE's job
estimates for the second quarter recipient-reporting cycle had not
been calculated using OMB's December 18, 2009, guidance. After the
correction period, CDE's FTE estimates for the second reporting period
increased from 49,887 to 50,973. Task Force officials did not report
any challenges with CDE's ability to obtain and update the job
estimates. In addition to the one LEA noted above, we met with four
other LEAs to discuss their job calculation process and none of them
reported difficulties understanding and implementing OMB's new
guidance to revise their second reporting period estimates for
nonvendor jobs.
State Comments on This Summary:
We provided the Governor of California with a draft of this appendix
on May 7, 2010.
In general, California state officials agreed with our draft and
provided some clarifying information, which we incorporated, as
appropriate.
GAO Contacts:
Linda Calbom, (206) 287-4809 or calboml@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Emily Eischen, Guillermo
Gonzalez, Richard Griswold, Susan Lawless, Gail Luna, Heather MacLeod,
Emmy Rhine, Eddie Uyekawa, and Lacy Vong made major contributions to
this report.
[End of section]
Footnotes:
[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009).
[2] The Recovery Act requires states to reserve at least 20 percent of
their capitalization grants under these programs to fund "green"
projects that address green infrastructure, water or energy-efficiency
improvements, or other environmentally-innovative activities. In
addition, both the State Water Resources Control Board (WRCB), which
administers the Clean Water SRF program, and the California Department
of Public Health (CDPH), which administers the Drinking Water SRF
program, define disadvantaged community as a community with an annual
median household income that is less than 80 percent of the statewide
median household income.
[3] GAO, Recovery Act: California's Use of Funds and Efforts to Ensure
Accountability, [hyperlink, http://www.gao.gov/products/GAO-10-467T]
(Washington, D.C.: Mar. 5, 2010).
[4] The other $30 billion in Recovery Act funds California expects to
receive goes directly to individuals and businesses for tax relief.
[5] Of the approximately $225 million in JAG Recovery Act funds, about
$135 million has been allocated to the state, part of which is passed
onto localities. The remaining amount, approximately $90 million, was
allocated directly to local governments. The minimum percentage of
Recovery Act JAG funds that the state of California is required to
pass through to local governments, referred to as "state pass-through
funds" in this appendix, is 67 percent.
[6] The Workforce Investment Act program operates on a program year
rather than a fiscal year basis. The program year for 2009 began on
July 1, 2009 and will end on June 30, 2010.
[7] In this report we use the word "project" to mean an assistance
agreement, that is, a loan or grant agreement made by the state SRF
program to a subrecipient for the purpose of a Recovery Act project.
[8] California State Auditor, Bureau of State Audits, California
Emergency Management Agency: Despite Receiving $136 Million in
Recovery Act Funds in June 2009, It Only Recently Began Awarding These
Funds and Lacks Plans to Monitor Their Use, Letter Report 2009-119.4
(Sacramento, Calif.: May 4, 2010). Findings and recommendations from
this review are described on page CA-16 of this appendix in table 6.
[9] California State Auditor, Bureau of State Audits, Department of
Community Services and Development: Delays by Federal and State
Agencies Have Stalled the Weatherization Program and Improvements Are
Needed to Properly Administer Recovery Act Funds, Letter Report 2009-
119.2 (Sacramento, Calif.: Feb. 2, 2010). In CSD's 60-day update to
the State Auditor, CSD reported that it had made considerable progress
since the audit was conducted.
[10] The California state government fiscal year is July 1 to June 30.
[11] Included in the estimated $21 billion budget shortfall is an
estimated $6.3 billion general fund deficit at the end of 2009-2010.
[12] While Sacramento and San Diego applied for CHRP grants, neither
locality was awarded a grant through DOJ's competitive grant process.
[13] Single Audits are prepared to meet the requirements of the Single
Audit Act, as amended, and provide a source of information on internal
control and compliance findings and the underlying causes and risks.
The Single Audit Act requires states, local governments, and nonprofit
organizations expending $500,000 or more in federal awards in a year
to obtain an audit in accordance with the requirements set forth in
the act.
[14] In addition to California, the following states volunteered to
participate in the project: Alaska, Colorado, Florida, Georgia,
Louisiana, Maine, Missouri, Nevada, North Carolina, Ohio, Oklahoma,
South Dakota, Tennessee, Texas, and Virginia.
[15] Through the Task Force's reporting system, 35 California state
agencies reported funding a total of over 53,000 FTEs during the third
quarterly reporting period.
[16] On March 5, 2010, we testified that some LEAs did not collect and
report job estimates from vendors with payments of less than $25,000
because they erroneously applied CDE's guidance on vendor
identification to determine which vendor jobs to report.
[17] Under OMB guidance, prime recipients are required to generate
estimates of job impact by directly collecting specific data from
subrecipients and vendors on jobs resulting from a sub-award. To the
maximum extent practicable, prime recipients are to collect
information from all subrecipients and vendors in order to generate
the most comprehensive and complete job impact numbers available. Job
estimates regarding vendors are to be limited to direct job impacts
and not include "indirect" or "induced" jobs.
[18] OMB, Memorandum M-10-08, Updated Guidance on the American
Recovery and Reinvestment Act--Data Quality, Non Reporting Recipients,
and Reporting of Job Estimates (Washington, D.C.: Dec. 18, 2009).
[19] Although the reporting deadline had passed, the nationwide data
system, FederalReporting.gov, was reopened for a period for
corrections--for the third reporting cycle the period is from May 3
through June 14, 2010.
[End of Appendix II]
Appendix III: Colorado:
Overview:
This appendix summarizes GAO's work on the sixth of its bimonthly
reviews of Colorado's spending under the American Recovery and
Reinvestment Act of 2009 (Recovery Act).[Footnote 1] The full report
covering all of GAO's work in 16 states and the District of Columbia
may be found at [hyperlink, http://www.gao.gov/recovery].
What We Did:
Our work in Colorado included reviewing the state's use of Recovery
Act funds and its experience reporting Recovery Act expenditures and
results to federal agencies under Office of Management and Budget
(OMB) guidance. We continued our review of several programs that we
have been reviewing on an ongoing basis, including the State Fiscal
Stabilization Fund (SFSF); Highway Infrastructure Investment;
Individuals with Disabilities Education Act, as amended, (IDEA) Part
B; and Elementary and Secondary Education Act of 1965, as amended,
(ESEA) Title I, Part A. We also added two new programs to our review--
the Clean Water and Drinking Water State Revolving Funds (SRF)--
because the state received a sizable amount of funding for these
programs and SRF projects have already been selected and are under
construction. For descriptions and requirements of the programs we
covered, see appendix XVIII of GAO-10-605SP.
As a result of past work determining that the state's system of
internal controls is largely decentralized, we continued our efforts
to understand state agencies' controls over Recovery Act funds. We
reviewed controls over the IDEA Part B, and ESEA Title I, Part A
programs, which are managed by the Colorado Department of Education
(CDE); the Clean Water and Drinking Water SRFs, which are managed
jointly by the Colorado Department of Public Health and Environment
(CDPHE), the Colorado Water Resources and Power Development Authority
(Authority), and the Department of Local Affairs; and the SFSF funds,
which are managed by the Office of the Governor. We also asked state
and local accountability organizations about their efforts to audit
and review Recovery Act programs in the state.
In addition to reviewing state programs, interviewing state officials,
and examining documents for these programs, we continued our visits to
local governments to better understand their use of and controls over
Recovery Act funds. All regions of Colorado are experiencing economic
stress. We chose to visit two local governments, in part because of
these localities' size, location, and unemployment rates.
Specifically, we selected the city of Fort Collins because it has an
unemployment rate lower than the state's average of 8.4 percent and it
is a small city in north central Colorado. We also selected Grand
Junction, a small city in western Colorado, because it has an
unemployment rate of 10.3 percent, higher than the state average.
What We Found:
State Fiscal Stabilization Fund. Colorado has targeted most of the
$760.2 million in SFSF funds it was allocated to programs that have
had significant reductions in state funding, in particular, higher
education and corrections. To date, most of the funds have been used
to pay for staff at the state's institutions of higher education (IHE)
and its corrections institutions. To receive the full amount of SFSF
funds, the state was required to meet a set of education reform
assurances and to gather certain data to show progress toward these
reform areas. Because the state has identified problems with the data
collection systems that CDE will use to gather the data, it may not
have adequate systems in place to efficiently gather and report this
data. The state's plan to update its data collection systems and
improve their efficiency hinges in part on the state receiving an
additional $400,000 in federal or private funds.
Highway Infrastructure Investment. As of the Recovery Act deadline of
March 2, 2010, the Federal Highway Administration (FHWA) had obligated
the state's apportionment in highway infrastructure funds. Colorado
was apportioned $403.9 million of Recovery Act highway funds, of which
$18.6 million was transferred from FHWA to the Federal Transit
Administration (FTA) for transit projects in the state. As of May 3,
2010, the state had been reimbursed $127.7 million for work on its
projects. The state has 102 projects for which bids have been
advertised, and out of these projects, 92 contracts had been awarded
as of March 31, 2010. The state has used the funds to replace seven
bridges; construct or reconstruct about 90 miles of road; and
resurface about 200 miles of highway.
Education programs. Spending of IDEA Part B, and ESEA Title I, Part A
funds by local educational agencies (LEA) in Colorado has increased
since we last reported in December 2009.[Footnote 2] As of April 1,
2010, Colorado had distributed 22 percent (more than $32.7 million) of
IDEA Part B program funds and 20 percent ($22 million) of ESEA Title
I, Part A funds to LEAs, as compared with 3 percent and 0.25 percent,
respectively, distributed as of November 13, 2009. As they have been
spending the Recovery Act funds, the LEAs are paying for teachers and
training, among other costs.
Clean Water and Drinking Water State Revolving Funds. Colorado is
using $32.3 million to fund drinking water projects and another $30.1
million to fund clean water projects throughout the state. A total of
34 water projects--22 drinking water projects and 12 clean water
projects--are expected to improve water quality and assist multiple
disadvantaged communities in the state. Eighteen of these projects are
considered "green" projects and are expected to lead to increased
water and energy efficiencies, largely through replacing leaky
distribution pipelines and installing more efficient drives to control
water processing at wastewater treatment plants. Colorado's SRF
programs met the Recovery Act deadline of having all projects under
contract by February 17, 2010, and exceeded it by having all projects
under construction by that date as well.
State and local use of Recovery Act funds. The state has used Recovery
Act funds to help balance its general fund budget after cutting $1.5
billion in expenditures in fiscal year 2010. As the funds run out in
fiscal year 2011, however, state officials said they face challenges
in managing the decline in funding. The two local governments we
visited, Fort Collins and Grand Junction, experienced different
degrees of assistance from the Recovery Act. Fort Collins received
$28.6 million in grants, which is primarily allowing it to continue
pursuing its energy efficiency goals. Grand Junction received $1.9
million, although it applied for $39.3 million in grants. Grand
Junction officials said that they thought they received limited
funding because grant applications requested unemployment data for
2007 to 2008, a period when the city's unemployment rate was
significantly lower than it was when it applied for the grants in 2009.
Recipient reporting. Colorado's Recovery Act recipients reported
roughly 10,300 jobs, by full-time equivalent (FTE) positions, paid for
with Recovery Act funds during January through March 2010. The state
reports centrally for state agencies, but not for local, private, or
other entities in the state.[Footnote 3] While we noted some
inconsistencies in the FTE figures for some of the agencies we
reviewed, state officials said that they have taken steps to improve
their data in subsequent rounds. However, officials are concerned that
continued changes to the recipient reporting process--specifically,
limiting the period for state review of data--will potentially
decrease the state's ability to ensure the quality of the data it
reports.
Accountability. In addition to our work reviewing Recovery Act funds,
the accountability community in Colorado has identified weaknesses in
internal controls over some Recovery Act programs in the state. In
particular, the State Auditor recently identified significant internal
control deficiencies at the Colorado Department of Human Services'
Colorado Child Care Assistance Program.[Footnote 4] Specifically, the
audit found errors on expenditure statements because the program
lacked adequate written procedures and supervisory review, and did not
provide adequate training. The department agreed with the results and
has taken steps to correct the deficiencies.
Colorado Is Using State Fiscal Stabilization Fund for Higher Education
and Corrections Staff, but May Not Have Adequate Systems to
Efficiently Report Education Reform Data:
The Recovery Act created the SFSF in part to help state and local
governments stabilize their budgets by minimizing budgetary cuts in
education, public safety, and other essential government services. In
Colorado, the state is using all of its education stabilization funds
for IHEs and most of its government services funds for the Department
of Corrections, both of which have seen significant reductions in
state funding. To more effectively manage and control the SFSF funds,
the Office of the Governor is developing internal controls, including
tracking these funds separately. CDE's existing data system may not be
adequate, however, to efficiently gather and report data on SFSF
education reform measures.
Colorado Is Using State Fiscal Stabilization Fund Primarily for Higher
Education and Corrections Staff:
Colorado has targeted the SFSF funds it was allocated primarily to
programs that have had significant reductions in state funding, in
particular higher education and corrections. The state was allocated a
total of $760.2 million in SFSF funds, $621.9 million of which are
education stabilization funds and $138.3 million of which are
government services funds. As we have previously reported, Colorado is
disbursing all of the SFSF education stabilization funds it is
receiving to its IHEs. It now plans to use the majority of its SFSF
government services funds for the Department of Corrections.
As of April 30, 2010, Colorado planned to disburse the $621.9 million
in SFSF education stabilization funds to its IHEs across 3 fiscal
years: $150.7 million in fiscal year 2009, $382.0 million in fiscal
year 2010, and the remaining $89.2 million in fiscal year 2011. The
funds are largely being used to pay for faculty at the state's IHEs.
Since we reported in December 2009, the state has learned of
additional reductions in fiscal year 2010 projected revenues and has
had to take further steps to decrease the fiscal year 2010 budget for
higher education. This increased the share of SFSF funds it had
planned to disburse in fiscal year 2010 by about $5 million, from $377
million to the current planned amount, $382 million.
Table 1 shows the planned uses of the $138.3 million in SFSF
government services funds allocated to the state. As of April 30,
2010, Colorado officials had allocated $113.6 million of the SFSF
government services funds to the Department of Corrections: $24.6
million in fiscal year 2009 and $89.0 million in fiscal year 2010.
These funds are largely being used to fund a portion of security and
housing staff responsible for supervising and managing offenders at
the state's 21 correctional institutions.
Table 1: Colorado's Planned Uses of SFSF Government Services Funds:
Public safety (Department of Corrections); Allocation: $113.6 million.
Elementary and secondary education;
Allocation: $8.1 million.
Life safety and economic capital construction[A]; Allocation: $6.7
million.
Recovery Act oversight administrative costs; Allocation: $6.3 million.
Other;
Allocation: $3.6 million.
Total;
Allocation: $138.3 million.
Source: GAO analysis of state data.
[A] Life safety construction is done to address urgent and critical
health and safety issues.
[End of table]
With the remaining government services funds, Colorado plans to fund
particular projects to repair state facilities with urgent or critical
health and safety issues, fund economic development in a rural part of
the state, and help the state fund education reform measures. While
state officials also set aside $6.3 million of government services
funds to cover expenses related to administering the Recovery Act,
these funds might be freed up for other uses if (1) the state is able
to fully, or even partially, recover administrative costs under its
supplemental statewide cost allocation plan for Recovery Act costs and
(2) actual administrative costs do not exceed projections.[Footnote 5]
Colorado has had difficulty recovering these costs from some federal
agencies, including the Department of Health and Human Services and
the Department of Education, in part because of federal limits on the
availability of funds for administrative purposes. As of April 30,
2010, according to state officials, Colorado has received
approximately $2.2 million of the $4.7 million it has calculated as
its statewide indirect costs over 3 years.[Footnote 6] State officials
also said that ultimately the state will come up short on recouping
administrative costs, and that having to use government services funds
to make up the difference will reduce the Governor's opportunities to
use them for other program needs, undermining some of their impact.
Governor's Office Is Developing Accountability Controls over SFSF
Funds, but State May Not Have Adequate Systems to Efficiently Report
Education Reform Data:
The Governor's office is responsible for managing and controlling
SFSF, which was a new program without existing controls at the time
the program was created. While the Governor's office staff have
subsequently developed new controls over these funds, including
tracking these funds separately and maintaining separation of duties
over funds, they have not yet implemented a monitoring plan for the
entities receiving the $476 million of education stabilization funds
and government services funds that had been expended as of March 31,
2010. According to state officials, most of the funds have gone to
uses with well-established financial reporting processes (paying for
staff at IHEs and the Department of Corrections). The Governor's
office submitted its proposed monitoring plan for these funds to
Education in the first week of March 2010. The officials said that
although Education had notified the states in August 2009 that they
would need to submit monitoring plans for review, Education did not
provide guidance on how to develop the monitoring plans until February
2010. According to state officials, the guidance would have been more
useful if it had been more specific and had been issued earlier. Given
that, as of April 30, 2010, Colorado had not received feedback on its
plan, state officials said that they were moving ahead with
implementing the plan.
As a condition of accepting SFSF funds, Colorado was required to meet
four education reform assurances and has until September 2011 to begin
reporting data that shows progress toward the assurances.[Footnote 7]
To measure performance against the four assurances, Education created
a set of data points, referred to as indicators and descriptors, which
the recipients of SFSF funds are required to submit. CDE is
responsible for collecting and reporting the SFSF indicators and
descriptors required by Education, even though the LEAs overseen by
CDE did not receive SFSF funds. Colorado developed a plan describing
its ability to collect and publicly report specific indicators and
descriptors. For the 11 indicators and descriptors the state currently
does not collect, the plan includes details on how it will gather the
information it needs in order to fulfill its commitments.
The efficiency of the state's data collection plan hinges in part on
the state receiving additional federal funding. A 2007 review of CDE's
data collection and reporting system highlighted problems that could
affect the efficiency of the state's collection and reporting of SFSF
data.[Footnote 8] The review revealed that CDE's data collection
process, consisting of a set of automated systems, is fragmented,
contains redundancies across data collection efforts, and does not
involve the stakeholders. While the reviewers said that the data
collection systems are working as designed and being maintained as
well as could be expected given the resources available, CDE officials
said that the process will not serve the state's future collection and
reporting needs. Without the infusion of new funds, CDE officials said
they will continue to use the current system for the department's data
collection efforts, despite recognizing the shortcomings of the
system. As the current process is not as efficient and effective as it
could be, it will take longer to collect the data, and further,
according to a CDE official, the quality of the reporting outputs may
suffer as a result of no new monies. With additional funding, the
development of a new data collection and reporting system could, among
other things, provide the framework for exchanging data between
separate systems that ensure data quality, with data quality checks
occurring at both the local and state levels, according to the 2007
data review report.
According to CDE officials, they are planning to develop a new data
collection and reporting system using a portion of Race to the Top
funds or State Longitudinal Data System grants, but the likelihood of
such funding is uncertain because these are competitive grants.
Without this funding, the state may require additional investments to
meet its planned schedules and the September 2011 deadline. CDE
estimated it will cost approximately $1.3 million to collect data and
report on two of the indicators: developing an educator identification
system that will link student data to teachers and providing teacher
impact reports on student achievement on reading/language arts and
mathematics assessments. According to CDE officials, the state already
has $900,000 of the total cost on hand. However, the remaining funding
is anticipated to come from either a State Longitudinal Data System
grant or a Race to the Top grant, both competitive grants. In March
2010, the state was notified that it was not selected as a first-round
recipient for Race to the Top funds. CDE officials said the state is
planning on reapplying for round two of Race to the Top in June, and
is currently awaiting word on approval of the State Longitudinal Data
System grant. According to officials, if the federal funding does not
materialize, the state would likely turn to private sources to make up
the gap, a course of action that may be difficult in the current
economic climate. Whether or not the state receives federal funding,
it is important that the state's data systems be integrated and
capable of efficiently and effectively providing useful data.
Colorado Is Using Highway Infrastructure Investment Funds to Improve
Roads and Bridges:
Colorado was apportioned more than $403.9 million of Recovery Act
highway infrastructure investment funds and is using those funds for
various projects throughout the state, including highway resurfacing,
construction and reconstruction, and bridge replacements. The federal
government obligated the state's apportionment by the 1-year deadline,
March 2, 2010.[Footnote 9] Between March 2 and April 26, 2010, FHWA
deobligated $5.5 million of these funds as the state continued to
award contracts at a lower price than the state's cost estimate. As of
May 3, 2010, FHWA had reimbursed the state almost $127.7 million. The
state has 102 projects for which bids have been advertised, and out of
these projects, 92 contracts had been awarded as of March 31, 2010.
[Footnote 10] Table 2 shows the status of Recovery Act efforts by the
Colorado Department of Transportation (CDOT).
Table 2: Status of CDOT's Use of Recovery Act Funds for Highway
Infrastructure Projects as of March 31, 2010:
Planned: 102;
Funded: 102;
Advertised for bid: 102;
Awarded contracts: 92;
Construction under way: 50;
Completed: 18.
Source: GAO analysis of CDOT data.
[End of table]
According to Colorado highway officials, the Recovery Act has and is
expected to result in specific highway infrastructure improvements,
several of which are readily measurable and others that are less easy
to quantify. While the Recovery Act funds were a much-needed
supplement to the state's 2009 construction program and stimulated its
overall construction program (increasing its construction budget from
about $306 million to more than $691 million), officials said the
funds did not, for the most part, enable CDOT to address underfunded
programs or systems that are experiencing deteriorating
infrastructure. CDOT officials said they use a statewide measure to
assess the quality of roads and typically do not connect individual
projects or funding sources to long term system-wide metrics. For this
reason, they said that they do not typically collect project-specific
data on performance, but were able to identify certain metrics that
could be tracked against Recovery Act funded projects within the
existing system or with modifications to its existing software. As of
April 30, 2010, CDOT officials said the Recovery Act partially or
fully funded highway projects that constructed or reconstructed about
90 miles of road, resurfaced about 200 miles of highway, and replaced
seven bridges that were rated in poor or fair condition. CDOT
officials explained that it would be difficult to identify system-wide
benefits of Recovery Act funding, but estimated that about 2 percent
of the state's roads were improved (measured by centerline miles) and
about 0.16 percent of bridges (measured by deck area) repaired to good
or fair condition.
Furthermore, in Colorado, CDOT has realized $45.9 million in savings,
including $39 million resulting from lower than anticipated contract
costs. Contract award cost savings generally resulted from
construction contracts being awarded for amounts less than the
engineers' estimates that were used to obligate funds, while the
remaining savings were the result of other project related savings.
According to Colorado officials, Recovery Act funding is currently the
largest source of money for heavy highway construction in the state
and 48 percent of the bids for Recovery Act projects were more than l0
percent lower than the state engineers' estimates. They said that
because of the state of the economy, Colorado is seeing a larger
number of contractors submitting bids for these projects, and as a
result of this increased competition, bids are coming in lower than
anticipated. This situation has resulted in CDOT being able to award
contracts at costs lower than the engineers' estimates. CDOT applied
the total savings, including the contract award savings, to 23
projects, including existing and new projects. To increase
transparency of information related to how project savings are used,
OMB recently issued guidance instructing agencies to report on their
Web sites how those funds are used. Although they had not yet done so,
CDOT officials said they could easily provide such information on
their Web site, an action we encourage.
Colorado's Governor recently certified a new maintenance-of-effort
amount--totaling $994.6 million--a large increase from the original
certification of $132.8 million.[Footnote 11] The Recovery Act
required that the governor of each state certify that the state will
maintain the level of spending for the types of transportation
projects funded by the Recovery Act that it planned to spend the day
the Recovery Act was enacted. As part of this certification, the
governor of each state was required to identify the amount of state
funds planned to be expended on transportation infrastructure projects
during the period of February 17, 2009, through September 30, 2010.
States will be prohibited from participating in the redistribution of
federal aid highway obligation authority that will occur after August
1, 2011, if they are not able to maintain the certified level of
effort.[Footnote 12] According to CDOT officials, they initially used
projects planned for February 2009 through September 2010 to calculate
the amount of state funds, less any debt service payments, for their
first maintenance-of-effort certification. However, FHWA determined
that the state's maintenance-of-effort calculation had to include a
broader range of planned expenditures than originally included.
Specifically, FHWA included expenditures for local projects and
expenditures on projects under contract in the new certification,
requiring CDOT to recalculate its certification using expenditures for
all projects under way during the February 2009 to September 2010
period. According to CDOT officials, the state has reported
expenditures of $669.4 million as of March 31, 2010, toward its
certification amount of $994.6 million. While CDOT has posted copies
of its initial and revised certification letters on its Web site, it
has not explained the significance of the certifications or provided
an explanation for the substantial increase in the newly certified
amount. Although FHWA does not require states to provide an
explanation of certification changes, given the large increase in the
amount and complexity of the process, a narrative description of the
process and certification calculations could be included on the state
and CDOT Web sites to better inform the public and provide greater
transparency of the state's efforts to meet Recovery Act requirements.
CDOT officials said that providing this information on their Web site
would not be difficult.
Education Spending Has Increased as LEAs Pay for Teachers and Training:
The Recovery Act provided supplemental funding for education programs
authorized under IDEA Part B, a major federal program that supports
early intervention and special education for children and youth with
disabilities, and under ESEA Title I, Part A, which provides funding
to help educate disadvantaged youth. Spending for the IDEA Part B
program and the ESEA Title I, Part A program has increased since we
reported in December 2009. As of April 1, 2010, according to
officials, CDE had distributed to LEAs more than $32.7 million (22
percent) for IDEA Part B, and $22 million for ESEA Title I, Part A (20
percent).[Footnote 13] Most of these amounts were used to reimburse
activities in fiscal year 2010, with just over $5 million used for
activities in fiscal year 2009.
Colorado LEAs are generally using IDEA Part B, and ESEA Title I, Part
A funds to hire staff, upgrade technology, and provide professional
development opportunities for teachers, according to officials. For
example, the Jefferson County School District plans to use its IDEA
Part B funding to enhance professional development of K-12 special
education staff by providing access to reading resources that support
systematic, explicit, research-based instruction for students
identified as needing special education services. The schools in the
district will continue to increase the instructional intervention
opportunities for these special needs students based on assessed needs
and progress. In another example, the Adams 12 Five Star School
District is using its ESEA Title I, Part A funds to put a full-time
"technology integration specialist" in each Title I school to help
coach teachers on how to enhance instruction using technology to
improve instruction and interventions in early literacy development.
CDE officials stated the agency has a number of internal controls in
place to manage funding received for IDEA Part B, and ESEA Title I,
Part A under the existing programs and has put safeguards in place
specifically addressing Recovery Act funds. In addition to its
existing program controls, CDE issued supplemental guidance on the
separate application process for Recovery Act funds, approvable types
of projects, waivers from Recovery Act requirements, and reporting
requirements under the Recovery Act.[Footnote 14] For example, CDE
summarized federal guidance to assist LEAs as they developed their
applications for the IDEA Part B and ESEA Title I, Part A programs
separately from their applications for funds under the normal
programs. In this summary, the state informed the LEAs that they
should consider the extent to which their proposed use of Recovery Act
funds would address five areas, including, for example, improving
results for students in poverty, increasing educators' long-term
capacity to improve results, accelerating reform and school
improvement plans, and fostering continuous improvement through
measurement of results. Further, the guidance explicitly directed LEAs
to use the funds in ways that avoided creating recurring costs that
they were unprepared to assume after the Recovery Act funds run out.
CDE used existing controls to approve Recovery Act funding for IDEA
Part B, and ESEA Title I, Part A. First, CDE reviewed Recovery Act
IDEA Part B funds separately from non-Recovery Act program funds, but
officials stated that they reviewed applications for Recovery Act and
non-Recovery Act ESEA Title I, Part A funds together because the
programs are closely tied. Second, CDE required that its officials
substantially approve LEA applications before LEAs could obligate
funds and finally approve applications before LEAs could request and
receive reimbursements. Third, CDE required that narratives in the
applications must include, among other things, program objectives,
activities, and evaluation plans. For example, as part of the IDEA
Part B and ESEA Title I, Part A applications, LEAs were asked to
specifically address the five areas in CDE's guidance noted above, as
required by Education. Finally, CDE required each application to
contain detailed budget information that the staff can then use to
compare with expenditure requests during the year. For example, the
ESEA Title I, Part A applications included narrative to describe
educational programs, evaluation plans, professional development, and
parental involvement, as well as related budgets for each of these
areas.
Further, CDE officials stated they plan to use existing controls
during the review of Recovery Act expenditures. Once an LEA's
application is approved, that LEA determines when it uses Recovery Act
funds and when it requests reimbursement from the state. Controls
include annual financial reviews for ESEA Title I, Part A funds and
end-of-year reviews for IDEA Part B funds, both of which involve the
staff comparing actual expenditures with amounts in the approved
budgets in the LEA applications. According to officials, expenditures
for both programs are tracked separately for Recovery Act and non-
Recovery Act efforts. CDE had not completed its 2009 annual financial
reviews for the 6 LEAs that expended Recovery Act funds for the ESEA
Title I, Part A program in that year, nor had it completed the end-of-
year reviews for the 11 LEAs that spent Recovery Act IDEA Part B funds
in fiscal year 2009. CDE officials said that they usually perform
their reviews several months after the end of the school year but have
not completed the 2009 reviews because of the increased workload
associated with reviewing, approving, and monitoring Recovery Act
applications and budgets. Officials said that their review of the LEA
applications for fiscal year 2010 provides assurance that Recovery Act
funds will be spent appropriately; if the applications do not contain
such assurances, officials said that they can reject payment for
inappropriate expenditures.
CDE officials also stated that controls include monitoring site
visits, end-of-year performance reporting by LEAs that feed into the
overall evaluation of programs, reporting on school improvements, and
using results from Single Audit Act reports for the monitoring
program.[Footnote 15] CDE officials conduct both desk reviews, which
can consist of comparing applications, budgets, and expenditures
against supporting documentation submitted by LEAs, and site visits to
monitor IDEA Part B, and ESEA Title I, Part A programs. A site visit
involves officials reviewing documentation and interviewing officials
at an LEA. Specifically, CDE officials said that they schedule one
site visit for each LEA receiving ESEA Title I, Part A funds during a
5-year period. On the other hand, CDE staff conduct site visits for
LEAs receiving IDEA Part B funds as issues are identified on an as-
needed basis.
Although we did not review CDE's internal controls over its own use of
Recovery Act funds, a February 2010 audit by Education's Office of
Inspector General raised concerns about the appropriateness of CDE's
methods for charging costs.[Footnote 16] Specifically, the report
found that CDE based employees' time charges to federal education
grants on predetermined allocations of time rather than on actual time
spent on the programs, which does not fully comply with OMB guidance.
The Inspector General reported that as a result, it was unable to
determine whether nearly $24 million in personnel costs charged to
Education grants for two fiscal years were allowable. CDE generally
agreed with the report's findings and recommendations and has taken
steps to address them. In particular, the state has, as of March 2010,
implemented a new system for allocating and reporting time and effort
charges. In addition, officials said they have reconciled and verified
all but $600,000 of the $24 million in personnel costs questioned by
the Inspector General.
Colorado Is Using Clean Water and Drinking Water State Revolving Funds
to Help Disadvantaged Communities and Improve Water Quality across the
State:
The Recovery Act appropriated $6 billion in capitalization grants for
Clean Water and Drinking Water SRFs--$4 billion for clean water and $2
billion for drinking water nationwide. This represents a significant
increase over the regular annual appropriations for SRF programs--
referred to as the base programs. The Environmental Protection Agency
(EPA) distributed more than $65 million to Colorado to make loans and
grants to local governments for eligible wastewater and drinking water
infrastructure projects and "nonpoint source" pollution projects
intended to protect or improve water quality.[Footnote 17] This
represents a threefold increase over the approximately $20 million in
funding the state received for the base programs for fiscal year 2009.
In addition to providing increased funds, the Recovery Act included
additional requirements for states, including prioritizing funds for
projects that are ready to proceed to construction within 12 months of
enactment of the act (by February 17, 2010). The Recovery Act also
required each state to use at least 50 percent of its capitalization
grants to provide additional subsidization to eligible recipients in
the form of principal forgiveness, negative interest loans, or grants.
Furthermore, states were required to reserve at least 20 percent of
their capitalization grants to fund "green" projects--green
infrastructure, water or energy efficiency improvements, or other
environmentally innovative activities--to the extent there were
sufficient and eligible project applications.
Colorado's SRF programs met the Recovery Act deadline of having all
projects under contract by February 17, 2010, and exceeded it by
having all projects under construction by that date as well.[Footnote
18] In fact, Colorado set early deadlines for localities--it required
them to have all projects under contract by September 30,
2009.[Footnote 19] The state is using $32.3 million to fund 22
drinking water projects and $30.1 million to fund 12 clean water
projects. One effect of implementing an aggressive deadline was that
Colorado had time to reallocate excess funds that approved projects
did not or could not use. In particular, one city's charter limited
the amount of debt it could take on and the city had to turn back
almost $6 million in approved loans. Colorado reallocated these funds
to 4 projects, and as a result, increased its number of funded
drinking water projects from 19 to 22 and increased the funding of 1
of its clean water projects. As of April 30, 2010, Colorado SRF
officials stated that 2 projects are complete: the drinking water
project at Blanca that installed new water meters and the Bayfield
clean water project that consolidated two wastewater treatment
facilities. They expect most of the remaining projects will be
completed by December 2010.
Colorado Is Using Funds to Help Disadvantaged Communities and Improve
Water Quality:
Recovery Act SRF funds are helping disadvantaged Colorado communities
undertake essential capital improvements that they could not otherwise
afford while maintaining current user rates. Of the total Clean Water
and Drinking Water SRF projects, 15 projects received no-interest
loans, while 25 projects received almost $33 million in principal
forgiveness, which the state capped at $2 million per subrecipient,
primarily to allow for more projects to receive funding under the act.
[Footnote 20] In addition, of the 34 SRF Recovery Act projects, 28 are
being undertaken by new SRF loan recipients and 10 are in
disadvantaged communities. Moreover, the subrecipients we interviewed
reported that the Recovery Act funds are enabling them to complete
large, necessary projects that their communities were otherwise unable
to afford. For example, Manitou Springs is replacing 4.5 miles of old
water lines throughout the city because of serious problems with water
main breaks. It is also installing pressure reducing valves to address
water pressure problems. City officials reported that the project
would have taken 20 years to complete without Recovery Act funds, and
would have involved increases to user rates and a piecemeal, emergency-
based approach that would have required the community to make repairs
on the earlier improvements by the time the final improvements were
made.
Recovery Act funds are also expected to help Colorado increase energy
and water efficiencies and improve water quality across the state.
Colorado funded a number of projects with the SRF green reserve to
replace leaking water distribution pipelines, consolidate existing
wastewater treatment facilities, and replace and upgrade conventional
equipment with more efficient green technologies. Specifically, 7 of
the 13 drinking water projects included as green (which represent 90
percent of the drinking water green reserve funding) were projects to
replace leaking water distribution pipelines. The SRF officials
estimated that replacing these pipes will lead to increased water
efficiencies, saving more than 43 million gallons of water every year,
an important benefit for an arid state. In addition, the SRF projects
are anticipated to improve energy efficiency at the water systems: 5
projects proposed to employ hydroelectric, wind or solar power on
site, and 5 projects plan to use energy-efficient drives to control
water processing at treatment plants, known as variable frequency
drives (VFD). Including VFDs in a wastewater system allows the system
to increase or reduce water pump activity proportionally to increased
or reduced water flows, which could generate significant energy
savings. Further, the SRF projects are expected to help address water
quality. For example, 9 clean water projects are expected to help the
systems maintain or achieve compliance with federal requirements and 3
are expected to help threatened or impaired bodies of water.
Although SRF officials have been able to identify environmental
benefits associated with these projects, it may be difficult to
isolate the Recovery Act benefits over the long run. Some projects
receive funding from multiple sources, including the Recovery Act, one
of the base SRF programs, or other sources such as Community
Development Block Grants, over multiple years. For example, projects
at the Pagosa Area Water and Sanitation District (Pagosa Area), the
Town of Erie, and the City of Lamar are currently funded by both
Recovery Act and base program funds. Further, other projects received
Recovery Act funding for some components but are waiting to receive
funding for additional components to complete the project in the
future. For example, the Town of Georgetown and the Town of Kremmling
received Recovery Act funds for projects in their areas but need
additional funding to complete the projects.
Colorado Exceeded the Act's Green Reserve Requirement, Selecting
Projects Largely Based on Priorities Dictated by the Clean Water Act
and the Safe Drinking Water Act:
Colorado exceeded the 20 percent green reserve requirement by
dedicating 29 percent of the Drinking Water SRF award and 25 percent
of the Clean Water SRF award to 18 green projects. In selecting which
projects would receive Recovery Act funds, Colorado SRF officials
explained they largely followed the priority-setting process in place
for its base programs, as identified in state rules.[Footnote 21] The
state then modified its process somewhat to comply with the
requirements of the Recovery Act, for example, to satisfy the green
reserve requirement. This process involved, for each SRF, identifying
and categorizing potential projects and then creating a list of
eligible projects prioritized largely according to requirements in the
Safe Drinking Water Act (for the Drinking Water SRF) and the Clean
Water Act (for the Clean Water SRF). Categories of eligible projects
for Recovery Act funds ranged from category 1 to category 6, with 1
being the highest-priority category. For Drinking Water SRF projects,
category 1 includes projects that the state has identified as having
an "acute health hazard," which may be a continuous violation of
federal requirements; for Clean Water SRF projects, category 1
includes projects that improve or benefit public health or that will
remediate a public health hazard. The SRF officials explained they
then selected projects to receive Recovery Act funds from these
eligibility lists starting at the top, with projects in the most
critical category 1, and generally worked their way down each list,
with some variation. For example, if a project was not able to meet
the state's deadlines, it did not receive Recovery Act funding. In two
cases, the state bumped up projects from farther down the clean water
list and awarded them funding because they contained green components
that helped the state meet its green reserve requirement.
Although EPA identified "environmentally innovative" as a category of
green projects for states to fund, just 1 of Colorado's 18 green
projects contained components of this type; the rest were considered
water efficiency and/or energy efficiency.[Footnote 22] According to
Colorado SRF officials, it was difficult for them to include
environmentally innovative projects in the green reserve for several
reasons. For example, they stated that EPA's guidance was unclear and
kept evolving, a sentiment echoed by the EPA Office of Inspector
General in a recent report on EPA's green guidance.[Footnote 23] As a
result, state SRF officials told us they adopted a conservative
approach, staying with those projects that were obviously consistent
with EPA's guidance. In addition, state SRF officials said that the
state requires that every technology included in projects on the
state's priority funding list be an already approved, demonstrated
technology, having already undergone a new technology review by
Colorado, or be an approved technology in another state. Further,
given that the state's priority for drinking water projects is to
address serious health hazards first and foremost, according to state
officials, advancing unproven, innovative technologies is not
appropriate for a project that is addressing an already acute health
problem. Finally, the state was able to meet its drinking water green
reserve largely through funding multiple pipeline replacement projects
that both qualified for the green reserve and were at the top of the
priority list because they addressed potential health hazards. As a
result, the state did not solicit for additional projects, some of
which may have incorporated more innovative components.
Moving forward, Colorado SRF officials stated that they would like
greater flexibility to fund a wider range of water projects under the
SRFs, which could include more innovative approaches. Specifically,
they explained that they plan to revise the state's priority system to
ensure more green and environmentally innovative projects are able to
compete more effectively for funding. According to state officials,
the relative flexibility of the state's clean water priority system,
which is less focused on addressing acute health hazards, provides
greater opportunities for this than the drinking water system.
Changing the state's clean water priority system would enable it to
more easily include projects that benefit watersheds or address
nonpoint source pollution, which would enable the state to focus
resources more effectively on those water bodies with the most
significant water quality problems. In seeking to increase the
flexibility of its priority systems, the state would be able to
consider a broader range of project options for the SRFs, an action we
encourage.
Colorado Entities Added New Controls for Recovery Act Funded State
Revolving Fund Loans:
Three separate entities in Colorado have distinct roles in the
management of the SRF programs; each has established safeguards and
controls to help ensure that Recovery Act funds are spent in
accordance with the act's provisions and that the communities
receiving the funds are accountable for their use. The Authority is
the grant recipient and is the primary entity that lends funds to
local governments--the subrecipients--to build SRF projects. CDPHE
coordinates with the communities to ensure they complete necessary
planning, design, and construction activities, and provides general
oversight, monitoring, and guidance to the subrecipients on how to
report their use of Recovery Act funds. The Department of Local
Affairs provides outreach to local communities and conducts financial
analyses of potential and existing subrecipients.
These entities have added controls at various points in the loan
process. Prior to Recovery Act funds being loaned to local
communities, CDPHE assigned a manager and engineer to each project.
These officials reviewed all plans and construction submissions for
the projects, and the CDPHE engineer also reviewed the business cases
for green reserve components. The Department of Local Affairs did a
credit review on every community that applied for funds to assess the
risk of accumulating debt levels and ability to repay the loans. The
Authority then used the results of these reviews to craft the loan
agreements, and CDPHE incorporated them into broader technical,
managerial, and financial capacity assessments it conducted of
proposed Drinking Water SRF subrecipients.[Footnote 24]
Once the Recovery Act SRF funds were loaned out, Authority officials
used existing procedures to track Recovery Act loans. CDPHE officials
also explained that they have the following procedures in place to
track Recovery Act projects and expenditures: they (1) keep Recovery
Act funds separate from base funds, (2) use a spreadsheet to track
each Recovery Act project and its compliance with requirements, and
(3) review every payment request to determine that it is within the
scope of work and the terms of the loan agreement. Finally, CDPHE
conducts inspections of each Recovery Act project quarterly during
construction. These inspections, conducted by the project manager and
engineer, are used to assess the work being conducted and assist the
subrecipients with identifying potential gaps in compliance with the
requirements of the act. The inspections are conducted on site and
include photos to verify work underway and a file review. CDPHE
increased the frequency of these inspections to better ensure
compliance with Recovery Act requirements. Generally, for its base SRF
programs, while CDPHE conducts a final site inspection for each
project, it does not conduct inspections during project construction
unless it becomes clear that the project is experiencing problems,
indicated for example, by multiple change orders. According to CDPHE,
its staff began conducting inspections of Recovery Act projects in
January 2010 and has completed the first round of inspections of all
but seven projects.
Officials responsible for the Recovery Act funded water projects we
reviewed--at the Town of Georgetown, the City of Manitou Springs, and
Pagosa Area--stated that they also have safeguards and controls in
place for Recovery Act funds to ensure compliance with Davis-Bacon and
Buy American provisions. For example, according to Georgetown
officials, the town hired a coordinator to oversee the use of Recovery
Act funds; this person reviews payrolls, conducts interviews with
employees, and completes the Buy American paperwork. Manitou Springs
officials told us that the city has a person on site at all times to
inspect construction, verify that materials meet Buy American
requirements, and interview the contractors' employees to ensure they
are receiving proper wages. Finally, Pagosa Area officials stated that
they keep track of all the contractors' expenditures using separate
cost codes for Recovery Act work.
An additional accountability mechanism over SRF funds is the Single
Audit Act audit of the Authority. The 2009 Single Audit report
identified a deficiency in the Authority's internal controls over the
SRF programs.[Footnote 25] According to the audit report, the
Authority did not determine whether its subrecipients had valid
Central Contractor Registration certifications on file before issuing
the SRF loans, a requirement under the Recovery Act and accompanying
regulations. The Authority concurred with the finding and stated that
it was unaware of the requirement--which was one among several new
requirements associated with the Recovery Act--until EPA provided a
Recovery Act training manual in September 2009. By that time, the
majority of the loans had been executed. According to the report, once
the Authority and CDPHE officials learned of the requirement, CDPHE
notified all subrecipients, and by December 31, 2009, all
subrecipients had complied. Responsible officials stated they would
verify that appropriate procedures are in place for future subawards.
Recovery Act Funds Helped Stabilize the State Budget, but Local
Governments Experienced Varying Degrees of Assistance:
According to state officials, Recovery Act funds clearly have had a
significant positive impact on the state's budget condition for fiscal
year 2010. As it developed its fiscal year 2010 budget, Colorado
reduced general fund expenditures by $1.5 billion through a series of
cuts and used Recovery Act funds to help stabilize the budget. The
budget cuts were necessary because the state continued to project
declining revenues until March 2010, when the revenue forecast
projected increased revenues relative to the December 2009 forecast--
the first positive revenue forecast after eight quarters of continuing
revenue declines. Using $802 million in Recovery Act funds allowed the
state to make up for slightly more than 50 percent of these
reductions.[Footnote 26] In addition to budget cuts, Colorado used
other measures to balance its budget, including increasing revenues by
an estimated $530 million through actions such as suspending or
repealing tax exemptions.
While Recovery Act funds have helped the state balance its fiscal year
2010 budget, the state faces challenges as those funds run out,
beginning in fiscal year 2011. First, Colorado accelerated its use of
SFSF funds in fiscal year 2010, thereby reducing the amount available
for fiscal year 2011. As a result, the state--and particularly IHEs
that have received the majority of the funding--will face a steep drop
in funding as the funds are completely spent in fiscal year 2011.
State officials said that they made multiple state funding cuts in
higher education during fiscal year 2010 because of multiple downward
revisions to revenue estimates. This required them to use more federal
funds to fill the funding gap created by funding cuts. Second,
Colorado plans to spend all but approximately $4.6 million of its
$138.3 million in SFSF government services funds by the end of fiscal
year 2010. As a result, agency officials said that they have less in
Recovery Act funds to fill in any budget gaps created in fiscal year
2011. Third, the Governor's proposed fiscal year 2011 budget includes
an assumption that additional Recovery Act funds for the FMAP will be
extended for 6 months and will then cover the entire fiscal year. If
that FMAP extension does not occur, Colorado will have a larger budget
gap to fill resulting from the phaseout of Recovery Act funds during
fiscal year 2011. According to state officials, they are monitoring
the status of relevant congressional actions to extend FMAP.
Further, according to state officials, they believe that the phaseout
of the Recovery Act funds will have a dramatic impact on balancing the
budget in the future because funding shortfalls will continue to exist
even as the economy improves and Recovery Act funds run out. State
officials said that a funding shortfall will still exist in fiscal
year 2012 and cautioned that the state should maintain a conservative
approach to its budget for fiscal year 2011, given the uncertainty of
revenue forecasts. The Governor's budget request for fiscal year 2011
($7.1 billion) was lower than the state's fiscal year 2010 budget
($7.3 billion).[Footnote 27]
The two local governments we visited--the cities of Grand Junction and
Fort Collins--experienced different degrees of assistance from the
Recovery Act. Table 3 contains general information about these two
localities, which differed significantly in terms of their economic
situations. The Recovery Act funds did not help balance these
localities' budgets but, to varying degrees, will help them meet other
goals.[Footnote 28]
Table 3: The Cities of Fort Collins and Grand Junction, Colorado:
Locality: City of Fort Collins;
Population: 136,509;
Unemployment rate: 8.2;
Total operating budget in 2010: $448.7 million; Recovery Act funds
reported: $28.6 million.
Locality: City of Grand Junction;
Population: 49,688;
Unemployment rate: 10.3;
Total operating budget in 2010: $93.0 million; Recovery Act funds
reported: $1.9 million.
Source: GAO analysis of U.S. Census Bureau, U.S. Department of Labor,
Bureau of Labor Statistics (BLS), Local Unemployment Statistics (LAUS)
and local governments' data.
Note: Population data are from latest available estimate, July 1,
2008. Unemployment rates are preliminary estimates for March 2010, and
have not been seasonally adjusted. Rates shown are a percentage of the
labor force. Estimates are subject to revisions. The state's
unemployment rate was 8.4 percent.
[End of table]
Fort Collins. Recovery Act funds have helped Fort Collins work toward
various program goals during a time of declining revenues, although
they did not help the city's general budget situation in a significant
way. Fort Collins has received $28.6 million in Recovery Act funds:
$3.4 million from formula grants and $25.2 million in competitive
grants. Fort Collins's revenues from sales and use taxes, which
account for approximately half of its general fund revenues, declined
7.9 percent between 2008 and 2009. In response, the city reallocated
$2.6 million of excess reserves to the 2010 budget and cut the general
fund budget by approximately $7 million to $102 million in 2010.
According to city officials, however, funds from the Recovery Act did
not help the city's budget situation because they were not used for
general operating expenses.
Fort Collins's Recovery Act funds have enabled the city to progress
toward its goals of reducing energy use and promoting the use of
renewable energy and energy efficiency measures. Of its $28.6 million
in awarded funds, the city received $24.2 million intended for
renewable energy and energy efficiency projects in the city, with the
remainder for nonenergy efforts. According to city officials, 95
percent of the energy funds is divided between two grants and is
focused on helping Fort Collins create a "zero energy district"--an
area that consumes only as much energy as it produces from renewable
energy sources such as wind or solar power--within its downtown area.
Table 4 shows the Recovery Act grants Fort Collins received that are
contributing to the zero energy district.
Table 4: Recovery Act Funded Zero Energy District Projects for Fort
Collins:
Project name: Renewable & Distributed Systems Integration; Funding:
$4.8 million; Description: Develop an integrated system for allocating
electricity and renewable energy; Anticipated benefits: Decrease
summer peak electricity demand by 30 percent.
Project name: Smart Grid Investment Grant; Funding: $18.1 million;
Description: Develop a "smart grid" to more effectively integrate
renewable energy sources into the electric grid; Anticipated benefits:
Avoid utility rate increase of 2 percent and reduce city's operating
costs by $800,000 a year.
Source: GAO analysis of Fort Collins's Recovery Act data.
[End of table]
The city's Smart Grid Investment Grant is part of the Department of
Energy's national efforts to use emerging and renewable energy
resources to modernize the electric grid and enhance security and
reliability of the country's energy infrastructure. According to city
officials, the implementation of the city's smart grid involves new
software development that will help manage the use of renewable energy
sources on the electric grid. Further, a large part of the funding is
going toward the installation of "smart meters" on local homes and
office buildings, which monitor electricity consumption and ensure
that the home or building does not draw electricity from the city
power grid while it is producing energy from an alternative energy
source. In addition, smart meters provide customers with the option to
participate in a program that gives the utility the ability to reduce
a home or business's consumption during peak periods when rates are
higher.
According to city officials, other significant Recovery Act awards
they have received include (1) a formula grant for $3.4 million from
FTA to purchase new buses and fare boxes, which will reduce
maintenance costs, and (2) a competitive grant for $271,000 in
Community Development Block Grant funds, which enabled Fort Collins to
provide 1 month of rental assistance to 186 households.
Grand Junction. Grand Junction is an example of a locality severely
affected by the recession but receiving limited assistance through the
Recovery Act. Although Grand Junction had the largest percentage
decrease in nonfarm jobs in the country during 2009 and applied
aggressively for Recovery Act funds, the city received only 4 percent
of the funds for which it applied.[Footnote 29] Grand Junction
officials said that when the Recovery Act was enacted, in February
2009, the city formed an 18-person team to pursue Recovery Act grants
and applied for $39.3 million in competitive grants. However, the city
has received a total of $1.9 million in Recovery Act funds--$500,000
from formula grants and $1.4 million in competitive grants. As a
result, Recovery Act funding has had less impact on the city and its
economy than officials had hoped for. According to city officials,
Grand Junction's economic downturn, which is related to the decline of
both the energy and construction sectors, began later than in many
localities. As a result, Grand Junction's unemployment rate increased
later than it did in other parts of the country, moving from 4.7
percent in December 2008 to 10.2 percent in February 2010. Estimated
2009 revenues are 19 percent ($17.3 million) below 2008 levels. Since
the beginning of 2009, Grand Junction has eliminated 70 city positions.
According to city officials, they thought the city's low unemployment
rate in 2008 negatively affected their chances to receive Recovery Act
funding. They said that many of the Recovery Act grant applications
required that the city report the change in its unemployment rate
between 2007 and 2008, which did not accurately reflect the
unemployment conditions at the time it applied for the grants. For
example, Grand Junction applied for a $7.5 million Department of
Homeland Security Assistance to Firefighters Fire Station Construction
Grant. The grant application guidance stated that the Department of
Homeland Security would provide increased consideration to
"communities that have suffered the highest increases in joblessness
rates." However, Grand Junction was required to report its
unemployment rate from December 2007 to December 2008, during which
time unemployment was under 5 percent, even though the rate had risen
to 9.1 percent by the time the city submitted its application in July
2009. City officials said that they raised the concern about having to
use earlier, and significantly lower, unemployment data with the
Department of Homeland Security. However, they were not allowed to use
a more current unemployment rate. They did not receive this $7.5
million grant or $30.3 million in other grants for which they applied.
Although Recovery Act funds did not help the city's budget situation,
city officials said the funds did help in other areas, primarily
public safety and energy efficiency. Grand Junction's $1.6 million in
public safety grants included a $1.3 million Community Oriented
Policing Services (COPS) Hiring Recovery Program grant that will fund
five police officer positions for 3 years that otherwise would not
have been filled. In addition, the city will use approximately
$230,000 from the Energy Efficiency and Conservation Block Grants
program to help construct a compressed natural gas fueling station and
to pilot an energy efficient street light program.
Colorado Reported that the Recovery Act Has Paid for Jobs in the
State, although Data Quality Is Still an Issue:
As of March 31, 2010, Colorado recipients reported more than 10,300
jobs (reported in FTE) funded by the Recovery Act for the third
reporting period, covering January 1, 2010 through March 31, 2010.
FTEs are reported quarterly on Recovery.gov by recipients of federal
funding. The state of Colorado has chosen to report its Recovery Act
information centrally, meaning that the state agencies submit their
data through one central office. The state's central reporting process
does not include local governments or authorities, such as the
Colorado Water Resources and Power Development Authority. The
Governor's office reported the largest number of jobs, about 4,900,
because it is responsible for managing the SFSF funds for IHEs and
corrections institutions. Other agencies that reported large numbers
of jobs include CDE and CDOT, with almost 1,400 and more than 300 jobs
respectively.
As we reported in March 2010, however, improving the quality of the
jobs data is a work in progress.[Footnote 30] In our review of several
agencies' reporting data for the first reporting round ending on
September 30, 2009; the second reporting round covering October 1,
2009 through December 31, 2009; and the third reporting round, we
found discrepancies in some of the data reported. These discrepancies
include the following:
* Colorado's LEAs did not consistently submit FTEs for the second
round of reporting, with unknown effects on the total FTEs reported.
According to CDE officials, they initially directed LEAs to report
jobs when the LEAs requested reimbursement for their expenditures. CDE
officials explained that the reimbursements of Recovery Act funding
depend on requests from LEAs; historically, LEAs often wait several
months to accumulate expenses prior to requesting reimbursement. As a
result, only 15 percent of the state's LEAs requested reimbursement
and CDE reported a total of 310 FTEs for IDEA Part B and 138 FTEs for
ESEA Title I, Part A. When OMB's December 18, 2009 guidance changed
the method for reporting FTEs to a quarterly process, CDE officials
changed their reporting policy for the third round of reporting to
require all LEAs to report FTEs whether or not they requested
reimbursement of funds. While almost all LEAs reported FTEs in the
third round of reporting, CDE did not change the FTEs reported for the
second round.
* Several factors resulted in CDPHE and the Authority overreporting
FTEs from their subrecipients for the second reporting round, although
they attempted--in response to OMB's December 18, 2009, reporting
guidance--to fix FTE data during the continual corrections period
(which ran from February through mid-March). CDPHE worked with EPA to
correct the data for the state's SRF programs by collecting updated
information from the subrecipients, but CDPHE officials did not know
that the continual corrections period ended on March 15 rather than
March 31, the date in OMB's December guidance. The deadline change was
announced on FederalReporting.gov; however, CDPHE and Authority
officials said they do not regularly check this Web site and that they
typically rely on communications and documents from EPA for guidance
related to the Recovery Act. EPA officials said, however, that because
the change was announced on FederalReporting.gov, they did not provide
written guidance to the states regarding the deadline change. Because
EPA did not share this information, the state may want to regularly
check FederalReporting.gov for updates to guidance. Despite its
efforts, CDPHE did not receive all the changes from subrecipients in
time--not by March 15 or by March 31--to fix the data on Recovery.gov.
As a result, the state reported a total of 250.4 FTEs for the second
period to Recovery.gov when, according to CDPHE officials, the correct
number was 144.3 FTEs.
Colorado officials reported that although the January through March
2010 round of recipient reporting did not present any insurmountable
challenges, they identified some challenges going forward that will
affect their efforts to provide quality control over the data they
report. First, some of the Recovery Accountability and Transparency
Board's recent changes to the quarterly reporting process have created
problems for Colorado's centralized reporting efforts, adversely
affecting Colorado's ability to perform state-level data quality
review and avoid duplicate reporting. In March 2010, the board
informed recipients of changes that reduced the number of days that
recipients could use to review and correct their data before the
federal agency reviews from 10 days to 2 days.[Footnote 31] According
to state officials, reducing the number of days restricted their
ability to review their records and make any necessary changes,
particularly since 1 of the 2 days fell on a Sunday. As a potential
solution to this issue, the state suggested that the board leave
recipient reporting records unlocked and accessible for state changes
during the federal review period. According to state officials, their
suggestion was not accepted by the board. State officials also
suggested that a 30-day reporting period, rather than a 10-day period,
would allow them to provide better quality control over their data,
although it would also require legislative changes.
Second, the board allowed federal agencies to make multiple comments
to the recipients but did not create a corresponding ability for
states to respond to multiple comments. According to state officials,
replying to individual comments greatly increases the amount of time
it takes for recipients to reply to comments, which does not assist
them in their quality control efforts. Finally, state officials
explained that, in order for the state to report, recipients and
subrecipients must maintain a current registration in the Central
Contractor Registration (CCR) database. According to state officials,
the registration is valid for only 1 year. If it is not renewed,
FederalReporting.gov, the online Web site for recipient reporting,
will reject any attempted data entries, a situation state officials
said they have experienced. While the officials recently notified
state agencies that they need to renew their CCR registrations, they
anticipate this issue may create substantial problems in the near
future, especially if a significant number of the state's
subrecipients do not renew their CCR registrations. For example, CDE
alone has 178 subrecipients--contacting these subrecipients and
ensuring they renew their registrations on time is a significant
burden for state staff. Officials said they would like to see a change
made by the Recovery Accountability and Transparency Board that would
allow the original registration to be used throughout the life of the
grant, which would allow FederalReporting.gov to continue to accept
information for an entity whose CCR information has expired.
State and Local Audit Entities in Colorado Identified Weaknesses in
Internal Controls for Some Recovery Act Programs:
The Colorado audit community has completed 7 audits and 2 non-audit
services that either exclusively or partially examined Recovery Act
projects, with another 5 audits ongoing and at least 20 planned for
2010 and beyond. A number of these audits identified weaknesses with
internal controls over the projects. In Colorado, the Office of the
State Auditor has primary responsibility for conducting independent
financial and performance audits of the state's agencies, colleges,
and universities, including Recovery Act funded programs. In addition
to the State Auditor, some state agencies have their own internal
audit divisions that may review Recovery Act funded projects,
including, for example, CDOT. At the local level, of the five
localities we have reviewed thus far, Denver's City and County Auditor
is reviewing the city's management and use of Recovery Act funds. The
other localities either do not have Recovery Act audits ongoing or are
relying on Single Audits conducted under the Single Audit Act to
independently check the use of these funds, where applicable.
Colorado's State Auditor recently identified significant deficiencies
in the internal controls in place at the state Department of Human
Services (CDHS) over aspects of the Colorado Child Care Assistance
Program (CCCAP). The audit was part of Colorado's participation in the
Single Audit Internal Control Project, implemented by OMB in October
2009. One of the goals of the project is to help achieve more timely
communication of internal control deficiencies for higher-risk
Recovery Act programs so that corrective action can be taken. The
project is a collaborative effort between the states receiving
Recovery Act funds that volunteered to participate, their auditors,
and the federal government. Under the project's guidelines, audit
reports were to be presented to management 3 months sooner than the 9-
month time frame required by the Single Audit Act and OMB Circular A-
133 for Single Audits. Sixteen states volunteered for the project,
including Colorado, whose auditors issued their interim reports on
internal control for selected major Recovery Act programs by December
31, 2009, and a corrective action plan to the appropriate federal
agency by January 31, 2010.[Footnote 32]
The Office of the State Auditor selected two federal programs to
include in the audit: the Child Care and Development Program Cluster,
used to fund CCCAP, and the Research and Development Cluster
(administered by several Colorado IHEs). For CCCAP, the state spent
$91 million in federal funds--$10.7 million of which was from Recovery
Act funds--on program activities in fiscal year 2009. The audit report
identified significant deficiencies with the controls over CCCAP,
including errors found on the form used to report fiscal year
expenditures of federal awards. According to the audit report, these
errors occurred because CDHS does not have adequate written
procedures, lacks supervisory review, and did not provide adequate
training for completing the expenditure reports. In addition, the
report stated errors on CDHS expenditure submissions could materially
misstate statewide expenditures because CDHS is responsible for a
large portion of the state's federal funds. According to the report,
in response to the audit findings and recommendations, CDHS stated it
is developing a written procedure manual for preparing the expenditure
report and that enhanced training has been provided to those
responsible for preparing the supporting documentation for the report.
The State Auditor's fiscal year 2009 Single Audit Report--which
included state programs receiving both non-Recovery Act and Recovery
Act federal funds--contained a number of additional internal control
findings relevant to Recovery Act funds.[Footnote 33] These included
findings related to management of the Medicaid program, which had the
largest Recovery Act expenditures in Colorado for fiscal year 2009--
about $252.5 million. For example, the report found the Department of
Health Care Policy and Financing lacked adequate controls over
identifying and recording those activities that are eligible for
increased reimbursement rates available through the Recovery Act and
that the department had not documented this process. Specifically, the
audit found a lack of segregation of duties, lack of adequate review,
and amounts excluded from reimbursement reports. The audit report made
recommendations for addressing these shortcomings to the department.
The department agreed and stated, among other things, that it had
drafted procedures for creating, reviewing, recording, and approving
financial transactions that draw down Recovery Act funds. In addition,
the fiscal year 2009 Single Audit report identified further
significant error rates in transactions processed for three federal
programs: Medicaid, the Children's Basic Health Plan, and the
Supplemental Nutrition Assistance Program, which is overseen by CDHS.
Moreover, the State Auditor has also completed an audit of the
Workforce Investment Act of 1998 Youth Recovery Act funds allotted to
Colorado by the U.S. Department of Labor and used for summer youth
employment services.[Footnote 34]
At the local level, the Denver City and County Auditor identified a
number of weaknesses in the city's governance of the Recovery Act
grants it has received, which totaled more than $75 million as of the
end of March 2010. One of the Office of the Auditor's non-audit
service Audit Alert reports found, among other things, that the city's
tracking of Recovery Act funds is not compliant with city procedures,
which established unique fund numbers so these funds could be tracked
separately from other funds.[Footnote 35] This alert also noted that
the city was cited as failing to report on time because one agency--
Denver International Airport--did not report either of its two
Recovery Act grants before the deadline for the first reporting
period. According to the Office of the Auditor, although Denver is not
required to respond to the recommendations in its Audit Alerts, on the
basis of communications with city officials, the Auditor's office
expects these issues will be adequately addressed. In addition, the
office is scheduled to release a performance audit report in December
2010 that will address, in part, the use and impact of Recovery Act
funds.
Colorado's Comments on This Summary:
We provided officials in the Colorado Governor's Recovery Office, as
well as other pertinent state officials, with a draft of this appendix
for comment. State officials agreed with this summary of Colorado's
recovery efforts to date. The officials provided technical comments,
which were incorporated into the appendix as appropriate.
GAO Contacts:
Robin M. Nazzaro, (202) 512-3841 or nazzaror@gao.gov Brian J. Lepore,
(202) 512-4523 or leporeb@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Paul Begnaud, Kathy Hale, Kay
Harnish-Ladd, Susan Iott, Jennifer Leone, Tony Padilla, Leslie Kaas
Pollock, Kathleen Richardson, and Dawn Shorey made significant
contributions to this report.
[End of section]
Footnotes:
[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009).
[2] GAO, Status of States' and Localities' Use of Funds and Efforts to
Ensure Accountability (Colorado), [hyperlink,
http://www.gao.gov/products/GAO-10-232SP] (Washington, D.C.: Dec. 10,
2009).
[3] According to the State Controller's office, local governments,
authorities, and special purpose authorities are political
subdivisions that are legally distinct from the state.
[4] Office of the State Auditor, American Recovery and Reinvestment
Act of 2009 Internal Control Pilot Project, State of Colorado,
Financial Audit, Fiscal Year Ended June 30, 2009 (Denver, Colorado:
Nov. 20, 2009).
[5] Under a May 11, 2009, memorandum from OMB, states could identify
the costs of administering Recovery Act funds and recover these costs
from Recovery Act funds. See OMB, OMB Memorandum M-09-18, Payments to
State Grantees for Administrative Costs of Recovery Act Activities
(Washington, D.C.: May 11, 2009). Colorado has identified these
estimated costs for its centralized offices, including the State
Procurement Office, the Office of the State Controller, and the Office
of State Planning and Budgeting.
[6] The state's supplemental statewide indirect cost allocation plan
estimated that the state would need $6.3 million over 3 years. This
includes $4.7 million in statewide indirect costs and $1.6 million to
pay for direct billed services such as audits by the Office of the
State Auditor.
[7] These assurances are (1) achieving equity in teacher distribution,
(2) improving the collection and use of data, (3) developing standards
and assessments, and (4) supporting struggling schools.
[8] North Highland, Data Infrastructure Review, a Report Prepared for
the Colorado Department of Education (November 30, 2007).
[9] This includes obligations associated with $18.6 million of
apportioned funds that were transferred from FHWA to FTA for transit
projects. Generally, FHWA has authority pursuant to 23 U.S.C. §
104(k)(1) to transfer funds made available for transit projects to
FTA. According to FTA officials, the $18.6 million has been obligated.
[10] CDOT received approval for $610,000 in additional funds for three
on-the-job training projects.
[11] The maintenance-of-effort certification is designed to prevent
states from substituting federal funds for state funds.
[12] As part of the federal aid highway program, FHWA assesses the
ability of each state to have its apportioned funds obligated by the
end of the federal fiscal year (September 30) and adjusts the
limitation on obligations for federal aid highway and highway safety
construction programs by reducing for some states the available
authority to obligate funds and increasing the authority of other
states.
[13] In Colorado, special education programs are organized into 57
administrative units, which, according to Colorado officials, are
considered LEAs for the purposes of IDEA. After closing one facility
in December 2009, Colorado also has 4 state-operated programs that are
considered LEAs under IDEA, including 1 mental health institute, 2
correctional facilities, and 1 school for the deaf and blind. In
total, Colorado has 61 LEAs, including 57 administrative units and 4
state-operated programs.
[14] The state used a consolidated application for ESEA funds that
included a separate section for ESEA Title I, Part A funds under the
Recovery Act.
[15] Single Audits are prepared to meet the requirements of the Single
Audit Act, as amended, and provide a source of information on internal
control and compliance findings and the underlying causes and risks.
The Single Audit Act requires states, local governments, and nonprofit
organizations expending $500,000 or more in federal awards in a year
to obtain an audit in accordance with the requirements set forth in
the act. A Single Audit consists of (1) an audit and opinions on the
fair presentation of the financial statements and the Schedule of
Expenditures of Federal Awards; (2) gaining an understanding of and
testing internal control over financial reporting and the entity's
compliance with laws, regulations, and contract or grant provisions
that have a direct and material effect on certain federal programs
(i.e., the program requirements); and (3) an audit and an opinion on
compliance with applicable program requirements for certain federal
programs.
[16] U.S. Department of Education Office of Inspector General,
Colorado Department of Education's Use of Federal Funds for State
Employee Personnel Costs, ED-OIG/A09J0004 (Sacramento, California:
Feb. 26, 2010).
[17] Of the $65 million it received, the state set aside 4 percent of
the Clean Water and Drinking Water SRFs for administrative expenses
($2,627,988) and 2 percent of the Drinking Water SRF ($687,040) for
grants to small, low-income communities to assist with the costs of
planning and design and for pilot projects associated with removal of
radionuclides from drinking water.
[18] Officials noted that in May 2010, the Committee on Transportation
and Infrastructure, House of Representatives, sent a letter to the
state commending the fact that the state ranks first out of all the
states, based on an analysis of the percentage of clean water Recovery
Act funds put out to bid, under contract, and underway.
[19] According to SRF officials, their timeline allowed for reasonable
exceptions, and almost all projects were under contract by the
September deadline.
[20] Because the state capped principal forgiveness, some projects
received both principal forgiveness and a no-interest loan.
[21] According to the state's 2009 Intended Use Plans, state
regulations contain the point system for prioritizing Clean Water SRF
projects and the point system for prioritizing Drinking Water SRF
projects. 5 Colo. Code Reg. §§ 1002-51.5(3), 1002-52.6(4).
[22] In its Recovery Act guidance, EPA identified four types of
projects that were eligible for green reserve funding for the Clean
Water and Drinking Water SRFs: water efficiency, energy efficiency,
green infrastructure, and environmentally innovative.
[23] EPA, Office of Inspector General, Evaluation Report: EPA Needs
Definitive Guidance for Recovery Act and Future Green Reserve
Projects, 10-R-0057 (Washington, D.C.: Feb. 1, 2010).
[24] According to CDPHE officials, they do not conduct similar
assessments of Clean Water SRF projects because these assessments are
not required by the Clean Water Act.
[25] BKD, LLP, Independent Accountants' Report on Compliance With
Requirements Applicable to Each Major Program and on Internal Control
Over Compliance in Accordance With OMB Circular A-133 (Denver,
Colorado: Apr. 12, 2010).
[26] According to state officials, these funds include SFSF and
increased FMAP for Medicaid, which Colorado used, in part, to cover
its increased Medicaid caseload. State officials also said that the
most direct sources of Recovery Act funds in alleviating the state's
budget crisis are SFSF funds and the funds made available as a result
of the increased FMAP.
[27] According to state officials, the final appropriations for fiscal
year 2010 are not expected to be enacted before June 2010.
[28] Although additional Recovery Act funds went to separate
jurisdictions within the counties in which these cities are located,
such as school districts or housing agencies, these funds are not
included in our review.
[29] Mesa County, the county in which Grand Junction is located,
received other Recovery Act funds for programs that included food
stamps and unemployment insurance.
[30] GAO, Recovery Act: One Year Later, States' and Localities' Uses
of Funds and Opportunities to Strengthen Accountability, [hyperlink,
http://www.gao.gov/products/GAO-10-437] (Washington, D.C.: Mar. 3,
2010).
[31] On April 9, the board extended the deadline from April 10 to
April 16 for recipient reporting to FederalReporting.gov and added 1
day for the recipients to review their data, increasing the period to
3 days.
[32] The following 16 states volunteered to participate in the
project: Alaska, California, Colorado, Florida, Georgia, Louisiana,
Maine, Missouri, Nevada, North Carolina, Ohio, Oklahoma, South Dakota,
Tennessee, Texas, and Virginia.
[33] Office of the State Auditor, State of Colorado Statewide Single
Audit, Fiscal Year Ended June 30, 2009 (Denver, Colorado: February
2010).
[34] Office of the State Auditor, American Recovery and Reinvestment
Act of 2009, Workforce Investment Act, Summer Youth Program Services,
Department of Labor and Employment, Performance Audit (Denver,
Colorado: November 2009).
[35] City and County of Denver's Office of the Auditor, Audit Alert:
American Recovery and Reinvestment Act, Readiness and Governance
(Denver, Colorado: February 2010).
[End of Appendix III]
Appendix IV: District of Columbia:
Overview:
The following summarizes GAO's work on the sixth of its bimonthly
reviews of the American Recovery and Reinvestment Act of 2009
(Recovery Act)[Footnote 1] spending in the District of Columbia
(District). The full report on all of our work in 16 states and the
District is available at [hyperlink, www.gao.gov/recovery].
What We Did:
GAO's work in the District focused on specific programs funded under
the Recovery Act, as well as general issues involving the effect of
Recovery Act funds on the District's budget. The programs we reviewed--
three Recovery Act programs funded by the U.S. Department of Education
(Education) and the Weatherization Assistance Program funded by the
U.S. Department of Energy (DOE)--were selected primarily because they
include existing programs receiving significant amounts of Recovery
Act funds or programs receiving significant increases in funding from
the Recovery Act. We also reviewed the District's use of Community
Oriented Policing Services (COPS) Hiring Recovery Program (CHRP) grant
funds, which is a U.S. Department of Justice competitive grant program
that provides funding directly to law enforcement agencies to create
and preserve jobs and to support community policing and crime-
prevention efforts. For descriptions and requirements of the programs
we covered, see appendix XVIII of GAO-10-605SP. Our work focused on
how the funds were being used and monitored, how safeguards were being
implemented, and issues that were specific to each program. In
addition to our program-specific reviews, we also updated information
on the District's fiscal situation and how Recovery Act funds are
being used for budget stabilization. Finally, to gain an understanding
of the District's efforts to oversee and monitor the use of Recovery
Act funds, we talked to the District's Office of the Inspector General
(DC OIG) about its oversight role and audits related to Recovery Act
funds.
What We Found:
Following are highlights of our review:
* Title I, Part A, of the Elementary and Secondary Education Act of
1965, as amended (ESEA). Education allocated $37.6 million in ESEA
Title I Recovery Act funds to the District to help improve teaching,
learning, and academic achievement for disadvantaged students. Most of
the District's local educational agencies (LEA)[Footnote 2] plan to
use these funds for salaries and benefits and contracted professional
services designed to support student instruction. As of April 16,
2010, the Office of the State Superintendent of Education (OSSE) had
disbursed about $1.5 million of these funds. For example, one LEA used
these funds for the salary and benefits of an instructional coach to
enhance the professional development and training of teachers.
* U.S. Department of Education State Fiscal Stabilization Fund.
Education awarded the District about $65.3 million of the District's
total State Fiscal Stabilization Fund (SFSF) allocation of about $89.3
million. These SFSF funds are intended, in part, to help the District
stabilize its budget by minimizing budgetary cuts in education and
other essential government services. Of the SFSF funds, 81.8 percent
are designated as education stabilization funds and intended to
support public elementary, secondary, and higher education, and, as
applicable, early childhood education programs and services. The
remaining 18.2 percent of SFSF funds are designated as government
services funds, intended to provide additional resources to support
education, public safety, and other government services. District LEAs
plan to use SFSF funds primarily on salaries and benefits for
teachers. As of April 16, 2010, LEAs reported expending over $16.4
million in SFSF education stabilization funds and $1.1 million in SFSF
government services funds. For example, one LEA used a portion of the
SFSF education stabilization funds for the salaries and benefits of
music, art, and advanced placement teachers and guidance counselors.
* Individuals with Disabilities Education Act, as amended, (IDEA) Part
B. Education allocated $16.7 million in IDEA Part B Recovery Act funds
to the District to support special education and related services for
children with disabilities. As of April 16, 2010, District LEAs
reported expending about $1.6 million in IDEA Part B Recovery Act
funds.
* Weatherization Assistance Program. DOE allocated about $8 million in
Recovery Act weatherization funds to the District for a 3-year period.
The District Department of the Environment (DDOE), which is
responsible for administering the program for the District, did not
begin to spend its operational weatherization funding until February
2010, making the District among the last recipients to begin spending
its weatherization funding under the Recovery Act. According to DDOE
officials, they have been developing the capacity and infrastructure
to administer the program, such as hiring new staff, but there have
been delays in this process. According to DDOE, as of March 31, 2010,
it has completed weatherization for 110 units, or about 14 percent of
its goal.
* COPS Hiring Recovery Program. In July 2009, the U.S. Department of
Justice awarded about $12 million in Recovery Act funding to the
Washington, D.C., Metropolitan Police Department (MPD) to create and
preserve jobs and to support community policing and crime-prevention
efforts. MPD is using the grant for 50 new police officer positions
and to fund these positions for 3 years. MPD expects the new officers
will graduate from the Metropolitan Police Academy in August 2010, and
will have an immediate effect in the community by increasing the
number of officers on patrol.
* The District's fiscal situation. Since our February 2010 report,
competitive Recovery Act grants have helped the District further
expand its health care and housing programs. According to District
officials, within the last quarter, the District has been awarded a
total of about $21 million in competitive Recovery Act grants. While
the infusion of Recovery Act funds has helped mitigate the negative
effects of the recession on the District's budget, the District
continues to face fiscal challenges. As a result of deteriorating
economic conditions and a decrease in expected revenues, on April 1,
2010, the District's Mayor reported that the District was facing a
projected $230 million budget shortfall in fiscal year 2010.
Additionally, the Mayor's proposed fiscal year 2011 budget identified
a $523 million budget gap as a result of the decline in revenues in
fiscal year 2011, slow economic recovery, and the end of Recovery Act
funding.
* Accountability efforts. As of April 21, 2010, the DC OIG has
initiated one audit specifically related to the use of Recovery Act
funds involving construction contracts at the District Department of
Transportation that were awarded under the Recovery Act. Other planned
Recovery Act audits have not yet begun because of lack of resources.
The District's Local Educational Agencies Generally Plan to Use
Recovery Act Funds for Salaries and Benefits, and the Office of the
State Superintendent of Education Has Begun Drawing Down and
Monitoring the Use of These Funds:
Education has allocated $143.6 million in Recovery Act funds to the
District for three programs:
* Title I, Part A, of the Elementary and Secondary Education Act of
1965, as amended (ESEA) which provides funding to help educate
disadvantaged students;
* State Fiscal Stabilization Fund (SFSF), which was created under the
Recovery Act, in part to help state and local governments stabilize
their budgets by minimizing budgetary cuts in education and other
essential government services. Of the SFSF funds, 81.8 percent are
designated as education stabilization funds and intended to support
public elementary, secondary, and higher education, and, as
applicable, early childhood education programs and services. The
remaining 18.2 percent of SFSF funds are designated as government
services funds, intended to provide additional resources to support
education, public safety, and other government services; and:
* Part B of the Individuals with Disabilities Education Act, as
amended (IDEA) which provides funding for special education and
related services for children with disabilities.[Footnote 3]
The Majority of Local Educational Agencies Plan to Use Their Recovery
Act ESEA Title I and SFSF Funds Primarily for Salaries and Benefits
and Contracted Professional Services:
Title I. Most of the District's LEAs' planned spending of $37.6
million in ESEA Title I Recovery Act funds falls into two of the six
budget categories listed in the LEAs' applications for these funds:
(1) salaries and benefits and (2) contracted professional services.
[Footnote 4] (See figure 1.) The charter school LEAs plan to spend
about 58 percent of their ESEA Title I Recovery Act funds on salaries
and benefits and about 17 percent on contracted professional services.
In addition, the charter school LEAs plan to spend about 16 percent on
supplies and materials.[Footnote 5] In contrast, the District of
Columbia Public Schools (DCPS)--the District's largest LEA
representing about two-thirds of the District's K-12 students--plans
to spend about 70 percent of ESEA Title I Recovery Act funds on
contracted professional services and 7 percent on salaries and
benefits.[Footnote 6] This planned spending on contracted services,
rather than on direct salaries and benefits, could help DCPS avoid
expenditures that would continue beyond the time frame of the Recovery
Act funds. Across all the District's LEAs, planned spending on
salaries and benefits and on contracted services was primarily
designated to support instruction and support services. For example,
one charter school LEA plans to use these funds to pay the salary and
benefits of a reading specialist who provides targeted interventions
for students falling behind in reading.
SFSF education stabilization funds. The District was allocated $73.1
million in SFSF education stabilization funds, which will be used to
restore the District's primary elementary and secondary funding to the
fiscal year 2008 level, and was allocated to the LEAs through the
District's Uniform Per Student Funding Formula. DCPS and the charter
school LEAs are planning to use SFSF education stabilization funds
primarily to maintain jobs, including teaching positions, which is
consistent with the purpose of SFSF funds to minimize budgetary cuts
in education and other essential government services. (See figure 1.)
The District's charter school LEAs plan to spend more than 94 percent
of their Recovery Act SFSF education stabilization funds on salaries
and benefits.[Footnote 7] Within this category, the charter school
LEAs plan to spend 79 percent on instruction and 17 percent on support
services.[Footnote 8] DCPS plans to spend 100 percent of its SFSF
education stabilization funds on salaries and benefits. Within this
category, DCPS designated about $43.3 million for instruction and the
remaining $2.2 million of its total $45.5 million allocation for
support services, as of March 9, 2010. DCPS plans to use these funds
for 608 full time teacher positions, as well as for 30 support
services positions, including instructional coaches to help teachers
increase student achievement, bilingual counselors, social workers,
and librarians.
SFSF government services funds. Recovery Act SFSF government services
funds for the District total almost $16.3 million--$9.8 million (60
percent) for public schools, including public charter schools,
[Footnote 9] and $6.5 million (40 percent) for the Metropolitan Police
Department (MPD).[Footnote 10] LEAs in the District plan to use the
largest portion of their SFSF government services funds on maintaining
and creating jobs--specifically, using these funds on salaries and
benefits, as shown in figure 1. Of the $9.8 million in government
services funds for education, the charter school LEAs were allocated
about $3.6 million and DCPS was allocated about $6.2 million. Overall,
the charter school LEAs plan to spend 89 percent, or over $3.2
million, of their SFSF government services funds on salaries and
benefits. In this category, the charter school LEAs designated about
73 percent of funds for instruction, such as teachers, and 26 percent
for support services, such as guidance counselors. In addition to
salaries and benefits, charter school LEAs planned to spend SFSF
government services funds on contracted professional services and
equipment.[Footnote 11] According to its application, DCPS plans to
use all of its $6.2 million of government services funds for teachers'
salaries and benefits.
Figure 1: Percentage of Recovery Act Funds All District LEAs Plan to
Spend in Selected Budget Categories:
[Refer to PDF for image: vertical bar graph]
Salaries and benefits:
ESEA Title I: 21.3%;
SFSF education stabilization funds: 98.0%; SFSF government services
funds: 96.1%.
Contracted professional services:
ESEA Title I: 54.3%;
SFSF education stabilization funds: 0.8%; SFSF government services
funds: 2.3%.
Supplies and materials:
ESEA Title I: 20.1%;
SFSF education stabilization funds: 0.4%; SFSF government services
funds: 0.1%.
Source: GAO analysis of data from District of Columbia Office of the
State Superintendent of Education.
Note: We obtained Recovery Act-specific applications with budget
sheets for 37 LEAs for ESEA Title I and 58 LEAs for SFSF as provided
to us by OSSE. These budget sheets were approved by OSSE and
identified the LEAs' planned uses of Recovery Act funds. We
reformatted and analyzed the planned uses and determined that the data
were sufficiently reliable for the purposes of this report. The budget
categories shown in the figure are the three out of six total budget
categories that have the highest planned spending. Totals do not add
to 100 percent because they represent only three of the six budget
categories, and the percentages have been rounded.
[End of figure]
The District's LEAs Have Begun Accessing Recovery Act Funds:
ESEA Title I. OSSE provides the LEAs with ESEA Title I Recovery Act
funds on a reimbursement basis, whereby the LEAs can obligate Recovery
Act funds, spend their own state and local funds, then request
reimbursement from OSSE for Recovery Act funds. Before LEAs can access
these funds, OSSE requires LEAs to submit an application that
describes how the funds will be used and provide assurances that the
uses comply with the Recovery Act. According to OSSE officials, upon
approval of this application, LEAs can submit requests for
reimbursement, using a reimbursement workbook.[Footnote 12] OSSE
officials then review these workbooks to verify the requests are in
line with the LEAs' approved applications. According to an OSSE
official, about 75 percent of the LEAs that are scheduled to receive
these funds have approved applications.
LEAs with approved applications began requesting reimbursement for
expenditures related to ESEA Title I Recovery Act funds in December
2009. As of April 16, 2010, 39 of these LEAs had requested a total of
about $4.4 million for reimbursement, of which about $1.5 million had
been reimbursed. For example, according to OSSE officials, OSSE
reimbursed one charter school LEA for its spending on salary and
benefits for an instructional coach to enhance ongoing professional
development and training for teachers.
SFSF. OSSE disbursed the SFSF funds to the charter school LEAs in two
payments, one on January 14, 2010 (government services funds), and the
other on April 15, 2010 (education stabilization funds). Charter
school LEAs spend their SFSF funds and report their expenditures to
OSSE,[Footnote 13] which reviews their expenditures to verify
appropriate use of the funds. As of April 16, 2010, charter school
LEAs reported expending over $6.7 million for SFSF education
stabilization funds and $1.1 million in SFSF government services
funds. For example, one charter school LEA used a portion of its
education stabilization funds for the salaries and benefits of art and
advanced placement teachers, as well as guidance counselors. Another
charter school LEA is using a portion of its government services funds
on salaries and benefits for three deans of students and two
computer/engineering teachers. In contrast to the charter schools,
DCPS accesses its SFSF funds as it accesses other federal funds--that
is, by requesting reimbursement for its expenditures through OSSE.
DCPS' application for SFSF funds was approved in March 2010, and DCPS
requested reimbursement for about $9.7 million in SFSF funds as of
April 16, 2010.
IDEA Part B. OSSE reports that as of April 16, 2010, out of the $16.7
million allocated to the District for IDEA Part B, slightly more than
$1.4 million had been requested for reimbursement by 30 of the charter
school LEAs and about $218,000 had been requested for reimbursement by
DCPS. For example, one charter school LEA told us it had used a
portion of its IDEA Part B Recovery Act funds to hire an inclusion
specialist, whose responsibilities include supporting teachers that
have students with disabilities in their class.
OSSE Has Developed and Begun Implementing New Subrecipient Monitoring
Protocols, but It Is Too Early to Assess Effectiveness:
OSSE has taken steps to reform its processes for managing and
monitoring its federal grants, including implementing new protocols
for monitoring its subrecipients.[Footnote 14] According to OSSE
officials, these steps were necessary because of the multiple issues
identified in past audits related to OSSE's management of federal
grants, as well as Education and the DC OIG designating the District's
school system as a high-risk entity for management of its federal
grants. Specifically, the District's fiscal year 2008 Single Audit
found that OSSE had a total of 24 material weaknesses regarding
internal control over compliance with major federal grant program
requirements, 10 of which were directly related to ESEA Title I or
IDEA funds, including deficiencies in subrecipient monitoring. Similar
findings were identified in the District's fiscal year 2007 Single
Audit.[Footnote 15] In addition, Education has designated OSSE as a
high-risk grantee, for weaknesses related to financial management and
grants management for several of the programs receiving Recovery Act
funds. The DC OIG's fiscal year 2010 audit and inspection plan
includes a review to determine whether OSSE properly managed and
distributed IDEA funds to LEAs and whether DCPS used the IDEA funds
for their intended purposes.[Footnote 16]
To resolve the identified subrecipient-monitoring issues, OSSE
developed a new monitoring protocol as of March 2010, which includes
on-site monitoring visits and desk reviews, with expenditure testing
conducted during both procedures. However, it is too early to review
and assess the effectiveness of OSSE's new monitoring protocol because
OSSE has not had a chance to conduct a full cycle of monitoring, which
concludes with the resolution of any identified grant management
issues at an LEA. OSSE implemented its new on-site monitoring protocol
for the first time in March 2010. OSSE uses this protocol to conduct
reviews of LEAs receiving SFSF and all ESEA grant awards, including
ESEA Title I Recovery Act funds.[Footnote 17] As of April 30, 2010,
OSSE officials had conducted seven on-site visits. OSSE's on-site
monitoring protocol involves interviewing LEA officials and external
stakeholders, such as parents, reviewing the LEA's policies and
procedures,[Footnote 18] and conducting expenditure testing to verify
appropriate uses of funds.[Footnote 19] We observed OSSE's grant-
monitoring team conduct an on-site monitoring visit of one LEA. The
grant-monitoring team asked questions regarding the LEA's SFSF and
ESEA Title I applications; use of SFSF and ESEA Title I funds; fiscal
oversight of SFSF and ESEA Title I funds; and compliance with OSSE and
federal Recovery Act reporting requirements. According to OSSE
officials, based on the LEA's answers and supporting documentation,
the monitoring team will determine whether the LEA had problems with
its grant management and program implementation, and then will
communicate such findings to the LEA during the exit conference and
through a report that documents the findings.[Footnote 20]
OSSE's desk-review protocol is intended to achieve similar objectives
as the on-site visit, but is more limited in scope and does not
require visiting the LEA. The desk-review protocol involves reviewing
grant documents pertaining to the LEA's federal grant program
implementation, including Recovery Act ESEA Title I, IDEA, and SFSF
funds; reviewing the LEA's reimbursement and reporting workbook; and
expenditure testing. Based on OSSE's review of documents and testing,
the desk-review team determines whether the LEA had problems with its
grant management and program implementation, and then communicates
such findings to the LEA through a report, documenting the findings.
In addition, an OSSE official told us that they intend to use desk
reviews to determine the need for future site visits to an LEA. OSSE
plans to begin desk reviews in May 2010. According to OSSE officials,
they plan on conducting both an on-site monitoring visit and a desk
review of all of the LEAs that received Recovery Act funds.
According to OSSE's protocols, following the on-site visit or desk
review, OSSE's monitoring team will compile a report for the LEA that
identifies findings and recommendations, and addresses corrective
actions implemented by the LEA.[Footnote 21] LEAs with one or more
findings must develop and submit a corrective action plan that
describes the LEA's strategies and timeline for resolving the
findings. OSSE officials said that OSSE program staff will work with
the LEA to develop the corrective action plan so that the plan is
sufficient, manageable, and timely in resolving the findings, as
determined by the OSSE program staff. OSSE officials told us that OSSE
would consider all findings resolved only after an LEA has provided
evidence, such as documentation of changed policies, that the
corrective action plan has been implemented. Then OSSE will issue a
letter to the LEA indicating the resolution of findings and document
any restrictions that have been lifted. According to OSSE officials,
if an LEA fails to implement its corrective action plan in a timely
manner, as determined by OSSE officials, OSSE may impose restrictions
on the LEA's future grant funds, including additional required
reporting to OSSE; additional on-site monitoring by OSSE; mandatory
technical assistance from OSSE; and withholding or suspending grant
funds.
OSSE officials told us that both the on-site monitoring schedule and
the desk-review schedule were determined by a risk analysis. OSSE
officials determined the relative risk of its LEAs based on each LEA's
fiscal year 2008 Single Audit report findings, Recovery Act grant
award amounts, and whether submissions of Recovery Act grant
applications and other related documents were timely. The on-site
visit schedule divided the LEAs into two categories--higher-risk LEAs
and lower-risk LEAs--with OSSE conducting site visits at higher-risk
LEAs in fiscal year 2010 and lower-risk LEAs in fiscal year 2011. The
desk-review schedule divided the LEAs into three categories--high-
risk, medium-risk, and low-risk--with OSSE planning to conduct desk
reviews of LEAs in May 2010, July 2010, and October 2010, respectively.
With respect to SFSF government services funds allocated to MPD, OSSE
is also responsible for monitoring the use of these funds. OSSE
officials told us that, similar to the LEA subrecipients, MPD will
have to submit its SFSF government services funds application to OSSE
and provide assurances that the funds will be used in accordance with
Recovery Act requirements. As of April 26, 2010, OSSE and MPD had not
finalized their memorandum of understanding outlining the roles and
responsibilities of each agency with respect to the use and oversight
of SFSF funds. However, OSSE officials said they plan to use their new
monitoring protocol to monitor MPD's use of SFSF funds, once MPD's
application for SFSF government services funds is approved and MPD
begins expending these funds.
LEAs We Visited Have Some Processes and Procedures to Help Safeguard
Recovery Act Funds:
We reviewed selected processes and controls of three LEAs in the
District to understand each LEA's Recovery Act grant management and
financial processes. We selected two LEAs that were allocated the
largest portions of Recovery Act funds among the LEAs in the District:
DCPS and Friendship Public Charter School. We selected a third LEA,
Center City Public Charter School, which had requested the largest
amount of reimbursement of Recovery Act funds as of February 19, 2010.
At each of these LEAs we reviewed policies and procedures describing
the LEA's internal control framework related to Recovery Act grant
management and financial processes. We also interviewed the LEAs'
management officials to obtain an understanding of the LEAs' internal
control framework. Our LEA site reviews were limited in scope and were
not sufficient for expressing an opinion on the effectiveness of LEA
internal controls or compliance.[Footnote 22]
We found that the three LEAs we visited had accounting processes in
place to identify and review financial transactions including
unallowable or questionable expenditures. For example, at Center City
Public Charter School, the Chief Financial Officer (CFO) told us that
all transactions were reviewed weekly in an expense report and the
report was subject to three levels of review by the staff accountant,
account manager, and CFO, with purchases in excess of $25,000 reviewed
by the Board of Directors. Similarly, Friendship Public Charter
School's policies require that requests for payments to vendors must
be submitted to the Chief Operating Officer (COO) or program manager
for review and approval, which includes a check-request form, the
invoice of the good or service, and evidence that the good or service
was received, if applicable.
The two public charter schools provided documented policies showing
their official processes for both approval and payment of purchases.
For example, at Friendship Public Charter School, employees who wish
to purchase goods or services enter a purchase request into an
electronic accounting system. Upon submission, the cost of the
purchase request is compared against the available dollars in the
budget of the associated grant. If there is sufficient funding, the
purchase request is submitted for approval. According to a Friendship
Public Charter School official, transactions using grant funds are
approved by the grant manager and the COO, in addition to other levels
of approvals. Additionally, the Board Chairman, Board Treasurer, Board
Secretary, and the Chief Executive Officer are the only individuals
authorized to sign checks and wire transfers, with two signatures
required for transactions over $10,000. Officials at all three LEAs
also told us that they had communicated Recovery Act objectives to
employees through various methods including staff meetings, e-mails,
and informal discussions. For example, one LEA discussed the
objectives of the Recovery Act at its monthly meeting for principals,
according to officials from that LEA.
All three LEAs we visited took some steps to assess risks associated
with the use of Recovery Act funds. For example, two LEAs relied on
external audits as their main source of identifying risks, while
officials from the other LEA told us they used external audit findings
as well as periodic internal discussions to assess risks, including
risks involving the use of Recovery Act funds. According to officials
from this LEA, the LEA's Board of Directors, the grant manager, and
compliance manager discussed risks regarding Recovery Act funds,
including the risk of using the funds for unallowable purposes.
However, while all three LEAs took certain steps to identify risks,
none of the LEAs could provide documentation on their process of
evaluating risk for its possible effects or on the results of such
evaluations.
The District Has Begun to Expend Funding on the Weatherization Program:
The Recovery Act Weatherization Assistance Program is intended to
weatherize homes, save energy, and create jobs. Under the Recovery
Act, the District Department of the Environment (DDOE), the agency
responsible for administering the program for the District, was
allocated about $8 million in Recovery Act funds by the U.S.
Department of Energy. DDOE plans to spend about $6.5 million on
weatherizing homes, and the remaining $1.5 million will be used for
salaries and other administrative expenses, such as training and
technical assistance.
The District Has Experienced Delays in Starting Its Recovery Act
Weatherization Program:
DDOE did not begin to spend its operational weatherization funding
until February 2010, according to DDOE officials. Community-based
organizations (CBO) in the District manage weatherization projects and
cannot start weatherizing homes until they receive funding from DDOE.
As a result, CBOs did not begin to weatherize homes until March 2010,
making the District among the last recipients of Recovery Act
weatherization program funding to begin spending funds. According to a
DDOE official, DDOE was slow to expend funds because DDOE has been
developing the infrastructure to administer the program. Recovery Act
funding has substantially increased the size of the weatherization
program in the District, from about $650,000 in 2008 to about $8
million in Recovery Act funds. To manage the program, DDOE has worked
to increase its staff, but there have been delays in this process.
DDOE officials told us as early as June 2009 that they intended to
hire six new staff members as soon as possible to oversee and manage
the program.[Footnote 23] In October, DDOE officials stated that they
expected to fill these positions by the end of November. However, by
December a DDOE official stated that DDOE had yet to start the
interview process because of administrative delays. As of April 5,
2010, three new-hires--including the program manager--have begun work,
and one offer is pending. However, two positions still remain open,
according to this DDOE official.
While the District has made some progress achieving its initial goal
of weatherizing 785 homes within the 3-year funding time frame,
weatherization work has just begun and only a small portion of the
work has been completed.[Footnote 24] According to DDOE, as of March
31, 2010, it has completed weatherization for 110 units--about 14
percent of its total unit goal. However, DDOE officials told us that
101 of these units, or about 13 percent of its total goal, are located
in one multifamily residence in which contractors installed one new
boiler. According to a DDOE official, improvements made to a
multifamily residence--such as replacing a boiler--allow DDOE to count
all units in the building as having been weatherized. As of April 8,
2010, CBOs have paid contractors about $25,500 for these 101 units, or
under one-half of 1 percent of DDOE's operational budget for the
weatherization program. Given that nearly 13 percent of the total unit
goal was weatherized for less than one-half of 1 percent of the
operation funding available, DDOE officials told us they expected
their initial goal of weatherizing 785 homes to increase. Though DDOE
does not have an updated estimate of how many units will be
weatherized in the District with Recovery Act funding, DDOE plans to
accelerate its weatherization work over the next few months and
estimates expending all of its Recovery Act funding by September 30,
2010.
To manage the increase in the number of weatherization projects under
the Recovery Act, DDOE has added three new CBOs--for a total of seven.
[Footnote 25] DDOE selected these additional CBOs based on specific
criteria, such as the CBOs' experience and performance in
weatherization work, as well as their experience in assisting low-
income persons. The CBOs are responsible for obtaining and monitoring
the local contractors that weatherize homes. According to DDOE
officials, each CBO will receive about $935,000 in Recovery Act funds
for weatherization activities. Through monthly reports from CBOs, DDOE
monitors their balances and pays the CBOs when they require more
funding, releasing funding in installments of 25 percent to CBOs with
whom they have previously worked and installments of 10 percent to
those with no weatherization experience in the District.
CBOs in the District Employ Different Management Practices:
DDOE has given CBOs some flexibility in how they go about the day-to-
day management of their weatherization programs and how they fulfill
the requirements of the grant agreements with DDOE. For the purposes
of this review, we contacted three of the seven CBOs to discuss their
weatherization activities under the Recovery Act.[Footnote 26] Of
these three CBOs, two use contractors exclusively to perform the
weatherization work as specified for each job. Of these two, one has
no prior experience implementing weatherization programs and has hired
a firm that, among other things, selects contractors, solicits bids,
and conducts postinstallation inspections. The third CBO uses a
combination of its own crews of full-time employees and contractors to
complete weatherization work. Eventually this CBO intends to stop
using contractors, except for certain specialized jobs, and use only
its own weatherization crews. Further, this CBO provides training to
its crews and plans to provide training to other CBOs and contractors
in the District.[Footnote 27]
Of the three CBOs we spoke with, none of which is a governmental
entity, each has a different method of soliciting bids and awarding
weatherization work to contractors. One CBO does not formally solicit
multiple bids for each weatherization project. Rather, the program
manager of that CBO told us he sends potential contractors a price
sheet and asks them to list their prices for every weatherization item
or task. He then uses that price sheet to determine which contractors
offer the lowest prices for certain weatherization tasks, and selects
contractors based on those prices as well as the contractors'
availability, experience, and the quality of past work.[Footnote 28]
The remaining CBOs told us they solicit bids from a list of their
preapproved contractors they consider qualified and reliable.
According to the program manager for one CBO, their policy is to
solicit one bid each from three contractors as they cycle through
their contractor list, starting again from the beginning when reaching
the end. The program manager said he awards the contract to the lowest
bidder for each job. According to staff at another CBO, when they
receive weatherization jobs from DDOE, all of their approved
contractors can bid on every job. Staff from this CBO told us that
they normally awarded contracts to the lowest bidder, but factors such
as the nature of the job and the experience of the contractor may also
influence their decisions. CBOs told us that the system they use to
report to DDOE does not accept contract bids that exceed established
price limits.
The District Has a Variety of Procedures in Place to Monitor the
Weatherization Program:
DDOE and the CBOs have a number of procedures in place or planned to
monitor the weatherization program.
* Inspections: In its Recovery Act program guidance, DOE requires all
state agencies, such as DDOE, to inspect at least 5 percent of all
completed weatherization work and recommends inspection of even more.
[Footnote 29] DDOE, in its grant agreement with the CBOs, commits
itself to inspecting 10 percent of all work completed. DDOE officials
stated that they plan to inspect more than 10 percent of all work and
a greater percentage of those weatherization jobs performed by new
CBOs.[Footnote 30] In addition to DDOE's oversight of the program, all
CBOs are required to perform postinstallation inspections on 100
percent of weatherization projects. The CBO that performs
weatherization work using its own crews has independent contractors
conduct postinstallation inspections, and these inspection reports are
checked by that CBO's program manager, according to officials from
that CBO. According to the CBOs we talked to, if they find cases of
poor quality or workmanship, CBOs will require contractors to correct
the problem at no additional cost to the CBO.
* Reporting: DOE requires DDOE to submit quarterly reports to DOE and
to conduct annual reviews of the CBOs. The quarterly report must
provide the status of work and include a comparison of the actual
accomplishments with the goals and objectives established for the
period, the cost status, and schedule status. The cost status must
show the approved budget by the budget period and the actual costs
incurred, and the schedule status should list milestones, anticipated
completion dates, and actual completion dates. The annual review must
include all of the above reporting, in addition to the results of the
physical weatherization inspections cited above. According to DDOE
officials, DDOE identified a relatively small number of problems, such
as contractors charging for work not performed, during prior reviews
of CBOs. CBOs are required to submit monthly reports to DDOE that
include details on how much funding they have spent and how much work
they have completed.
* Data gathering: To facilitate CBO reporting, DDOE has joined other
states in implementing the Hancock Energy Software Weatherization
Assistance Program (Hancock system), a private-sector online reporting
system that is DDOE's primary accountability tool for tracking and
managing Recovery Act funds, including budgeting and invoicing,
administrative costs, and job management, among other things. Using
the Hancock system, CBOs record project data, allowing them and DDOE
to track, for example, the number of jobs CBOs have completed as well
as those still in progress. The system also shows estimated costs for
each weatherization item or task, as well as estimates of the time it
will take to complete the work. Officials from CBOs said they would
use this feature to evaluate contractor bids. DDOE officials stated
that they use the Hancock system to monitor each CBO's progress and
perform daily checks of the data entered. In October 2009, DDOE
provided training in the use of the Hancock system to CBOs
weatherizing homes in the District. DDOE officials said that the
reliability of the data in the system will be checked through
inspections.
* Client Eligibility: A home is eligible for the Recovery Act
weatherization program if household income is at or below 200 percent
of the poverty level.[Footnote 31] DOE has provided guidance to states
on how to determine income eligibility.[Footnote 32] In the District,
eligibility for the weatherization program is determined by DDOE's Low
Income Home Energy Assistance Program (LIHEAP) intake processors after
examining certain pertinent documents, such as income statements. For
multifamily apartment buildings (five units or more), 66 percent of
the households must meet income requirements for the entire building
to be eligible for weatherization program funds.
We were unable to fully assess the quality or completeness of these
procedures at this time because the District's weatherization program
has not progressed enough for DDOE or CBOs to provide completed
project files for us to review.[Footnote 33] Further, DDOE has not
begun reviewing how CBOs are using Recovery Act funds, and has only
recently begun conducting on-site inspections of completed work.
However, staffing issues could affect the District's effort to monitor
its weatherization program. While DDOE has hired a project manager,
the staff member primarily responsible for site visits--the assistant
project manager--had not been hired as of April 5, 2010. Further, DDOE
expects finding someone to fill this position to be a time-consuming
effort because a successful candidate must possess significant
construction experience, according to DDOE. Considering the quantity
and pace of the weatherization work being undertaken with Recovery Act
funds, this vacancy may hinder DDOE's ability to effectively monitor
CBO and contractor work.
The District Has Used COPS Hiring Recovery Program Funds for Hiring
New Police Officers:
CHRP is a Department of Justice competitive grant program that
provides funding directly to law enforcement agencies to create and
preserve jobs and to support community policing and crime-prevention
efforts. The Recovery Act made $1 billion in grant funding available
through CHRP. In April 2009, the Washington, D.C., MPD submitted its
application and in July 2009, was awarded a CHRP grant of $12,146,550
for 50 new police-officer positions. Fifty new recruits entered the
program on October 26, 2009. As of May 8, 2010, about 11 percent of
CHRP funding (or about $1,382,000) has been expended, according to MPD
officials. MPD officials project that the 49 recruits who have
remained with the program will graduate from training at the
Metropolitan Police Academy in August 2010, and will have an immediate
effect in the community by increasing the number of officers on
patrol.[Footnote 34] According to MPD officials, the CHRP-funded
police officers will be assigned to neighborhood patrols and work
closely with community members to fight crime in the 46 Police Service
Areas in the seven Police Districts, thereby contributing to the MPD
community-policing strategy focused on creating a strong, visible, and
accessible police presence in all neighborhoods. When the grant term
expires after 3 years, CHRP grantees must retain all positions funded
through CHRP for at least 1 additional year. To meet the 4th-year
retention requirement, MPD intends to seek local funding to cover
salaries and benefits of the CHRP officers. MPD officials anticipate
that an economic recovery by 2012 will allow the District to provide
this funding.
Recovery Act Funds Aid the District's Budget and Expand Programs, but
the District Continues to Face Fiscal Challenges:
Table 1: Characteristics of the District of Columbia:
Population: 591,833;
Unemployment rate: 10.9%;
Fiscal year 2011 operating budget: $8.9 billion.
Sources: U.S. Census Bureau, U.S. Department of Labor, Bureau of Labor
Statistics (BLS), Local Area Unemployment Statistics (LAUS), District
of Columbia budget documents.
Note: The data are from budget documents. Population data are from
July 1, 2008. Unemployment rate is a preliminary estimate for March
2010 and has not been seasonally adjusted. Rate is a percentage of the
labor force. Estimates are subject to revision.
[End of table]
Since our February 2010 report, competitive Recovery Act grants have
helped the District further expand its health care and housing
programs. According to District officials, within the last quarter the
District has been awarded a total of about $21 million in competitive
Recovery Act grants. For example, on March 19, 2010, the District's
Department of Health was awarded a $4.9 million grant for wellness and
tobacco-prevention programs in the District. The grant is a part of
the U.S. Department of Health and Human Services' (HHS) Communities
Putting Prevention to Work initiative. On February 17, 2010, the
District's Department of Health Care Finance was awarded $5 million
from HHS for the Statewide Health Information Exchange Planning
Cooperative Agreement. On February 26, 2010, the District's Department
of Housing and Community Development was also awarded a grant of
approximately $9.5 million to stabilize neighborhoods and stimulate
the housing market for neighborhoods affected by high rates of housing
foreclosure and vacancies. The U.S. Department of Housing and Urban
Development awarded the District this grant as a result of a
competition the department held for Neighborhood Stabilization Program
2 funds. According to District officials, the remainder of the grant
awards received was under $500,000 per award.
While the infusion of Recovery Act funds has helped mitigate the
negative effects of the recession on the District's budget, the
District continues to face fiscal challenges. On April 1, 2010, the
District's Mayor reported that the District was facing a projected
$230 million budget shortfall in fiscal year 2010. According to the
Mayor's budget-gap-closing proposal, the budget shortfall was the
result of a $35 million decline in estimated revenue due to the
District's weakened economy, $185 million in projected spending
pressures,[Footnote 35] and the repayment of $10 million for the use
of contingency reserve funds.[Footnote 36] The budget shortfall
occurred even though the District used all of its Recovery Act SFSF
funds, $89.3 million, for direct budgetary relief in fiscal year 2010.
[Footnote 37] To address this budget shortfall for fiscal year 2010,
the Mayor proposed a plan to reduce $131 million in expenditures,
reduce $69 million in spending pressures, and generate an additional
$45 million in revenues.[Footnote 38] Additionally, the Mayor's
proposed fiscal year 2011 budget identified a $523 million budget gap
as a result of the decline in revenues in fiscal year 2011, slow
economic recovery, and the end of Recovery Act funding. The Mayor's
budget proposes to close the projected $523 million budget shortfall
for fiscal year 2011 through maximizing efficiency in the District
government including such strategies as the elimination of 385
positions through attrition, retirement, and reductions-in-
force;[Footnote 39] freezing automatic pay increases for government
employees; and renegotiating contracts with the District's vendors.
Despite these budget challenges, the District's Chief of Budget
Execution told us that the District would not use its Rainy Day funds
to close its fiscal year 2011 budget gap because by law the Rainy Day
funds that are used by the District must be paid back in full over the
following 2 years--with one half of the funds repaid in the first year
and the remainder of the funds repaid in the second year.
The District has prepared for the end of Recovery Act funding because
the District is required by law to prepare an annual balanced budget
and multiyear financial plan. As a result, District officials have
accounted for the future decrease in Recovery Act funds in planning
the budgets for fiscal years 2011 to 2014.
The District's Office of the Inspector General Has Begun Audits of
Recovery Act Funding:
DC OIG is responsible for conducting audits, inspections, and
investigations of government programs and operations in the District,
including auditing the District's use of Recovery Act funds. As of
April 21, 2010, the DC OIG has initiated one audit specifically
related to the use of Recovery Act funds involving construction
contracts with the District Department of Transportation that were
awarded under the Recovery Act. According to DC OIG, the purpose of
this audit is to determine whether the District Department of
Transportation fulfilled the terms of its certification under Section
1511 of the Recovery Act,[Footnote 40] complied with District
procurement regulations in awarding contracts, and utilized effective
internal controls. A senior DC OIG official told us that other planned
audits of Recovery Act funds had not begun because of limited
resources within the agency. Nevertheless, this official said that the
DC OIG has two audits that touch on Recovery Act funds, though use of
Recovery Act funds were not part of the audit objectives in either
case: (1) an audit of the Highway Trust Fund, which verified that no
Recovery Act funds were included within Highway Trust Fund spending,
and (2) an audit of DCPS nonpublic tuition to assess whether DCPS
properly recorded Recovery Act IDEA funding and used that funding for
intended purposes.
District Comments on This Summary:
We provided the Office of the Mayor of the District a draft of this
appendix on May 6, 2010. On May 10, 2010, the Recovery Act Co-
Coordinator within the Office of the City Administrator concurred with
the information in the appendix and provided technical suggestions
that were incorporated, as appropriate. In addition, we provided
relevant excerpts to officials of the District agencies and
organizations that we visited. They agreed with our draft and provided
some clarifying information, which we incorporated, as appropriate.
GAO Contact:
William O. Jenkins, Jr., (202) 512-8757 or jenkinswo@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Leyla Kazaz, Assistant
Director; Adam Hoffman, analyst-in-charge; Laurel Beedon; Labony
Chakraborty; Sunny Chang; Nagla'a El-Hodiri; John Hansen; Nicole
Harris; and Mattias Fenton made major contributions to this report.
[End of section]
Footnotes:
[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009).
[2] The District has 58 LEAs, including 57 charter school LEAs and the
District of Columbia Public Schools (DCPS). Fifty-one LEAs are
eligible to receive ESEA Title I Recovery Act funds, according to the
Office of the State Superintendent of Education (OSSE). Most of the
charter school LEAs consist of a single campus, but some have multiple
campuses or schools. DCPS comprises 129 schools.
[3] We do not fully discuss the planned uses of IDEA Part B Recovery
Act funds because the majority of LEAs did not have approved IDEA
applications at the time we began our analysis. DCPS--which serves as
the LEA for IDEA purposes for 17 charter school LEAs--had its Recovery
Act IDEA application approved on January 20, 2010.
[4] To receive Recovery Act funds, OSSE requires that LEAs submit an
application that describes how the funds will be used, and OSSE must
approve this application. In the application--which OSSE developed--
there are six budget categories: Salaries and Benefits, Supplies and
Materials, Fixed Property Costs, Contracted Professional Services,
Equipment, and Other Expenses. The "salaries and benefits" category
can support teachers, as well as employees that provide support
services such as tutoring, and counseling and social work, and those
who provide professional development. The budget category "contracted
professional services" is similar to the "salaries and benefits"
category in that contracted professional services include teaching,
support services, and technical and logistical support to facilitate
and enhance instruction, as well as contracts for accountants, and
activities such as in-service training and conference registration.
[5] The third largest planned spending category for ESEA Title I
Recovery Act funds was supplies and materials. The remaining portion
of planned spending was spread across the other budget categories.
[6] DCPS also plans to spend 22 percent of ESEA Title I Recovery Act
funds on supplies and materials.
[7] The remaining portion of planned spending was spread across the
other budget categories--primarily contracted professional services
and supplies and materials.
[8] Instruction and support services are two of a total of six program
spending categories in the OSSE-created application that LEAs must
complete to receive Recovery Act funds. The other four categories are:
administrative costs, operations and maintenance, student
transportation, and other. The remaining portion of the charter school
LEAs' program spending within the budget category of salaries and
benefits is spread across the other four program categories.
[9] Similar to the SFSF education stabilization funds, these SFSF
government services funds are distributed to the LEAs through the
Uniform Per Student Funding Formula, which is administered by the
District's Office of the Chief Financial Officer (OCFO).
[10] Initially, the District had designated 40 percent of the
government services funds for low-income housing, which was proposed
to be used in a rotating loan fund. However, this fund would have
extended beyond the time frames for Recovery Act spending, which is
inconsistent with the guidelines for using SFSF government services
funds, according to District officials.
[11] Overall, 51 charter school LEAs designated the entirety of their
SFSF government services funds allocation to a single use: salaries
and benefits (48 LEAs), contracted professional services (2 LEAs), and
equipment (1 LEA). The remaining 6 charter school LEAs planned to
spend across various categories including those listed above, supplies
and materials, and other expenses.
[12] OSSE officials told us they also use this process for reimbursing
IDEA Recovery Act fund expenditures to LEAs.
[13] Currently, LEAs receive District funds periodically throughout
the year and OSSE officials told us that the charter school LEAs
receive SFSF funds in a similar manner. In particular, the charter
school LEAs do not receive SFSF funds by means of reimbursement.
[14] Subrecipients are District LEAs and other District organizations
receiving federal funds through OSSE.
[15] OSSE was created in October 2007 to be the District's stand-alone
state education agency. Prior to this, DCPS served as both the local
and state education agency.
[16] According to the DC OIG Acting Assistant Inspector General, the
agency is conducting an audit of DCPS nonpublic tuition to assess
whether DCPS properly recorded Recovery Act IDEA funding and used that
funding for intended purposes.
[17] OSSE officials told us that they had developed a similar on-site
monitoring protocol and desk-review protocol for Recovery Act IDEA
funds in March, 2010. OSSE officials stated that they plan to conduct
on-site visits of three LEAs in May 2010, and if needed, will make
revisions to the protocol based on the monitoring experience.
[18] OSSE officials told us they reviewed the LEA's policies and
procedures in advance of the on-site monitoring visit.
[19] Prior to a site visit, OSSE requests from the LEA documentation
that supports Recovery Act expenditures submitted to OSSE for
reimbursement since the inception of the Recovery Act. OSSE's staff
told us that expenditure testing consists of the review of supporting
documentation for the expenditures--that is, looking for purchase
requests, receipts, invoices, and purchase payments that validate the
expenditure.
[20] As of April 30, 2010, OSSE had not completed the report. OSSE
officials told us that the monitoring report is distributed within 60
days of the on-site visit to the LEA.
[21] Corrective actions are activities or processes that an LEA
executed to correct findings or implement recommendations identified
by OSSE or other auditors during previous reviews, according to OSSE
officials.
[22] At the time of our field work, the District's LEAs had only begun
to spend Recovery Act funds. Due to limited financial transactions
available, we did not test such transactions at the three LEAs we
visited to determine if internal controls were implemented.
[23] DDOE told us it planned to hire a program manager, an assistant
program manager, two energy auditors, and two administrative support
staff.
[24] According to DDOE, a unit is considered complete when: (1) all
recommended weatherization measures are finished, (2) the CBO--which
has primary responsibility for ensuring the quality of the work--
performs a final inspection, and (3) the resident signs the customer
satisfaction and evaluation form.
[25] Four CBOs had managed weatherization projects for DDOE under
other programs, and DDOE continued those relationships when Recovery
Act funding became available.
[26] To capture a variety of approaches to performing weatherization
work, we selected these three CBOs on the basis of their use of
contractors as opposed to their own crews, whether they offer training
to these crews, and congressional interest. We determined that the
selection was appropriate for our design and objectives, and that the
selection would generate valid and reliable evidence to support our
work.
[27] DDOE does not require that contractors receive special
weatherization training or certification to perform weatherization
work in the District.
[28] According to this program manager, he bases these decisions on
his own judgment and expertise from over 28 years of weatherization
and contractor experience.
[29] DOE, Grant Guidance to Administer the American Recovery and
Reinvestment Act of 2009 Funding (Mar. 12, 2009).
[30] This represents a decrease from prior estimates. In December 2009
[hyperlink, http://www.gao.gov/products/GAO-10-232SP], we reported
that DDOE officials initially anticipated inspecting 30 percent of all
homes and 60-70 percent of those weatherized by new CBOs.
[31] The pre-Recovery Act Weatherization Assistance Program had an
income limit of 150 percent of the poverty level.
[32] DOE guidance lists the dollar amount of the 200 percent poverty
threshold for various family sizes, along with the types of income to
consider when determining eligibility. See DOE, WPN 09-05 (Feb. 18,
2009).
[33] According to one CBO, completed project files contain: contractor
estimates, pre-and postweatherization pictures, invoices, daily log
sheets, relevant DDOE audits, Davis-Bacon payrolls, and a signed
resident survey.
[34] According to MPD officials, of the original 50 recruits, two
trainees dropped out in the first week of the program and were
replaced immediately from the roster of eligible applicants and, 3
months into the training program, another trainee dropped out. As a
result, 49 recruits remain in training with MPD.
[35] According to District officials, a spending pressure is a
situation where an agency may need to spend more money than it has
budgeted resulting in an expected budget shortfall. For example, the
District's Fire and Emergency Medical Services Department has
identified spending pressures of $5.3 million consisting of estimated
payroll expenses that are over its budgeted amount.
[36] In fiscal year 2009, the District used funds from the Contingency
Reserve to provide advance funding to the District's public charter
schools, the replenishment of which is mandatory, subject to certain
deadlines, under District of Columbia law. D.C. Code § 1-204.10(b)(6),
(c)(3). The Mayor's gap-closing plan repays $10 million, or half, of
the funds borrowed from the Contingency Reserve.
[37] Originally, the District had budgeted $18 million in SFSF funds
to use in fiscal year 2009 and $71 million in SFSF funds to use in
fiscal year 2010.
[38] According to the Mayor's budget-gap-closing proposal, the
District has a total, projected budget need of $245 million, which
consists of a $230 million projected budget shortfall, $10 million for
repaying its Contingency Reserve Fund and $5 million for repaying its
Operating Cash Reserve Fund.
[39] According to the Mayor's proposal, the District has eliminated a
total of 2,016 District government positions during the last 2 years.
[40] With respect to Recovery Act funds made available to state or
local governments for infrastructure projects, the Governor, mayor, or
other chief executive, as appropriate, is required to certify that the
infrastructure investment has received the full review and vetting
required by law and that the chief executive accepts responsibility
that the infrastructure investment is an appropriate use of taxpayer
dollars. The certification is also to include a description of the
investment, the estimated total cost, and the amount of Recovery Act
funds to be used, among other requirements. Recovery Act, § 1511, 123
Stat. 287.
[End of Appendix IV]
Appendix V: Florida:
Overview:
The following summarizes GAO's work on the sixth of its bimonthly
reviews of American Recovery and Reinvestment Act of 2009 (Recovery
Act) spending in Florida.[Footnote 1] The full report on our work in
16 states and the District of Columbia is available at [hyperlink,
http://www.gao.gov/recovery].
Florida has been deeply affected by the national economic recession,
exceeding the national unemployment and home foreclosure rates as well
as facing budget gaps. The state has taken steps to reduce
expenditures and increase revenues and has used Recovery Act funds to
address its short-term economic hardship. Florida officials expect
state agencies, cities, counties, non-profits, and other organizations
to receive about $20 billion in Recovery Act funds over multiple years
through formula and competitive grants. Additional funding goes
directly to individuals through unemployment compensation, increased
food stamp assistance, and other programs.
What We Did:
Our work in Florida focused on specific programs funded under the
Recovery Act. From January to May 2010, we collected relevant data to
understand how they were using funds (see table 1). Our review focused
exclusively on these entities and our results cannot be generalized to
Florida or nationwide. For descriptions and requirements of the
programs we covered, see appendix XVIII of GAO-10-605SP.
Table 1: Sites Selected for the Sixth Round, Rationale, and Work Done:
Program: Workforce Investment Act of 1998 (WIA) Dislocated Worker
Program; Entities and sites selected:
* Florida Agency for Workforce Innovation (FAWI);
* Eight local workforce boards based on increases in unemployment
rates as compared to all Florida counties. The eight boards
collectively received 45 percent of the total Recovery Act WIA
allotment to state; Methodology and information collected:
* FAWI: Conducted interviews on state and workforce boards'
implementation of program and reporting of obligations to the U.S.
Department of Labor (Labor);
* Gathered data from each of the eight local boards and visited two:
Region 20, Workforce Solutions; and Region 23, South Florida Workforce
Investment Board.
Program: Weatherization Assistance Program; Entities and sites
selected:
* Florida Department of Community Affairs (DCA);
* Three subgrantees: Suwannee River Economic Council, Inc., Pinellas
County Urban League, and Indiantown Non-Profit Housing, Inc. Selected
subgrantees based on the size of the respective programs and
geographic dispersion; Methodology and information collected:
* DCA: Discussed management controls in place;
* Subgrantees: Selected 36 weatherization cases either randomly or
judgmentally based on geographic dispersion within the subgrantees'
service areas to review for documentation supporting compliance with
DCA requirements, such as income eligibility; however, we did not
independently verify clients' income;
* Weatherized homes: Visited 29 homes to determine that the work paid
for was completed and of acceptable quality. A licensed engineer on
our staff participated in inspections of these homes to assess work
quality, and we received technical assistance from a consulting
engineering firm on issues involving heating, ventilation, and air
conditioning equipment;
* Visited University of Central Florida, Solar Energy Center, which is
training local weatherization inspectors, and interviewed center
officials.
Program: Public Housing Capital Fund Program (formula grant); Entities
and sites selected:
* Jacksonville and Miami Department of Housing and Urban Development
(HUD) field offices;
* Four public housing agencies, two of which obligated less than 50
percent of their Recovery Act Capital Fund formula grants as of mid-
February 2010 (Pasco County and city of Lakeland) and two of which had
obligated more than 50 percent as of the same date (cities of Orlando
and Sarasota); Methodology and information collected:
* HUD field offices: Interviewed officials about pace of obligations
and HUD's oversight and technical assistance;
* Public housing agencies: Inquired about challenges in obligating
funds, reporting, and HUD's oversight and technical assistance at four
selected agencies. Interviewed officials at agencies about internal
controls and collected relevant documents; at Orlando Housing
Authority, performed limited testing of internal controls over certain
financial transactions and their compliance with requirements of the
Recovery Act Capital Fund formula grant. We did not independently
determine whether the goods/services paid for were received and met
various requirements, such as Buy American.
Program: Clean Water and Drinking Water State Revolving Funds;
Entities and sites selected:
* One Drinking Water project in city of North Miami Beach and one
Clean Water project in city of Stuart; Methodology and information
collected:
* Reviewed Florida's method of awarding these Recovery Act funds and
its approach to ensure accountability. We did no testing of controls,
such as Buy American, or whether goods/services paid for were received.
Program: State and local budgets;
Entities and sites selected:
* State budget officials;
* One city, Orlando (population 230,519), and its county, Orange
County (population 1,086,480), because both have high unemployment
rates--11.5 percent and 12 percent for Orlando and Orange County,
respectively, as of March 2010--and are among the areas experiencing
the highest foreclosure rates relative to the state average;
Methodology and information collected:
* Interviewed state officials on state's use of Recovery Act funds and
reviewed budget documentation;
* Interviewed city of Orlando and Orange County officials on use and
amount of Recovery Act funds received, and strategies for addressing
challenges when Recovery Act funds are no longer available, and
reviewed localities' budget documents.
Program: Transparency and accountability (recipient reporting and
Single Audit Project); Entities and sites selected:
* Florida Auditor General;
* Florida Department of Education;
* Florida Agency for Workforce Innovation;
* A Florida public housing agency;
* Florida Recovery Czar and inspectors generals; Methodology and
information collected:
* Assessed the involvement of Florida officials participating in the
federal Office of Management and Budget's (OMB) Single Audit Pilot
Project by reviewing audit findings, recommendations, and corrective
actions taken as a result of the project;
* Discussed recipient reporting as well as audit work planned or
completed;
* Interviewed officials and reviewed documentation at a local
educational agency, an institution of higher education, and a public
housing agency in Florida regarding job calculations for the second
and third rounds of recipient job reporting. These entities were
selected because they are among the largest recipients of education
and public housing Recovery Act funds in Florida.
Source: GAO.
[End of table]
What We Found:
We reviewed the implementation of several Recovery Act programs in
Florida and found that state agencies and other grant recipients are
generally meeting statutory deadlines or goals for obligating Recovery
Act funds, meaning that recipients have contracts in place to begin
work or provide services. However, several recipients we visited said
they faced implementation challenges, such as understanding new
requirements under tight time frames for obligating funds. Moreover,
in a few of the programs reviewed, we identified several compliance
challenges and control gaps that state officials committed to address.
* Dislocated Worker Recovery Act Funds. The state agency administering
the WIA program has data on local workforce boards' expenditures of
their entire WIA allocation (Youth, Adult, and Dislocated Worker), but
state officials reported not having data on local boards' obligation
of funds. Half of the eight local boards we contacted regarding their
dislocated worker allocation--to be used for employment and training
activities to assist workers dislocated by layoffs or terminations--
reported obligating or spending their entire allocation of funds by
January 31, 2010. All eight boards reported using Dislocated Worker
funds to place additional people in employment-related training;
taking steps to address demand for services; having data-collection
and reporting procedures that accounted for Recovery Act funds; and
using site visits to monitor performance of those receiving funds. In
doing our work, we learned that the state agency overseeing Florida's
workforce system has been reporting obligations data to the U.S.
Department of Labor (Labor) that do not satisfy Labor's definition for
obligations. The state agreed to change the way data are reported.
* Weatherization. Florida has established a variety of management
controls for weatherizing residences using Recovery Act funds and has
significantly increased the pace of home weatherizations between
September 2009 and March 2010 to a total of 1,987 single family homes
as of March 31, 2010, according to data received from the state. We
found several gaps in the controls, resulting in problems undetected
by program personnel or noncompliance. At the three subgrantees we
reviewed, we found some instances of work done that was of
unacceptable quality or inconsistent with planned work, or work
charged but not done, and potential health or safety issues that were
not addressed. In addition, we raised with state officials that
stronger guidance and oversight by the state Department of Community
Affairs (DCA), which administers the program, could help to ensure
that subgrantees use local market rate information to obtain fair and
reasonable prices for goods and services, as required for spending
Recovery Act funds. DCA and subgrantees agreed to act on our
suggestions to address the problems we identified.
* Public Housing Recovery Act Capital Fund Formula grants. According
to HUD, public housing agencies in Florida receiving Recovery Act
Capital Fund formula grants met the March 17, 2010 deadline for
obligating these funds. In our review of internal control
documentation at four selected public housing agencies, we found each
had internal control policies for procurement and for Recovery Act-
required information.
* Drinking Water and Clean Water and State Revolving Funds. Florida
officials told us all Recovery Act-funded projects were under contract
by the February 17, 2010 deadline. However, state officials said they
faced challenges in processing the high volume of drinking water and
clean water project requests while some local subrecipients had to
take additional steps to meet state contracting requirements and
Recovery Act requirements for U.S.-made construction materials.
* State and Local Budgets. Florida officials project a slight
improvement in the state's fiscal condition; however, they expect the
economy may take a long time to recover fully. Officials said that
Recovery Act funds have not eliminated, but have limited, the need to
use reserves to balance the state's general fund budget. Officials in
Orlando and Orange County said Recovery Act funds have been used
mainly for short-term strategies to provide services to communities,
with funds contributing a small amount to their budgets.
* Transparency and accountability. Florida's Recovery Czar expressed
concern that the total Florida award amounts posted on the federal
Recovery Act Web site are overstated due in part to double-counting of
submitted recipient reports caused by agencies assigning different
award identifiers from one round to the next. Also, at one of the
recipients we visited we identified errors in data collection and
reporting of jobs created and retained for the second and third rounds
of reporting. In addition, Florida was one of 16 states participating
in a federal project to communicate audit findings earlier. Most of
the Florida officials we spoke with expressed concerns about the
project's usefulness, especially given the increased work load. In
addition to participating in the project, various state agencies
continue to provide oversight of Florida's spending of Recovery Act
funds.
Most Workforce Boards Appear on Track to Meet Recovery Act Spending
Deadlines, but State Needs to Report Correct Obligations Information:
Most Florida workforce boards appear on track to spend their Workforce
Investment Act (WIA) Recovery Act allocations. WIA Recovery Act funds
must be spent by June 30, 2011 to provide employment and training
services to job seekers. As of January 31, 2010, 19 of the state's 24
local area boards have spent half or more of their combined WIA Adult,
Dislocated, and Youth allocation, according to data collected by the
state. Because the state reported that it did not collect data on
local boards' obligations, we queried boards about a subset of their
total allocations--those for dislocated workers. Half of the eight
boards we contacted reported obligating or spending their entire
allocation of these funds (see figure 1). All eight also reported
placing additional people in training using these funds. For example,
the workforce board for the local area that includes Orlando, reported
placing over 1,200 people in training using these funds.[Footnote 2]
According to workforce officials, various factors may explain boards'
obligations, spending, and number of people trained using Recovery Act
funds. These include local demand for training, training providers'
class schedules, and decisions boards made given the flexibility
afforded them. Officials at all eight boards told us they used various
strategies to address increased demand for services, including hiring
additional staff, increasing service hours and locations, and
utilizing on-line resources and linked their ability to provide
services to the availability of Recovery Act funds. They also said
they had reporting and data-collection procedures that accounted for
Recovery Act funds and that they used site visits as part of
monitoring performance.
In collecting information on boards' obligations and expenditures, we
learned that, when filing its quarterly financial reports to Labor,
the state agency overseeing Florida's workforce system was not
following the definition of obligations Labor specifies in its
guidance.[Footnote 3] According to state workforce officials, the
state reported its obligations, not those of local workforce boards as
required. Under the Workforce Investment Act of 1998 the local boards'
obligations are the basis for reallocating funds. Florida officials
said they would change how they report obligations.
Figure 1: Commitment of Dislocated Worker Recovery Act Funds by Eight
Workforce Boards, as of January 31, 2010:
[Refer to PDF for image: map of Florida and accompanying data]
Percentage of Dislocated Worker Recovery Act funds:
Region: 6;
Total Dislocated Worker Recovery Act funds: $291,788;
Unobligated: 60%;
Accrued: 30%;
Obligated: 0;
Expended: 10%.
Region: 7;
Total Dislocated Worker Recovery Act funds: $291,710;
Unobligated: 0;
Accrued: 0;
Obligated: 51%;
Expended: 49%.
Region: 8;
Total Dislocated Worker Recovery Act funds: $5.0 million;
Unobligated: 33%;
Accrued: 9%;
Obligated: 22%;
Expended: 36%.
Region: 11;
Total Dislocated Worker Recovery Act funds: $1.7 million;
Unobligated: 54%;
Accrued: 7%;
Obligated: 19%;
Expended: 20%.
Region: 12;
Total Dislocated Worker Recovery Act funds: $5.8 million;
Unobligated: 29%;
Accrued:0;
Obligated: 12%;
Expended: 59%.
Region: 17;
Total Dislocated Worker Recovery Act funds: $1.7 million;
Unobligated: 0;
Accrued:14%;
Obligated: 53%;
Expended: 33%.
Region: 20;
Total Dislocated Worker Recovery Act funds: $2.1 million;
Unobligated: 0;
Accrued:0;
Obligated: 9%;
Expended: 91%.
Region: 23;
Total Dislocated Worker Recovery Act funds: $9.1 million;
Unobligated: 0;
Accrued:2%;
Obligated: 81%;
Expended: 17%.
Sources: GAO analysis of data submitted by eight Florida local area
boards; National Atlas of the United States of America (base map).
Note: To select sites, we first examined Bureau of Labor Statistics
data on the net change in unemployment in Florida counties from
December 2008 to December 2009. We selected those counties with the
greatest net gain and identified their local workforce board. Region
15, Tampa Bay WorkForce Alliance, Inc., was captured in our original
selection but we excluded it because of ongoing work related to a
report by the Florida Office of Inspector General. The eight workforce
boards we selected collectively received 45 percent of the total WIA
Recovery Act allotment to the state of Florida.
Accruals are amounts owed for goods and services that have been
received but for which cash has not yet been disbursed. Expenditures
are cash disbursements or outlays. Obligations are legally binding
commitments to expend funds.
According to Labor, states received their funding allocations in March
2009. Some boards moved a portion of their Dislocated Worker
allocation to their WIA Adult Program. The allocations in the graphic
above reflect these transfers.
[End of figure]
Florida Weatherization Assistance Program Has Controls in Place, but
We Identified Some Compliance Issues and Control Gaps:
The Recovery Act Weatherization Assistance Program is intended to
weatherize homes, save energy, improve health and safety and create
jobs. To accomplish these goals, DCA funded 27 subgrantees, which
include local governments and nonprofit organizations, most of which
had managed prior DCA weatherization projects. Other subgrantees were
selected through a competitive process. In addition to weatherizing
homes (e.g., insulating walls and attics, caulking), subgrantees are
required by DCA to address, within limits, health and safety issues
related to weatherization work (e.g., lead-based paint).[Footnote 4]
The program also has recipient eligibility requirements.[Footnote 5]
Table 2 shows the amount of Recovery Act funds allocated to Florida as
well as the funds obligated and expended as of March 31, 2010. Florida
plans to spend about $145.2 million on weatherization of 19,090
private and multifamily units and about $31 million has been set aside
for training and technical assistance. However, if DCA determines that
any training and technical assistance funds will not be utilized at
the state level, it said that it will allocate the remaining funds to
subgrantees meeting or surpassing their production goals to weatherize
additional dwellings.
Table 2: Florida's Weatherization Assistance Program Allocation, Funds
Obligated and Expended as of March 31, 2010:
Recovery Act Weatherization Assistance Program grant total allocation
2009-2012: $176.0 million; Allocation received: $88.0 million (50
percent of total allocation); Obligated funds: $58.1 million; Expended
funds: $22.3 million.
Source: Data from the Florida Department of Community Affairs.
[End of table]
Florida Has Significantly Increased Weatherization Pace:
Despite a slow start to weatherizing homes in 2009, Florida reports
increasing home weatherizations in 2010. However, the slow start means
that DCA is working to close a gap between homes weatherized and DCA's
overall goal to date. Subgrantees did not begin Recovery Act
weatherizations until September 2009. Several factors affected
startup: receipt of funds from the U.S. Department of Energy, hiring
and training subgrantee staff, identifying and orienting new
contractors, and implementing Davis-Bacon wage requirements after
delays in receiving updated wage rates from Labor. Notwithstanding
these factors, as figure 2 shows, Florida reported continuously
increasing its home weatherizations since September 2009, weatherizing
a total of 1,987 single-family homes as of March 31, 2010.[Footnote 6]
Because Florida reported achieving only about 43 percent of its home
weatherization goal for the last 4 months of 2009, DCA is about 30
percent below its overall goal as of March 31, 2010. Nonetheless,
Florida officials reported achieving about 93 percent of their goal
for the first 3 months of 2010, and exceeding their goal for March
2010 by 23 homes.
Figure 2: Actual Homes Weatherized Compared to Monthly Goals for
Florida Weatherization Assistance Program:
[Refer to PDF for image: vertical bar graph]
Date: September 2009;
Goal: 65;
Actual: 14.
Date: October 2009;
Goal: 288;
Actual: 76.
Date: November 2009;
Goal: 473;
Actual: 187.
Date: December 2009;
Goal: 432;
Actual: 268.
Date: January 2009;
Goal: 506;
Actual: 418.
Date: February 2009;
Goal: 519;
Actual: 469.
Date: March 2009;
Goal: 532;
Actual: 555.
Source: DCA.
[End of figure]
In addition, as of March 26, 2010, Florida reported about 870 homes in
progress and over 8,000 clients on subgrantees' waiting lists or
qualified to receive benefits. DCA's 3-year goal is to weatherize at
least 19,090 dwellings by March 31, 2012, including 13,812 single-
family and 5,278 multifamily residences. Florida is also preparing to
initiate its multifamily residence weatherizations: A DCA official
said two contracts for 320 units in Escambia County are at the final
stages. DCA officials said that through continued high production on
single family homes and launching of its multifamily initiative, they
should meet their target of weatherizing at least 5,700 homes
statewide by the end of September 2010. Although Florida has not
established a goal, DCA plans to measure energy savings. Thus far the
data it collects to measure program results show that home heating and
air conditioning systems should operate less frequently and more
efficiently based on weatherization improvements.[Footnote 7] As of
March 31, 2010, DCA reports that its weatherization program has saved
or created 339 jobs.
DCA Has Established and Implemented a Variety of Management Controls:
As we previously reported, and recently found, DCA has instituted a
variety of management controls, such as policies for determining and
documenting (1) client eligibility and priority for services, (2)
completion of home energy audits before work is performed, (3) work
priorities and maximum allowable costs, and (4) accuracy of data
entered into the state's data system and proper reimbursement.
[Footnote 8] In addition, DCA requires training for certain subgrantee
staff and their construction contractors and that both clients and
subgrantees approve completed work. DCA also reviews subgrantees'
operations, their requests for reimbursements, clients' files, and
corrective actions. It also plans to visit at least 10 percent of the
homes weatherized. As of March 31, 2010, DCA had completed operations
reviews of eight subgrantees and inspected 49 homes for completed
weatherization work, according to DCA officials. DCA has also
addressed some performance issues among subgrantees, replacing 3 of a
total of 27 subgrantees for previous poor performance. Since November
2009, DCA has contracted with field monitors to verify subgrantees'
data entries, review 100 percent of client files, and inspect 50
percent of homes completed. As of the end of March 2010, DCA reports
that contract monitors reviewed 1,899 of 1,987 client files in which
subgrantees sought payment[Footnote 9] and inspected 983 completed
homes.[Footnote 10] DCA's Inspector General and Florida's Auditor
General have reviewed or plan to review the weatherization program. In
addition, the U.S. Department of Energy reviewed DCA's weatherization
assistance program in February 2010.
Subgrantees We Visited Generally Met Program Requirements, but We
Identified Some Compliance Issues and Control Gaps:
DCA and its subgrantees have made good progress in implementing the
Weatherization Assistance Program, which has involved navigating
multiple new requirements and quick time frames for Recovery Act-
funded programs. However, our review identified issues in the
following areas:
Client Eligibility:
The 36 client files we reviewed typically contained the eligibility
information required by DCA. However, there were exceptions. For
example, 23 files were missing some of the required documentation,
including proof of a disability (required by DCA for priority
services) or a copy of a Social Security card. These problems were not
noted by DCA's contract field monitors in client files we reviewed.
[Footnote 11]
Home Energy Audits:
Subgrantees typically followed DCA requirements for home energy
audits--used to determine appropriate weatherization as well as health
and safety improvements needed--in the 36 client files we reviewed and
at three home sites where we observed audits. However, while
weatherization work was generally consistent with the priorities
established in the audit, in 22 of the 36 client files, we found one
or more instances in which work listed as completed was not consistent
with audit recommendations. For example, installation of a new hot
water heater, refrigerator, or smart thermostat was either recommended
in the audit but not done, or done without recommendation. The reasons
for these actions were not recorded, as required by DCA policy. When
we spoke with subgrantees, they offered reasonable explanations such
as changes occurring after an audit, but acknowledged there were
inconsistencies and agreed to be more diligent. These inconsistencies
also were not noted in the contract field monitors' reports we
reviewed. An explanation for some discrepancies, for example, was that
two items listed on the audit form--faucet aerators and smart
thermostats--were not listed on DCA's form to record completed work.
We raised this matter with DCA officials and they agreed to correct
this problem.
Weatherization Work:
We found that all work charged to the program was authorized,
performed, and appeared to be of acceptable quality in 22 of the 29
homes we visited. For the other 7, work was authorized, but some of
the listed improvements were either not completed or lacked quality.
For example, at one home recorded as completed in December 2009, the
program was charged for a smart thermostat that had not been installed
and for solar window screens, some of which were being installed as we
were inspecting the home 2 months later in February 2010. The
subgrantee said the screens were replacements for those installed
improperly.[Footnote 12] At this same home, the door on a shed built
to house a new hot-water heater did not function properly. Yet the
homeowner and the subgrantee's inspector had signed the completed
inspection form and noted no problems. At another home, the program
was charged for three window air conditioning units, but only two had
been installed, and for air filters that had not been delivered. One
of the window units was not installed tightly enough to prevent air
leakage. The seven homes with issues had been inspected by DCA's
contract field monitors, who did not note the problems in their
reports. The subgrantees agreed to correct the problems we noted.
Health and Safety:
As required by DCA policy, home energy audits performed by the three
subgrantees we reviewed covered health and safety issues. However, we
found three potential health or safety issues that had not been
addressed and that reflected a breakdown in a subgrantee or DCA
management control, or both. We alerted the subgrantees and DCA about
these issues and they agreed to take appropriate action.
Air quality:
Of 36 inspection files we reviewed, 14 were at one subgrantee, and in
10 of those we found that at the subgrantee's inspection, air flow
through the homes was insufficient, possibly affecting indoor air
quality.[Footnote 13] We also found the issue had not been identified
in the monitoring reports prepared by DCA's field monitor or by DCA's
staff, who had recently completed a review of the subgrantee. The
principal research engineer at Florida Solar Energy Center, which
provides weatherization training to subgrantee staff throughout
Florida, said that in general, when an air flow/ventilation rate for a
home is found to be below the minimum threshold, a case-by-case
assessment should be made on how to address the problem. DCA officials
said they would clarify DCA's guidance and explore refresher training
or technical assistance on ventilation rates. In addition, DCA
officials agreed to require subgrantees to add the minimum ventilation
rate for each residence to the work completion report filed with DCA
so this requirement can more easily be checked.
Electrical hazards and removal of hazardous equipment:
In three of the homes we inspected, we found potential safety hazards.
In two of the homes the owners told us their circuit breakers
"tripped" when they ran the heat cycle of the window heating and air
conditioning units installed by the subgrantees. In one case our
inspection identified a window unit that exceeded the limit
recommended for shared circuits, at least when turned to heating.
[Footnote 14] Although DCA's energy audit form calls for an assessment
of a residence's electrical panel, it does not specifically require a
load assessment for planned weatherization work. DCA officials said
they would expect subgrantees to do one and would clarify guidelines.
The third safety issue involved the subgrantee not removing
noncompliant heating units prior to work. The subgrantee installed a
window heating and air conditioning unit but had not removed two
unvented kerosene heaters from the home.[Footnote 15] The home's
energy audit report noted the unvented kerosene heaters, with the
qualification that there was no fuel. When we visited the home, one of
the heaters was being used and kerosene storage cans were inside the
home. When we noted the violation, the subgrantee agreed to correct
the problem. In each of these cases, DCA's contract field monitors had
inspected weatherization work in the homes but did not note these
problems in their reports. At one of the homes where circuit breakers
"tripped", the owner addressed the problem prior to our inspection; at
the other, the subgrantee reported taking corrective action in April
2010.
Fair and Reasonable Prices:
After our review of three subgrantees, state officials agreed that
procurement practices at two of the three subgrantees were not fully
consistent with DCA's requirements and raised questions about whether
subgrantees always paid prices that were fair and reasonable.[Footnote
16] These practices also revealed possible gaps in DCA's manual. One
of the three subgrantees advertised for competitive, fixed-price bids
for labor and materials for weatherization work, but often received
only one or two bids and did not have documentation showing a
comparison of bid prices to local-market rates to ensure price
"reasonableness." Bid packages were not consistently included in
client files. Another subgrantee told us they initially advertised for
bids for labor and materials, but found the process too cumbersome and
negotiated prices with a contractor, rotating work among five firms.
We found that the subgrantee also had no documentation showing
comparison of prices negotiated to local-market rates, and in some
client files we reviewed, the contractor's "bid" price was dated on or
after the invoice date. After we brought these problems to their
attention, the two subgrantees said they would focus more attention on
these contracting issues. DCA's contract field-monitor reports did not
note the issue we found in their case file reviews.[Footnote 17]
Regarding competition, the two subgrantees said they were skeptical of
being able to get additional bidders due to such reasons as the nature
and profit potential of weatherization work compared to other work,
the condition or locations of many of the homes to be served, or
program requirements such as Davis-Bacon wage provisions. The third
subgrantee, which performed weatherization work with in-house staff,
told us they used an open, competitive process to get unit-price bids
for most of its needed materials, and contracted for an analysis of
local labor and materials costs for weatherization work in its service
area as well as several other areas in Florida. DCA officials agreed
that the comparative approach and information this subgrantee used
could be helpful to other subgrantees.
Although we recognize that a variety of factors can affect
subgrantees' ability to get competitive bids, the competition and
pricing issues do not appear to be sufficiently covered under DCA's
current monitoring program, and it's Weatherization Assistance
Programs Procedures and Guidelines manual does not call for review and
approval of subgrantees' acquisition policies and procedures. We
believe that the manual does not explain DCA's expectations in
situations with no or limited competition or how subgrantees should
document their determination that the prices obtained are indicative
of local rates. DCA officials agreed to address the concerns we noted.
In commenting on the overall results of our review, DCA said that many
of the concerns or areas of non-compliance we noted have been
addressed by issuance of a program notice to subgrantees or by a state
monitor. In addition, when we raised our concern that contract field
monitors had apparently missed a number of the weatherization issues
we identified, DCA said that they planned to take various other
actions, such as revising to its program and field monitoring
procedures and guidelines, to address several of the issues we had
raised, and that these issues would be discussed at its annual
statewide meeting of subgrantees in May 2010.
Florida Public Housing Agencies Obligated Recovery Act Funds by
Deadline, and Those We Visited Had Internal Control Policies:
According to U.S. Department of Housing and Urban Development (HUD)
officials, all Florida public housing agencies met the March 17, 2010
Capital Fund formula grants deadline for Recovery Act funds by either
obligating all of their funds or rejecting or returning a portion of
their grant funds by March 17, 2010. Grant funds are intended to
improve the physical condition of public housing properties. Of 110
public housing agencies in Florida, 82 eligible agencies collectively
received about $86 million in Recovery Act Capital Fund formula
grants. Prior to this deadline, 2 of the 82 eligible agencies returned
some or all of their funds--totaling about $194,000--to HUD.[Footnote
18] As of March 17, 2010, the recipient agencies had drawn down a
cumulative total of $29.7 million from the obligated funds. HUD
reports that recipient agencies are using Recovery Act funds to make
improvements to almost 2,900 public housing units in Florida.
The four agencies we selected received approximately 8 percent of
total Recovery Act Capital Fund formula grants to Florida. Table 3
shows the obligations, expenditures, and types of projects undertaken.
Table 3: Recovery Act Capital Fund Recipient Obligations and
Expenditures as of March 17, 2010:
Public housing agencies: All eligible Florida public housing agencies;
Recovery Act Capital Fund grants: $85,505,627; Funds obligated by the
agencies by March 17 deadline: $85,311,543; Funds drawn down by
agencies by March 17[A]: $29,687,265; Recovery Act-funded projects at
selected housing agencies: [Empty].
Public housing agencies: Orlando Housing Authority; Recovery Act
Capital Fund grants: $3,582,587; Funds obligated by the agencies by
March 17 deadline: $3,582,587; Funds drawn down by agencies by March
17[A]: $2,442,183; Recovery Act-funded projects at selected housing
agencies: Soil abatement, demolition of a building, and various
smaller projects including removing clothesline poles and
rehabilitating a children's spray pool.
Public housing agencies: Sarasota Housing Authority; Recovery Act
Capital Fund grants: $1,132,916; Funds obligated by the agencies by
March 17 deadline: $1,132,916; Funds drawn down by agencies by March
17[A]: $111,744; Recovery Act-funded projects at selected housing
agencies: Redevelopment, including kitchen renovation in 100 units;
painting; installing energy efficient, hurricane-resistant windows;
and, energy-efficient mini-split air conditioning units.
Public housing agencies: The Housing Authority of the City of
Lakeland; Recovery Act Capital Fund grants: $1,457,334; Funds
obligated by the agencies by March 17 deadline: $1,457,334; Funds
drawn down by agencies by March 17[A]: $59,137; Recovery Act-funded
projects at selected housing agencies: Total rehabilitation of 20-unit
building with "green" standards.
Public housing agencies: Pasco County Housing Authority; Recovery Act
Capital Fund grants: $383,805; Funds obligated by the agencies by
March 17 deadline: $383,805; Funds drawn down by agencies by March
17[A]: $21,053; Recovery Act-funded projects at selected housing
agencies: Various management improvements and deferred maintenance,
such as kitchen renovations, resurfacing of roads, erosion control,
irrigation, installing water heaters and rear screen doors, and making
one vacant unit handicap accessible.
Source: HUD and public housing agencies.
[A] Funds must be completely expended by March 17, 2012.
[End of table]
Officials at three of the four public housing agencies we visited said
Recovery Act funds allowed them to complete planned projects sooner
than planned, broaden the work's scope or complexity, or avoid staff
layoffs. For example, Lakeland officials said Recovery Act housing
funds will allow them to complete rehabilitation of housing units this
year rather than over several years, including improvements to receive
gold certification as an energy-efficient or "green" building.
[Footnote 19]
Officials we visited also identified various challenges to quickly
obligating Recovery Act funds, including difficulties in combining
funds from multiple federal sources, identifying projects with
appropriate timelines for Recovery Act spending, creating policies
required by the Recovery Act,[Footnote 20] and identifying additional
projects when contract bids on some planned projects came in under the
agency's cost estimates. Officials also identified reporting
challenges, including accessing systems and establishing passwords in
three required reporting databases. Agency and HUD officials said that
efforts to quickly obligate Recovery Act Capital funds did not
interfere with their administration of regular Capital Fund grants.
Officials at the agencies credited the staff at Miami and Jacksonville
HUD field offices with providing timely and helpful technical
assistance and outreach.
Our review of internal controls documentation of the four public
housing agencies we visited found each had written internal control
policies for procurement and various financial policies detailing
separation of duties and approvals required for specific expenditure
levels. In addition, limited testing of Orlando's internal control
over certain financial transactions and the agency's compliance with
certain Recovery Act requirements found no material issues.[Footnote
21] However, the Orlando agency's financial policy states that
contractors must accompany payment requests with certain HUD and
agency forms even though officials said the forms are actually
required only for contracts lasting over 30 days and valued at more
than $100,000. We suggested officials clarify the procedure in its
financial policy, and they agreed to this revision.
In addition to our work, in September 2009 HUD's Office of Inspector
General issued an audit that identified several internal control
weaknesses and provided recommendations to strengthen the Miami-Dade
Housing Authority's controls over administering Recovery Act funds to
carry out capital and management activities.[Footnote 22] For example,
the Inspector General found the agency's procurement procedures had
weaknesses, such as not maintaining sufficient records detailing the
history of the process followed for each contract, and had not
properly prioritized its Recovery Act-funded activities. According to
HUD officials, recommendations contained in the report were addressed
by March 9, 2010, and the Miami-Dade Housing Authority obligated all
of its Recovery Act funds by the March 17, 2010 deadline.
Florida Successfully Met Contracting Deadline for Drinking Water and
Clean Water Projects:
Florida officials told us they successfully met the Recovery Act's
February 17, 2010 deadline for having Drinking Water and Clean Water
projects under contract.[Footnote 23] Florida's Department of
Environmental Protection (DEP) received more than $88 million in
Recovery Act funds for its Drinking Water State Revolving Fund (SRF)
projects and more than $132 million for its Clean Water SRF projects
in federal fiscal year 2009.[Footnote 24] These additional Recovery
Act funds were three times larger than the state's 2009 federal base
grants for Drinking Water and five times its Clean Water federal base
grants. A DEP official in charge of the SRF program funding said
Recovery Act funds helped pay for 40 Drinking Water and 28 Clean Water
projects. (See figure 3.)
Figure 3: Total Florida State Revolving Fund (SRF) Levels for Fiscal
Years 2006-2009 and Number and Types of Projects Funded by Recovery
Act Money in Fiscal Year 2009:
[Refer to PDF for image: illustration]
Federal funding:
Year: 2006;
Drinking-water funds: $37 million;
Clean-water funds: $30 million.
Year: 2007;
Drinking-water funds: $37 million;
Clean-water funds: $39 million.
Year: 2008;
Drinking-water funds: $38 million;
Clean-water funds: $23 million.
Year: 2009;
Drinking-water funds: $117 million (Recovery Act funds: $88 million);
Clean-water funds: $158 million (Recovery Act funds: $132 million).
2009 Recovery Act-funded projects by type:
Of the 40 drinking-water projects:
14 were for a new subrecipient;
7 were for ’green“ projects;
34 were in disadvantaged communities.
Of the 28 clean-water projects:
8 were for a new subrecipient;
4 were for ’green“ projects;
18 were in disadvantaged communities.
Source: GAO analysis of data from EPA and state, and information from
state DEP officials.
Note: Subrecipients are generally counties and cities. A new
subrecipient is an entity that had not previously received SRF funds.
Under the Recovery Act, green projects include those that promote
green infrastructure and energy or water efficiency, as well as
projects that demonstrate new or innovative ways to manage water
resources in a sustainable way.
[End of figure]
State officials told us they used existing systems for ranking
projects for projects to be funded with Recovery Act funds.[Footnote
25] However, they said they were sometimes overwhelmed by the number
of documents to review and prioritize. A DEP official said department
employees had to review $950 million in Drinking Water project
applications and $1.5 billion in Clean Water project applications from
localities to award $88 million and $132 million, respectively.
Subrecipients we spoke with reported taking additional steps to meet
state and Recovery Act requirements. In North Miami Beach, officials
said they took additional steps to meet state contracting requirements
when they only received one bid.[Footnote 26] To ensure the
procurement process yielded a reasonable price for its Drinking Water
SRF contract to remove vinyl chloride from city wells, the city used
its consultants to compare prices in the bid to market prices. DEP
reviewed the city's required cost analysis to determine whether prices
were fair and reasonable and approved the project. City water
officials said that without Recovery Act funds they would not have
proceeded because the project's costs had the potential to increase
user rates to pay for the new debt needed for the project.[Footnote
27] The city of Stuart also took additional steps to ensure its Clean
Water SRF project met Recovery Act requirements. Stuart is using SRF
funds to reclaim wastewater to irrigate athletic fields, which helps
preserve its drinking water. A city official expressed concern about
the required Buy American certification of one project contractor, but
after numerous conversations, the city official concluded that because
the filter components were incorporated during the fabrication of the
filter in Dayton, Ohio, it met this Recovery Act provision.
State officials also told us about a Buy American issue in Vero Beach.
The city installed 600 feet of foreign-made steel casing based upon
early Environmental Protection Agency (EPA) Buy American guidance that
officials said was unclear. The city's consulting engineer told us she
received conflicting guidance, with DEP initially telling the engineer
that the city could forgo the use of U.S.-made steel if the cost
exceeded the cost of foreign-made steel by more than 25 percent. The
engineer said EPA guidance later clarified that foreign-made
components could only be used in Recovery Act projects if American
products, such as steel, increased the total cost of a project by more
than 25 percent. DEP replaced the project's Recovery Act funding with
base SRF funding not subject to the Buy American provisions to cover
the cost of the project.
Florida officials told us they added new Recovery Act requirements and
procedures for its SRF to ensure they met the Davis-Bacon, Buy
American, and Recovery Act reporting provisions. According to
officials in North Miami Beach and Stuart, they also established
procedures for project oversight and monitoring per Recovery Act
requirements. For example, North Miami Beach checks Davis-Bacon wage
rates when the contractor submits weekly certified payrolls.
Florida Uses Recovery Act Funds to Address Budget Gaps While
Localities Mainly Use Funds for Nonrecurring Expenses:
Florida officials project a slight improvement in the state's fiscal
condition based on revenue projections for the current fiscal year
(2009-2010), but they expect the state's economy may take a long time
to recover fully. State officials said revenue trends have stabilized
due to a moderate increase in the general revenue fund resulting from
increases to driver's license, motor vehicle, and court fees approved
by the state legislature in 2009. Officials are not anticipating a
budget shortfall this fiscal year and expect about a $1.1 million
surplus in general revenue to carry forward to the next fiscal year,
which begins July 1, 2010. As we have reported, Florida's efforts to
reduce expenditures and increase revenues are expected to offset the
substantial decrease in Recovery Act funds beginning in 2011.[Footnote
28] However, Florida's unemployment rate is 12 percent. And population
growth--a driver of Florida's economic growth--is projected to remain
relatively flat over the next few years, while revenue collections are
still billions of dollars less than before the recession.
For the state's fiscal year 2010-2011, Florida budget officials said
the Governor proposed using $2.5 billion in Recovery Act funds for
education, health and human services, transportation, and general
government operations. The legislature passed the budget in late April
2010, but according to state officials the final budget, pending the
Governor's review and approval, has not been signed as of early May
2010. Officials said Recovery Act funds have not eliminated, but have
limited, the need to use reserves to balance the state's general fund
budget. Florida may need to reduce expenditures further when Recovery
Act funds substantially decrease beginning in fiscal year 2011;
however, officials said shortfalls might be offset by a state-
projected increase in revenues.
To examine the use and effect of Recovery Act funds on local budgets,
we selected two localities: one city, Orlando, and its county, Orange
County. Officials in both localities said Recovery Act funds have been
used mainly for short-term strategies to provide services to
communities.[Footnote 29] Overall, Recovery Act funding contributed a
small percentage of the city's and county's budgets: Orlando's $9.6
million and Orange County's $22.1 million in Recovery Act funds--which
will be received over multiple years--account for a small fraction of
the 2009-2010 operating budgets of about $360 million and $748 million
for Orlando and Orange County, respectively. The program area
receiving the largest amount of funding in Orlando is public safety at
$5.4 million and in Orange County is energy efficiency at $8.7
million. (See table 4.)
Table 4: Recovery Act Grants and Contracts to Orlando and Orange
County, Fiscal Years 2009-2012:
Program area: Energy efficiency;
Orlando project or federal award: Energy Efficiency and Conservation
Block Grant used for a city facility and privately-owned residences;
$2.7 million over 3 years; Orange County project or federal award:
Energy Efficiency and Conservation Block Grant and Weatherization
Assistance Program to reduce fossil fuel emissions and energy use;
$8.7 million over 3 years.
Program area: Housing;
Orlando project or federal award: Homeless Prevention and Rapid Re
housing Program for housing expense assistance and Community
Development Block Grant for installation of under-drains; $1.5 million
over 3 years; Orange County project or federal award: Homeless
Prevention and Rapid Re-housing Program for housing expense assistance
and Community Development Block Grant for energy-efficiency
initiatives; $4.2 million over 3 years.
Program area: Human services;
Orlando project or federal award: Not applicable; Orange County
project or federal award: Head Start for teacher training and
Community Services Block Grant to provide employment-related services
to low-income communities; $2.1 million over 1 year.
Program area: Public safety;
Orlando project or federal award: COPS Hiring Recovery Program
(CHRP)(salaries of officers)[A]; Edward Byrne Memorial Justice
Assistance Grant for activities such as purchasing portable radios and
tasers; and STOP Violence Against Women to address domestic violence;
$5.4 million over 1 to 4 years; Orange County project or federal
award: Edward Byrne Memorial Justice Assistance Grant for substance
abuse treatment and equipment purchases including laptop computers and
digital radios; $7.1 million over 1 to 4 years.
Program area: Total Recovery Act funding; Orlando project or federal
award: $9.6 million over multiple years; Orange County project or
federal award: $22.1 million over multiple years.
Source: GAO analysis of federal and state data.
[A] Although the city and county are generally using funds for
nonrecurring expenses, Orlando is using about $3.1 million in CHRP
funds over the 3 years in which funds are available to restore 15 of
29 sworn police officer positions eliminated from the current year
budget, 2009-2010. CHRP requires grantees to fund the positions with
state or local funds, or both, for a fourth year. City officials said
that they are currently formulating strategies to retain the positions
after CHRP funding is no longer available.
[End of table]
Given that local officials said Recovery Act funds have generally not
been used to balance localities' budgets, city and county officials
explained they have taken several actions to address continuing budget
gaps, including eliminating vacant positions, freezing hiring, cutting
department budgets, and using reserves. Officials in Orlando said that
although they have used general fund reserves to balance the budget
for fiscal years 2008-2009 and 2009-2010, reserve balances are
currently at maximum required levels.[Footnote 30]
Florida Officials Expressed Concerns about Recipient Reporting and
Single Audit Project While State Continues to Provide Oversight:
Florida Recovery Czar Voiced Concerns about Double Counting of
Recipient Reports:
The state Recovery Czar said the second and third rounds of recipient
reporting appeared to go more smoothly than the first round. He did
express concern that funding awarded to Florida posted on
Recovery.gov, the federal government's Web site to track Recovery Act
spending nationwide, overstated awards by about $463 million for the
first-and second-round of recipient reports covering the period
February 17, 2009 through December 31, 2009. For example, his analysis
of second-round data found that some first-and second-round reports
were treated as separate projects but should have been linked,
resulting in double counting of awards and overstating total Recovery
Act funds awarded to Florida.[Footnote 31] According to the Recovery
Accountability and Transparency Board (the Board), which manages
Recovery.gov, federal agencies could assign different award
identifiers from one round to the next, and the Recovery Czar said
when dollar amounts were summed for Recovery.gov, it resulted in
double counting of some amounts reported. In our March 2010 report, we
raised similar concerns about the quality of the data reported.
[Footnote 32] OMB, the Board, and federal program agencies are working
to resolve this issue and have taken steps to minimize this issue for
round three.[Footnote 33]
Recipients We Visited Generally Met Reporting Requirements, but We
Identified Job Calculation Gaps:
We found that the full-time equivalent (FTE) calculations done by the
local educational agency (LEA) and a public institution of higher
education (IHE) we visited were adequately supported by documentation
and were computed in accordance with federal guidance during the third
round of Recovery Act reporting.[Footnote 34] However, we identified
issues at a public housing agency, which reports on its funds
directly, not through Florida's centralized system.[Footnote 35] At
the LEA and IHE we found that the number of jobs reported for the
third round was calculated in accordance with OMB guidance and
consistent with the FTE calculation method used in the previous round.
Documentation maintained by these entities also supported the number
of jobs reported for the third round.[Footnote 36] In contrast, at the
public housing agency we identified errors in data collection and
reporting of jobs created and retained for the second and third
rounds. A housing agency official said a change in executive
management in November 2009 resulted in confusion about how to meet
recipient reporting requirements. OMB and HUD guidance requires that
an agency collect hours worked from the contractors and calculate jobs
created and retained based on an FTE formula. However, officials at
the public housing agency said they did not collect hours worked from
their two contractors in the second round and instead repeated the
numbers from the first round. In addition, we found that for the third
round of reporting, the two contractors counted each part-time worker
as a full-time worker instead of reporting hours worked as required
for FTE computation. Although the housing agency is responsible for
ensuring that jobs are reported based on FTEs, an official said they
reported the job numbers provided by the contractors and did not
follow up with the contractors to confirm their job calculations.
Furthermore, although the agency also maintains hourly payroll data
submitted by the contractors, the official said they did not verify
that the payroll data matched the number of FTEs reported by the
contractor. We discussed these issues with the public housing agency
official and he said that he agreed with our finding and planned to
revise the recipient report for round three.
Florida Officials Involved in Single Audit Project Expressed Concerns
about Its Usefulness:
OMB implemented a Single Audit Internal Control Project (project) in
October 2009. One of the goals of the project is to help achieve more
timely communication of internal control deficiencies for higher-risk
Recovery Act programs so that corrective action can be taken. The
project is a collaborative effort between the states receiving
Recovery Act funds that volunteered to participate, their auditors,
and the federal government. Under the project's guidelines,
significant internal control deficiencies were to be reported to
management and federal officials 3 months sooner than the 9-month time
frame required by the Single Audit Act and OMB Circular No. A-133 for
Single Audits. Sixteen states volunteered for the project including
Florida, whose auditors issued their interim reports on internal
control for selected major Recovery Act programs by December 31, 2009.
[Footnote 37]
Most of the Florida officials we spoke with expressed concerns about
the project's usefulness. According to the Auditor General's office,
the project added additional reports to the typical audit cycle and
may have delayed completion of audits for some programs. The
additional reporting resulted in some duplication, such as duplicated
exit discussions of findings with program managers. The Auditor
General also indicated that absent an interim report, an audited
entity would still be aware of any issues due to ongoing discussions
with Auditor General staff. His view was echoed by one state program
manager. A state manager from another program noted that the short
time frames associated with interim reporting resulted in the need to
revise an audit finding, which took additional time. The Auditor
General's office said interim reporting may be more helpful for
federal agencies than it is to state agencies given that ongoing
discussions between the state auditor and program management occur at
the state level. One state program manager said receiving interim
audit recommendations did allow for earlier implementation of agency
financial improvements.
Improvements to the Single Audit process suggested by the Auditor
General's office included providing more timely guidance, for example,
in February of the year to be audited, to facilitate planning, and
allowing auditors more flexibility in identifying major programs and
reporting findings of significance.
State Oversight Agencies Continue to Play Oversight Role for Recovery
Act Funds:
Various Florida state agencies provide oversight of Florida's spending
of Recovery Act funds, as we have previously reported.[Footnote 38]
The Auditor General's work related to the Recovery Act is primarily
being conducted under the Single Audit Act. For the fiscal year ended
June 30, 2009, the Auditor General conducted Single Audits of state
governments and numerous school district boards that included Recovery
Act funds. For example, in the Single Audit of state government, the
Auditor General found that the Florida Department of Education (FDOE)
had not implemented certain information-technology controls governing
cash-management practices, which FDOE agreed to address. In addition
to focusing on training, technical assistance, and risk assessments,
Florida's Chief Inspector General said the inspector general (IG)
community is at different stages in its review of Recovery Act
programs, depending on factors such as workload and timing of when
Recovery Act funds are used by recipients and subrecipients. For
example, the Inspector General of the Florida Department of Community
Affairs (DCA) is in the process of reviewing the weatherization
program, but her work has been delayed due to staffing issues.
However, according to the Inspector General for the Florida Department
of Law Enforcement, it reviewed supporting documentation for selected
subrecipients and found some discrepancies in the number of jobs and
or hours reported.[Footnote 39]
State Comments on This Summary:
We provided the Special Advisor to the Governor of Florida, Office of
Economic Recovery (who is referred to in this appendix as the Czar),
with a draft of this appendix on May 7, 2010. In general, the Florida
state official agreed with our draft and provided some clarifying
information, which we incorporated, as appropriate.
GAO Contacts:
Andrew Sherrill, (202) 512-7215 or sherrilla@gao.gov:
Bernard Ungar, (202) 512-7215 or ungarb@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Michael Armes, Susan Aschoff,
Patrick di Battista, Lisa Galvan-Trevino, Cheri Harrington, Sabur
Ibrahim, Kevin Kumanga, Frank Minore, Brenda Ross, Margaret Weber, and
James Whitcomb made major contributions to this report.
[End of section]
Footnotes:
[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009).
[2] Because job seekers can use self services (e.g., on-line and
computer-based job search resources) remotely or at the career centers
the boards oversee, the number of people served using such funds, in
all likelihood, surpasses the number placed in training.
[3] Any effect this error had was potentially mitigated by a waiver
Labor granted Florida. This waiver allowed Florida to recapture funds
from local workforce boards based on their expenditures. The waiver
was not renewed for the remainder of program year 2009.
[4] Florida's 10 authorized weatherization measures, in descending
order of energy savings importance are: air sealing, attic and floor
insulation, dense-pack sidewall insulation, solar window screens,
smart thermostat, compact fluorescent lamps, seal/insulate ducts,
refrigerator replacement, heating and cooling systems, and water
heater repair or replacement. DCA allows subgrantees to spend an
average of $6,500 per home for weatherization and related services,
and up to $600 per home for correction of related health and safety
issues.
[5] Recipients of these services may not have total household income
exceeding 200 percent of the national poverty level, with preference
given to homeowners, the elderly (60 and over), residents with
disabilities, families with children under 12, and households with
high utility bills.
[6] We assessed the reliability of these data by comparing the number
of completed homes reported by DCA to the number of homes reported
completed by DCA's contract field monitors for two subgrantees we
reviewed for selected time periods, interviewing DCA officials, and
reviewing the results of a similar test done by DCA's Inspector
General. We determined that the data were sufficiently reliable for
our purposes.
[7] According to DCA, weatherization work to date has resulted in a
reduction of about 28 percent in air infiltration.
[8] [hyperlink, http://www.gao.gov/products/GAO-09-1017SP].
[9] Prior to the contract-monitoring program, 88 cases were reviewed
by DCA staff.
[10] In addition, DCA recently awarded a contract to provide fiscal
monitoring and technical assistance to 14 subgrantees on implementing
program procedures, developing internal controls and accounting
protocols, and is in the process of modifying the contract to include
all 27 subgrantees, according to a DCA official. Furthermore, DCA
plans to award a contract for oversight, training, and technical
assistance to subgrantees on the Davis-Bacon wage and reporting
requirements.
[11] We did not independently verify client income. DCA's income-
verification procedures are broad, and DCA officials agreed to
reexamine them to address related potential vulnerabilities that may
exist.
[12] Based on DCA's policy requirements, this home should not have
been reported as a closed case or charged to the program because all
work had not been completed and found acceptable.
[13] The extent to which the final air flow readings were below the
minimums calculated by the subgrantee varied, ranging from less than 1
percent difference to almost 40 percent. DCA's energy audit form
states that the final air flow measurement must be higher than the
minimum rate calculated, or work to improve air flow/ventilation must
be done.
[14] According to the National Electrical Code, fixed equipment, such
as heating/air conditioning units, on a shared circuit should not
exceed 50 percent of the circuit's current-carrying rating.
[15] DCA policy prohibits the use of un-vented gas heating units as a
primary heating source in a weatherized home, and their use as a
secondary heating source unless they meet certain requirements.
[16] DCA's May 2009 Weatherization Assistance Programs Procedures and
Guidelines states that subgrantees are responsible for (1) ensuring
that all bids for goods and services contracted are made in a manner
to provide, to the maximum extent possible, open and free competition,
and (2) determining that costs charged to the program for material and
labor are indicative of local rates.
[17] Although the contract field monitor for the first subgrantee said
he did not review pricing in his file review, he did note a case
during a home inspection in which a weatherization measure had been
overpriced. He said the subgrantee recovered the overcharge from the
contractor.
[18] According to HUD officials, the two public housing agencies
returning funds received Recovery Act Capital Fund formula grants
based on having qualified housing units. However, one public housing
agency demolished its units and was not able to initiate work on
developing new units by the obligation deadline; the other used part
of its funds to demolish its existing units and returned the remaining
funds.
[19] The Leadership in Energy and Environmental Design (LEED) Green
Building Rating System certifies that a building was designed and
built for sustainability and energy efficiency. It has 4 levels:
certified, silver, gold, and platinum.
[20] The Recovery Act required public housing agencies to comply with
provisions not required for the regular Capital Fund grant, such as
the "Buy American" provision.
[21] We selected 12 of 23 transactions (non-salary/non-benefit)
related to the Recovery Act Capital Fund formula grant, which
represented about 93 percent of the total dollar value of
transactions, available as of March 8, 2010. We reviewed whether the
transactions were allowable and adequately supported by documentation,
such as approved invoices and whether payments were made to approved
vendors.
[22] HUD, Miami-Dade Public Housing Agency Needs to Strengthen
Controls over Its American Recovery and Reinvestment Act Funds, Audit
Memorandum No.: 2009-AT-1801 (Atlanta, GA, Sept. 25, 2009).
[23] Drinking Water funds are used for drinking-water infrastructure
projects and Clean Water funds are used for wastewater, storm water,
and non-point source infrastructure projects.
[24] Florida did not use all of the Recovery Act funds for its
Drinking Water SRF to fund projects. As allowed under amendments to
the Safe Drinking Water Act (SDWA), the state used a part of its funds
to support various non-infrastructure activities which have public
health benefits and assist in compliance with SDWA, such as technical
assistance to small systems.
[25] Priority is given to those Drinking Water projects that address
the most serious risks to human health, ensure compliance with federal
and state drinking-water regulations, and assist systems most in need
on a per household basis (affordability). Clean water projects are
given priority according to the extent each project is intended to
remove, mitigate, or prevent adverse effects on surface or ground
water quality and public health.
[26] In cases with only one bid, officials said the state requires
subrecipients to evaluate the specific elements of proposed costs and
profits.
[27] An estimated $2.5 million of the $3.0 million Recovery Act loan
is in the form of principal forgiveness, meaning the city does not
have to pay back these funds.
[28] GAO, Recovery Act: Funds Continue to Provide Fiscal Relief to
States and Localities, While Accountability and Reporting Challenges
Need to Be Fully Addressed (Appendixes), [hyperlink,
http://www.gao.gov/products/GAO-09-1017SP] (Washington, D.C.: Sept.
2009).
[29] City and county Recovery Act funds referred to in this section
include only funds administered by city and county governments and not
the full scope of Recovery Act funds--including unemployment
insurance, Medicaid, and highways--that benefit city and county
residents. For example, Recovery Act highway funds are being used in
Orlando and Orange County that total $3.8 million and $12.9 million,
respectively.
[30] City and county officials explained that Central Florida has been
affected by the economic downturn, including high numbers of
foreclosures, decreased home values, and a related drop in property-
tax revenues. This revenue accounts for about 30 percent and 50
percent of the general fund in Orlando and Orange County,
respectively. In Orlando, the 2009 median home value was $130,000
compared with $220,000 in 2008, and foreclosures have risen to about
31,000 in 2009 compared to an average of 3,000 to 4,000 prior to 2008,
officials stated. In addition, a decline in tourism decreased sales-
tax revenues because hotel occupancy rates dropped, officials said.
[31] Florida has a centralized system into which all 17 state agencies
report, then the information is uploaded to the federal system,
FederalReporting.gov.
[32] GAO, Recovery Act: One Year Later, States' and Localities' Uses
of Funds and Opportunities to Strengthen Accountability, [hyperlink,
http://www.gao.gov/products/GAO-10-437] (Washington, D.C.: Mar. 3,
2010).
[33] In the third reporting period ending March 31, 2010, the Recovery
Czar said he has identified a total of 188 potentially erroneous
Recovery Act fund awards--awarded to Florida through federal and state
agencies--listed with mismatched identifiers that were double counted
and with other types of errors.
[34] At the LEA, there was enough documentation to support the
reported numbers for the specific grant we reviewed, with the
exception of an immaterial variance of .90 of an FTE for Title I grant
funds, which the LEA identified and plans to adjust in the next
quarterly report, ending June 30th.
[35] Public housing agencies, as prime recipients do not report to the
Florida system because they receive Recovery Act funding directly from
a federal agency and not through a state agency.
[36] OMB now defines FTEs to be reported under section 1512 of the
Recovery Act as the total number of hours worked and funded by
Recovery Act dollars within the reporting quarter divided by the
quarterly hours in a full-time schedule.
[37] The following 16 states volunteered to participate in the
project: Alaska, California, Colorado, Florida, Georgia, Louisiana,
Maine, Missouri, Nevada, North Carolina, Ohio, Oklahoma, South Dakota,
Tennessee, Texas, and Virginia.
[38] GAO has previously reported that Florida has various agencies
responsible for monitoring, tracking, and overseeing financial
expenditures, assessing internal controls and ensuring compliance with
state and federal laws and regulations that include the Office of the
Chief Inspector General, Auditor General, and the Department of
Financial Services. Also, each state agency has an Office of Inspector
General responsible for conducting audits and investigations and
providing technical assistance. The Auditor General has broad audit
authority in Florida and routinely conducts Single Audits. The Florida
Department of Financial Services is responsible for settling the
state's expenditures and reporting financial information. Independent
certified public accountants also conduct annual financial audits of
local government entities. GAO, Recovery Act: Status of States' and
Localities' Use of Funds and Efforts to Ensure Accountability
(Appendixes), [hyperlink, http://www.gao.gov/products/GAO-10-232SP]
(Washington, D.C.: December 2009); [hyperlink,
http://www.gao.gov/products/GAO-09-1017SP]; Recovery Act: States' and
Localities' Current and Planned Uses of Funds While Facing Fiscal
Stresses (Appendixes), [hyperlink,
http://www.gao.gov/products/GAO-09-830SP] (Washington, D.C.: July
2009); and, Recovery Act: As Initial Implementation Unfolds in States
and Localities, Continued Attention to Accountability Issues Is
Essential, [hyperlink, http://www.gao.gov/products/GAO-09-580]
(Washington, D.C.: Apr. 23, 2009).
[39] The Inspector General plans to select subrecipients of various
grants for review each quarter.
[End of Appendix V]
Appendix VI: Georgia:
Overview:
The following summarizes GAO's work on the sixth of its bimonthly
reviews of American Recovery and Reinvestment Act of 2009 (Recovery
Act) spending in Georgia.[Footnote 1] The full report on our work,
which covers 16 states and the District of Columbia, is available at
[hyperlink, http://www.gao.gov/recovery].
What We Did:
We reviewed these programs funded under the Recovery Act--the
Weatherization Assistance Program, the Clean and Drinking Water State
Revolving Funds, the Public Housing Capital Fund, and the Tax Credit
Assistance and Section 1602 Tax Credit Exchange Programs. We looked in
more depth at the Weatherization Assistance Program because the
Recovery Act funds were a large increase over Georgia's annual
allocations and work had been under way for several months. We began
work on the Clean and Drinking Water State Revolving Funds and
continued work on the Public Housing Capital Fund because key Recovery
Act deadlines passed during the review period. We began work on the
Tax Credit Assistance and 1602 Tax Credit Exchange Programs--which
provide capital investments in low-income housing tax credit projects--
because significant Recovery Act funds had been obligated. For
descriptions and requirements of the programs covered in our review,
see appendix XVIII of GAO-10-605SP. Finally, we focused on the use of
Recovery Act funds by selected localities and the state's efforts to
ensure accountability over funds.
What We Found:
Following are highlights of our review.
* Weatherization Assistance Program. The U.S. Department of Energy
(Energy) allocated about $125 million in Recovery Act weatherization
funding to Georgia for a 3-year period. As of the end of March 2010,
the 22 contracted service providers in the state had completed 1,538
(about 11 percent) of the 13,617 homes to be weatherized with these
funds by March 2012. The state has taken a number of steps to increase
production, including providing additional training for new
weatherization workers. While monitoring has been slow to start, the
state has taken measures to address deficiencies we identified in
providers' procedures for determining client income eligibility and
prioritizing work.
* Clean and Drinking Water State Revolving Funds. The Environmental
Protection Agency (EPA) allocated about $122 million in Recovery Act
funding to Georgia for the Clean and Drinking Water State Revolving
Funds. The state used most of these funds to provide assistance to 59
projects. It reserved 21 percent of its Clean Water funds and 22
percent of its Drinking Water funds for green projects (such as those
that increase energy or water efficiency) and ensured that
subrecipients entered into construction contracts by February 17, 2010.
* Public Housing Capital Fund. The U.S. Department of Housing and
Urban Development (HUD) allocated about $113 million in Recovery Act
funding to 184 public housing agencies in Georgia to improve the
physical condition of their properties. As of May 1, 2010, these
agencies had obligated all of their funds and drawn down about $35
million. All met the Recovery Act requirement to obligate their funds
within 1 year of the date they were made available.
* Tax Credit Assistance and Section 1602 Tax Credit Exchange Programs.
Georgia received about $54.5 million in Tax Credit Assistance Program
funds and approximately $195.6 million in Section 1602 Tax Credit
Exchange Program funds. As of April 30, 2010, the state had committed
$184.3 million (about 74 percent) under both programs for 31 projects,
including the rehabilitation of 300 units for the elderly and persons
with disabilities in Atlanta, Georgia, and the construction of 52
units for persons over age 55 in Sandersville, Georgia. The state
expects to commit the remainder of its funds by June 2010.
* Selected localities' use of Recovery Act funds. DeKalb County, the
City of Savannah, and the City of Albany had been awarded $25.4
million, $9.6 million, and $5.9 million, respectively, as of May 4,
2010. These localities received funds for purposes ranging from
improving energy efficiency to hiring police officers.
* Accountability efforts. The State Auditor participated in the U.S.
Office of Management and Budget's (OMB) Single Audit Internal Control
Project, which required earlier communication of significant
deficiencies and material weaknesses in internal controls over
Recovery Act funds. The resulting report identified several
deficiencies at the Georgia Department of Transportation that the
department has implemented changes to address. Further, the State
Inspector General investigated two Recovery Act complaints, and
several internal audit departments have plans to audit or are already
auditing Recovery Act funds.
Georgia Has Been Taking Steps to Increase Production in the
Weatherization Assistance Program and Address Program Deficiencies:
Under the Recovery Act, the Georgia Environmental Facilities Authority
(GEFA), the agency that administers the Weatherization Assistance
Program, will receive approximately $125 million to weatherize 13,617
homes by March 2012.[Footnote 2] Energy approved Georgia's
weatherization plan on June 26, 2009, for the period April 1, 2009,
through March 31, 2012. GEFA awarded contracts to 22 service
providers--community action agencies, nonprofit agencies, or local
governments--which were in place prior to the Recovery Act. We visited
three providers--the City of Albany (Albany), Economic Opportunity
Authority for Savannah-Chatham County Area, Inc. (EOA-Savannah), and
Ninth District Opportunity, Inc. (Ninth District). [Footnote 3]
Although Production Has Increased in Recent Months, Georgia's Recovery
Act Weatherization Program Has Not Met Goals:
As of the end of March 2010, 1,538 homes (about 11 percent) had been
weatherized and about $15.3 million of the $99.7 million awarded to
service providers (about 15 percent) had been spent.[Footnote 4] In
March 2010, providers weatherized 370 units, below the monthly
production goal of about 500 homes (see figure 1). Although Georgia
did not meet this goal, Energy asked the state to increase its monthly
production to 700 units from April through September 2010.
Figure 1: Homes Weatherized in Georgia, August 2009 through March 2010:
[Refer to PDF for image: vertical bar graph]
Date: August 2009;
Actual: 42.
Date: September 2009;
Actual: 99.
Date: October 2009;
Actual: 126.
Date: November 2009;
Actual: 165.
Date: December 2009;
Goal: 115;
Actual: 205.
Date: January 2010;
Goal: 231;
Actual: 219.
Date: February 2010;
Goal: 496;
Actual: 312.
Date: March 2010;
Goal: 508;
Actual: 370.
Source: GEFA.
[End of figure]
Progress made by individual providers varied. Four providers,
including the three largest, had completed 5 percent or less of their
targeted number of homes as of the end of March 2010. The highest rate
was 21 percent. Table 1 shows the percentage of funds spent and homes
weatherized by all 22 service providers, as of the end of March 2010.
Table 1: Percentage of Funds Expended and Homes Weatherized by Service
Provider, as of the end of March 2010:
Service provider: Coastal Plain Area Economic Opportunity Authority,
Inc.; Counties served: 10;
Contract amount: $4,886,875;
Percentage drawn down: 18%;
Homes to be weatherized: 590;
Homes weatherized through March: 125; Percentage of homes weatherized:
21%.
Service provider: Tallatoona Community Action Partnership, Inc.;
Counties served: 6;
Contract amount: $4,103,205;
Percentage drawn down: 25%;
Homes to be weatherized: 563;
Homes weatherized through March: 119; Percentage of homes weatherized:
21%.
Service provider: EOA for Savannah-Chatham County Area, Inc.; Counties
served: 1;
Contract amount: $2,743,978;
Percentage drawn down: 12%;
Homes to be weatherized: 371;
Homes weatherized through March: 76;
Percentage of homes weatherized: 20%.
Service provider: West Central Georgia Community Action Council, Inc.;
Counties served: 8;
Contract amount: $2,448,384;
Percentage drawn down: 23%;
Homes to be weatherized: 336;
Homes weatherized through March: 63;
Percentage of homes weatherized: 19%.
Service provider: Southwest Georgia Community Action Council, Inc.;
Counties served: 14;
Contract amount: $5,469,280;
Percentage drawn down: 17%;
Homes to be weatherized: 753;
Homes weatherized through March: 140; Percentage of homes weatherized:
19%.
Service provider: Concerted Services, Inc. - Waycross; Counties
served: 8;
Contract amount: $3,455,919;
Percentage drawn down: 23%;
Homes to be weatherized: 478;
Homes weatherized through March: 78;
Percentage of homes weatherized: 16%.
Service provider: Middle Georgia Community Action Agency, Inc.;
Counties served: 12;
Contract amount: $6,358,846;
Percentage drawn down: 22%;
Homes to be weatherized: 870;
Homes weatherized through March: 130; Percentage of homes weatherized:
15%.
Service provider: Concerted Services, Inc. - Reidsville; Counties
served: 9;
Contract amount: $4,163,318;
Percentage drawn down: 19%;
Homes to be weatherized: 574;
Homes weatherized through March: 83;
Percentage of homes weatherized: 14%.
Service provider: Heart of Georgia Community Action Council, Inc.;
Counties served: 9;
Contract amount: $2,764,125;
Percentage drawn down: 21%;
Homes to be weatherized: 379;
Homes weatherized through March: 54;
Percentage of homes weatherized: 14%.
Service provider: Coastal Georgia Area Community Action Authority,
Inc.; Counties served: 6;
Contract amount: $3,384,006;
Percentage drawn down: 30%;
Homes to be weatherized: 468;
Homes weatherized through March: 66;
Percentage of homes weatherized: 14%.
Service provider: Clayton County Community Action Authority, Inc.;
Counties served: 3;
Contract amount: $3,250,251;
Percentage drawn down: 11%;
Homes to be weatherized: 452;
Homes weatherized through March: 56;
Percentage of homes weatherized: 12%.
Service provider: North Georgia Community Action, Inc.; Counties
served: 10;
Contract amount: $5,471,460;
Percentage drawn down: 9%;
Homes to be weatherized: 752;
Homes weatherized through March: 91;
Percentage of homes weatherized: 12%.
Service provider: City of Albany;
Counties served: 1;
Contract amount: $1,546,104;
Percentage drawn down: 15%;
Homes to be weatherized: 209;
Homes weatherized through March: 25;
Percentage of homes weatherized: 12%.
Service provider: Overview, Inc.;
Counties served: 7;
Contract amount: $2,463,271;
Percentage drawn down: 21%;
Homes to be weatherized: 340;
Homes weatherized through March: 38;
Percentage of homes weatherized: 11%.
Service provider: Area Committee to Improve Opportunities Now, Inc.;
Counties served: 10;
Contract amount: $5,010,500;
Percentage drawn down: 13%;
Homes to be weatherized: 687;
Homes weatherized through March: 70;
Percentage of homes weatherized: 10%.
Service provider: Partnership for Community Action, Inc.; Counties
served: 3;
Contract amount: $6,926,773;
Percentage drawn down: 8%;
Homes to be weatherized: 956;
Homes weatherized through March: 92;
Percentage of homes weatherized: 10%.
Service provider: Gwinnett County Board of Commissioners; Counties
served: 1;
Contract amount: $3,284,888;
Percentage drawn down: 7%;
Homes to be weatherized: 461;
Homes weatherized through March: 44;
Percentage of homes weatherized: 10%.
Service provider: Community Action for Improvement, Inc.; Counties
served: 6;
Contract amount: $4,138,220;
Percentage drawn down: 16%;
Homes to be weatherized: 569;
Homes weatherized through March: 44;
Percentage of homes weatherized: 8%.
Service provider: Central Savannah River Area EOA, Inc.; Counties
served: 13;
Contract amount: $7,000,302;
Percentage drawn down: 12%;
Homes to be weatherized: 962;
Homes weatherized through March: 50;
Percentage of homes weatherized: 5%.
Service provider: Enrichment Services Program, Inc.; Counties served:
8;
Contract amount: $3,758,994;
Percentage drawn down: 11%;
Homes to be weatherized: 512;
Homes weatherized through March: 25;
Percentage of homes weatherized: 5%.
Service provider: Southeast Energy Assistance; Counties served: 1;
Contract amount: $8,196,838;
Percentage drawn down: 16%;
Homes to be weatherized: 1,112;
Homes weatherized through March: 40;
Percentage of homes weatherized: 4%.
Service provider: Ninth District Opportunity, Inc.; Counties served:
14;
Contract amount: $8,837,469;
Percentage drawn down: 9%;
Homes to be weatherized: 1,223;
Homes weatherized through March: 29;
Percentage of homes weatherized: 2%.
Service provider: Total;
Counties served: 160;
Contract amount: $99,663,006;
Percentage drawn down: 15%;
Homes to be weatherized: 13,617;
Homes weatherized through March: 1,538; Percentage of homes
weatherized: 11%.
Source: GAO analysis of GEFA data.
Note: Georgia has 159 counties. However, both Albany and Southwest
Georgia Community Action Council, Inc. serve portions of Dougherty
County.
[End of table]
Weatherization work has been delayed for a variety of reasons. GEFA
officials explained that work has been delayed at the largest
providers primarily because of the need to hire and train new crews.
GEFA is coordinating training for all of the providers and has
contracted out its Recovery Act training.[Footnote 5] As of early
April 2010, the contractor had offered 16 training classes to about
300 students.[Footnote 6] However, GEFA officials explained that there
was still an unmet need for training. The large provider we visited
explained that delays were due to changes in the way services were
provided. To help meet the increased Recovery Act production targets,
Ninth District officials began contracting out services that it had
previously performed using in-house crews. They are still refining
their contracting procedures, but expect them to be fully implemented
by June 2010.
According to GEFA officials, they have taken steps to increase
production. First, GEFA has encouraged its training contractor to add
classes and required at least one person from each provider to be
trained to help provide on-the-job training to new staff. The
contractor also plans to visit each provider to offer on-site
technical assistance. Second, GEFA required each provider to create a
monthly production plan. Third, it modified the providers' contracts
to include actions it could take if the provider did not meet
production goals or work quality standards.[Footnote 7]
GEFA Expanded its Planned Oversight of the Weatherization Program, but
Has Been Slow to Start Monitoring:
GEFA has expanded its oversight of the Recovery Act Weatherization
Assistance Program by hiring a senior program manager and fiscal
monitor, buying a new Web-based reporting tool, and hiring contractors
for field and desk monitoring. The senior program manager works with
providers and ensures compliance with contracts, regulations, and
program goals. The fiscal monitor will visit each service provider to
review policies, practices, and internal controls; examine invoices
and payroll records; and identify problems. As of April 2, 2010, the
fiscal monitor had conducted three site visits. GEFA officials expect
a new Web-based reporting tool for managing weatherization assistance
programs, which will provide real-time information on production and
energy savings and standardized reporting, to be in place by July
2010. Currently, GEFA relies on monthly paper reports.
GEFA also has contracted with the University of Georgia Cooperative
Extension (UGA) for program oversight to be conducted by 26 monitors--
13 desk monitors and 13 field monitors.[Footnote 8] Prior to the
Recovery Act, GEFA's goal was to visit providers once a year. For the
Recovery Act program, UGA's desk and field monitors are to conduct
weekly visits to each provider to review file documentation and
inspect at least 10 percent of individual projects each month.
[Footnote 9] However, monitoring did not start until March 2010, and 5
of the 26 positions were vacant as of April 1, 2010. GEFA staff have
conducted technical assistance visits, but no formal on-site
monitoring occurred before monitors were hired.
UGA submitted its first monthly monitoring report, which consisted of
desk and field reports, on April 2, 2010. Because desk monitors had
not been hired for the three providers we visited, no desk reports
were submitted. The field reports for the three providers we visited
summarized insufficiencies for each house inspected, but did not
describe the provider's overall performance or major findings. In
addition, some individual inspection reports were incomplete.
According to GEFA and UGA officials, future monitoring reports will
include on-site assessment reports that rate each provider as very
good, good, or unacceptable in 17 areas, such as file documentation,
subcontractor administration, and program and financial reporting. The
reports also will describe issues that are of significant concern,
such as violations of eligibility guidelines or health and safety
problems.
File Reviews Identified Some Deficiencies:
Our review of 25 files and other documentation during site visits
conducted at three service providers found that providers
inconsistently followed Energy and GEFA guidance for procuring
contractors, prioritizing clients for service, determining client
eligibility, and prioritizing work.[Footnote 10] We raised these
issues with GEFA, and officials said they are taking steps to address
them.
Procuring Contractors:
GEFA's Weatherization Procedures Manual and the contract the providers
signed with GEFA include guidelines about contractor procurement and
compliance with Recovery Act provisions such as Davis-Bacon wage
requirements.[Footnote 11] We found that some of these requirements
were not consistently followed.
Ninth District: According to GEFA and Ninth District officials, the
Ninth District did not initially use a competitive process to
determine the contract price for each house, a GEFA requirement.
Rather, officials explained that they solicited bids from contractors
and developed a standard price for each item. On the basis of guidance
from GEFA, the Ninth District changed its procurement methods in
February 2010. According to officials, work now is competitively bid
from a pool of three to five subcontractors, and contracts awarded per
home based on price, timelines, and previous performance and
workmanship history.
Albany: We reviewed four contracts and did not find language requiring
compliance with Recovery Act requirements, including Davis-Bacon
prevailing wages. We also found and Albany officials agreed that the
contracts did not include GEFA's requirement that each contractor have
liability insurance of at least $3 million in aggregate and $1 million
per occurrence; instead, each included a $300,000 threshold.
EOA-Savannah: EOA-Savannah officials confirmed that the contracts we
reviewed were awarded competitively and included Recovery Act
provisions. However, they were not awarded for a specified amount.
[Footnote 12] Savannah officials told us they used a competitive
process to identify the lowest bidder, but the contracts did not
include the prices negotiated with the contractor. According to the
officials, contractors provide a verbal price for approval before
beginning work, with a final invoice payable after completing work.
Further, we found and EOA-Savannah officials confirmed that Savannah's
contractors did not carry the state-required level of liability
insurance, with coverage ranging from $1 million to $2 million in
aggregate.
According to GEFA officials, they have identified issues related to
procurement, such as a need for more education on contracting
requirements. GEFA plans to provide procurement training for
providers, but has not yet found a contractor to lead the training.
UGA monitors also will review each provider's contracts and
procurement processes to ensure compliance with GEFA policies.
Prioritizing Clients:
GEFA identified populations to be given priority for assistance in the
Recovery Act weatherization plan it submitted to Energy: the elderly,
elderly with a disability, and persons with disabilities. Households
containing children and households with high energy use or burden also
were given priority. GEFA included the priorities in its contract with
service providers, which also lists other criteria including potential
energy savings and benefits directed to unit occupants.
EOA-Savannah and Albany officials explained that they prioritized
clients based on age, disability status, presence of children, and
energy burden, but there was no documentation in the files we reviewed
that supported this. The Ninth District had developed a prioritization
sheet for each client that awarded points based on demographics
(elderly, family status, income, house type), with the most points
awarded to elderly clients and persons with disabilities. Ninth
District officials were able to provide this sheet for four of the
five homes in our file review.[Footnote 13]
While GEFA's guidance for client prioritization may not be implemented
consistently, GEFA officials stated that their new Web-based reporting
tool (scheduled for release in July) should automate and standardize
prioritization. More specifically, the system will prioritize
applicants based on age (households with people under 12 or over 60),
disability status, household size, waiting time, high energy use or
burden, and poverty level.
Determining Client Income Eligibility:
A home is eligible for the Recovery Act Weatherization Assistance
Program if household income is at or below 200 percent of the poverty
level.[Footnote 14] Energy provided guidance to states on how to
determine income eligibility, and GEFA distributed that guidance to
providers and included a checklist on its application form.[Footnote
15] However, the GEFA form does not include all the types of income in
Energy's guidance. It includes public assistance payments, wages and
self-employment income, and retirement payments such as Social
Security but excludes interest, dividends, rental property, and
annuities and other types of nonretirement income. The 25 files we
reviewed did not include evidence that interest or dividend
information (or other types of income excluded from the application)
was considered during application.
UGA officials stated two monitors had identified problems with income
verification and conducted additional training with providers. In
addition, UGA monitors developed a sample file with the types of
documentation that providers' files should contain; it includes a
comprehensive checklist of sources of income to consider for income
eligibility. The checklist should help providers, but none of the
files we reviewed contained it.
Prioritizing Weatherization Work:
Energy guidance allows states to use priority lists (subject to
Energy's approval) in conjunction with an energy audit to prioritize
weatherization activities.[Footnote 16] GEFA's approved list includes
air sealing and attic insulation as the highest priority items and
heating and cooling systems and water heaters as the lowest priorities.
According to GEFA officials, GEFA's provider contract requires that
the priority list be followed and that an assessment form relating to
the list be completed for each home. However, two of the three
providers we visited did not consistently use this form. In Albany, 3
of the 10 files included the completed form, while in Savannah 5 of
the 10 files did. All 5 Ninth District files we reviewed had the form.
Albany and EOA-Savannah used other methods to document their
assessment of work required. In Albany, staff prepared a summary sheet
of major items identified that was also used as a work order to
solicit bids from contractors. EOA-Savannah officials used handwritten
notes from the initial inspection to document major leaks or items to
repair. However, without the GEFA form, it was difficult to determine
if the state's priority list had been followed. According to Albany
officials, they were revising procedures to include GEFA's form. EOA-
Savannah officials stated that they had started using GEFA's form.
According to GEFA officials, in March 2010 they made the assessment
form more user-friendly, reducing the number of pages from 16 to 8.
Georgia Used Clean and Drinking Water State Revolving Funds to Assist
Almost 60 Projects and Ensured That Subrecipients Met Milestones:
Georgia received about $122 million in Recovery Act funding from EPA
for the Clean and Drinking Water State Revolving Funds (SRF).[Footnote
17] GEFA and the Georgia Environmental Protection Division (EPD)
administer both SRFs. GEFA applies for and receives funds, complies
with reporting requirements, and finances SRF loans, and has
designated EPD to perform monitoring and compliance reviews for SRF
loans.
Despite Challenges, Georgia Met the Recovery Act SRF Funding
Requirements and Contract Deadline:
GEFA allocated approximately $84.3 million in Recovery Act funds for
the Clean Water SRF and approximately $36.7 million in Recovery Act
funds for the Drinking Water SRF.[Footnote 18] GEFA used Recovery Act
funds to provide assistance to 59 projects in 54 communities.[Footnote
19] As shown in figure 2, 34 of these projects serve disadvantaged
communities.[Footnote 20]
Figure 2: Projects Funded with Georgia's Recovery Act Clean and
Drinking Water SRFs:
[Refer to PDF for image: illustration]
Recovery Act projects by type:
Of the 38 clean water projects:
10 were ’green“ projects;
26 were in disadvantaged communities.
Of the 21 drinking water projects:
6 were ’green“ projects;
8 were in disadvantaged communities.
Source: GEFA.
[End of figure]
GEFA considered SRF loan applications for three categories--rural,
nonrural, and green.[Footnote 21] GEFA verified that all applications
met basic SRF eligibility requirements, such as eligible project
types. Eligible projects were reviewed and prioritized based on
information such as the status of project design, environmental
reviews required or completed, and the anticipated construction
schedule. Additionally, officials considered whether the Drinking
Water SRF projects directly addressed public health issues. Officials
explained that the agency received 1,311 preapplications, about seven
times the number GEFA received for the 2008 base SRF programs.
The Recovery Act requires states to meet certain funding targets. They
must reserve at least 20 percent of SRF funds for green projects.
States also must use at least 50 percent of SRF funds for additional
subsidization (additional financial assistance beyond a low-or no-
interest loan), which could include forgiveness of SRF loan principal,
negative interest SRF loans, or SRF grants. GEFA exceeded these
targets:
* Twenty-one percent of Clean Water SRF funds and 22 percent of
Drinking Water SRF funds were awarded to green projects, such as green
infrastructure and projects that increase energy and water efficiency.
* The state awarded 65 percent of Clean Water SRF funds and 60 percent
of Drinking Water SRF funds in the form of principal forgiveness (to
address the additional subsidization requirement).
The Recovery Act also required each state to prioritize funds for
projects that were ready to proceed to construction within 12 months
of enactment (Feb. 17, 2010) and directed EPA to reallocate any funds
for projects that were not under contract by this date. GEFA set
interim deadlines to ensure that projects in Georgia met this
deadline. More specifically, GEFA required applicants to certify that
they could instruct contractors to begin work for proposed projects by
November 1, 2009.[Footnote 22] Officials stated they faced challenges
in meeting the deadline due to the increased workload and changes to
the guidance on the green reserve requirement. EPA revised its
guidance on the green reserve requirement after the state had approved
its final list of Clean and Drinking Water SRF projects. This resulted
in two previously approved projects no longer meeting the green
reserve requirement. According to officials, this change required GEFA
to take additional time to (1) ensure that its green projects met the
green reserve requirement and (2) obtain EPA's approval of its list.
Georgia Modified Its Oversight of SRF Projects to Address Recovery Act
Requirements:
In addition to applying base SRF program oversight policies and
procedures to all Recovery Act SRF projects, GEFA and EPD have added
unique procedures. For example, GEFA implemented a Web-based reporting
tool for SRF subrecipients to provide data on direct jobs created and
retained with Recovery Act funds. EPD added procedures to monitor
subrecipients' compliance with Buy American requirements.
Subrecipients are now required to maintain adequate source
documentation for project components, such as certifications from
manufacturers, shipping manifests, and documentation that a project
owner determined that manufactured goods were assembled in the United
States.
As with base SRF projects, EPD officials stated they conduct oversight
of Recovery Act projects from initial application through completion.
All subrecipients must attend a preconstruction conference, and EPD
conducts monthly site visits to ensure work is consistent with
approved project plans and contract requirements. EPD officials said
that during the on-site inspections, they review Buy American
documentation and examine country of origin labels. EPD also reviews
invoices before GEFA reimburses subrecipients.
SRF Projects Have Provided Economic and Other Benefits in Georgia:
GEFA collects some environmental and health performance measures for
base and Recovery Act SRF projects. For example, it requests
information from subrecipients on energy conservation and solid waste
and pollution reduction. For Recovery Act projects, GEFA also reports
on direct jobs created and retained with the funds. GEFA reported that
343.8 full-time equivalents (FTE) were created or retained from
January 2010 to March 2010.[Footnote 23] During our site visit to the
City of Tennille, officials provided examples of SRF benefits:
[Footnote 24]
* The city used a green Drinking Water SRF loan for new residential
and commercial water meters, which officials said would help (1)
identify sources of water loss (they had more than 44 percent water
loss in 2007 through 2009), (2) increase revenues, and (3) encourage
conservation.
* A Clean Water SRF loan partially funded an upgrade to the wastewater
facility that officials believe will reduce system failures and sewage
overflow into storm water facilities.
Housing Agencies in Georgia Have Obligated All of Their Recovery Act
Formula Grants:
In Georgia, 184 public housing agencies received about $113 million in
Public Housing Capital Fund formula grants (see figure 3). These grant
funds were provided to the agencies to improve the physical condition
of their properties. As of May 1, 2010, these agencies had obligated
100 percent of the funds and drawn down about $35 million (31.5
percent). We interviewed four: the Housing Authority of the City of
Atlanta (Atlanta Housing Authority), the Housing Authority of the City
of Macon (Macon Housing Authority), the Housing Authority of the City
of McDonough (McDonough Housing Authority), and the Housing Authority
of the City of Villa Rica (Villa Rica Housing Authority).[Footnote 25]
Figure 3: Percentage of Public Housing Capital Fund Formula Grants
Allocated by HUD That Had Been Obligated and Drawn Down in Georgia, as
of May 1, 2010:
[Refer PDF for image: 3 pie-charts and 1 horizontal bar graph]
Funds obligated by HUD: 100% ($112,675,806); Funds obligated by public
housing agencies: 100% ($112,675,806); Funds drawn down by public
housing agencies: 31.5% ($35,478,002).
Number of public housing agencies:
Were allocated funds: 184;
Obligated 100% of funds: 184;
Have drawn down funds: 164.
Source: GAO analysis of data from HUD's Electronic Line of Credit
Control System.
[End of figure]
The Recovery Act requires public housing agencies to obligate their
funds within 1 year of the date they were made available, or by March
17, 2010. In Georgia, all public housing agencies obligated their
funds by that date. However, 21 agencies had not obligated any funds
as of mid-February 2010 and were in danger of missing the deadline, as
the following examples illustrate.
* According to the McDonough Housing Authority, it obligated the
approximately $215,000 it received by awarding a contract on February
18, 2010. An agency official explained that the delay was due to the
small size of the housing agency and the busy schedule of the
consultant hired to manage the contract bidding process. The agency
awarded the contract for new doors, windows, blinds, and screens at 27
housing units.
* The Villa Rica Housing Authority obligated the approximately
$276,000 it received on March 8, 2010. An agency official explained
that the challenge in obligating Recovery Act capital funds was
identifying the best use of the funds. Because the housing agency was
seeking HUD approval to demolish its existing units and replace them
with a midrise housing development for seniors, the official did not
want to put capital into units scheduled for demolition. Ultimately,
the agency obligated its funds for construction of a new maintenance
building and new sidewalks that could remain in place for the planned
senior development.
HUD field office staff in Atlanta took measures to ensure that the
public housing agencies in Georgia met the obligation deadline.
Specifically, the officials actively monitored obligation rates and
conducted outreach through e-mails, phone calls, and site visits to
agencies that were slow to obligate the funds. For the 21 agencies
that had not obligated any funds as of mid-February 2010, HUD field
staff made calls to the agencies' boards of directors and the mayors
of the cities in which agencies were located to inform them about the
potential loss of Recovery Act funds if their local housing agency did
not act quickly to meet the obligation deadline.
Despite Some Challenges, Georgia Has Committed the Majority of Its Tax
Credit Assistance Program and Section 1602 Tax Credit Exchange Program
Funds:
The Recovery Act established two funding programs that provide capital
investments in low-income housing tax credit projects: (1) the Tax
Credit Assistance Program (TCAP) administered by HUD and (2) the
Section 1602 Tax Credit Exchange Program (Section 1602 Program)
administered by the U. S. Department of the Treasury (Treasury).
[Footnote 26] TCAP and the Section 1602 Program were designed to fill
financing gaps in planned tax credit projects and jumpstart stalled
projects. According to Georgia officials, such funding was needed
because of a decline in pricing and a lack of investors in the tax
credit market. They reported that actual prices paid per dollar of tax
credit declined on average from $0.91 in 2007, to $0.88 in 2008, and
to $0.65 in 2009.[Footnote 27] According to our survey of housing
finance agencies, this compared to the national average of $0.67 in
2009. Officials also noted investors were reluctant to participate in
projects in rural areas and metropolitan Atlanta due to the large
number of foreclosures.
Georgia Awarded Funding to 31 Projects and Expects to Commit the Rest
of Its Funds by June 2010:
Georgia received about $54.5 million in TCAP funds. As of April 30,
2010, the Georgia Department of Community Affairs (DCA)--which
administers the low-income housing tax credit program--had approved
TCAP funding for seven projects containing 970 units (including 875
tax credit units).[Footnote 28] For these projects, Georgia had
committed $44.1 million (81 percent) and disbursed $13.3 million (24
percent). Under the Recovery Act, 75 percent of TCAP funds had to be
committed by February 2010. Georgia met this deadline successfully.
Seventy-five percent of TCAP funds must be expended by February 2011,
and 100 percent must be expended by February 2012. Georgia also
received about $195.6 million in Section 1602 Program funds. As of
April 30, 2010, DCA had approved Section 1602 Program funding for 24
projects containing 1,514 units (including 1,308 tax credit units).
For these projects, Georgia had committed $140.2 million (72 percent)
and disbursed about $28 million (14 percent). Under Section 1602
Program rules, all subawards must be made by December 2010, or the
housing finance agency must return the funds to Treasury. Housing
finance agencies must disburse 100 percent of Section 1602 Program
funds by December 2011. DCA expects to select additional projects and
commit the remainder of its TCAP and Section 1602 Program funds by
June 2010.
When selecting projects to fund, DCA first considered projects that
had received 2008 tax credits, but did not have adequate financing to
proceed. Once all the 2008 projects had been awarded funds, DCA then
considered 2009 tax-credit projects. Priority for funding was based on
several factors, including project readiness; improvements to the
quality, sustainability, and energy efficiency of affordable housing;
financial sustainability; and ability to meet federal wage and
environment requirements and create jobs.
We reviewed documentation on or visited three TCAP projects and four
Section 1602 Program projects.[Footnote 29] See table 2 for
information on each of these projects.
Table 2: Selected TCAP and Section 1602 Program Projects in Georgia:
Project name: Baptist Towers Apartments, Atlanta; Type of funding:
TCAP;
Recovery Act funds committed: $1,850,000; Type of construction:
Rehabilitation; Type of housing: Elderly;
Total number of housing units: 300;
Number of tax credit units: 268.
Project name: Riverview Heights (also known as Oconee Park), Dublin;
Type of funding: TCAP;
Recovery Act funds committed: $8,311,921; Type of construction:
Rehabilitation; Type of housing: Family;
Total number of housing units: 117;
Number of tax credit units: 115.
Project name: Sustainable Fellwood, Phase II, Savannah; Type of
funding: TCAP;
Recovery Act funds committed: $4,300,000; Type of construction: New;
Type of housing: Family;
Total number of housing units: 110;
Number of tax credit units: 99.
Project name: Antigua Place, Moultrie; Type of funding: Section 1602
Program; Recovery Act funds committed: $2,102,746; Type of
construction: New;
Type of housing: Over age 55;
Total number of housing units: 40;
Number of tax credit units: 36.
Project name: Camellia Lane, Sandersville; Type of funding: Section
1602 Program; Recovery Act funds committed: v8,348,674; Type of
construction: New;
Type of housing: Over age 55;
Total number of housing units: 52;
Number of tax credit units: 52.
Project name: The Landing at Southlake, Albany; Type of funding:
Section 1602 Program; Recovery Act funds committed: $5,125,000; Type
of construction: New;
Type of housing: Over age 55;
Total number of housing units: 40;
Number of tax credit units: 36.
Project name: Waterford Estates, Dublin; Type of funding: Section 1602
Program; Recovery Act funds committed: $9,500,000; Type of
construction: New;
Type of housing: Family;
Total number of housing units: 56;
Number of tax credit units: 50.
Source: DCA.
[End of table]
According to Georgia officials, none of the projects awarded Recovery
Act funding could have proceeded without these funds. With TCAP
funding, the developer of the stalled Riverview Heights project is now
converting an outdated development in an economically challenged area
into modern Section 8 housing. Similarly, the Baptist Towers
Apartments, an older high-rise for the elderly and disabled, is now
undergoing significant renovation and modernization with TCAP funding.
(See figure 4 for pictures of the rehabilitation ongoing at Riverview
Heights and Baptist Towers Apartments.) The Camellia Lane developer
said that the project could not have started without Section 1602
Program funding because no investors were willing to finance the rural
project. Camellia Lane will provide 52 new residences with geothermal
heating and cooling for persons over age 55 in an area with limited
housing for seniors.
Figure 4: Rehabilitation of Riverview Heights and Baptist Towers
Apartments:
[Refer to PDF for image: 4 photographs]
Bathroom and kitchen at Baptist Towers Apartments prior to renovation
(2);
Bathroom and kitchen at Baptist Towers Apartments after renovation;
Riverview Heights community center under construction.
Source: GAO.
[End of figure]
Although Progress Has Been Made, Georgia Faced Some Implementation
Challenges:
Although DCA officials were pleased with overall progress, they
reported some challenges relating to increased workloads, reporting,
and cost certification. To manage the increased workload, they delayed
the 2010 round of low-income housing tax credits by 60 days to
complete processing of Recovery Act projects. They also hired a
temporary staff person to help with loan processing.
DCA officials also reported that complying with some Recovery Act
reporting requirements was difficult. For example, they initially
experienced some challenges in reporting on environmental requirements
in HUD's Recovery Act Management and Performance System. In addition,
they reported that it required two staff to comply with recipient
reporting requirements. To ensure the reliability of job data, DCA
officials said they compare the numbers to payroll records. When
discussing the procedure for calculating jobs created, the officials
said that the reported job numbers were understated. They believed
prorating job numbers based on the percentage of project funding
provided by the Recovery Act was misleading because the project might
not have been completed without those funds.
A new process that DCA used to ensure that project costs were
reasonable also was time-consuming. DCA worked with a local university
on comprehensive cost and energy efficiency analyses for funded
projects. The analyses were based on actual bids from subcontractors
for the projects and resulted in increased energy efficiency and
reduced costs of $5 million, according to DCA officials. While
acknowledging the utility of the cost certification process, one
developer we interviewed estimated it took 6 months to complete.
Georgia Accelerated Its Use of Recovery Act Funds, and Selected
Localities Have Begun to Receive Recovery Act Funds:
Georgia moved Recovery Act funds planned for use in the fiscal 2011
budget to the 2010 budget because of declining revenues.[Footnote 30]
Localities we visited began receiving Recovery Act funds, and they had
varying budget situations.
Declining Revenues Forced Georgia to Accelerate Its Use of Recovery
Act Funds:
Georgia's year-to-date revenues as of March 2010 were almost 12
percent less than they were as of March 2009. To cover part of the
shortfall, the Governor proposed amending the fiscal year 2010 budget
by accelerating use of State Fiscal Stabilization Fund monies.
According to state officials, the legislature approved moving $342.6
million planned for use in fiscal year 2011 to fiscal year 2010. The
state's fiscal year 2011 budget included about $2 billion in Recovery
Act funds, and also eliminated vacant positions and reduced
expenditures in multiple departments. Georgia drew down its reserve
fund to $103.7 million from a high of $1.5 billion in fiscal year
2007. Georgia is preparing for the cessation of Recovery Act funds by
continuing to reduce spending levels.
Selected Localities in Georgia Also Received Recovery Act Funds:
We visited three local governments--DeKalb County, the City of
Savannah, and the City of Albany--to discuss their use of Recovery Act
funds and fiscal condition.[Footnote 31] See table 3 for demographic
and economic overview information.
Table 3: Information on Three Localities Visited by GAO:
Locality: DeKalb County;
Locality type: County;
Population[A]: 747,274;
Unemployment rate (percentage)[B]: 10.4; FY 2010 budget (in
millions)[C]: $1,231.
Locality: Savannah;
Locality type: City;
Population[A]: 132,410;
Unemployment rate (percentage)[B]: 9.8; FY 2010 budget (in
millions)[C]: $324.
Locality: Albany;
Locality type: City;
Population[A]: 75,831;
Unemployment rate (percentage)[B]: 12.5; FY 2010 budget (in
millions)[C]: $104.
Sources: GAO analysis of U.S. Census Bureau data; U.S. Department of
Labor, Bureau of Labor Statistics, Local Area Unemployment Statistics;
and budget documents.
[A] City population data are from the latest available estimate, July
1, 2008. County population data are from the latest available
estimate, July 1, 2009.
[B] Unemployment rates are preliminary estimates for March 2010 and
have not been seasonally adjusted. Rates are a percentage of the labor
force. Estimates are subject to revision.
[C] DeKalb County officials provided their operating budget. DeKalb
County and Savannah have a fiscal year ending on December 31, while
Albany has a fiscal year ending June 30.
[End of table]
DeKalb County, Georgia:
According to county officials, DeKalb County had been awarded about
$25.4 million in Recovery Act funds as of May 4, 2010. The largest
award was a $6.5 million Energy Efficiency and Conservation Block
Grant from Energy. Other funding came from programs such as the Edward
Byrne Memorial Justice Assistance Grant Program, the Homelessness
Prevention and Rapid Re-housing Program, and the Community Oriented
Policing Services (COPS) Hiring Recovery Program. County officials
stated that because Recovery Act funds were used mostly for one-time
capital projects, the county's strategy for winding down their use
will be to rely on prior capital funding sources. DeKalb County had a
balanced fiscal year 2010 operating budget of approximately $1.2
billion. To balance the budget, the county reduced overtime payments,
limited purchasing, and began an early retirement program. DeKalb
County has an internal auditor who plans to review Recovery Act
expenditures as of April 7, 2010. Reviews of various programs that
expended Recovery Act funds began in April 2010 and will end by May
2010.
Savannah, Georgia:
According to city officials, Savannah had been awarded $9.6 million in
Recovery Act funds as of May 4, 2010. The city's largest award was a
$1.7 million Port Security Grant for supporting emergency management
and response at the city's port. The city also was awarded funds under
the Homelessness Prevention and Rapid Re-housing Program and Energy
Efficiency and Conservation Block Grant Program, among others.
[Footnote 32] City officials stated that since most of the Recovery
Act funds were for one-time expenses, they did not need to develop a
strategy for winding down their use of the funds.
Savannah had a balanced fiscal year 2010 budget of about $324 million.
To balance its budget, Savannah froze hiring and salaries and
eliminated vacant positions. According to city officials, they planned
for an economic downturn by setting up a special reserve funded with
excess proceeds from the sales tax. These funds helped fill revenue
gaps during the downturn.
The finance and internal audit departments have oversight over
Savannah's Recovery Act funds. The internal audit department's plans
for fiscal year 2010 include overseeing grants as a whole, rather than
Recovery Act funds specifically. If a grant at a city department is
reviewed, the internal auditor will also review associated Recovery
Act spending. The internal auditor has not issued any reports on
Recovery Act funding to date.
Albany, Georgia:
According to city officials, Albany had been awarded approximately
$5.9 million in Recovery Act funding as of May 4, 2010, including
about $1.4 million under the COPS Hiring Recovery Program grant. The
city also received about $771,000 in Energy Efficiency and
Conservation Block Grant funds and about $310,000 in Community
Development Block Grant funds, among other grants. While the Recovery
Act provided additional funding for Albany, city officials stated the
funds were not essential for operations because they expanded current
operations rather than created new services. When the Recovery Act
funds have been used, officials stated they would scale back their
operations to the previous level. Albany has a fiscal year 2010 budget
of about $104 million, and officials characterized its fiscal
condition as stable. However, city officials planned to use $3 million
to $4 million from cash reserves for budget shortfalls. Officials said
absent Recovery Act funds, essential city projects could have been
funded either by the special local options sales tax, an increase of
property taxes, or draw downs from cash reserves. Although the city
does not have an internal auditor, a staff person in the finance
department coordinates Recovery Act grants and has oversight
responsibilities. Officials expect that the city's 2010 Single Audit
performed by an external auditor will cover Recovery Act funds.
[Footnote 33]
Georgia's Accountability Community Is Auditing Recovery Act Funding:
The State Auditor, the State Inspector General, and agencies' internal
audit departments are responsible for auditing and investigating
Recovery Act funds. The State Auditor's oversight of Recovery Act
funds occurs primarily through the Single Audit, as the following
examples illustrate:
* The State Auditor participated in OMB's Single Audit Internal
Control Project.[Footnote 34] On December 28, 2009, the State Auditor
issued an internal control letter based on an audit of the State
Fiscal Stabilization Fund Cluster and the Highway Planning and
Construction Cluster.[Footnote 35] It did not identify any findings
related to its review of the State Fiscal Stabilization Fund cluster.
However, it identified three significant deficiencies and one material
weakness at the Georgia Department of Transportation. The significant
deficiencies were noted for the following control categories: cash
management, reporting, and special tests and provisions. These
involved inconsistencies in the reporting of disbursement dates and
the reimbursement request dates, failure to submit an accurate
Schedule of Expenditures of Federal Awards, and failure to complete
and maintain quarterly materials certificate checklists. The
deficiency in cash management and reporting was a material weakness.
The State Auditor noted that failure to have adequate cash management
policies and procedures in place could result in noncompliance with
federal regulations and may affect the proper recording of federal
program revenues, causing misstatements within the financial
statements. The Georgia Department of Transportation agreed with the
findings and stated that it had implemented changes to address them.
* For the final fiscal year 2009 Single Audit report, the State
Auditor included audits of Recovery Act programs administered by GEFA
and the Georgia Departments of Community Health, Education, Human
Resources, Labor, and Transportation. According to the State Auditor
and other independent auditors, there were 19 findings related to
programs with Recovery Act expenditures. For example, the Georgia
Department of Human Resources did not record Recovery Act expenditures
separate from regular expenditures on its Schedule of Expenditures of
Federal Awards, which could result in material misstatements in the
agency's financial statements.[Footnote 36] According to department
officials, this error was corrected prior to being reported in the
final Schedule of Expenditures of Federal Awards.
* The State Auditor plans to conduct additional audits of Recovery Act
programs for the fiscal years 2010 and 2011 Single Audits.
Due to limited staffing, the State Inspector General has taken a
complaint-based approach to investigate alleged misuse of Recovery Act
funds. Each state agency must notify the Inspector General when a
complaint has been filed with the agency. Citizens can submit
complaints directly to the Inspector General using a form on its Web
site. To date, the Inspector General has received two complaints
directly. A complaint received in Fall 2009 was based on citizen
dissatisfaction with Recovery Act funds being used to purchase road
signs for Georgia Department of Transportation projects. As of
September 2009, the department had stopped the practice of posting
these signs. Upon further investigation, the second complaint turned
out not to be related to Recovery Act funds.
A number of state agencies, including the Board of Regents of the
University System of Georgia, the Georgia Departments of
Transportation and Human Services, and GEFA, have internal audit
departments that plan to audit or are already auditing Recovery Act
funds. For example, the Board of Regents of the University System of
Georgia, which oversees 35 public colleges and universities in the
state, has audited institutions directly or reviewed reports completed
by institutions following an audit plan it provided. The 10 audit
reports we reviewed did not find any significant weaknesses with
Recovery Act funds. However, one report found that the institution
could make improvements to its written documentation for specific
procedures.
The State Accounting Office continues to monitor Recovery Act
recipient reporting by reviewing the data each state agency submits
for reasonableness and potential inaccuracies. In addition, it is
tracking state agencies' progress in addressing Single Audit findings
and plans to produce quarterly reports. Beginning in May 2010, the
office plans to start an internal control initiative working with
state agencies, particularly those identified as high risk in the
Single Audit, to provide additional internal control training on
topics such as subrecipient monitoring and cash management issues. In
addition to internal control training, the State Accounting Office is
working with the Recovery and Transparency Board to conduct fraud,
waste, and abuse prevention training for selected agencies in June
2010.
State Comments on This Summary:
We provided the Governor of Georgia with a draft of this appendix on
May 7, 2010, and a representative from the Governor's office responded
that same day. The official agreed with our draft, stating that it
accurately reflects the current status of the Recovery Act program in
Georgia.
GAO Contacts:
Alicia Puente Cackley, (202) 512-7022 or cackleya@gao.gov:
John H. Pendleton, (404) 679-1816 or pendletonj@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Paige Smith, Assistant
Director; Nadine Garrick Raidbard, analyst-in-charge; Waylon Catrett;
Chase Cook; Marc Molino; Daniel Newman; Barbara Roesmann; David
Shoemaker; and Robyn Trotter made major contributions to this report.
[End of section]
Footnotes:
[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009).
[2] The Recovery Act appropriated $5 billion for the Weatherization
Assistance Program, which Energy is distributing to each of the
states, the District, and seven territories and Indian tribes, to be
spent by March 31, 2012. This program enables low-income families to
reduce their utility bills by making long-term energy-efficiency
improvements to their homes by, for example, installing insulation or
modernizing heating or air conditioning equipment.
[3] Ninth District Opportunity, Inc. is located in Gainesville,
Georgia. We selected these three providers based on their location,
the size of the weatherization program, and progress as of the end of
January 2010.
[4] GEFA will use the balance of the $125 million allocation for
monitoring, training, and technical assistance, among other things.
[5] GEFA contracted with Southface Energy Institute--a nonprofit that
promotes comfortable, energy-, water-, and resource-efficient homes,
workplaces, and communities--to provide training to weatherization
workers.
[6] At the end of each class, each student must pass a written exam.
Members that fail portions of the classes are given remedial
instruction by GEFA or are limited in the work that they can undertake
until they successfully pass the course.
[7] According to GEFA officials, if a sub-grantee is not meeting
production goals and/or work quality standards GEFA may: (1) allow the
recipient to continue operations at the existing funding level and
thereafter conduct weekly performance reviews; (2) reduce the funding
level for the recipient and provide unexpended dollars to another sub-
grantee; (3) require the sub-grantee to select a nonprofit delegate in
cooperation and with assistance from GEFA to meet production goals in
a specified time frame; or (4) reduce the funding to the sub-grantee
and provide the dollars on a competitive basis to a qualified
nonprofit to serve the defined geographic territory.
[8] The Cooperative Extension provides research-based education in
agriculture, the environment, communities, and youth and families, and
has the ability and authority to conduct monitoring.
[9] The desk monitors will review contracting documents, compliance
with Davis-Bacon requirements, and file documentation. In addition,
desk monitors will educate clients on energy saving tips and customer
behaviors and track the results of those efforts. The field monitors
will inspect 10 percent of the homes weatherized each month for
overall effectiveness, workmanship, appearance, and compliance with
installation standards.
[10] In Albany and Savannah, we reviewed the files for 10 completed
homes. We selected a simple random sample from among the completed
homes. At the Ninth District, we reviewed five files because only five
homes had been completed at the time of our visit. At all three
locations, we also inspected five homes (three completed homes, one
where work was ongoing, and one undergoing an energy audit).
[11] Historically, the Weatherization Assistance Program funded
through the regular appropriations process has not been subject to the
Davis-Bacon Act. However, the Recovery Act does require compliance
with Davis-Bacon provisions. Under section 1606, division A, of the
Recovery Act, all contractors and subcontractors performing work on
projects funded in whole or in part by Recovery Act funds must pay
their laborers and mechanics not less than the prevailing wage rates
and fringe benefits for corresponding classes of laborers and
mechanics employed on similar projects in the area. The Secretary of
Labor determines the prevailing wage rates and fringe benefits for
inclusion in covered contracts.
[12] EOA-Savannah uses in-house crews to conduct the majority of
weatherization work, but uses contractors to install heating systems
and perform electrical work. The provider issued a request for
proposals for installation of five items--heating and air systems,
water heaters, stoves, bathroom exhaust fans, and kitchen vents and
hoods.
[13] A Ninth District official explained the fifth home was a test
case used for training purposes.
[14] The pre-Recovery Act Weatherization Assistance Program had an
income limit of 150 percent of the poverty level.
[15] Energy guidance lists the dollar amount of the 200 percent
poverty threshold for various family sizes, along with the types of
income to consider when determining eligibility.
[16] Energy allows states to use the National Energy Audit Tool
(NEAT), a computer-based audit that applies engineering and economic
calculations to evaluate energy conservation measures, or an energy
audit based on an approved priority list. According to GEFA officials,
Georgia has permission from Energy to use a priority list instead of a
NEAT audit for similar, single-family homes.
[17] The Clean and Drinking Water SRFs provide states and local
communities independent and permanent sources of subsidized financial
assistance, such as low-or no-interest loans for projects that protect
or improve water quality and that are needed to comply with federal
drinking water regulations.
[18] The remainder of the Recovery Act funding ($669,600) will be used
for water quality management planning.
[19] The majority of SRF projects receiving Recovery Act funds will
receive additional base SRF funding, and subrecipients will be
required to comply with the requirements of the Recovery Act for any
projects wholly or partially funded by the Recovery Act.
[20] GEFA defined disadvantaged communities as rural communities--or
those that have less than 50,000 residents and a poverty rate of 10
percent or higher--for the purposes of our reporting.
[21] Applicants (communities) could receive only one loan under either
the rural fund or the nonrural fund, whichever was applicable.
Applicants could also receive one loan under the green project fund.
[22] A number of applicants sought extensions, and after determining
that all applicants that made such requests had made strong progress
and a good faith effort to comply with the requirement, GEFA granted
the requests received.
[23] Full-time equivalents are the total number of hours worked and
funded by Recovery Act dollars divided by the number of hours in a
full-time schedule, as defined by the recipient.
[24] We selected a mix of SRF projects to visit: a green Drinking
Water SRF project in Tennille and Clean Water SRF projects in Tennille
and Cobb County.
[25] We interviewed officials from the Atlanta and Macon Housing
Authorities because they did not have difficulty meeting the March 17,
2010, deadline for obligating Public Housing Capital Fund formula
grants. We visited the McDonough and Villa Rica Housing Authorities
because they were slow to obligate their funds.
[26] State housing finance agencies allocate low-income housing tax
credits to owners of qualified rental properties who reserve all or a
portion of their units for occupancy for low-income tenants. Once
awarded tax credits, owners attempt to sell them to investors to
obtain funding for their projects. Investors can then claim tax
credits for 10 years if the property continues to comply with program
requirements.
[27] We sent a survey to the 50 state housing finance agencies, the
District of Columbia, Puerto Rico, Guam, and the U.S. Virgin Islands
in November and early December of 2009. We asked about the status of
program delivery, design, safeguards and controls, expected results,
and challenges to implementation. The response rate was 100 percent
(54 agencies).
[28] Because tax credit projects have multiple sources of financing,
they sometimes include other types of units.
[29] We selected Riverview Heights and Baptist Towers Apartments
because they were TCAP projects that had been awarded by December 31,
2009. We selected Antigua Place because it was a Section 1602 Program
project with a tax-credit investor and The Landing at Southlake
because it was a Section 1602 Program project without an investor. We
selected Camellia Lane because it was a rural green project. In
addition, we visited Sustainable Fellwood because DCA suggested it as
an interesting example of an urban green project and Waterford Estates
because of its proximity to Riverview Heights.
[30] The state's fiscal year begins on July 1.
[31] We chose these locations because they represented a mix of cities
and counties, population sizes, unemployment rates, and amount of
Recovery Act funds received.
[32] Funding that the City of Savannah received to provide summer
youth employment and adult and dislocated workers programs will be
used to serve a nine-county area.
[33] Single Audits are prepared to meet the requirements of the Single
Audit Act, as amended, and provide a source of information on internal
control and compliance findings and the underlying causes and risks.
The Single Audit Act requires states, local governments, and nonprofit
organizations expending $500,000 or more in federal awards in a year
to obtain an audit in accordance with the requirements in the act. A
Single Audit consists of (1) an audit and opinions on the fair
presentation of the financial statements and the Schedule of
Expenditures of Federal Awards; (2) gaining an understanding of and
testing internal control over financial reporting and the entity's
compliance with laws, regulations, and contract or grant provisions
that have a direct and material effect on certain federal programs
(i.e., the program requirements); and (3) an audit and an opinion on
compliance with applicable program requirements for certain federal
programs.
[34] OMB implemented a Single Audit Internal Control Project (project)
in October 2009. One of the goals of the project is to help achieve
more timely communication of internal control deficiencies for higher-
risk Recovery Act programs so that corrective action can be taken. The
project is a collaborative effort between the states receiving
Recovery Act funds that volunteered to participate, their auditors,
and the federal government. Under the project's guidelines, audit
reports were to be presented to management 3 months sooner than the 9-
month time frame required by the Single Audit Act and OMB Circular No.
A-133 for Single Audits. Sixteen states volunteered for the project
including Georgia, whose auditors issued their interim reports on
internal control for selected major Recovery Act programs by December
31, 2009, and a corrective action plan to the appropriate federal
agency by January 31, 2010.
[35] The State Fiscal Stabilization Fund Cluster includes Recovery Act
education stabilization and government services funds. The Highway
Planning and Construction Cluster includes Recovery Act and non-
Recovery Act funding for highway planning and construction and repairs
to recreational trails.
[36] The Georgia Department of Human Resources has since been
reorganized and renamed the Georgia Department of Human Services.
[End of Appendix VI]
Appendix VII: Illinois:
Overview:
This appendix summarizes GAO's work on the sixth of its bimonthly
reviews of American Recovery and Reinvestment Act of 2009 (Recovery
Act) spending in Illinois.[Footnote 1] The full report covering all of
GAO's work in the 16 states and the District of Columbia may be found
at [hyperlink, http://www.gao.gov/recovery].
What We Did:
We conducted work on six programs funded under the Recovery Act:
Edward Byrne Memorial Justice Assistance Grants (JAG), Weatherization
Assistance Program, Public Housing Capital Fund, Tax Credit Assistance
Program (TCAP), Section 1602 Tax Credit Exchange Program (Section 1602
Program), and Highway Infrastructure Investment. For descriptions and
requirements of the programs we included in our review, see appendix
XVIII of GAO-10-605SP. We selected these programs primarily because
they received significant amounts of Recovery Act funds. For each
program, we conducted interviews and examined relevant program
documents and data to determine what challenges recipients of Recovery
Act funds faced in meeting mandated obligation deadlines; to assess
whether state agencies met monitoring requirements set forth under the
Recovery Act; or to follow up on issues we reported on in previous
bimonthly reviews.
We also met with officials from the Illinois Office of the Governor,
the Illinois State Board of Education (ISBE), and selected local
educational agencies (LEA) to determine what steps ISBE has taken to
ensure the completeness and accuracy of the employment data LEAs
report to the agency, which ISBE uses to complete its quarterly
reporting requirements under section 1512 of the Recovery Act.
[Footnote 2]
Additionally, our work in Illinois included monitoring the state's
fiscal situation and visits to two counties--Cook County and Winnebago
County--to review their use of Recovery Act funds and the impact of
the funds on their budgets, as well as meeting with state-level
auditors to determine what steps they are taking to oversee state
agencies' implementation of the Recovery Act.[Footnote 3]
What We Found:
* Edward Byrne Memorial Justice Assistance Grants. The U.S. Department
of Justice's Office of Justice Programs, Bureau of Justice Assistance
(BJA) awarded $83.7 million to Illinois and units of local government
(localities) within the state under the Recovery Act JAG program.
Based on a statutory formula, BJA awarded 60 percent of these funds to
the state (which the state primarily used to make grants to
localities) and 40 percent of the funds directly to eligible
localities within the state. Only seven localities qualified for the
$33.5 million in direct funding available through BJA. As a result,
the localities in Illinois that received a direct grant received
disproportionately larger sums compared to localities in other states.
The average award for these seven localities was $4.8 million; the
City of Chicago and Cook County were jointly awarded $28.7 million.
The localities we spoke to said that they used their Recovery Act JAG
grants primarily to purchase capital equipment and pay law enforcement
wages.
* Weatherization Assistance Program. The U.S. Department of Energy
(DOE) allocated $242.5 million to Illinois for the Illinois Home
Weatherization Assistance Program, a substantial increase over the
state's allocation of base program funds in prior years. Illinois's
Department of Commerce and Economic Opportunity (DCEO) Office of
Energy Assistance, the agency responsible for administering Illinois's
weatherization assistance program, plans to use the Recovery Act funds
to weatherize 27,000 homes--as of March 31, 2010, 11,283 homes had
been completed or were in the process of being weatherized. Although
DCEO expects to meet DOE's 5 percent inspection requirement for 2010,
as of March 31, 2010, it had not inspected homes from 19 of the 35 the
local agencies that weatherize homes on behalf of the state.
* Public Housing Capital Fund. Ninety-nine public housing agencies in
Illinois received $221.5 million in Recovery Act Capital Fund formula
grants. Although all of the housing agencies met the March 17, 2010,
deadline for obligating their funds, some faced challenges in doing
so. For example, one housing agency we spoke to had difficulty finding
enough local contractors that were willing and able to bid for its
Recovery Act projects, which included replacing the roofs and siding
on and replacing lights and appliances in most of its properties.
Officials from the Department of Housing and Urban Development's (HUD)
Illinois State Office of Public Housing and the housing agencies we
spoke to stated that Recovery Act-related activities have not to date
had any noticeable effect on their ability to administer their
existing Capital Fund programs.
* Tax Credit Assistance Program and Section 1602 Tax Credit Exchange
Program.[Footnote 4] As of April 30, 2010, the Illinois Housing
Development Authority (IHDA) had awarded $91.6 million (out of the
$94.7 million available) in TCAP funds, and $128.2 million (out of the
$264.5 million available) in Section 1602 Program funds to a total of
46 projects, including the Rosa Parks Apartments, a low-income housing
development located on Chicago's west side. Despite the much needed
financing these two programs are providing to low-income housing
projects in Illinois, IHDA officials raised concerns about the
agency's ability to bear the administrative costs associated with
these programs.
* Highway Infrastructure Investment Funds. The U.S. Department of
Transportation's Federal Highway Administration apportioned $935.6
million in Recovery Act funds to Illinois. The federal government
obligated the state's full apportionment by the 1-year deadline of
March 2, 2010. As of May 3, 2010, $451 million had been reimbursed by
the federal government. Almost 77 percent of Recovery Act highway
obligations for Illinois have been for pavement projects. For example,
$3.1 million has been obligated for resurfacing of 11 miles of IL
Route 47 in Grundy County.
* Recipient Reporting--Education. ISBE implemented procedures to
ensure that LEAs report employment data (expressed as full-time
equivalents, or FTEs) to the agency in advance of the quarterly
reporting deadlines under section 1512 of the Recovery Act. Although
ISBE instituted reasonableness checks designed to identify reporting
errors, the agency does not have procedures in place to assess the
accuracy of LEAs' calculations. According to ISBE officials, the
agency has limited resources to independently review LEAs'
calculations in the short amount of time it has to compile and submit
its recipient reports. The agency has contracted with accounting firms
to review a selection of LEAs' State Fiscal Stabilization Fund FTE
submissions for the first reporting period.
* Illinois's Fiscal Condition and Oversight Activities:
* State budget stabilization. Recovery Act funds continued to assist
the state in funding its education, infrastructure, and Medicaid
programs. An estimated $1.3 billion from the State Fiscal
Stabilization Fund and $1.6 billion made available as a result of
increased federal assistance to Medicaid are expected to allow the
state to provide $2.9 billion in services in fiscal year 2010.
However, the state faces a fiscal crisis stemming from a structural
deficit, escalating pension costs, decreasing revenues, and unpaid
bills.
* Counties' use of Recovery Act funds. The counties we spoke with
generally used their Recovery Act awards to pay for programs and
services that would otherwise have gone unfunded. Moreover, the
counties indicated that they generally avoided using Recovery Act
funds for programs or personnel costs that would result in additional
funding commitments for long-term obligations.
* State-level audits. The Illinois Office of the Auditor General and
the Illinois Office of Internal Audit are currently conducting audits
of Recovery Act-funded programs; however, officials from both offices
do not expect to report on the results of their audits until June
2010. The Illinois Office of Accountability is charged with assisting
the Governor in complying with the Recovery Act and Illinois's Federal
Stimulus Tracking Act.
Few Illinois Localities Qualified for Direct Recovery Act JAG Awards
and Those We Spoke to Used Their Grants to Purchase Capital Equipment
and Pay Wages:
The Bureau of Justice Assistance (BJA) awarded $83.7 million to
Illinois and units of local government (localities) within the state
under the Recovery Act Justice Assistance Grants (JAG) program. Based
on a statutory formula, BJA awarded 60 percent of the $83.7 million
($50.2 million) to the state of Illinois, which the state in turn
primarily awarded to localities in the form of pass-through grants.
[Footnote 5] BJA awarded the remaining 40 percent ($33.5 million)
directly to eligible localities within the state. The localities we
spoke to said that they used their direct and state pass-through
Recovery Act JAG grants primarily to purchase capital equipment and
pay law enforcement wages.
In order to qualify for direct JAG funding from BJA, localities were
required to report crime statistics directly or through a state agency
to the Federal Bureau of Investigation (FBI). Localities that did not
report these data or have these data reported on their behalf were not
eligible for direct funding; however, they may have qualified for pass-
through grants from the state. In Illinois, only seven localities
reported their crime data to FBI and thus were eligible to receive a
share of the $33.5 million in direct JAG funding available from BJA:
Aurora, Chicago, Joliet, Naperville, Peoria, Rockford, and
Springfield.[Footnote 6] Because so few localities in Illinois
qualified for direct grants from BJA, those that received these grants
were awarded disproportionately larger amounts of funds compared to
localities in other states. The average award for these seven
localities was $4.8 million; Chicago and Cook County were jointly
awarded $28.7 million. In comparison, in Pennsylvania, the state with
the closest total Recovery Act JAG program allocation, BJA awarded 259
localities a total of $26.9 million in direct JAG funds--the average
direct award in Pennsylvania was $103,934. Similarly, in New York, BJA
awarded 152 localities a total of $43.3 million in direct JAG funds--
the average direct award in New York was $285,025.
In April 2009, the Department of Justice's Office of the Inspector
General requested that the Office of Justice Programs provide greater
transparency regarding the significant differences in the award
amounts between localities in Illinois and localities in other states.
[Footnote 7] On May 14, 2009, the Acting Assistant Attorney General
for the Office of Justice Programs informed the Office of Inspector
General of a revision to the office's Web site that complied with this
request. The Illinois State Police Department is taking steps to
ensure that all localities have an opportunity to report crime
statistics to FBI, which could expand the pool of eligible localities
in the state in the event Recovery Act JAG or similar programs are
available in the future.
We visited two counties and one city in Illinois that received both a
direct grant from BJA and at least one pass-through grant from the
state: Cook County, Winnebago County, and the City of Rockford.
[Footnote 8] All three localities reported using their grants to
purchase new equipment and to fund programs and services that, in the
absence of these grants, would have gone unfunded.
Cook County. Cook County received $7.2 million of a $28.7 million
grant BJA awarded directly to the county and the City of Chicago.
County officials explained that this grant would be distributed among
several entities in the county (see table 1).
Table 1: Distribution of the $7.2 Million Direct JAG Award from BJA:
Recipient: 37 municipal units of governments; Amount: $2,571,685.
Recipient: Sheriff's Office;
Amount: $1,502,876.
Recipient: Nonprofits and a state university; Amount: $1,144,042.
Recipient: State's Attorney's Office; Amount: $1,021,506.
Recipient: Circuit Court;
Amount: $710,169.
Recipient: Judicial Advisory Council; Amount: $215,719.
Recipient: Total;
Amount: $7,165,997.
Source: Cook County Judicial Advisory Council.
Note: These amounts are subject to change.
[End of table]
Thirty-seven municipal units of government expect to use their share
of these funds to purchase law enforcement equipment and pay law
enforcement wages. Additionally, not-for-profit organizations and a
state university plan to use their funds for mentoring and drug
treatment programs. The Sheriff's Office plans to use its funds
primarily for overtime wages of law enforcement agents, while the
Circuit Court anticipates using its funds for programming designed to
assist individuals with substance abuse or mental health issues. The
State's Attorney's Office plans to use its share of the $7.2 million
to hire second-year law students to provide clerking services. The
Cook County Judicial Advisory Council is expected to retain 3 percent
of the $7.2 million award for grant management.
In addition to the direct grant from BJA, Cook County officials said
that the county received six pass-through grants from the state
totaling over $4.5 million (see table 2).
Table 2: State Pass-Through JAG Funds Awarded to Cook County and
Selected County Agencies:
Recipient: State's Attorney's Office; Amount: $1,650,307.
Recipient: State's Attorney's Office; Amount: $877,650.
Recipient: Circuit Court;
Amount: $500,000.
Recipient: Circuit Court;
Amount: $500,000.
Recipient: Sheriff's Office;
Amount: $499,800.
Recipient: Sheriff's Office;
Amount: $497,028.
Source: Cook County Judicial Advisory Council.
[End of table]
The State's Attorney's Office is using its two pass-through grants for
cold-case initiatives and community justice centers. The Circuit Court
plans to use its awards for domestic violence programs and specialty
courts that provide additional services to targeted populations of non-
violent, repeat offenders. The Sheriff's Office plans to use its
grants to fund 4 daily 6-hour police shifts in Ford Heights, a
township that cannot afford to staff a police force of its own, and to
provide transition services to recently-released prisoners, such as
mentoring and job training.
Winnebago County. Winnebago County received two Recovery Act JAG
awards totaling over $1 million, including $598,133 of a $1.5 million
direct award the county shared with the City of Rockford. The county
used its share of the joint award to purchase capital equipment and
law enforcement software. The county used a $416,485 state pass-
through grant to provide wages for the equivalent of 3 full-time
corrections officer positions for 2 years. Officials expected that an
economic recovery would generate sufficient revenues for the county to
pay for these positions once the Recovery Act funding expires.
City of Rockford. Officials said that the City of Rockford received
three Recovery Act JAG awards totaling $1.4 million. The city received
$879,200 of a $1.5 million direct grant from BJA, which it shared with
Winnebago County, as noted above. The city used its share of these
funds to purchase law enforcement software, in-car video systems, and
bicycles for the city's Community Services Flexible Patrols program.
The city also received $540,000 from 2 pass-through grants from the
state, which it used to pay for 5 part-time receptionist positions for
3 years, allowing officers to return to patrols, and purchase two
squad cars.
Illinois Is on Track to Weatherize 27,000 Homes with Recovery Act
Funds, but Oversight of Local Agencies Has Lagged:
The U.S. Department of Energy (DOE) allocated $242.5 million in
Recovery Act funds to the Illinois Department of Commerce and Economic
Opportunity (DCEO) for the Illinois Home Weatherization Assistance
Program, a substantial increase in funding compared to previous years.
By June 2009, DOE had provided $121.3 million of the Recovery Act
funds to DCEO's Office of Energy Assistance, which is responsible for
administering the state's weatherization assistance program.[Footnote
9] DCEO plans to use these funds to weatherize 27,000 homes in state
fiscal years 2010 and 2011, targeting approximately 40 percent of the
funds toward the 2010 program and 60 percent toward the 2011 program.
[Footnote 10]
According to DCEO, in 2010, the agency awarded $85.6 million in
Recovery Act funds to 35 local administering agencies.[Footnote 11]
Local administering agencies, such as Community Contacts, Inc.,
Community Action Partnership of Lake County, and Will County Center
for Community Concerns, the three local agencies we spoke with as part
of this report, are using these funds for planning, purchasing
equipment, hiring and training staff, using contractors, and
weatherizing homes on behalf of the state. For example, in Will County
we observed homes in which Will County Center for Community Concerns
had installed new furnaces and attic insulation using Recovery Act
funds.
By March 31, 2010, according to DCEO, the local administering agencies
had spent $22.7 million (about 27 percent) of their 2010 Recovery Act
funds and had completed or were in the process of weatherizing 11,283
homes.[Footnote 12] A DCEO official said that the state expects to
meet or exceed its goals to spend 40 percent of the Recovery Act funds
and weatherize 40 percent of the 27,000 planned homes by June 30, 2010.
As a condition of accepting Recovery Act funds, DOE required that
local agencies increase the number of homes weatherized compared to
the prior year. The three local agencies we spoke with, like many
other local administering agencies in Illinois, were able to increase
the number of homes weatherized compared to the prior year because
they hired new staff and used new contractors (see figure 1). For
example, Community Contacts, Inc. of Kane and DeKalb Counties
increased program staff from 5 to 8 people and more than doubled the
number of contractors, from 5 to 11 companies.
Figure 1: Planned and Completed Homes at Three Local Agencies in
Illinois:
[Refer to PDF for image: horizontal bar graph]
Weatherized homes:
Community Action Partnership of Lake County:
Homes completed with base program funds, July 1, 2008 - June 30, 2009: 223;
Homes to be completed with Recovery Act funds, July 1, 2009 - June 30, 2010: 600;
Homes completed with Recovery Act funds, July 1, 2009 - March 31, 2010: 273.
Community Contacts, Inc. of Kane and DeKalb Counties:
Homes completed with base program funds, July 1, 2008 - June 30, 2009: 182;
Homes to be completed with Recovery Act funds, July 1, 2009 - June 30, 2010: 415;
Homes completed with Recovery Act funds, July 1, 2009 - March 31, 2010: 316.
Will County Center for Community Concerns:
Homes completed with base program funds, July 1, 2008 - June 30, 2009: 132;
Homes to be completed with Recovery Act funds, July 1, 2009 - June 30, 2010: 263;
Homes completed with Recovery Act funds, July 1, 2009 - March 31, 2010: 77.
Source: GAO analysis of DCEO data (homes completed) and officials at
the Community Action Partnership of Lake County, Community Contacts,
Inc. of Kane and DeKalb Counties, and Will County Center for Community
Concern (homes to be completed data).
[End of figure]
According to DCEO officials, DCEO required that local agencies follow
state guidance to assess and document client eligibility,
appropriateness of weatherization measures, including completeness and
quality of work, and accuracy of labor and material costs, and
required them to provide final review of work completed. We reviewed
randomly-selected client files and observed home assessments and
inspections of clients whose homes had been weatherized using Recovery
Act funds at 3 of the 35 local administering agencies in Illinois. For
the 3 agencies we visited and the 30 files we reviewed, we found the
following:
* Local administering agencies are required to determine and document
that clients are eligible for weatherization assistance. Clients are
eligible if their household income is at or below 200 percent of the
federal poverty income level. In our review of client files, we
observed that agencies had obtained income documentation such as wage
statements, W-2s, and proof of Social Security or Temporary Assistance
for Needy Families eligibility.
* Local administering agencies are required to prioritize the types of
home improvements that will result in the highest energy savings. DCEO
has implemented a computerized approach to determine which home
improvements will result in the largest energy savings, which the
agency calls the WeatherWorks system.[Footnote 13] In our review of
client files, we observed work orders that were generated from the
WeatherWorks system that listed the weatherization measures to be
taken and estimated material and labor costs.
* Local agencies are required to track the expenditures of home
improvements to ensure that they stay below the state-established
limit of $5,200 per home for labor and materials.[Footnote 14] The
client files we reviewed contained documentation of work orders and
contractor invoices that were within the expense limits. All three of
the agencies we visited also included documentation of any change that
was made to the original work order.
* As prescribed in state and local procedures, each of the three
agencies we visited had procedures in place to inspect completed work.
According to DCEO officials, the agency expects to meet the DOE
requirement to inspect at least 5 percent of the Recovery Act-funded
homes at each of the local agencies, although the agency's home
inspection rate was affected by its inability to hire 10 additional
weatherization specialists to perform the inspections.[Footnote 15]
Agency officials reported that as of March 31, 2010, the agency had
inspected at least 5 percent of the weatherized homes at 11 local
agencies, less than 5 percent of the homes at 5 agencies, and no homes
at 19 agencies. Officials noted they will do whatever it takes to meet
the inspection requirement because it is one of the prerequisites for
receiving the remainder of their Recovery Act funds. As of April 5,
2010, DCEO officials stated that they have been able to fill 2 of the
10 specialist positions and hope to fill the other positions soon.
Housing Agencies in Illinois Obligated All of Their Recovery Act
Formula Funds by the March 17, 2010, Deadline and HUD's Illinois
Office Ensured Agencies' Compliance with Recovery Act Requirements:
Ninety-nine housing agencies in Illinois collectively received $221.5
million in Public Housing Capital Fund formula grants under the
Recovery Act. These grant funds were provided to the agencies to
improve the physical condition of their properties. All 99 housing
agencies obligated 100 percent of their funds by the March 17, 2010,
deadline. Also, 97 of the recipient agencies had drawn down a
cumulative total of $97.3 million from the obligated funds, as of May
1, 2010 (see figure 2). For this report, we visited the Housing
Authority of the County of Cook and the Marion County Housing
Authority to determine what, if any, challenges they faced in
obligating their Recovery Act funds. We also spoke to officials from
the Chicago Housing Authority and the Housing Authority for LaSalle
County, which we visited for previous reports.[Footnote 16]
Figure 2: Percentage of Public Housing Capital Fund Formula Grants
Allocated by HUD That Have Been Obligated and Drawn Down in Illinois
as of May 1, 2010:
[Refer PDF for image: 3 pie-charts and 1 horizontal bar graph]
Funds obligated by HUD: 100% ($221,498,521); Funds obligated by public
housing agencies: 100% ($221,498,521); Funds drawn down by public
housing agencies: 44.0% ($97,349,380).
Number of public housing agencies:
Were allocated funds: 99;
Obligated 100% of funds: 99;
Have drawn down funds: 97.
Source: GAO analysis of data from HUD's Electronic Line of Credit
Control System.
[End of figure]
Officials from two of the housing agencies we spoke to said they faced
challenges that slowed their ability to obligate their Recovery Act
Capital Fund formula grants. As of January 30, 2010, the Housing
Authority of the County of Cook and the Marion County Housing
Authority had obligated 0 and 18 percent of their funds, respectively,
while more than three-quarters of the housing agencies in Illinois
(including the Chicago Housing Authority and the Housing Authority for
LaSalle County, the other two housing agencies we spoke to as part of
this report) had obligated at least 50 percent of their funds by that
date. The Housing Authority of the County of Cook used most of the
$4.7 million it received in Recovery Act funds to finance a 52-unit
development for seniors called the Riverdale Senior Apartments.
Although the agency was able to obligate the funds by February 22,
2010, agency officials said that the financing structure for the
project was not typical and that they required additional time to
finalize the structure and receive Department of Housing and Urban
Development (HUD) approval.[Footnote 17] Marion County Housing
Authority used its Recovery Act funds to award roofing, siding,
lighting, and appliance installation contracts for the majority of its
properties. The agency was able to obligate all of these funds by
March 8, 2010, but agency officials said they were delayed because
they had difficulty finding enough local contractors that were willing
and able to bid for their Recovery Act projects, and thus had to
expand the geographic area in which they solicited for bids. Officials
from HUD's Illinois State Office of Public Housing explained that the
housing agencies that took on complex design projects had relatively
more trouble obligating their funds than the housing agencies that
used Recovery Act funds to finance shovel-ready projects.
Officials from the Chicago Housing Authority and Housing Authority for
LaSalle County said that they did not experience any major delays in
obligating their Recovery Act formula funds and that they were making
progress on their Recovery Act-funded projects.[Footnote 18] Chicago
Housing Authority officials said that as of April 30, 2010, they had
completed work on 5 of the 12 projects the agency is funding with
Recovery Act formula funds and that they expect to complete work on
all but one of the remaining projects in 2010. Recovery Act-funded
projects include demolitions and comprehensive rehabilitations of
properties and the installation of security camera systems. Officials
from the Housing Authority for LaSalle County said that as of April
30, 2010, the agency had expended 95 percent of its Recovery Act
formula funds. The agency expects to complete work on all 11 of its
Recovery Act-funded projects by June 2010. Recovery Act-funded
projects include, among other things, the improvement of common areas,
upgrades to boiler valves, rehabilitation of units, and the
replacement of a retaining wall.
According to HUD Illinois officials, they have practices and
procedures in place to oversee housing agencies compliance with all
program deadlines and requirements, including those under the Recovery
Act. For example, they communicated almost daily with the 99 housing
agencies in Illinois that received Recovery Act funding to make sure
that the housing agencies were obligating their funds in a timely
manner and to offer assistance in meeting the deadline. In addition,
HUD Illinois officials said that they remotely monitored housing
agencies' Recovery Act-related expenditures and verified housing
agencies' compliance with the Buy American, Davis-Bacon prevailing
wage, Section 3, and supplement-versus-supplant provisions.[Footnote
19] HUD Illinois officials also said that they performed on-site
reviews of 22 housing agencies selected based on the results of risk
assessments.[Footnote 20] Finally, HUD Illinois officials said that
they performed National Environmental Policy Act (NEPA) reviews for
the majority of the housing agencies in the state and provided
technical assistance related to the quarterly reporting requirements
under section 1512 of the Recovery Act.[Footnote 21] Officials from
housing agencies we spoke to said HUD's Illinois and Headquarters'
staff were helpful in providing them assistance when needed.
Finally, officials from HUD's Illinois office and the four housing
agencies we spoke to stated that Recovery Act-related activities have
not had any noticeable effect on their ability to administer their
regular Capital Fund programs. HUD Illinois officials provided
obligations data for each of the four housing agencies we spoke with--
the data reflect the obligation rate for Capital Fund program funds
for fiscal years 2006 through 2008 based on the percentage of funds
that were obligated within 1 year of receiving the funds, as well as
the obligation rates for the 2008 and 2009 funds as of April 30, 2010
(see table 3). Although the data show that the Housing Authority of
the County of Cook and the Marion County Housing Authority are
obligating their 2008 Capital Fund program funds more slowly than they
have in previous years, officials from both housing agencies told us
that their obligation rates are on par with previous years at a time
closer to the obligation deadline, and that they expect to fully
obligate the funds by that deadline.[Footnote 22] HUD Illinois
officials indicated that housing agencies in Illinois are just
starting to obligate their 2009 Capital Fund program funds, in part
because the funds became available in September 2009 or later.
Table 3: Percentage of Public Housing Capital Fund Program Funds
Obligated 1 Year after Disbursement for Fiscal Years 2006 to 2008, and
Percentage of 2008 and 2009 Funds Obligated as of April 30, 2010:
2006 obligation rate;
Chicago Housing Authority: 87%;
Housing Authority for LaSalle County: 85%; Housing Authority of the
County of Cook: 31%; Marion County Housing Authority: 57%.
2007 obligation rate;
Chicago Housing Authority: 85%;
Housing Authority for LaSalle County: 92%; Housing Authority of the
County of Cook: 22%; Marion County Housing Authority: 35%.
2008 obligation rate;
Chicago Housing Authority: 49%;
Housing Authority for LaSalle County: 90%; Housing Authority of the
County of Cook: 8%; Marion County Housing Authority: 27%.
2008 obligation rate as of April 30, 2010[A]; Chicago Housing
Authority: 100%;
Housing Authority for LaSalle County: 96%; Housing Authority of the
County of Cook: 36%; Marion County Housing Authority: 58%.
2009 obligation rate as of April 30, 2010[B]; Chicago Housing
Authority: 21%;
Housing Authority for LaSalle County: 23%; Housing Authority of the
County of Cook: 16%; Marion County Housing Authority: 3%.
Source: GAO analysis of HUD data.
[A] The deadline for obligating the 2008 Capital Fund program funds is
June 12, 2010.
[B] HUD Illinois officials stated that housing agencies in Illinois
received at least some of their 2009 Capital Fund program funds on
September 15, 2009. The deadline for obligating these 2009 Capital
Fund program funds is September 14, 2011.
[End of table]
IHDA Has Allocated and Drawn Down Recovery Act Tax Credit Assistance
Funds for a Variety of Low-Income Housing Projects:
The Illinois Housing Development Authority (IHDA) is responsible for
administering the Tax Credit Assistance Program (TCAP) and the Section
1602 Tax Credit Exchange Program (Section 1602 Program) in Illinois.
For this purpose, IHDA established the Equity Replacement Program with
a centralized application process through which IHDA awards TCAP and
Section 1602 Program funds as gap financing to low-income housing
projects that lack private investment due to the broader economic
crisis. Under the Low-Income Housing Tax Credit program, developers
with allocations of credits sell them to investors to raise equity to
fund the development of low-income housing. According to IHDA
officials, the average price investors were offering for Low-Income
Housing Tax Credits in Illinois fell from approximately $0.85 in 2007
to $0.67 in 2009. IHDA expects to award TCAP and Section 1602 Program
funds to projects that were awarded tax credits during the period
October 1, 2006, to September 30, 2009, but that could not raise
enough equity with the tax credits.[Footnote 23]
According to IHDA officials, as of April 30, 2010, the agency had
awarded $91.6 million (out of $94.7 million available) in TCAP funds,
and $128.2 million (out of $264.5 million available) in Section 1602
Program funds to a total of 46 projects.[Footnote 24] According to
data from HUD and The U.S. Department of the Treasury, as of the same
date, IHDA had disbursed $22.9 million in TCAP funds and $16.9 million
in Section 1602 Program funds to the projects. The projects are
expected to produce close to 2,700 low-income housing units, which
will primarily benefit the elderly and families. Figure 3 describes
the Rosa Parks Apartments project, which received TCAP and Section
1602 Program funds because the developer was unable to find tax credit
investors.
Figure 3: Rosa Parks Apartments, Chicago, Illinois--a Combined TCAP-
Section 1602 Program Project:
[Refer to PDF for image: 2 photographs]
One of eight buildings of the Rosa Parks Apartments project in Chicago‘
s Humboldt Park, West Town, East Garfield, and Near West Side
communities. TCAP and Section 1602 Program funds account for about 37
percent of this $27.4 million project. The Rosa parks Apartments
project is 100 percent affordable for low-income households.
Source: GAO.
[End of figure]
According to IHDA officials, when awarding TCAP and Section 1602
Program funds to projects, the agency considered each project's
viability, readiness to proceed, and level of commitment from other
sources of funding, among other things. In addition, regarding TCAP
funds, IHDA preferred to select projects that already included other
sources of federal funding because they were already in compliance
with and reporting on certain crosscutting federal requirements like
the Davis-Bacon prevailing wage and NEPA requirements.
According to IHDA officials, the agency had to make some changes to
its existing procedures in order to comply with certain deadlines and
requirements of the Recovery Act programs. For example, HUD required
TCAP recipients to draw their funds no later than 3 days after HUD
made these funds available to the agency. HUD disbursed the TCAP funds
through the Illinois Department of Revenue in the same way it
disburses HOME Investment Partnerships program funds to IHDA, a
process that, according to IHDA officials, usually takes several
weeks.[Footnote 25] In order to comply with the 3-day draw
requirement, IHDA had to set up a separate local account, with
approval from HUD and the Governor's Office, from which it could draw
the TCAP funds within the 3-day period.
Despite the much-needed gap financing the tax credit assistance
programs are providing to low-income housing projects in Illinois,
IHDA officials raised concerns about the administrative costs
associated with TCAP and the Section 1602 Program. Officials stated
that meeting the programs' requirements, especially the reporting
requirements under section 1512 of the Recovery Act, consumed
significant staff time and resources. They said that the agency could
be relieved of at least part of these costs if, for example, it was
able to use some percentage of the program funds to cover
administrative expenses, as is allowed under HUD's HOME Investment
Partnerships Program.[Footnote 26]
Finally, IHDA officials said that the ability to award Section 1602
Program funds in the form of a loan rather than a grant would give
them greater leverage in enforcing program requirements among
developers, and loan repayments would provide IHDA a future source of
funds for other affordable housing initiatives.
Illinois's Highway Program Met Recovery Act Funding Obligation
Deadline and Is on Track to Maintain Spending Levels:
In March 2009, $935.6 million was apportioned to Illinois for highway
infrastructure and other eligible projects. The federal government
obligated the state's full apportionment by the 1-year deadline of
March 2, 2010. As of May 3, 2010, $451 million had been reimbursed by
the Federal Highway Administration (FHWA) for 588 projects. States
request reimbursement from FHWA as they make payments to contractors
working on approved projects.
Almost 77 percent of Recovery Act highway obligations for Illinois
have been for pavement projects. Specifically, $712 million of the
$929 million obligated as of May 3, 2010, is being used for pavement
improvements, such as resurfacing and reconstruction (see figure 4).
[Footnote 27] For example, $3.1 million has been obligated for
resurfacing of 11 miles of IL Route 47 in Grundy County. State
officials told us they selected these types of projects because they
could be completed quickly and would create jobs immediately.
Figure 4: Percentage of Highway Obligations for Illinois by Project
Improvement Type as of May 3, 2010:
[Refer to PDF for image: pie-chart]
Pavement projects total (77 percent, $712 million): Pavement
improvement: resurface ($550 million); 59%; Pavement improvement:
reconstruction/rehabilitation ($137 million): 15%; New road
construction ($20 million): 2%; Pavement widening: ($5 million): 1%.
Bridge projects total (10 percent, $90 million): Bridge improvement
($67 million): 7%; Bridge replacement ($19 million): 2%; New bridge
construction ($4 million): lass than 1%.
Other (14 percent, $127 million): 14%.
Source: GAO analysis of Federal Highway Administration data.
Note: Totals may not add due to rounding. "Other" includes safety
projects, such as improving safety at railroad grade crossings, and
transportation enhancement projects, such as pedestrian and bicycle
facilities, engineering, and right-of-way purchases.
[End of figure]
Illinois Department of Transportation officials told us they were
satisfied with the state's ability to maintain spending levels for
transportation, which they attributed to the fact that the Illinois
General Assembly passed capital funding plans in April and July 2009
that are expected to fund transportation infrastructure projects over
the next few years. States are required to certify that they will
maintain the level of spending that they had planned on the day the
Recovery Act was enacted. In March 2010, Illinois submitted to the
U.S. Department of Transportation its maintenance-of-effort
certification, which amounted to just under $1.8 billion.[Footnote 28]
U.S. Department of Transportation officials told us that they had
accepted the Illinois certification.
ISBE Has Implemented Procedures to Ensure Complete and Timely
Reporting of Employment Data but Has Faced Challenges in Ensuring the
Accuracy of These Data:
The Illinois State Board of Education (ISBE) has implemented
procedures to ensure that local educational agencies (LEA)--generally
school districts--report employment data (expressed as full-time
equivalents, or FTEs) to the agency in advance of the quarterly
reporting deadlines under section 1512 of the Recovery Act.[Footnote
29] For example, ISBE's reporting system identifies LEAs that fail to
report FTE and other data to the agency in a timely manner, and agency
officials said that they have taken steps to follow up with these LEAs
to ensure complete reporting.
However, ISBE has faced challenges in assessing and ensuring the
accuracy of the FTE data LEAs report to the agency. OMB guidance
emphasizes that recipients of Recovery Act funds are responsible for
the quality of the data they submit to federal agencies and should
take appropriate steps to minimize significant reporting errors.
[Footnote 30] In the first reporting period, which ended September 30,
2009, ISBE did not assess that the data LEAs reported to the agency
were accurate. According to ISBE officials, the agency distributed OMB
reporting guidance to LEAs and provided technical assistance as they
calculated their FTEs. A November 2009 Chicago Tribune article raised
questions about the accuracy of five LEAs' FTE submissions for the
State Fiscal Stabilization Fund.[Footnote 31] As a result, ISBE
contacted the LEAs identified and asked them to review and revise
their FTEs, as needed.[Footnote 32] We interviewed each of these LEAs
and found that two revised their submissions downward to zero and two
submitted corrections to their initial calculations.[Footnote 33] For
the two that submitted corrections, we found that they still had not
accurately calculated their FTEs for the period. For example, one LEA
we spoke to initially counted the number of employees it had paid with
Recovery Act funds during the reporting period (135). The LEA later
revised this figure to a count of only those teachers that had been
laid off and subsequently rehired during the reporting period (76).
Both of these calculations are potentially inaccurate under OMB's June
22, 2009, reporting guidance because they are based on the number of
people, rather than the number of hours worked that were paid for with
Recovery Act funds.[Footnote 34] ISBE subsequently identified
approximately 100 additional LEAs that might have similarly
misreported their FTEs for the first period and asked them to review
and revise their submissions, as needed. However, ISBE officials said
that they did not check the corrected FTE submissions to ensure that
they complied with OMB's guidance (for example, by checking the
methodologies the LEAs followed or the underlying data and assumptions
they used in calculating their FTEs).
ISBE officials said that in response to the number of LEAs that
potentially misreported their employment numbers for the first
reporting period, the agency instituted reasonableness checks designed
to identify reporting errors in future reporting periods.
Specifically, ISBE's reporting system now flags recipient reports with
100 or more FTEs, as well as those with more FTEs than the number of
teachers and administrators the LEA employs. While a good first step,
these checks need to be refined. For example, the former check would
likely flag most LEAs that received and reported on Recovery Act
funds, while the latter would flag only the most egregious errors.
ISBE continued to face challenges assessing the accuracy of FTE data
in the second reporting period, which ended December 31, 2009, despite
the introduction of these reasonableness checks. On December 18, 2009,
OMB issued guidance that clarified the method for calculating FTEs by
directing recipients to base their FTE calculations on the number of
hours worked that are paid for with Recovery Act funds.[Footnote 35]
According to ISBE officials, the agency and LEAs did not have
sufficient time to implement the new guidance in advance of the
reporting deadline. ISBE officials said that the cumulative FTE counts
reported in the second period for at least some of the education
programs funded with Recovery Act funds were too low--some LEAs had
continued to report zero FTEs for these programs, as ISBE did not
implement changes to conform to the clarifications in the most recent
guidance. As a result, officials said that they contacted six LEAs,
including Chicago Public Schools, the largest LEA in the state and,
for any positive FTE entry the LEAs made in the first period followed
by a zero FTE entry in the second period, asked them to confirm that
the number of positions they reported in the first period were still
being paid for with Recovery Act funds. According to ISBE officials,
if an LEA confirmed that the positions it reported in the first period
were still being paid for with Recovery Act funds, the agency used the
first-period FTE submission for the second period.[Footnote 36] After
the conclusion of the reporting period, ISBE continued to contact LEAs
with similar reporting patterns, and corrected their calculations
accordingly.[Footnote 37] However, as was true in the first reporting
period, ISBE did not assess the methodologies LEAs used to compute
their revised FTEs for the second reporting period, even that of
Chicago Public Schools, which, according to ISBE data, received
approximately 75 percent of the Title I funding awarded to Illinois as
of December 31, 2009.[Footnote 38]
ISBE officials said that resource constraints make it challenging to
independently assess and verify the accuracy of LEA reports in the few
days the agency has to submit its recipient reports to the state for
review and subsequently upload them to federalreporting.gov. Officials
from the Governor's Office and ISBE feel confident that the
reasonableness checks they have created are sufficient to flag
potentially inaccurate LEA FTE data and that ISBE has made reasonable
efforts based on the reports generated from these checks to work with
LEAs to make corrections to their data when necessary. Officials
believe that the accuracy of LEAs' FTE calculations is likely to
improve over time as the LEAs become more familiar with OMB's guidance
and the FTE formula.[Footnote 39] In addition, ISBE officials said
that the agency has hired accounting firms to review, among other
things, the FTE calculations 204 LEAs submitted to the agency for the
State Fiscal Stabilization Fund funds they received in state fiscal
year 2009. Officials said that the results of these reviews will allow
the agency to determine areas of concern in the reporting of FTEs and
provide additional training and technical assistance to LEAs to help
ensure the reasonableness of their FTE calculations.
Recovery Act Funds Continue to Aid Illinois's State Budget and Help
Local Governments Create and Expand Programs, but Significant State
Budget Shortfalls Remain:
Recovery Act funds continued to assist the state in funding its
education, infrastructure, and Medicaid programs. According to an
Illinois OMB official we spoke with, an estimated $1.3 billion from
the State Fiscal Stabilization Fund (including both education
stabilization funds and government services funds) and $1.6 billion
made available as a result of the increased federal assistance to
Medicaid (Federal Medical Assistance Percentage, or FMAP) are expected
to allow the state to provide $2.9 billion in education and Medicaid
services in 2010. However, as the Governor's March 10, 2010, budget
proposal for fiscal year 2011 acknowledges, the state faces a fiscal
crisis stemming from a structural deficit, escalating pension costs,
decreasing revenues, and unpaid bills.[Footnote 40] The state's
financial situation is in part a result of practices that began long
before the recession hit in late 2007. According to the fiscal year
2008 Comprehensive Annual Financial Report, the state faces continuing
underlying financial weaknesses that significantly impact its overall
fiscal health in regards to deferred liabilities, ongoing operational
concerns related to cash management, and long-term concerns related to
pension and other post-employment obligations.[Footnote 41] According
to the Governor's proposed budget, the projected cumulative deficit at
the end of fiscal year 2011 exceeds $10 billion (see fig 5).
Figure 5: Illinois's Revenues, Expenses, and End of Year Deficit for
Fiscal Years 2008 through 2011:
[Refer to PDF for image: multiple line graph]
FY 2008 actual:
Revenues: $29.7 billion;
Expenses: $30.4 billion;
End of fiscal year deficit: $0.8 billion.
FY 2009 actual:
Revenues: $29.1 billion;
Expenses: $32.9 billion;
End of fiscal year deficit: $3.8 billion.
FY 2010 projected:
Revenues: $28.0 billion;
Expenses: $29.1 billion;
End of fiscal year deficit: $5.9 billion.
FY 2011 projected:
Revenues: $27.4 billion;
Expenses: $32.1 billion;
End of fiscal year deficit: $10.6 billion.
Source: GAO analysis of Illinois OMB data.
Note: Fiscal year 2010 data represent Illinois OMB projections through
June 30, 2010. Fiscal year 2011 data represent Illinois OMB
projections based on the Governor's proposed 2011 budget as of March
10, 2010.
[End of figure]
With revenues projected to fall well below expenses in fiscal year
2011, the Governor's fiscal year 2011 budget proposal calls for $4.7
billion in borrowing to cover the anticipated shortfall.[Footnote 42]
In addition, in the face of mounting pension obligation bond debt
service payments--these payments increased from $564 million in fiscal
year 2010 to $1.6 billion in fiscal year 2011, after the state
borrowed $3.5 billion for pension bonds in fiscal year 2010--the state
created a two-tiered pension system in which new employees will be
eligible for less generous benefits. The budget proposal also calls
for $300 million in funding cuts for local governments by decreasing
the local government income tax distributive share from 10 percent to
7 percent, as well as additional cuts to state employee benefits,
social services, and public health programs. Despite over $2.7 billion
in estimated cuts, expenses remain $4.7 billion greater than revenues
in the proposed fiscal year 2011 budget. When the projected $4.7
billion fiscal year 2011 deficit is added to the $5.9 billion deficit
from prior years, the anticipated cumulative deficit at the end of
fiscal year 2011 is $10.5 billion.
As funding from the Recovery Act ends, the state must raise additional
revenues or make significant cuts to existing services to achieve a
balanced budget. For example, the fiscal year 2011 budget proposal
does not include additional assistance from the State Fiscal
Stabilization Fund, which has amounted to over $2 billion cumulatively
in fiscal years 2009 and 2010. To address the phasing out of State
Fiscal Stabilization Fund funds in fiscal year 2011, the Governor
proposed a 1-year, 1-percent increase to both the state income and
corporate tax rates, which state officials project will generate an
additional $2.8 billion in revenues. Without the projected revenue
from these increases, the Governor's Office said that a significant
number of teachers are at risk of being laid off in fiscal year 2011
as a result of a projected $1.3 billion funding cut for education
programs.[Footnote 43] Further, the Governor's budget proposal for
fiscal year 2011 assumes that the U.S. Congress will extend the
increased FMAP through June 2011, providing $1.5 billion for the
fiscal year.[Footnote 44] If the increased FMAP is not extended, the
state will be required to raise or borrow additional funds or lower
expenses.
In addition to meeting with state officials, we visited Cook County
and Winnebago County to review their use of Recovery Act funds and the
impact of the funds on local budgets. Figure 6 provides recent
demographic information for these counties.
Figure 6: Demographic Data for Cook County and Winnebago County,
Illinois:
[Refer to PDF for image: illustration]
County demographics: Cook;
Estimated population (2009): 5,287,037; Unemployment rate (March
2010): 11.3%; FY10 budget: (change from FY09): $3.1 billion (4.8%).
County demographics: Winnebago;
Estimated population (2009): 299,702; Unemployment rate (March 2010):
17.5%; FY10 budget: (change from FY09): $179 million (-6.4%).
Sources: GAO analysis of U.S. Census Bureau and U.S. Department of
Labor, Bureau of Labor Statistics (BLS) Local Area Unemployment
Statistics (LAUS) data; Cook County and Winnebago County officials;
and Art Explosion.
Notes: County population data are from the latest available estimate,
July 1, 2009. Unemployment rates are preliminary estimates for March
2010 and have not been seasonally adjusted. Rates are a percentage of
the labor force. Estimates are subject to revision.
[End of figure]
County officials told us that they generally used the Recovery Act
grants to pay for a variety of programs and services that would
otherwise have remained unfunded. Moreover, county officials said that
they generally avoided using Recovery Act funds for programs or
personnel costs that would result in additional county funding
commitments for long-term obligations.
As of April 23, 2010, Cook County officials reported that the county
and selected county agencies received 22 Recovery Act grants totaling
more than $80 million. The county formed an internal task force to
coordinate and monitor the Recovery Act funds. Table 4 describes the 5
largest Recovery Act grants awarded directly to Cook County and
selected county agencies. In addition to these grants, the county
awaits notification on five pending applications for grants totaling
over $73 million.[Footnote 45] County officials also reported that the
county benefited from $35.7 million in freed-up state funds made
available through the increased FMAP for services provided to Medicaid-
eligible individuals in the Cook County Health & Hospitals System
(CCHHS).[Footnote 46] Officials noted that the availability of these
funds allowed CCHHS to avoid reductions in service and that such
reductions are likely once the increased FMAP is discontinued.
Table 4: Largest Five Direct Recovery Act Grants Awarded to Cook
County and Selected County Agencies:
Agency: U.S. Department of Health and Human Services; Grant:
Communities Putting Prevention to Work; Examples of uses of funds:
Obesity prevention; Amount: $15,898,821.
Agency: U.S. Department of Energy;
Grant: Energy Efficiency and Conservation Block Grant; Examples of
uses of funds: Development of county-wide energy efficiency strategy,
LED traffic lights; Amount: $12,696,000.
Agency: U.S. Department of Labor;
Grant: Workforce Investment Act Title I-B Grant; Examples of uses of
funds: Job training and employment services; Amount: $11,459,737.
Agency: U.S. Department of Justice;
Grant: Edward Byrne Memorial Justice Assistance Grant; Examples of
uses of funds: Law enforcement equipment and wages; Amount:
$7,165,997[A].
Agency: U.S. Department of Labor;
Grant: Workforce Investment Act Title I-B Grant; Examples of uses of
funds: Summer employment for youth; Amount: $5,676,547.
Source: Cook County.
[A] This amount represents Cook County's share of a $28.7 million
Edward Byrne Memorial Justice Assistance Grant awarded to the City of
Chicago.
[End of table]
As of March 9, 2010, Winnebago County officials reported that the
county received three Recovery Act grants totaling $1.6 million (see
table 5). While funds to replace aging squad cars and retain three
corrections officers provide some relief to the county's finances,
officials considered the Recovery Act grants to have had little impact
on the county's overall budget stability. Budget cuts had compelled
the county, which employed about 1,600 people in March 2010, to cut or
leave unfilled approximately 150 positions since April 2009.
Table 5: Direct Recovery Act Grants Awarded to Winnebago County:
Agency: U.S. Department of Justice;
Grant: Edward Byrne Memorial Justice Assistance Grant; Examples of
uses of funds: Law enforcement vehicles and equipment; Amount:
$598,133[A].
Agency: U.S. Department of Energy;
Grant: Energy Efficiency and Conservation Block Grant; Examples of
uses of funds: Traffic signal synchronization, LED traffic lights;
Amount: $568,800.
Agency: U.S. Department of Justice;
Grant: Edward Byrne Memorial Justice Assistance Grant; Examples of
uses of funds: Wages for 3 corrections officers for two years; Amount:
$416,485.
Source: Winnebago County.
[A] This amount represents Winnebago County's share of a $28.7 million
Edward Byrne Memorial Justice Assistance Grant awarded to the City of
Rockford.
[End of table]
State-Level Auditors Are Conducting Audits of Recovery Act-Funded
Programs:
The Illinois Office of the Auditor General and the Illinois Office of
Internal Audit under the Office of the Governor are currently
conducting audits of Recovery Act-funded programs. According to state
officials, the Illinois Office of Accountability, also under the
Governor's Office, is charged with assisting the Governor in complying
with the Recovery Act and Illinois's Federal Stimulus Tracking Act.
[Footnote 47]
The Illinois Office of the Auditor General is required to conduct an
annual audit--referred to as the Single Audit--of the state's
financial statements and federal awards, including Recovery Act
awards. [Footnote 48] The selection of programs for the single audit
is based on level of program expenditures and other criteria set forth
by OMB.[Footnote 49] The fiscal year 2009 Single Audit (for the period
July 1, 2008, to June 30, 2009) includes a number of programs that
received Recovery Act funds. Officials from the Office of the Auditor
General said that over the past several years, the Illinois
Comptroller's Office has been slow to send the expenditure data and
the state's financial statements to them, which has delayed the single
audit process. As was the case in previous years, the Auditor General
did not complete the fiscal year 2009 single audit by the March 30,
2010, deadline.[Footnote 50] Audit officials said that they expect to
release the fiscal year 2009 audit by June 2010.
The Illinois Office of Internal Audit has also initiated audits of
several programs that received Recovery Act funds. Officials expect
these audits to be substantially completed by June 30, 2010. According
to Internal Audit officials, audits (including audits of Recovery Act-
funded programs) are prioritized based on several factors, including
when agencies received and spent Recovery Act funds, prior audit
findings (e.g., findings from the Single Audit), significant increases
in funding, whether audit or agency staff had identified errors in
recipient reports, and the outcome of agency and program risk
assessments that the Office of Internal Audit completed prior to and
in anticipation of the implementation of the Recovery Act.[Footnote 51]
Officials explained that, due to resource constraints, the Office of
Internal Audit likely will not audit those programs that were
scheduled to be audited in this fiscal year and the next under
Illinois's Fiscal Control and Internal Auditing Act. Officials felt
that, in light of the amount of Recovery Act funding state agencies
have received, the Office of Internal Audit should focus its resources
on working with those agencies to ensure that they are using their
Recovery Act funds properly. Further, because many of the state's
agencies are currently subject to one or more external audits--
including audits we and the federal Inspectors General are conducting--
the Office of Internal Audit has delayed some of its auditing efforts
to ensure those agencies are not overwhelmed and can devote resources
to comply with auditors' requests.
Effective July 1, 2010, the state's internal audit function will be
decentralized, and audit responsibility will pass from the Governor's
Office to internal auditors within state agencies.[Footnote 52] The
Illinois Department of Central Management Services within the
Governor's Office will assume audit responsibility for the few
agencies that do not have an internal audit function. These agencies
will be responsible for ensuring that Recovery Act funds are used in
accordance with federal laws and regulations.
Finally, the Governor established the Office of Accountability in
November 2009 to help ensure compliance with the Recovery Act and the
State of Illinois Federal Stimulus Tracking Act. Specifically,
according to state officials, the Office of Accountability is
responsible for, among other things, obtaining clarifications to
federal Recovery Act-related guidance; establishing standardized
policies and procedures for state agencies for tracking, reporting on,
and monitoring Recovery Act funds; assisting agencies with
implementing corrective action plans to address audit and risk-
assessment findings; and providing technical assistance to state
agencies on Recovery Act reporting requirements to ensure accurate and
timely reporting. The Office of Accountability will continue to exist
in this capacity after July 1, 2010, when the Office of Internal Audit
is dissolved.
State Comments on This Summary:
We provided the Office of the Governor of Illinois with a draft of
this appendix on May 11, 2010. The Director of Recovery Operations and
Reporting responded for the governor on May 12, 2010. The official
provided technical suggestions that were incorporated, as appropriate.
GAO Contact:
Debra Draper, (202) 512-4608 or draperd@gao.gov:
Staff Acknowledgments:
In addition to the contacts listed above, Paul Schmidt, Assistant
Director; Silvia Arbelaez-Ellis; Dean Campbell; Gail Marnik; Cory
Marzullo; Rosemary Torres Lerma; and Roberta Rickey made major
contributions to this report.
[End of section]
Footnotes:
[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009).
[2] Under Section 1512 of the Recovery Act, recipients of Recovery Act
funds must submit quarterly reports that include employment and other
data to the federal agencies through the federalreporting.gov Web
site. These recipient reports are due on the 10th day of the month
following the end of the reporting period. These data are available to
the public on the Recovery.gov Web site.
[3] We selected Cook County because it has the largest population of
any county in Illinois and Winnebago county because it has a high
unemployment rate relative to other counties in Illinois.
[4] Pursuant to the Recovery Act, we are to review the use of funds of
programs included under the act's Division A. TCAP is a Division A
program, while the Section 1602 Program is included under Division B
of the Recovery Act. We chose to include the Section 1602 Program in
our review because both TCAP and the Section 1602 Program supplement
the Low-Income Housing Tax Credit Program and are being implemented
simultaneously by state housing finance agencies.
[5] As the state administering agency for JAG funds in Illinois, the
Illinois Criminal Justice and Information Authority received $50.2
million in Recovery Act JAG funds, of which it passed $30 million to
localities, used $15.8 million for statewide programs, and retained
$4.3 million for administrative costs. The minimum percentage of
Recovery Act JAG funds that Illinois is required to pass through to
localities after administrative costs are subtracted from the total
grant amount is 65.5 percent.
[6] Illinois statute requires that localities report crime statistics
directly to the Illinois State Police and according to a 2009
Department of Justice, Office of the Inspector General Management
Advisory Memorandum, the state requires the localities to measure and
report crime statistics in a manner that differs from how FBI measures
and reports these statistics. See Department of Justice, Office of the
Inspector General, Edward Byrne Memorial Justice Assistance Grant
Allocation of Recovery Act Funds to Local Municipalities in the State
of Illinois (April 9, 2009). Prior to the Recovery Act, the Illinois
State Police did not convert localities' crime statistics into the
format used by FBI. As a result, only those localities that reported
data directly to FBI were eligible to apply for direct grants from
BJA. When the law enforcement costs of two localities significantly
overlap (e.g., a city makes up a large percentage of a county's
population), the two localities must submit a joint application for
JAG funds. All of the cities in Illinois that qualified for direct
grants from BJA were required to submit joint applications with their
respective counties, which included Cook, Dupage, Kane, Peoria,
Sangamon, Will, and Winnebago counties. BJA officials confirmed that
counties were eligible to share these grants even though the counties
did not report crime statistics to FBI.
[7] See U.S. Department of Justice, Office of the Inspector General,
Edward Byrne Memorial Justice Assistance Grant Allocation of Recovery
Act Funds to Local Municipalities in the State of Illinois (April 9,
2009).
[8] We visited Cook County because it received more JAG funding
through the Recovery Act than any other county in Illinois. We visited
Winnebago County and the City of Rockford because the project status
of their shared grant was listed as more than 50 percent complete as
of December 31, 2009.
[9] DOE will provide the remainder of the Recovery Act funds once the
state has demonstrated that it has successfully met certain
requirements, such as completing work on 30 percent of the homes
slated to be weatherized with Recovery Act funds.
[10] A program year runs concurrently to the state fiscal year, which
runs from July 1 to June 30.
[11] According to a DCEO official, the agency retained a portion of
its Recovery Act award for administrative and training activities.
[12] According to agency officials, DCEO did not begin weatherizing
homes with Recovery Act funds until November 2009, after the U.S.
Department of Labor determined the state's prevailing wage rates and
local administering agencies concluded their bidding processes to
award contracts to implement the weatherization program. By March 31,
2010, the local agencies had spent $15.7 million of their $20.7
million in base program funds and had completed or were in the process
of weatherizing 5,309 homes.
[13] Local agency assessors conduct a home inspection to determine the
sources of home heat loss. They input their assessment data into the
WeatherWorks system, which generates the benefit/cost ratio and prints
out a work order that lists the weatherization measures to be
installed and estimates of labor and materials costs.
[14] DCEO allows local agencies to use $1,300 for program support, for
a maximum expenditure of $6,500 per home.
[15] DCEO monitors local administering agencies by visiting each
agency at least annually, reviewing client files, and inspecting at
least 5 percent of the homes weatherized at each local administering
agency. A recent study by DOE's Office of Inspector General observed
that in 2009, DCEO had not inspected any of the weatherized units
completed with DOE funds at 7 of the 35 local agencies and suggested
that DCEO monitoring is even more critical given the dramatic increase
in work. In an internal memo, the Illinois Office of Accountability
noted that DCEO had inspected at least 5 percent of the homes
weatherized at all of the state's local agencies, but acknowledged
that the agency did not distinguish between funding sources when
selecting homes for inspection. DCEO plans to improve its tracking of
Recovery Act-and non-Recovery Act-funded homes to ensure it meets the
requirement. See U.S. Department of Energy, Office of Inspector
General, Office of Audit Services, Audit Report: Management Alert on
the Department's Monitoring of the Weatherization Assistance Program
in the State of Illinois, OAS-RA-10-02 (Washington, D.C.: Dec. 3,
2009).
[16] See GAO, Recovery Act: States' and Localities' Current and
Planned Uses of Funds While Facing Fiscal Stresses (Appendixes),
[hyperlink, http://www.gao.gov/products/GAO-09-830SP] (Washington,
D.C.: July 8, 2009); and GAO, Recovery Act: Status of States' and
Localities' Use of Funds and Efforts to Ensure Accountability
(Appendixes), [hyperlink, http://www.gao.gov/products/GAO-10-232SP]
(Washington, D.C: December 10, 2009).
[17] Housing agency officials said that the Riverdale Senior
Apartments project was a hybrid between a mixed-finance development,
which usually includes Low-Income Housing Tax Credit equity in
addition to Capital Fund program and other funds, and a traditional
development, which usually involves only Capital Fund program funds.
The housing agency worked with HUD for approximately 4 months to
finalize the terms and conditions of the development and to ensure it
met all applicable federal regulatory requirements.
[18] The Housing Authority for LaSalle County obligated 100 percent of
its Recovery Act Capital Fund formula grant by February 3, 2010. The
Chicago Housing Authority obligated 99 percent of its Recovery Act
Capital Fund formula grant by February 17, 2010, and 100 percent by
March 3, 2010.
[19] The Buy American provision of the Recovery Act requires that
"none of the funds appropriated or otherwise made available by [the]
Act may be used for a project for the construction, alteration,
maintenance, or repair of a public building or a public work unless
all of the iron, steel, and manufactured goods used in the project are
produced in the United States," and federal agencies can waive these
requirements in certain circumstances. Recovery Act, div. A § 1605,
123 Stat. 303. The Davis-Bacon prevailing wage provision requires that
contractors and subcontractors performing work on federally assisted
contracts in excess of $2,000 pay their laborers and mechanics not
less than the wages and fringe benefits that prevail in the area.
Section 3 of the Housing and Urban Development Act of 1968 states that
"recipients, contractors and subcontractors shall direct their efforts
to provide, to the greatest extent feasible, training and employment
opportunities generated from the expenditure of section 3 covered
assistance to section 3 residents." 12 U.S.C. § 1701u. Finally, the
Recovery Act requires that Public Housing Capital Fund grants "serve
to supplement and not supplant expenditures from other Federal, State,
or local sources or funds independently generated by the grantee."
[20] HUD selected housing agencies for on-site reviews based on the
size of their Recovery Act awards as well as results from independent
public accountant audit findings, among other factors.
[21] The Recovery Act requires that adequate resources be devoted to
ensuring that applicable environmental reviews under NEPA are
completed expeditiously and that the shortest existing applicable
process under NEPA shall be used.
[22] As of April 30, 2010, housing authorities in Illinois had 1.5
months to obligate their 2008 funds. Housing Authority of the County
of Cook officials stated that as of April 30, 2010, the agency has
obligated 85 percent of its 2008 funds, and that the agency obligated
100 percent of its 2007 funds 10 days before the obligation deadline.
They explained that the 85 percent obligation rate was not immediately
reflected in the HUD data due to an internal lag in providing the
numbers to HUD. Similarly, officials from the Marion County Housing
Authority stated that the agency obligated 66 and 64 percent of the
2006 and 2007 funds, respectively, around 1.5 months before the
obligation deadline. The agency's obligation rate for the 2008 funds
as of April 30, 2010 is 58 percent, which officials believe is on par
with recent years' obligation rates.
[23] Although state housing development agencies are allowed to grant
Section 1602 Program funds to projects without allocations of Low-
Income Housing Tax Credits, IHDA gave priority to projects that had
such allocations. As of April 9, 2010, all the projects that had been
awarded TCAP and Section 1602 Program funds in Illinois had
allocations of Low-Income Housing Tax Credits.
[24] IHDA allocated some of the Illinois TCAP and Section 1602 Program
funds to the City of Chicago, which awards and administers those funds
with IHDA's approval. In Illinois, both IHDA and the City of Chicago
receive tax credits under the Low-Income Housing Tax Credit program.
According to their intergovernmental agreement, IHDA allocated
approximately 22 percent of TCAP funds to the City of Chicago. IHDA
officials stated that the agency allocates Section 1602 Program funds
to the city as the latter is willing to exchange tax credits and
demonstrates the ability to award the funds to qualifying projects.
[25] Under the HOME Investment Partnerships program, HUD establishes
HOME Investment Trust Funds for each grantee, providing a line of
credit that the grantee may draw upon as needed.
[26] See 24 C.F.R. § 92.207.
[27] According to an Illinois highway official, the amount of highway
infrastructure funds obligated as of May 3, 2010, differs from the
total Recovery Act obligation amount because the agency has requested
that FHWA de-obligate some funds as a result of, for example, project
bids coming in under estimates.
[28] A state that does not meet its maintenance-of-effort
certification would be excluded from FHWA's redistribution of
obligation authority that will occur after August 1, 2011.
[29] As the recipient of approximately $3 billion in Recovery Act
funds (including funds awarded under the State Fiscal Stabilization
Fund; Title I, Part A of the Elementary and Secondary Education Act of
1965, as amended; and Part B of the Individuals with Disabilities
Education Act (IDEA)) ISBE collects and aggregates FTE data from over
900 LEAs, which it reports to the U.S. Department of Education through
the federalreporting.gov Web site. The purpose of calculating FTEs is
to avoid overstating the number of other than full-time, permanent
jobs paid for with Recovery Act funds. The state of Illinois requires
state agencies to submit their data to the Illinois Reporting Test
Site for review before the agencies upload their data into
federalreporting.gov. According to state officials, this review
includes several reasonableness checks, including a comparison of FTE
submissions to federally established FTE reporting guidelines.
[30] See OMB, Implementing Guidance for the Reports on Use of Funds
Pursuant to the American Recovery and Reinvestment Act of 2009, M-09-
21 (Washington, D.C.: June 22, 2009). Significant reporting errors are
instances where required data are not reported accurately and such
erroneous reporting results in significant risk that the public will
be misled or confused by the agency's recipient report.
[31] See Bob Secter and Erika Slife, "Illinois Data on Stimulus-
Related Jobs Saved, Created Don't Add Up," Chicago Tribune, Nov. 4,
2009.
[32] To date, OMB has not allowed recipients to correct their reports
from the first reporting period on Recovery.gov. ISBE officials said
that they are keeping corrections to FTE data on file until OMB
permits agencies to make corrections to their reports.
[33] According to ISBE guidance for the first reporting period, LEAs
could report zero FTEs for the first reporting period even if they
used Recovery Act funds to pay for salaries as long as they would have
been able to pay for those salaries in the absence of Recovery Act
funds. The fifth LEA we spoke to reported zero FTEs for the first
reporting period, based on ISBE's guidance, and did not revise its
submission.
[34] OMB's June 22, 2009, guidance (M-09-21) directs recipients of
Recovery Act funds to calculate FTEs for the first reporting period
using the following formula--cumulative Recovery Act funded hours
worked divided by cumulative hours in a full-time schedule. The
guidance also directs recipients to count only those jobs that were
created or retained with Recovery Act funds, with a job created
defined as "a new position created and filled or an existing unfilled
position that is filled as a result of the Recovery Act" and a job
retained defined as "an existing position that would not have been
continued to be filled were it not for Recovery Act funding." Simply
counting people, rather than FTEs (or the total hours saved or
retained with Recovery Act funds) can result in overestimations of the
impact of Recovery Act funds, as measured by OMB--for example, paying
one part-time teacher or a portion of one full-time teacher's salary
with Recovery Act funds is not equivalent to one job paid for with
Recovery Act funds, based on OMB's guidance.
[35] OMB's December 18, 2009, guidance directs recipients to use the
following calculation to determine the number of FTEs paid for with
Recovery Act funds in the reporting quarter: total number of hours
worked and funded by the Recovery Act within the reporting quarter
divided by quarterly hours in a full-time schedule. See OMB, Updated
Guidance on the American Recovery and Reinvestment Act--Data Quality,
Non-Reporting Recipients, and Reporting of Job Estimates, M-10-08
(Washington, D.C.: December 18, 2010). Under the revised guidance,
reporting zero FTEs was unlikely if Recovery Act funds were used to
pay for salaries.
[36] According to officials from the Governor's Office, based on these
corrections, ISBE added over 1,900 FTEs to its second period FTE total.
[37] According to ISBE officials, OMB permitted recipients to make
corrections to the data they submitted for the second reporting period
through March 15, 2010, so these corrections are reflected in ISBE's
recipient report for the period on Recovery.gov.
[38] Also according to ISBE data, 11 LEAs collectively received
approximately 50 percent of IDEA funds as of December 31, 2009.
[39] In this vein, an LEA we spoke to about its experiences with
recipient reporting for the third reporting period, which ended March
31, 2010, told us that it had developed electronic systems to track
and report on the number of hours worked by employees who are paid
with Recovery Act funds. Based on our review, we determined this LEA
was using a reasonable approach to calculate its FTEs for the third
reporting period and could provide documentation that supported its
reported figure. The Department of Education Office of Inspector
General is currently conducting an audit to determine whether (1) ISBE
and LEAs used Recovery Act funds in accordance with applicable laws,
regulations, and guidance and (2) the data ISBE and LEAs reported to
the Department of Education through federareporting.gov were accurate,
reliable, and complete.
[40] A structural deficit is a fiscal system's inability to fund an
average level of public services with the revenues that it could raise
with an average level of taxation, plus the federal aid it receives.
[41] See Illinois Office of the Comptroller, State of Illinois
Comprehensive Annual Financial Report for Fiscal Year Ended June 30,
2008 (July 10, 2009).
[42] Illinois's Constitution requires the Governor to submit to the
Illinois General Assembly a budget proposal in which proposed
expenditures do not exceed the available funds for the fiscal year.
[43] The Governor noted that the proposed tax increases would prevent
17,000 teachers from losing their jobs. See FY 2011 State of Illinois
Budget Address (March 10, 2010).
[44] The Recovery Act provides increased federal assistance to
Medicaid through December 31, 2010; multiple proposals to extend the
increase past December 31, 2010, are under consideration in the U.S.
Congress.
[45] Not included in this total is a $25 million Energy Efficiency and
Conservation Block Grant that the U.S. Department of Energy awarded to
a consortium of localities, including Cook County, for the
coordination of industry and labor programs in projects involving
energy efficiency.
[46] Cook County operates its own hospitals and health system.
[47] The state's Federal Stimulus Tracking Act requires the Governor's
Office, or a designated state agency, to track and report monthly to
the state legislature on the state's spending of the federal stimulus
monies provided pursuant to the Recovery Act. 30 Ill. Comp. Stat. 270/
5.
[48] Single Audits are prepared to meet the requirements of the Single
Audit Act of 1984, as amended (31 U.S.C. §§ 7501-7507) and provide a
source of information on internal control and compliance findings and
the underlying causes and risks. The Single Audit requires that
states, local governments, and nonprofit organizations expending more
than $500,000 in federal awards in a year obtain an audit in
accordance with the requirements set forth in the act. A Single Audit
consists of (1) an audit and opinions on the fair presentation of the
financial statements and the Schedule of Expenditures of Federal
Awards; (2) gaining an understanding of and testing internal control
over financial reporting and the entity's compliance with laws,
regulations, and contract or grant provisions that have a direct and
material effect on certain federal programs (i.e., the program
requirements); and (3) an audit and opinion on compliance with
applicable program requirements for certain federal programs. See also
OMB Circular A-133 (revised June 26, 2006).
[49] See OMB Circular A-133, Compliance Supplement (issued May 2009)
and the Compliance Supplement Addendum (issued August 2009).
[50] See OMB Circular A-133, subpart C, section 320 (revised June 26,
2007)--In general, the single audit must be completed and submitted to
OMB 9 months after the end of the audit period. For a fiscal year
ending June 30, audits must be submitted by March 31 of the following
year. Note that for 2009, the audits were due March 30.
[51] The state's assessments ranked the risk level of state agencies
from low to high based on a number of factors, including the amount of
Recovery Act funding disbursed to an agency, the number of
subrecipients receiving Recovery Act funds, and previous audit
findings. We reported on these risk assessments in GAO-09-830SP.
[52] According to Illinois officials, Illinois Executive Order 2003-
10, Executive Order to Consolidate Facilities Management, Internal
Auditing and Staff Legal Functions, consolidated the state's internal
audit function under the Illinois Department of Central Management
Services within the Governor's Office. 27 Ill. Reg. 6401 (April 11,
2003). State officials further explained that Illinois Public Act 096-
0795 mandated the return of the internal audit function to state
agencies. 2009 Ill. Laws 96-795.
[End of Appendix VII]
Appendix VIII: Iowa:
Overview:
The following summarizes GAO's work on the sixth of its bimonthly
reviews of American Recovery and Reinvestment Act of 2009 (Recovery
Act) spending in Iowa.[Footnote 1] The full report covering all of
GAO's work in 16 states and the District of Columbia is available at
[hyperlink, http://www.gao.gov/recovery].
What We Did:
Our work in Iowa examined four programs receiving Recovery Act funds--
the Weatherization Assistance Program and three education programs--as
well as state and local efforts to stabilize their budgets, monitor
the use of Recovery Act funds, and report the number of jobs paid for
by these funds. We selected the weatherization program because it has
begun to use significant amounts of Recovery Act funds, and we
selected three education programs because these are the largest
recipients of Recovery Act funds in Iowa. For descriptions and
requirements of the programs we reviewed, see appendix XVIII of GAO-10-
605SP.
To review the weatherization program, we visited Iowa's Division of
Community Action Agencies (DCAA), within the Department of Human
Rights, which is responsible for administering the weatherization
program. We also visited three local agencies--the Polk County Public
Works Department in Des Moines, Mid-Iowa Community Action (MICA) in
Marshalltown, and West Central Community Action in Harlan--to provide
a mix of urban and rural agencies that weatherize homes using
contractors or in-house staff. According to officials, the Polk County
agency, located in a large urban area, uses competitive bidding for
weatherization work; MICA, located in a rural area, performs most of
its weatherization work using in-house staff; and West Central, also
in a rural area, uses contractors but at a predetermined price. As
part of this work, we also visited 18 homes that had been or were
being weatherized using Recovery Act funds.[Footnote 2]
To review the use of Recovery Act funds for education, we met with
officials from the Iowa Department of Education and reviewed state
grant applications, financial records, and monitoring plans.
To review state and local efforts to stabilize their budgets, we
analyzed state and local budget information, including state revenue
estimates, and met with state and municipal officials. We visited
three Iowa localities--Council Bluffs, Des Moines, and Newton--
selected to provide a mix of large and small communities and
unemployment rates. We selected Council Bluffs because it is the
seventh largest city in Iowa and because its unemployment rate is
below the state's average--6.2 percent compared with a state average
of 7.4 percent; Des Moines because it is the largest city in Iowa and
because its unemployment rate is above the state's average--8.4
percent compared with a state average of 7.4 percent; and Newton
because its population is smaller in comparison with many other
localities throughout the state, and its unemployment rate is above
the state's average--9.6 percent compared with a state average of 7.4
percent.[Footnote 3]
To review state and local efforts to report on the results of Recovery
Act funds, we met with state-level officials as well as with officials
at four recipients of Recovery Act funds: the Des Moines Independent
Community School District, the Heartland Area Education Agency, the
Des Moines Municipal Housing Agency, and Iowa State University. We
discussed their most recent quarterly reporting of funds spent and
jobs funded and reviewed payroll and other documents supporting their
methodology for calculating hours worked and determining full-time
equivalent (FTE) positions.
What We Found:
* Weatherization Assistance Program. Iowa has significantly increased
the number of homes weatherized each month using Recovery Act funds.
After the U.S. Department of Labor (DOL) established Davis-Bacon
prevailing wage rates for weatherization in Iowa on August 19, 2009,
the state began using Recovery Act funds to weatherize homes. As of
March 31, 2010, the 18 local agencies implementing the program in Iowa
had spent about $14.1 million and completed weatherizing 1,176 homes,
which represented about 16 percent of the state's target for Recovery
Act funds.
* Both the state and local agencies appear to have multi-faceted and
comprehensive programs to monitor the weatherization program and use
of Recovery Act funds. Specifically, each of the three local agencies
we visited used the same program controls that they used under the
base U.S. Department of Energy (DOE) weatherization program. While
visiting homes and reviewing files, we found that the local agencies
authorized all work performed and work generally appeared to meet
state guidelines. However, while the three local agencies added staff
and contractors in response to the increased workload, we also found
that two of them did not have sufficient staff or contractors with the
needed skills; as a result, they experienced problems maintaining
internal controls, such as not using the same contractor to both
assess the need for new equipment and install a replacement.
* Education. Between 2009 and 2011, the Iowa Department of Education
will receive approximately $666 million through three U.S. Department
of Education (Education) programs: (1) Title I, Part A, of the
Elementary and Secondary Education Act of 1965, as amended (ESEA); (2)
Individuals with Disabilities Education Act, as amended (IDEA); and
(3) the State Fiscal Stabilization Fund (SFSF) for education
stabilization and government services. As of March 31, 2010, the
department had disbursed about $491 million in Recovery Act funds to
local school districts and institutions of higher education and for
government services. Of this amount, about $332 million had been
expended.
* We found that the Iowa Department of Education had systems in place
to monitor compliance by school districts with federal requirements
for education programs and the Recovery Act. To receive SFSF funds,
Iowa agreed to make progress toward specific education reforms, such
as improving teacher effectiveness. However, according to state
education officials, more funding is needed to modify existing
reporting systems to provide some of the data for the outcome
indicators used to track progress toward these reforms, such as
student achievement data to measure teacher performance. Furthermore,
state officials expressed concern about other challenges to
implementing some of the education reforms, including limitations on
disclosing personally identifiable student information to track
student performance beyond high school graduation, the confidentiality
of individual teacher and principal performance evaluations, and
inconsistencies between the Iowa student identification system and the
National Student Clearinghouse student tracker system.
* State and local government use of Recovery Act funds. As of March
31, 2010, the Iowa General Assembly had approved the state's fiscal
year 2011 budget, which included about $323.9 million in Recovery Act
funds for programs such as Medicaid and K-12 education. According to
senior officials from the Iowa Department of Management, Recovery Act
funds have enabled the state to avoid tax increases and to reduce the
amount of funds drawn from the state's Cash Reserve Fund. Anticipating
the end of Recovery Act funds and other one-time sources of revenue,
such as the use of state reserve funds, Iowa's Governor and General
Assembly implemented plans for improving the efficiency of state
operations and reorganizing state agencies to reduce state
expenditures. For example, as of April 15, 2010, over 2,000 eligible
state employees had applied for retirement under the state's early
retirement plan. Officials at three of the localities we visited--
Council Bluffs, Des Moines, and Newton--said that they have used
Recovery Act funds for various programs, and that these funds helped
to stabilize their budgets. However, officials from two of these
localities also said that they had encountered problems in applying
for and administering funds from some Recovery Act competitive grants,
such as the Energy Efficiency and Conservation Block Grant.
* State monitoring and internal controls. Iowa's State Auditor and the
Iowa Accountability and Transparency Board continue to monitor
controls over Recovery Act funds. While the Office of the State
Auditor did not identify any material weaknesses in its fiscal year
2009 single audit report,[Footnote 4] officials said that they
identified some problems with internal controls over Recovery Act
funds, such as inadequate monitoring of subrecipients. The state
provided training on subrecipient monitoring in May 2010. The Iowa
Accountability and Transparency Board identified six high-priority
programs--such as the Weatherization Assistance Program and SFSF
education stabilization funds--that it expects may have some
difficulty in fully complying with the accountability and transparency
requirements in the Recovery Act. The Board required these programs to
submit comprehensive accountability plans describing how they would
comply.
* State and local recipient reporting. In accordance with the Recovery
Act, Iowa has reported to www.recovery.gov on the number of jobs
funded by the act. Iowa created a centralized database and used it to
calculate jobs based on data provided by state and local agency
officials. Iowa has also implemented internal controls to ensure the
accuracy of data, such as requiring state and local agency officials
to certify that they reviewed and approved the jobs data prior to
submission. We noted that the methods used to calculate hours varied
at the four local recipients we visited--the Des Moines Independent
Community School District, the Heartland Area Education Agency, the
Des Moines Municipal Housing Agency, and Iowa State University--
raising questions about the consistency of the quarterly reported jobs
data.
Iowa Has Significantly Increased Efforts to Weatherize Homes and to
Oversee Local Agencies:
Since August 2009, when DOL established Davis-Bacon prevailing wage
rates for weatherization workers, Iowa has used Recovery Act funds to
weatherize 1,176 homes (see table 1). Iowa steadily increased its
monthly total of weatherized homes completed using Recovery Act funds
from 1 in August 2009 to 318 in March 2010 primarily by using Recovery
Act funds instead of funds from the Weatherization Assistance
Program's base and supplemental appropriations for fiscal year 2009
and the federal Low-Income Home Energy Assistance Program. In a letter
dated February 23, 2010, DOE asked DCAA whether the program would meet
a weatherization production target, established by DOE, of at least
364 homes per month by March 31, 2010. In response, DCAA officials
expressed concern that DOE's target was substantially higher than
Iowa's goal as identified in its State Plan, DOE's goal was not based
on pertinent Iowa data, and Iowa was already exceeding the monthly
production goals in its State Plan. While DCAA officials are seeking
to further increase production, they cited the DOE Inspector General's
concern about the risk of waste, fraud, and abuse and the need to
balance increased production with program oversight and accountability.
Table 1: Homes Weatherized in Iowa by Funding Source, April 2009
through March 2010:
Month: April 2009;
Homes weatherized using annual appropriated funds[A]: 257; Homes
weatherized using Recovery Act funds: 0; Total: 257.
Month: May 2009;
Homes weatherized using annual appropriated funds[A]: 255; Homes
weatherized using Recovery Act funds: 0; Total: 255.
Month: June 2009;
Homes weatherized using annual appropriated funds[A]: 199; Homes
weatherized using Recovery Act funds: 0; Total: 199.
Month: July 2009;
Homes weatherized using annual appropriated funds[A]: 286; Homes
weatherized using Recovery Act funds: 0; Total: 286.
Month: August 2009;
Homes weatherized using annual appropriated funds[A]: 264; Homes
weatherized using Recovery Act funds: 1; Total: 265.
Month: September 2009;
Homes weatherized using annual appropriated funds[A]: 202; Homes
weatherized using Recovery Act funds: 6; Total: 208.
Month: October 2009;
Homes weatherized using annual appropriated funds[A]: 184; Homes
weatherized using Recovery Act funds: 59; Total: 243.
Month: November 2009;
Homes weatherized using annual appropriated funds[A]: 105; Homes
weatherized using Recovery Act funds: 147; Total: 252.
Month: December 2009;
Homes weatherized using annual appropriated funds[A]: 73; Homes
weatherized using Recovery Act funds: 156; Total: 229.
Month: January 2010;
Homes weatherized using annual appropriated funds[A]: 53; Homes
weatherized using Recovery Act funds: 231; Total: 284.
Month: February 2010;
Homes weatherized using annual appropriated funds[A]: 40; Homes
weatherized using Recovery Act funds: 258; Total: 298.
Month: March 2010;
Homes weatherized using annual appropriated funds[A]: 11; Homes
weatherized using Recovery Act funds: 318; Total: 329.
Month: Total;
Homes weatherized using annual appropriated funds[A]: 1,929; Homes
weatherized using Recovery Act funds: 1,176; Total: 3,105.
Source: DCAA.
Note: Iowa began its Recovery Act weatherization activities in April
2009. Iowa considers weatherization to be complete only after the
local agency's inspector has conducted the final inspection and
approved the work.
[A] The Recovery Act's weatherization funds supplement DOE's base
Weatherization Assistance Program appropriations and funding from the
federal Low-Income Home Energy Assistance Program. According to DCAA
officials, Iowa has spent all of the $8.6 million made available
through DOE's fiscal year 2009 regular and supplemental appropriations.
[End of table]
As shown in table 2, DCAA awarded $38.5 million in Recovery Act funds
to 18 local agencies to weatherize homes by, for example, cleaning and
tuning or replacing the furnace, sealing the living space from the
outside to reduce air flow, insulating exterior walls and the attic,
and replacing old, inefficient refrigerators or water heaters. As of
March 31, 2010, local agencies had spent about $14.1 million of
Recovery Act funds to weatherize 1,176 homes, or about 16 percent of
the state's target of 7,196 homes. Furthermore, almost all of the
local agencies had completed more than 10 percent of their targets for
weatherizing homes using Recovery Act funds. Iowa reported that the
Recovery Act's weatherization funding had created 183 full-time
equivalent jobs.
Table 2: Recovery Act Funds Disbursed and Homes Weatherized by Local
Agencies, as of March 31, 2010:
Local agency: Hawkeye;
Funds awarded: $4,945,217;
Funds spent: $1,735,953;
Weatherized homes: 874;
Weatherized homes: Completed: 138.
Local agency: Polk County;
Funds awarded: $3,906,140;
Funds spent: $1,636,731;
Weatherized homes: 741;
Weatherized homes: Completed: 146.
Local agency: Eastern Iowa;
Funds awarded: $3,381,630;
Funds spent: $1,375,352;
Weatherized homes: 653;
Weatherized homes: Completed: 76.
Local agency: Mid-Iowa Community Action; Funds awarded: $2,921,118;
Funds spent: $831,451;
Weatherized homes: 549;
Weatherized homes: Completed: 73.
Local agency: Upper Des Moines;
Funds awarded: $2,502,927;
Funds spent: $1,086,801;
Weatherized homes: 486;
Weatherized homes: Completed: 101.
Local agency: North Iowa;
Funds awarded: $2,468,182;
Funds spent: $1,559,054;
Weatherized homes: 403;
Weatherized homes: Completed: 93.
Local agency: West Central;
Funds awarded: $2,407,928;
Funds spent: $617,761;
Weatherized homes: 469;
Weatherized homes: Completed: 81.
Local agency: Operation Threshold;
Funds awarded: $2,285,855;
Funds spent: $523,485;
Weatherized homes: 445;
Weatherized homes: Completed: 18.
Local agency: Southern Iowa Economic Development; Funds awarded:
$1,924,714;
Funds spent: $53,611;
Weatherized homes: 386;
Weatherized homes: Completed: 0.
Local agency: Community Opportunities; Funds awarded: $1,752,337;
Funds spent: $770,383;
Weatherized homes: 319;
Weatherized homes: Completed: 61.
Local agency: Northeast Iowa;
Funds awarded: $1,701,371;
Funds spent: $553,031;
Weatherized homes: 307;
Weatherized homes: Completed: 36.
Local agency: Southeast Iowa;
Funds awarded: $1,621,984;
Funds spent: $608,269;
Weatherized homes: 295;
Weatherized homes: Completed: 54.
Local agency: Siouxland;
Funds awarded: $1,572,067;
Funds spent: $877,502;
Weatherized homes: 302;
Weatherized homes: Completed: 54.
Local agency: Operation: New View;
Funds awarded: $1,527,036;
Funds spent: $447,652;
Weatherized homes: 291;
Weatherized homes: Completed: 69.
Local agency: Mid-Sioux;
Funds awarded: $1,068,796;
Funds spent: $567,777;
Weatherized homes: 187;
Weatherized homes: Completed: 63.
Local agency: Red Rock;
Funds awarded: $961,281;
Funds spent: $403,837;
Weatherized homes: 184;
Weatherized homes: Completed: 53.
Local agency: Matura;
Funds awarded: $838,215;
Funds spent: $289,499;
Weatherized homes: 155;
Weatherized homes: Completed: 40.
Local agency: South Central;
Funds awarded: $758,942;
Funds spent: $146,766;
Weatherized homes: 150;
Weatherized homes: Completed: 20.
Local agency: Total;
Funds awarded: $38,545,740;
Funds spent: $14,084,915;
Weatherized homes: 7,196;
Weatherized homes: Completed: 1,176.
Source: DCAA.
Note: DOE has made available only $40.4 million of the $80.8 million
it has obligated to Iowa. DOE plans to make the remaining funds
available once Iowa has completed weatherizing 30 percent of its
target of 7,196 homes and meets specified program management
objectives.
[End of table]
DCAA's monitoring of the local agencies' implementation of the
weatherization program appears to be multi-faceted and comprehensive.
It includes the following:
* Monthly reviews or desk audits. These reviews or audits involve
reconciling the local agencies' monthly financial reports on program
spending with activity reports on the weatherization of homes to
ensure that they are consistent and that the local agencies are on
schedule to spend their funds and to check for unusual expense charges.
* Reviews of the agencies' annual independent auditors' reports. As
the local agencies submit these reports on their financial statements
and internal controls over financial reporting, DCAA reviews them for
any identified problems.
* On-site monitoring at each local agency that leads to a formal
annual assessment or evaluation. This monitoring includes a review of
fiscal and program operations and inspections of homes that have been
weatherized. DOE requires states to inspect 5 percent of homes
weatherized. According to Iowa officials, DCAA inspects about 7
percent of homes weatherized and will try to sustain this rate even as
more homes are weatherized with Recovery Act funds. In turn, DCAA
requires local agencies to inspect 100 percent of weatherized homes.
DCAA's on-site monitoring is a critical aspect of its oversight and
its primary interface with the local agencies on their compliance with
program requirements and the quality of their weatherization work.
Our review of DCAA's two most recent annual evaluations for MICA, Polk
County, and West Central Community Action found that the on-site
monitoring covered a wide range of program and state requirements.
* The program operations component included a review of compliance
with state requirements for training, contracting and bid procedures,
documentation of health and safety issues in weatherizing homes,
general management and administrative practices, and timeliness and
accuracy of monthly reporting. We noted, however, that the most recent
on-site monitoring of program operations at MICA, Polk County, and
West Central was more than a year ago. For example, DCAA's visits to
review program operations at MICA and West Central took place in
November 2007 and February 2008, respectively. Similarly, the State of
Iowa Single Audit Report for the year ending June 30, 2009, found that
DCAA did not monitor the program operations component for 6 of the 18
local agencies because DCAA did not have prior year findings. State
officials explained that state policy and its monitoring plan approved
by DOE provides for DCAA to monitor agencies more frequently if it
finds significant problems and less frequently if it finds that the
local agency has a sound program. According to state weatherization
officials, DCAA is currently making site visits to review the program
operations of all local agencies because of the large increase in
funding from the Recovery Act. A DCAA official told us that, for
example, the three local agencies included in our review received site
visits during February and March 2010. These site visits either had
not been made or the results were not available at the time that we
reviewed the files.
* The fiscal operations component, among other things, examined
financial transactions for accuracy and supporting documentation,
compared time sheets to determine if the hours reported agreed with
payroll information, and reviewed expenses to determine if they were
supported by the terms of the local agency's agreement with the state.
The State of Iowa Single Audit Report found that, while DCAA monitored
fiscal operations, 8 of 18 DCAA fiscal monitoring reports were not
sent to local agencies within 30 days after the review, as required by
the monitoring plan. DCAA said that it will make every effort to
ensure that both program and fiscal monitoring reports are sent in a
timely manner.
* DCAA inspected homes to determine if the work met state standards
for weatherization. In cases where these inspections found that work
did not meet the standards, the inspector notified the local agency
that the homes had failed the inspection and directed the agency to
take corrective action. For example, the DCAA inspector failed one
home when he found that some floors had not been insulated to their
edges, some wall insulation needed to be redone, and an exhaust fan
duct had not been insulated. Local agencies did not always report
their corrective actions on failed homes to DCAA in a timely manner.
The State of Iowa Single Audit Report found that for three of the six
home inspection folders reviewed, the local agency did not report its
corrective action within 45 days of receiving the state's notice, as
required by the state monitoring plan. DCAA said that it would monitor
this situation more closely to ensure corrective actions are reported
by the due dates.
DCAA inspections during late June and early July 2009 uncovered a more
serious case. During routine program monitoring of homes weatherized
by the Southern Iowa Economic Development Association (SIEDA), DCAA
found numerous weaknesses in the agency's oversight of the
contractors' work.
* DCAA found that work performed on numerous homes did not meet
required state standards; SIEDA was not inspecting homes after they
were weatherized; and the housing coordinator misled the DCAA about
how the need for furnace and water heater replacements was determined.
According to state officials, the housing coordinator had told DCAA
that the energy auditor determined replacement needs while, in
actuality, they were determined by the contractor.
* Although Recovery Act funds were not used on these homes, DCAA
believed that the program weaknesses were so serious that it suspended
Recovery Act funding to the agency on September 24, 2009, and required
SIEDA to submit an action plan to address these concerns. On September
29, 2009, SIEDA submitted its plan to DCAA; the plan called for
discontinuing work with current furnace and weatherization
contractors, developing new contracting procedures, and establishing a
policy for home evaluations and inspection to ensure that all work
performed is according to program standards and practices. The agency
had also fired the housing coordinator.
* As of April 2010, DCAA was still working with SIEDA to revise its
policies and train more contractors. According to DCAA officials,
SIEDA will be required to demonstrate improved performance using other
funds before the state resumes funding under the Recovery Act.
Our visits to MICA, Polk County, and West Central Community Action to
review their implementation of the weatherization program found the
following:
* The local agencies essentially use the same program controls to
implement the weatherization program under the Recovery Act that they
use for the regular DOE weatherization program. Local agency officials
said program controls have been in place for years and are effective,
ensuring that their agencies meet program requirements. While visiting
homes and reviewing files at these agencies, we generally found that
the work charged to the program was authorized and appeared to meet
the state's quality guidelines. The files varied by local agency in
terms of the information they contained but were generally complete
and contained information essential to understanding the work.
* To respond to the increased workload from the influx of Recovery Act
funds, the local agencies added staff and contractors. Specifically,
Polk County increased its staff of auditors and inspectors from 4 to
13 and, as of March 2010, had increased the number of contractors
weatherizing homes from 5 to 17. MICA increased its staff of auditors
and inspectors from 2 to 4, added staff for a third work crew, and
plans to add a second 2-person furnace crew. MICA originally performed
all work in-house but has since added 3 contractors and expects to add
a fourth. West Central increased its staff of auditors and inspectors
from 3 to 5 and added an agency assistant director to work with
contractors and Davis-Bacon requirements. West Central also increased
its contractors from about 4 to 14.
* Even so, two of the agencies experienced some difficulty in
maintaining internal controls over the weatherization program as they
were adding staff or contractors. For example, West Central used the
same contractor to diagnose, repair, and replace problem furnaces--and
did not visit homes to confirm that repairs or replacement were
needed--because agency staff do not have the expertise nor the time to
visit homes across West Central's large service area, which covers 10
counties. According to state and West Central officials, the local
agency requires prior agency review and approval of all furnace
replacements called for by the contractor. Approval is based on the
results of the agency's on-site evaluation of the furnace at the time
of the energy audit and the contractor's written request and
justification for replacement. We also found that the same West
Central staff conducted both the home energy audit, which identifies
the weatherization work to be performed by a contractor, as well as
the final inspection of the contractor's work. In both instances, the
Executive Director and Energy/Housing Coordinator for West Central
acknowledged that this dual role was not desirable. The coordinator
told us that West Central has been trying to find additional furnace
contractors interested in working with the agency and is considering
hiring an employee to do the furnace diagnostics and tune and clean or
to sub-contract for the work. West Central had no choice but to use
the same staff to conduct the home energy audit and final inspection,
the official said, because the agency did not want to delay the final
inspection and payment to the contractor. The official also said that
this situation was expected to improve with the addition of two new
staff to perform inspections.
* In beginning to use contractors for weatherization work, MICA found
that competitive bidding for contracts was limited because they
received few bids. MICA works with three contractors, but not all
contractors bid on each home. According to MICA officials, the
situation will likely improve as the agency works to add contractors
qualified to bid on weatherization work.
Iowa Continues to Monitor the Use of Recovery Act Funds for Education,
but New Reform Requirements Present Challenges According to State
Education Officials:
Under the Recovery Act, Iowa will receive approximately $666 million
in Recovery Act funds through three Education programs. As of March
31, 2010, Iowa had disbursed about $491 million to local school
districts, institutions of higher education, and for government
services as described below:
* ESEA Title I, Part A. As of March 31, 2010, Education had made
available to the Iowa Department of Education an estimated $51.5
million in ESEA Title I, Part A, funds under the Recovery Act. In
turn, the Iowa Department of Education has disbursed a total of about
$16 million to school districts. These funds are intended to help
school districts educate disadvantaged youth, and the Recovery Act
requires these additional funds to be distributed through states to
school districts using existing federal funding formulas, which target
funds based on such factors as high concentrations of students from
families living in poverty. On April 6, 2010, Iowa was awarded one of
the first expanded ESEA Title I School Improvement Grants, for $18.7
million for school year 2010 - 2011. These funds are intended to help
improve student achievement in the nation's persistently low-
performing schools identified for improvement, corrective action, or
restructuring.
* IDEA, Part B. As of March 31, 2010, Education had made available to
the Iowa Department of Education an estimated $126.2 million in IDEA,
Part B, funds under the Recovery Act. The Iowa Department of Education
has disbursed a total of about $50 million to school districts and
area education agencies. IDEA, Part B, is the major federal statute
supporting the provisions of early intervention and special education
and related services for children and youth with disabilities.
* SFSF. Education allocated to Iowa a total of about $472 million in
SFSF funds, which included about $386 million in education
stabilization funds and about $86 million in government services
funds. The state had to complete two separate applications to receive
the funds. Education made the first phase of SFSF funds available to
the state in June 2009 and the second in March 2010. As of March 31,
2010, Iowa had disbursed a total of about $258 million to school
districts, $80 million to public universities, and $23 million to
community colleges. It had also disbursed $63 million in SFSF
government services funds. Iowa plans to use most of the $63 million
in government services funds in 2010 for such programs as public
assistance, public safety, and Medicaid.
To receive Recovery Act funds, Education required that states provide
assurances concerning accountability, transparency, reporting, and
compliance with certain federal laws and regulations. The Iowa
Department of Education had systems in place to monitor compliance by
school districts with federal requirements for education programs
prior to the receipt of Recovery Act funds. These processes were
extended to the oversight of Recovery Act funds as described below.
* The department designated certain staff responsible for overseeing
education funds: the Chief Financial Officer, for SFSF funds; the
Title I manager, for ESEA Title I funds; and the IDEA program manager,
for IDEA, part B funds. Additionally, the department's Finance,
Facilities and Operations Services group analyzes annual financial
reports and external audit reports to identify areas needing more
department oversight. State area education agencies, which distribute
the state IDEA funds regionally, also assist the state by monitoring
local districts' use of IDEA funds. Some officials at the Iowa
Department of Education expressed concern that recent staff reductions
at the state level and a steady loss of experienced business managers
in many of the school districts across the state could result in less
oversight of funds at a time when more oversight might be needed due
to the influx of Recovery Act funds.
* The department reviews several different reports to monitor the use
of Recovery Act funds by the state's 361 local school districts. These
reviews include (1) an annual certified financial report (completed by
September 15, about 3 months after the end of the state fiscal year);
(2) an annual financial audit performed by an external auditing firm
(completed by March 31, about 9 months after the end of the state
fiscal year); and (3) specifically for the Recovery Act, the quarterly
recipient report that details Recovery Act funds spent and related
jobs information. In addition, every quarter, the state reconciles
districts' reported Recovery Act spending with expenditure information
in its accounting system. The Iowa Department of Education is also
audited annually by the Iowa State Auditor, who has not noted any
material weaknesses in the department in the last 3 years.
To receive its initial SFSF funding allocation, the U.S. Department of
Education required that each state provide several assurances, or
promises, that it would meet established state funding requirements,
called maintenance-of-effort, and implement strategies to advance four
core areas of education reform. The U.S. Department of Education's
four areas of reform and Iowa's progress towards meeting them are as
follows:
* Increase teacher effectiveness and address inequities in the
distribution of highly qualified teachers. According to Iowa Education
officials, as a result of prior actions, Iowa has highly qualified
teachers dispersed across the state's high-and low-poverty districts
and has not had to take other actions to address teacher quality
assurances. To increase teacher effectiveness and address inequities
in the distribution of highly qualified teachers, according to Iowa
Education officials, the Iowa General Assembly passed legislation in
2001 establishing teaching criteria and mentoring programs,
restructuring the teacher evaluation process and salaries, and
requiring individual development plans and continuous education for
teachers. The legislation was instrumental in raising state teaching
standards and the state's national teacher quality ranking from 42nd
to 26th highest in the country, according to Iowa Education officials.
* Establish a pre-K-through-college data system to track student
progress and foster improvement. To track student progress, Iowa
established a comprehensive student achievement information system in
1990. However, according to Iowa Education officials, an expansion of
the state's system to track students through the college years depends
on whether the state can overcome barriers such as the federal Family
Educational Rights and Privacy Act and national data comparability
issues. According to state officials, December 2008 amendments to the
act provide additional flexibilities in sharing information, but
officials continue to be concerned that the Family Educational Rights
and Privacy Act limits the state's ability to share personally
identifiable student information between K-12 schools and community
colleges that are under the Iowa Department of Education and public
universities that operate under a separate Board of Regents. State
education officials said that recent discussions with the U.S.
Department of Education have helped identify a resolution to this
matter, but changes have not yet been implemented.
* Make progress toward rigorous college-and career-ready standards and
high-quality assessments that are valid and reliable for all students,
including students with limited English proficiency and students with
disabilities. The Iowa Department of Education is currently
implementing the Iowa Core Curriculum. Iowa Education officials said
that the Core Curriculum was established on a voluntary basis in 2007,
and in 2008 the Governor signed legislation requiring full
implementation of the curriculum. According to Iowa Education
officials, the Iowa Core Curriculum is closely aligned with federal
standards, and it positions the state to comply with voluntary
national standards. According to officials, it requires the state to
go beyond establishing standards and benchmarks to define elements of
classroom success, including specific skills and behavior learned in
the classroom. The enacting legislation established full
implementation dates for the core curriculum of 2012 for grades 9-12
and 2014 for grades K-8, according to Iowa Education officials.
* Provide targeted, intensive support and effective interventions to
turn around schools identified for corrective action or restructuring.
Officials in the Iowa Department of Education told us that the state
is currently tracking student progress, working with schools to
develop remedial plans, and providing additional professional
development for teachers and principals. They said that the state will
continue to work with the U.S. Department of Education to improve the
state's schools. However, Iowa Education officials generally disagree
with Education's models for reforming low-performing schools because
all four models require removal of the school principal. Iowa
Education officials said that they do not believe removing the
principal is necessarily effective or always appropriate, particularly
at schools where poor performance is more affected by the population
of students than the abilities and efforts of the principal or
teachers. Iowa Education officials also said that they believe that
providing states the opportunity to develop their own corrective
action plans, instead of implementing one of the Department's four
models, would be more effective and could work as long as the U.S.
Department of Education established regulations to ensure that states
are initiating constructive actions.
To receive their second phase of SFSF funding, states had to complete
an application in which they described their ability to address 37
indicators and descriptors that support the four assurances agreed to
in the initial application. These 37 indicators include, for example,
(1) the percentage of core courses taught in the highest and lowest
poverty schools by teachers who are highly qualified, (2) the
percentage of limited English-proficient students who are included in
state reading/language arts and mathematics assessments, and (3) total
students, by school and subgroup, who graduate from high school in 4
years. For those indicators and descriptors that the states do not
currently report on, states were required to provide plans for how
data would be collected, and obstacles to collecting these data. In
its application, Iowa reported that it collected data for 25 of the 37
indicators and provided information on how it planned to address the
remaining 12 indicators and potential obstacles to obtaining data. For
example, Iowa reported that it did not have a system to track student
achievement data to measure teacher and principal performance, nor to
determine teacher impact on student achievement in reading and
mathematics in grades in which they administer these assessments. The
state cited a lack of funds and personnel as potential obstacles to
implementing and administering the needed data system changes.
Furthermore, Iowa Education officials reported that under Iowa law,
the Iowa Department of Education was not allowed to make public
individual teacher and principal performance data. In order to respond
to the indicator requirements without violating individual privacy
concerns, the Iowa Department of Education is working with the U.S.
Department of Education to develop a means for reporting aggregated
data for classes, schools, or districts instead of reporting
individual student, principal, or teacher data.
The Iowa Department of Education applied for a school improvement
grant on February 22, 2010, and was approved for an $18.7 million
grant on April 6, 2010. Among other things, the new grant rules
increase the amount of funds that can be spent on one school from
$500,000 to $2 million. The U.S. Department of Education's stated goal
for the use of these funds is "to dramatically transform school
culture and increase student outcomes in each state's persistently
lowest-achieving schools." The U.S. Department of Education has
specified that local school districts choose between four "school
intervention models": school turnaround, closure, restart, and
transformation. The models vary in approach, but require specific
actions, such as replacing the principal and up to half of the staff
or closing the school permanently and relocating students to nearby,
higher performing schools. However, Iowa education officials cited the
following short-and long-term challenges in implementing the
requirements of this grant program:
* Time frame to implement change. According to Iowa Education
officials, the U.S. Department of Education did not notify the state
that it was selected for a new school improvement grant until just
before the time that most school districts normally make staffing
decisions and offer contract extensions for the next school year.
Furthermore, school districts are required to submit their
applications to the state by May 21, 2010, and will not know if their
plan is approved until sometime after that date. As a result, local
school districts will likely be rushed to implement changes during the
2010-2011 school year.
* Distribution of grant funds. The new grant program rules generally
require that states identify the lowest-achieving 5 percent of ESEA
Title I schools as Tier 1 schools (those that are persistently
underachieving) and designate them as highest priority for grant
funds. Iowa has about 120 ESEA Title I schools, meaning that 6 schools
will be designated as the lowest performing 5 percent. These 6 schools
will be eligible to apply for up to $2 million to improve their
performance over 3 years, while most other ESEA Title I schools will
receive less than they did in the past. In prior years, school funding
was limited to $500,000 per school, which allowed the state to fund
more schools.
* Contract negotiations. Iowa Education officials said they expect to
have to negotiate changes with the local teachers' unions on changes,
such as providing longer school days and school years and releasing or
transferring teachers in nonperforming schools. This could delay or
limit school districts' ability to make changes at some schools.
* Rural school districts. Iowa Education officials noted potential
problems releasing or transferring teachers or principals from
nonperforming schools in the state's rural areas. Many of Iowa's 361
school districts are in rural areas that already have a shortage of
education professionals. Iowa Education officials questioned whether
these districts would be able to find sufficient numbers of certified
and trained replacements should they be required to release staff.
Some districts already have a shortage of qualified teachers for
certain subjects, particularly math. Finally, some students in rural
areas must travel a great distance to go to school, so that these
students may need to travel even further if a school or a portion of a
school closes.
Iowa State and Local Governments Said They Benefit from Use of
Recovery Act Funds, but Some Localities Experienced Challenges
Applying for Competitive Grants:
As of March 31, 2010, the Iowa General Assembly had approved all
appropriations bills for Iowa's fiscal year 2011 budget,[Footnote 5]
which is based on a revised revenue estimate of approximately $5.44
billion,[Footnote 6] and appropriates a net total of approximately
$5.28 billion from the state's General Fund. The General Assembly also
included $323.9 million in Recovery Act funds in the fiscal year 2011
budget, including about $240.2 million for funding Medicaid-related
programs,[Footnote 7] and about $47.9 million for funding state school
aid for K-12 education.[Footnote 8] However, according to officials
from the Iowa Department of Management and Iowa's Legislative Services
Agency, the General Assembly appropriated Recovery Act funds for
Medicaid-funded programs on the assumption that Iowa would receive an
extension of Recovery Act Medicaid funds. Senior officials from the
Iowa Department of Management added that if there is no extension of
Recovery Act Medicaid funds, the General Assembly will be able to
consider a supplemental appropriation for Medicaid funds, based on
enrollment and funding need, during the 2011 legislative session.
[Footnote 9] Additionally, officials from Iowa's Legislative Services
Agency said that, despite the allocation of Recovery Act funds for
state school aid, local school districts may be required to increase
property taxes to make up for any shortfall of state or local
education funds. Senior Iowa Department of Management officials told
us that the amount of Recovery Act funds received for fiscal year 2010
enabled Iowa to avoid tax increases and to reduce the amount drawn
down from its Cash Reserve Fund.
Senior officials from Iowa's Department of Management said that the
Governor recently implemented plans for improving the efficiency of
state operations to reduce state expenditures, in part to account for
revenue shortfalls following the disbursement of remaining Recovery
Act funds and other one-time sources of revenue, such as state reserve
funds. Additionally, according to state officials, the General
Assembly approved legislation including additional measures to improve
efficiency in state government and reorganize state agencies.[Footnote
10] According to senior Iowa Department of Management officials, the
efficiency improvements and reorganization proposals are estimated to
achieve a combined reduction of $270 million in expenditures in fiscal
year 2011.
Among the efficiency improvements is the implementation of optional
early retirement plans for eligible state employees, according to
senior Iowa Department of Management and Iowa Legislative Services
Agency officials. Senior Iowa Department of Management officials said
that the early retirement plan is intended to reduce state personnel
expenditures by about $58 million per year beginning in fiscal year
2011 by reclassifying positions, filling only essential positions, and
taking advantage of different skill sets and levels of experience that
new employees would bring to their respective positions. Furthermore,
officials believe that the early retirement program will help reduce
the state's unemployment, provide greater diversity in state
government, and expand employees' service capabilities. As of April
15, 2010, according to senior Iowa Department of Management officials,
over 2,000 eligible state employees had accepted the state's early
retirement offer.
We have previously noted that as experienced federal employees retire,
they leave behind critical gaps in leadership and institutional
knowledge, increasing the challenges government agencies face in
maintaining a skilled workforce.[Footnote 11] These consequences may
also be applicable to Iowa as experienced state employees take
advantage of the early retirement offer; state agencies and
departments may experience difficulties administering and monitoring
federally funded programs, including those funded by the Recovery Act.
Should the state experience problems administering and monitoring
federally funded programs, the Iowa Department of Administrative
Services, as well as Iowa state agencies and departments, could
address these potential issues by creating and implementing policies
to address leadership and knowledge gaps. For example, the state could
choose to implement policies requiring new employees to complete
additional training and mentoring programs to help them better
understand how to effectively carry out their responsibilities.
Commenting on our draft report, senior officials from the Iowa
Department of Management said they do not believe that the early
retirement program will impair state government operations; they also
said services would continue to be provided. Officials added that
training will be provided to new employees as required by individual
Iowa state agencies and departments.
We visited three localities in Iowa, including two localities we
visited in 2009, to discuss the use of Recovery Act funds by local
governments (see table 3). Local municipal governments benefited from
the use of Recovery Act funds under various programs, according to
officials we spoke with. In addition, some localities we visited
cooperated with other entities to obtain Recovery Act grants. However,
some local government officials expressed concern about the process
for applying for and administering some Recovery Act competitive
grants.
Table 3: Demographics of Localities Visited to Address Use of Recovery
Act Funds:
Local Government: City of Council Bluffs; Population[A]: 59,536;
Locality Type: City;
Unemployment Rate, March 2010 (percent)[B]: 6.2; 2009-2010 Operating
Budget[C]: $63,854,868.
Local Government: City of Des Moines; Population[A]: 197,052;
Locality Type: City;
Unemployment Rate, March 2010 (percent)[B]: 8.4; 2009-2010 Operating
Budget[C]: $625,633,246.
Local Government: City of Newton;
Population[A]: 15,042;
Locality Type: City;
Unemployment Rate, March 2010 (percent)[B]: 9.6[D]; 2009-2010
Operating Budget[C]: $12,385,302.
Sources: GAO analysis of U.S. Census Bureau population data and U.S.
Department of Labor, Bureau of Labor Statistics, Local Area
Unemployment Statistics; City of Council Bluffs; City of Des Moines;
and City of Newton.
[A] City population data are from the latest available estimate, July
1, 2008.
[B] Unemployment rates are preliminary estimates for March 2010 and
have not been seasonally adjusted. The state of Iowa had a non-
seasonally adjusted unemployment rate of 7.4 percent in March 2010,
and had a seasonally-adjusted unemployment rate of 6.8 percent during
the same period. Rates are a percentage of the labor force.
[C] The timeframe for the 2009-2010 budgets of all localities we
interviewed is July 1, 2009-June 30, 2010.
[D] The unemployment rate reflects Jasper County, Iowa (where Newton
serves as the county seat).
[End of table]
Council Bluffs:
* Council Bluffs, according to city officials, was awarded
approximately $6.2 million in Recovery Act funds from federal and
state sources, and had received approximately $694,000 in Recovery Act
funds as of May 1, 2010. Officials from Council Bluffs said that the
city used Recovery Act funds to fund various projects (see table 4),
such as rehabilitating several city roads and bike trails and
renovating city buildings to improve energy efficiency. Officials also
noted that the city filed a joint application with the City of Carter
Lake and Pottawattamie County to obtain funding from the Edward Byrne
Memorial Justice Assistance Grant. However, city officials said they
did not initially have sufficient capabilities to complete the
application process and electronically report data pertaining to the
Recovery Act Energy Efficiency and Conservation Block Grant program.
[Footnote 12] To resolve the issue, city officials said the city used
a consultant to finish the city's application for funding and complete
the grant's periodic reporting requirements.
Table 4: Select Sources of Recovery Act Funding to Council Bluffs:
Agency: Iowa Department of Transportation; Program: Highway
Infrastructure Investment Program; Use of funds: Reconstructing a
segment of College Road in Council Bluffs; Amount awarded: $2,300,000.
Agency: DOE;
Program: Energy Efficiency and Conservation Block Grant; Use of funds:
Replacing chillers, mechanical systems, and windows in the Council
Bluffs City Hall and other municipal buildings; Amount awarded:
$571,500.
Agency: U.S. Department of Housing and Urban Development; Program:
Community Development Block Grant - Recovery; Use of funds:
Constructing roads and other infrastructure for new low-and medium-
income housing; Amount awarded: $285,520.
Agency: U.S. Department of Justice;
Program: Edward Byrne Memorial Justice Assistance Grant; Use of funds:
Purchasing law enforcement equipment and training, including
installing new training simulators and making additional improvements
to a local shooting range[A]; Amount awarded: 504,215[B].
Source: City of Council Bluffs.
[A] According to Council Bluffs officials, their police department
shares the local shooting range with other federal, state, and local
law enforcement agencies based in Iowa and Nebraska.
[B] Council Bluffs, the City of Carter Lake and Pottawattamie County
received a joint allocation of $541,500; of that amount, Council
Bluffs received $504,215.
[End of table]
* Council Bluffs officials said that the city has experienced positive
economic growth over the past 2 years, and the city projected
increases in revenues and expenditures for fiscal year 2010-2011 in
comparison with the previous fiscal year.[Footnote 13] City officials
also said that Council Bluffs benefited financially from the use of
Recovery Act funds; for example, the city avoided using capital funds
to pay for road projects funded by the Recovery Act, and maintained
its bond rating to avoid higher interest rates on bonds issued by the
city.
* City officials said that Council Bluffs does not have a strategy to
address any budgetary shortfalls after they use available Recovery Act
funds. However, city officials said that the city should not
experience significant financial difficulties because many of the
Recovery Act funds are being used for one-time expenses, such as road
projects.
Des Moines:
* Des Moines was awarded more than $18 million in Recovery Act funds
from federal and state sources and, according to city officials, had
received approximately $3.7 million in Recovery Act funds as of:
* April 30, 2010. Des Moines officials said that the city used
Recovery Act funds to rehabilitate roads, construct bike trails, and
expand community service programs, as well as for other initiatives
(see table 5). City officials also said that Des Moines cooperated
with other entities to obtain funding for several Recovery Act grants.
[Footnote 14] However, these officials said the process to apply for
competitive grants, such as the Recovery Act Energy Efficiency and
Conservation Block Grant, has been frustrating because DOE continues
to change its mind on what is an acceptable project. For example,
according to city officials, DOE changed its mind three times before
finally disapproving a proposed $555,000 mortgage buy-down
program.[Footnote 15] In another case, DOE told Des Moines officials
they would be able to implement a revolving loan program that would
allow the city to issue itself loans for, among other things,
retrofitting public buildings with energy improvements. DOE later told
city officials the revolving loan program would not be an eligible
activity. Furthermore, city officials said the that the Des Moines
City Council had approved a grant application for the Recovery Act
Assistance to Firefighters Fire Station Construction Grant in June
2009.[Footnote 16] However, city officials said they did not receive
notification from the Federal Emergency Management Agency about the
status of their application until April 2010, when city officials were
informed that the city's application was denied.
Table 5: Select Sources of Recovery Act Funding to Des Moines:
Agency: Iowa Department of Transportation; Program: Transportation
Enhancement;
Use of funds: Constructing multipurpose trail extensions of the
Principal Riverwalk along the Des Moines River; Amount awarded:
$2,849,000.
Agency: U.S. Department of Housing and Urban Development; Program:
Community Development Block Grant - Recovery; Use of funds: Expanding
neighborhood infrastructure rehabilitation programs (e.g., street,
curb, sidewalk repairs) and demolition programs for neighborhood
redevelopment; Amount awarded: $1,152,886.
Program: Homelessness Prevention and Rapid Rehousing; Use of funds:
Assisting individuals and families at risk of becoming homeless with
temporary rent or utility assistance, and providing temporary housing
assistance to individuals and families already experiencing
homelessness; Amount awarded: $1,763,874.
Agency: U.S. Department of Justice;
Program: COPS Hiring Recovery Program (CHRP); Use of funds: Creating
nine additional police officer positions for 3 years, with an
additional year funded by the City of Des Moines, to support community
policing efforts; Amount awarded: $2,191,806.
Program: Edward Byrne Memorial Justice Assistance Grant (JAG); Use of
funds: Improving forensic capabilities, upgrading technology, and
funding equipment to improve officer safety; Amount awarded:
$1,178,833[A].
Source: City of Des Moines.
[A] Local governments in the Des Moines metropolitan area, including
Des Moines, the City of Altoona, and Polk County, received a joint
award of $1,502,161. Of that amount, Des Moines received $1,178,833.
[End of table]
* Des Moines officials said the city is facing a structural deficit,
[Footnote 17] in part due to reductions in property taxes and other
sources of revenue, as well as because of increased costs of health
insurance and other employee benefits. To address the deficit, Des
Moines intends to eliminate 58 full-time equivalent positions in
fiscal year 2011-2012 and has reduced services, such as reducing hours
of operation for public libraries, and changed some of its business
practices, such as increasing contracting for city services.[Footnote
18] Projected reductions in revenue in fiscal year 2010-2011 prompted
the Des Moines City Council to approve decreases in expenditures in
the current fiscal year as well.[Footnote 19]
* City officials noted, however, that the use of Recovery Act funds
mitigated the effects of recent budget reductions. Specifically, city
officials said that funds for the COPS Hiring Recovery Program allowed
Des Moines to fund positions for nine police officers and funds from
the U.S. Department of Housing and Urban Development provided much
needed neighborhood redevelopment and homelessness prevention
programs. Transportation funding played an important role in allowing
the city to move forward on important capital improvement projects.
Des Moines officials said that once they expend available Recovery Act
funds, they plan to reduce funding for these programs to pre-Recovery
Act funding levels.
Newton:
* As of May 1, 2010, Newton was awarded approximately $1.3 million in
Recovery Act funds from state sources, and according to city
officials, has been reimbursed about $701,000 for expenses related to
Recovery Act-funded projects. Newton officials said that the city used
Recovery Act funds to perform overlay projects on several city streets
and replace an aeration basin at Newton's water treatment facility
(see table 6).
Table 6: Select Sources of Recovery Act Funding to Newton:
Agency: Iowa Department of Natural Resources and Iowa Finance
Authority; Program: Clean Water State Revolving Fund; Use of funds:
Replacing aeration basin at Newton's water treatment facility; Amount
awarded: $684,000[A].
Agency: Iowa Department of Transportation; Program: Highway
Infrastructure Investment Program; Use of funds: Performing road
overlay projects on several streets in Newton; Amount awarded:
$620,472.
Source: City of Newton.
[A] Newton officials said that the city obtained $684,000 in loans in
lieu of grants (of which $136,000, or about 20 percent, is forgivable).
[End of table]
* Newton expects to receive more revenues in fiscal year 2010-2011
than it did in the previous fiscal year, but it also expects higher
total expenditures for the same period.[Footnote 20] City officials
noted, however, that Newton benefited financially from the use of
Recovery Act funds; for instance, the city avoided capital
expenditures for future road repairs and anticipates it can reduce
maintenance costs for its water treatment facility.
* Newton officials said that the city does not have a strategy to
address any budgetary shortfalls once it uses available Recovery Act
funds because the Recovery Act funded one-time expenses for capital
improvements to Newton's roads and water treatment facility.
Iowa's State Auditor and Accountability and Transparency Board
Continue to Monitor Controls over Recovery Act Funds:
Iowa's State Auditor and Accountability and Transparency Board
continue to monitor controls over Recovery Act funds, as discussed
below:
* Iowa's fiscal year 2009 comprehensive annual financial report and
its fiscal year 2009 single audit report were issued on December 18,
2009, and March 31, 2010, respectively. The State Auditor's office
issued a qualified audit opinion on the State of Iowa's financial
statements because of a significant (40 percent) reduction in the
office's fiscal year 2009 appropriation. Specifically, according to
the State Auditor, the state auditor's office could not sufficiently
audit the state's general fund and other governmental activities
because of the office's limited funding. In the state's fiscal year
2009 Single Audit report, the State Auditor's office noted that it did
not identify any material weaknesses.
* A State Audit official told us that Iowa's single audit covered
almost all (99.54 percent) of the Recovery Act funds received in
fiscal year 2009, and that it performed some testing of recipient
reports submitted during fiscal year 2010. Furthermore, a State Audit
official told us that the audit found that some departments receiving
Recovery Act funds, such as Iowa's Department of Education, lack
formal written policies for reviewing and approving subrecipient
reports. The official also found that although subrecipient reports
are reviewed for reasonableness, specific procedures are not applied
to determine whether the financial amounts and number of jobs reported
are supported by adequate documentation. The State Auditor's office
recommended that the Department of Education implement written
policies and procedures for reviewing recipient reports submitted by
school districts to ensure that reported expenditures are allowable
and that reporting is complete. In March 2010, the Iowa Department of
Education submitted a Recovery Act Funds Monitoring Plan to the U.S.
Department of Education for approval.
* Iowa's Accountability and Transparency Board is composed of
representatives from the Iowa Governor's Office, Department of
Management, Auditor's Office, the Legislature, local governments, and
local citizens. The Iowa Accountability and Transparency Board's
Internal Control Evaluation Team surveyed 82 programs and identified 6
high-priority programs--such as the Weatherization Assistance Program
and the SFSF education stabilization funds--which it expects may have
some difficulty in fully complying with the accountability and
transparency requirements in the Recovery Act. The board required that
these high-priority programs submit comprehensive accountability plans
for the board's review of Recovery Act activities. The board accepted
the comprehensive accountability plans of the high-priority programs
in December 2009. The board plans to establish an on-time audit
process, assessment of needs for additional oversight, and a method to
confirm Recovery Act information reported on the state's dashboard
feature--a user-friendly search capability to provide detailed
information on how and where Recovery Act funds are spent. Despite
budget cuts and layoffs, the state is taking steps to achieve these
goals, including the recent use of targeted site visits and recipient
surveys.
* At the recommendation of State Audit and Department of Management
officials, the Iowa Department of Public Health held additional
training on subrecipient reporting for high-priority programs and
other Recovery Act programs on May 3, 2010. We reported in December
2009 that the U.S. Department of Justice and the DOE Office of the
Inspector General provided training on federal procurement guidelines
and fraud prevention on October 27, 2009.[Footnote 21]
* In September 2009, we suggested that Iowa could use its "Results
Iowa" Web site[Footnote 22] to demonstrate how Recovery Act funding is
affecting key performance measures, such as the state's unemployment
and other key economic indicators.[Footnote 23] We also suggested that
Iowa could integrate information from the Results Iowa Web site with
its Economic Recovery Web site's proposed dashboard feature. In
response, a senior official from the Office of the Governor said that
the state has yet to act on the suggestion because funding and staff
capacity in Iowa's state government are very stressed with other
components of Recovery Act implementation. The official said that the
state hopes to expand Recovery Act accountability and transparency
mechanisms as time and resources allow.
Iowa Reported on Jobs Funded Using Recovery Act Funds:
Iowa's centralized database and validation and certification processes
have helped to ensure the accuracy of data, reported jobs, and other
information related to the use of Recovery Act funds to the federal
government, as described below:
* On October 10, 2009, January 15, 2010, and April 10, 2010, Iowa
submitted detailed reports to the federal government on the Recovery
Act funds that the state received directly from federal agencies,
including Recovery Act expenditures and the number of jobs funded by
the Recovery Act. The Iowa Department of Management used a centralized
database, created by Department of Management and Department of
Administrative Services personnel, to report Iowa's Recovery Act
information to www.federalreporting.gov. The centralized database
calculated the quarterly number of jobs on the basis of data, such as
the number of hours worked reported by state agency and locality
officials, and divided hours worked by 520, one-quarter of a 2,080
hour work year. State officials told us that they used a centralized
database to help ensure the accuracy and consistency of the
information reported. However, some localities, such as public housing
and urban transit agencies, which receive their funding directly from
federal agencies and not through the state, report Recovery Act
information to www.federalreporting.gov and not through the state's
centralized reporting database.
* The development of the centralized database was facilitated by the
Iowa Recovery Act implementation executive working group. This working
group was created in March 2009 to provide a coordinated process for
(1) reporting on Recovery Act funds available to Iowa through various
federal grants, and (2) tracking the federal requirements and
deadlines associated with those grants. A larger implementation
working group--made up of representatives from 24 state agencies--is
led by the executive working group and assisted by groups focused on
implementation topics such as budget and tracking, intergovernmental
coordination, and communication.
* Iowa officials told us that they developed internal controls to help
ensure that the data submitted to federal entities are accurate.
Specifically, Iowa inserted validation processes in the database to
help identify and correct inaccurate data as they were entered.
Officials told us that these validation processes generally worked and
identified inaccuracies in the data. In addition, state agency and
locality officials were required to certify their review and approval
of their agency's information before submitting it to the state's
centralized database and the federal Web site. These certifications
are intended to help ensure responsibility for accurate information.
* In February 2010, an official from the state's accounting office
reconciled Recovery Act revenues and expenditures reported in the
state's centralized accounting system for departments that use the
system. Some state agencies, such as the Board of Regents, do not
report to the state's centralized accounting system. Accordingly, the
state does not reconcile Recovery Act revenue and expenditure data for
those agencies. The Chief Financial Officer for the Iowa Department of
Education said that he reviews the Department of Administrative
Services' monthly financial reports for the Iowa Department of
Education to verify fund disbursements to the Board of Regents.
* The recipient report reconciliations prepared by state accounting
personnel identified variances between the revenues and expenditures
reported to the federal government and the amounts reported in the
state's centralized accounting system. The analysis of the variances
will help accounting and department officials correct recipient
reports and accounting records. However, the reconciliations do not
summarize the amounts and reasons that reports and the accounting
records were misstated. As a next step, Iowa could summarize these
reconciliations to assist state officials in identifying which
departments have problems meeting their recipient reporting
requirements and identify areas where subrecipients need additional
training. Summarizing reconciliations could also help Iowa officials
identify systemic reporting problems affecting multiple departments.
When we raised this matter to state officials, they said that they
thought such an analysis would be useful and said that they would work
to implement it in the future as resources allow.
* In the April 2010 reporting period, state officials said that their
centralized reporting process worked well. As of April 8, 2010, 2 days
prior to the reporting deadline, approximately 99 percent of the prime
recipient reports submitted by the state of Iowa were successfully
validated by OMB. An Iowa state official noted that the system
illustrates for the public how Recovery Act funds are spent and
believes the system could be useful in reporting the use of non-
Recovery Act funds in the future.
* Each quarter, recipients of Recovery Act funds are required to
report jobs funded by the Recovery Act. OMB and the state of Iowa have
both provided guidance on how to report on jobs funded. Iowa's most
recent reporting guidance, distributed on February 26, 2010, directed
fund recipients to report hours by either (1) summing up the hours
worked each pay period in the quarter or (2) counting the total days
worked each quarter and multiplying by 8, or some portion thereof for
less than full-time employees. For the reporting cycle ended March 31,
2010, we reviewed selected education and housing entities to document
the methods that entities use to calculate hours worked. We visited
four local recipients--the Des Moines Independent Community School
District, the Heartland Area Education Agency, the Des Moines
Municipal Housing Agency, and Iowa State University--where we noted
that the methods used to calculate hours varied. We found that the Des
Moines Independent Community School District and Iowa State University
estimated hours worked by dividing each employee's quarterly salary by
an average hourly salary or wage rate. The average hourly salary was
determined based on employee contracts. For example, the Des Moines
Independent Community School District calculated an average hourly
wage for teachers based on a 195-day teacher's contract, and Iowa
State University calculated an average hourly salary for instructors
and administrators based on a 260-day full-time contract. The
Heartland Area Education Agency reported an estimate of actual hours
worked based on a standard teacher contract calendar of work days,
which excludes holidays and other school breaks. It was able to do so
because it has fewer than 100 employees. The Des Moines Municipal
Housing Agency reported actual hours worked based on Davis-Bacon
payroll reports supplied to them by the contractor. The Heartland Area
Education Agency reports estimated actual hours worked so it reports
few or no hours worked during the summer months for employees working
a standard school year calendar. The Des Moines Independent Community
School District and Iowa State University report hours based on
salaries paid over a 12-month period, which means they report hours
worked during the summer regardless of whether the employees are
working. Although all four methodologies appear to be reasonable, the
reported hours worked, based on the methodologies, could be different
raising questions about the consistent reporting of jobs data.
State Comments on This Summary:
We provided the Governor of Iowa with a draft of this appendix on May
4, 2010. The Director, Iowa Office of State-Federal Relations, and the
Deputy Director of the Iowa Department of Economic Development,
responded for the Governor on May 7, 2010. Officials agreed with our
findings. The officials also offered technical suggestions, which we
have incorporated, as appropriate.
GAO Contact:
Lisa Shames, (202) 512-3841 or shamesl@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Richard Cheston, Thomas Cook,
Daniel Egan, Christine Frye, Ronald Maxon, Mark Ryan, Raymond H.
Smith, Jr., and Carol Herrnstadt Shulman made key contributions to
this report.
[End of section]
Footnotes:
[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009).
[2] These homes were selected to provide a mix of those for which the
weatherization work had been completed, the local agency was
conducting a final inspection of the work, and the work by contractors
or local agency work crews was in process. The selection also depended
on other factors, such as being able to obtain owner or renter
permission to enter the home and scheduling our visit. We accompanied
local agency personnel responsible for inspecting weatherization work
and had the opportunity to discuss the work with them and the owners
or renters. We also observed, as appropriate, equipment readings
indicating the effectiveness of air sealing measures and the use of
infrared cameras to determine the extent of wall insulation.
[3] GAO used non-seasonally adjusted unemployment rates to compare
rates between the state of Iowa and the localities in Iowa we visited.
The state of Iowa had a non-seasonally adjusted unemployment rate of
7.4 percent in March 2010. State officials reported a seasonally-
adjusted unemployment rate of 6.8 percent during the same period.
Seasonally-adjusted unemployment rates remove the effects of cyclical
events that follow a more or less regular pattern each year, such as
unemployment of some construction workers in northern climates during
the winter months.
[4] Single Audits are prepared to meet the requirements of the Single
Audit Act, as amended, and provide a source of information on internal
control and compliance findings and the underlying causes and risks.
The Single Audit Act requires states, local governments, and nonprofit
organizations expending $500,000 or more in federal awards in a year
to obtain an audit in accordance with the requirements set forth in
the act. A Single Audit consists of (1) an audit and opinions on the
fair presentation of the financial statements and the Schedule of
Expenditures of Federal Awards; (2) gaining an understanding of and
testing internal controls over financial reporting and the entity's
compliance with laws, regulations, and contract or grant provisions
that have a direct and material effect on certain federal programs
(i.e., the program requirements); and (3) an audit and an opinion on
compliance with applicable program requirements for certain federal
programs.
[5] Iowa's fiscal year begins July 1 and ends June 30.
[6] On March 11, 2010, the Iowa Revenue Estimating Conference
increased the estimated amount of revenues to be collected by Iowa in
fiscal year 2011 from about $5.40 billion to about $5.44 billion.
[7] According to officials from Iowa's Legislative Services Agency, an
example of a Medicaid-related program is the state resource centers.
These centers pay for Medicaid services, but through an appropriation
from the General Assembly independent of appropriations for other
state Medicaid programs.
[8] According to officials from Iowa's Legislative Services Agency,
the General Assembly appropriated all remaining Recovery Act State
Fiscal Stabilization Fund monies--both the education stabilization
funds and the government services funds--for state school aid for
fiscal year 2011.
[9] The Recovery Act provides increased federal assistance to Medicaid
through December 31, 2010; bills have been proposed in the U.S.
Congress to extend the increase beyond that date.
[10] According to officials from Iowa's Legislative Services Agency,
the Governor implemented some plans for improving the efficiency of
state operations through Executive Order 20 (Dec. 16, 2009), and the
General Assembly passed additional efficiency improvements and plans
to reorganize state agencies, as detailed in Iowa Senate File 2088
(Feb. 1, 2010).
[11] For more information, see GAO, Older Workers: Federal Agencies
Face Challenges, but Have Opportunities to Hire and Retain Experienced
Employees, [hyperlink, http://www.gao.gov/products/GAO-08-630T]
(Washington, D.C.: Apr. 30, 2008).
[12] The Recovery Act Energy Efficiency and Conservation Block Grant
is intended to fund, through formula and competitive grants, energy
efficiency and conservation programs and projects in communities, as
well as renewable energy installations on government buildings. The
grant is administered by DOE.
[13] Council Bluffs projected total revenues of about $98.4 million
for fiscal year 2010-2011, which is about a 12.8 percent increase in
comparison to total revenues of $87.2 million for fiscal year 2009-
2010. Council Bluffs also projected total expenditures (including
operating, capital, and enterprise expenditures) of about $97.9
million for fiscal year 2010-2011, which is about a 16.3 percent
increase in comparison to total expenditures of about $84.2 million
for fiscal year 2009-2010.
[14] Des Moines partnered with cities and counties in the Des Moines
metropolitan area in applying for funding from the Recovery Act Energy
Efficiency and Conservation Block Grant program, the Edward Byrne
Memorial Justice Assistance Grant program, and an Iowa Office of
Energy Independence grant program.
[15] According to Des Moines officials, the mortgage buy-down program
would allow the city to help homeowners refinance their residences to
obtain funding for energy improvements.
[16] The Recovery Act Assistance to Firefighters Fire Station
Construction Grant is intended to provide financial assistance
directly to fire departments on a competitive basis to build new or
modify existing fire stations and is administered by the Federal
Emergency Management Agency.
[17] A structural deficit is a budget deficit that results from a
fundamental imbalance in a government's revenues and expenditures, as
opposed to based on short-term factors.
[18] A full-time equivalent is the number of hours that represent what
a full-time employee would work over a given time period, such as a
year or a pay period.
[19] Des Moines projected total revenues of about $639.2 million for
fiscal year 2010-2011, which is about a 12.9 percent decrease in
comparison to total revenues of about $733.6 million in fiscal year
2009-2010. Additionally, Des Moines projected total expenditures
(including for operating and capital expenditures) of about $701.3
million for fiscal year 2010-2011, which is about a 8.9 percent
decrease in comparison to total expenditures of about $770.2 million
for fiscal year 2009-2010.
[20] Newton projected total operating revenues of about $12.3 million
for fiscal year 2010-2011, which is an increase of about 0.7 percent
in comparison to operating revenues of about $12.2 million for fiscal
year 2009-2010. Newton also projected operating expenditures of about
$12.9 million for fiscal year 2010-2011, which is about a 4.2 percent
increase in comparison to operating expenditures of about $12.4
million for fiscal year 2009-2010.
[21] GAO, Recovery Act: Status of States' and Localities' Use of Funds
and Efforts to Ensure Accountability (Appendixes), [hyperlink,
http://www.gao.gov/products/GAO-10-232SP] (Washington, D.C.: Dec. 10,
2009).
[22] [hyperlink, http://www.resultsiowa.org].
[23] GAO, Recovery Act: Funds Continue to Provide Fiscal Relief to
States and Localities, While Accountability and Reporting Challenges
Need to Be Fully Addressed (Appendixes), [hyperlink,
http://www.gao.gov/products/GAO-09-1017SP] (Washington, D.C.: Sept.
23, 2009).
[End of Appendix VIII]
Appendix IX: Massachusetts:
Overview:
This appendix summarizes GAO's work on its most recent review of
American Recovery and Reinvestment Act of 2009 (Recovery Act)[Footnote
1] spending in Massachusetts. The full report covering all of GAO's
work in 16 states and the District of Columbia may be found at
[hyperlink, http://www.gao.gov/recovery].
What We Did:
GAO's work in Massachusetts focused on (1) the commonwealth's use of
Recovery Act funds for selected programs, (2) the approaches taken by
Massachusetts agencies to ensure accountability for Recovery Act
funds, and (3) impacts of these funds. We reviewed several specific
programs funded under the Recovery Act in Massachusetts related to
highway, transit system, clean water, drinking water, and housing
projects, and education and worker training programs. We selected the
programs we reviewed because all have significant funds being expended
at this point and several had recent obligation deadlines, as
discussed below. For descriptions and requirements of the programs we
covered, see appendix XVIII of GAO-10-605SP.
Our work was performed at state agencies responsible for implementing
the programs, and also at some localities. We followed up on ongoing
Recovery Act projects at two regional transit agencies--the
Massachusetts Bay Transportation Authority and the Greater Attleboro
Taunton Regional Transit Authority. For our review of public housing,
we contacted four public housing agencies in Cambridge, Clinton,
Lowell, and Taunton. Our review of state revolving fund spending
included visits to two subrecipients--the Massachusetts Water
Resources Authority (MWRA) and the town of Spencer. We also visited
two local workforce areas with worker training programs--Boston and
Bristol.
Finally, we continued to track the use of Recovery Act funds for state
and local fiscal stabilization. We visited two Massachusetts cities--
Worcester and Everett--to determine the amount of Recovery Act funds
each is receiving and how those funds are being used as they deal with
their difficult fiscal situations. Both cities are receiving Recovery
Act funds under several programs, including funding for public safety
expenses. We also followed up with two other cities--Boston and
Springfield--which we had visited in fall of 2009.
What We Found:
* Recovery Act education programs. Under the Recovery Act,
Massachusetts has been awarded funding through three major education
programs, the largest of which is the State Fiscal Stabilization Fund
(SFSF) with an allocation of $994 million. Unlike previous reporting
periods, local educational agencies (LEA) did not report any SFSF
expenditures or jobs to Recovery.gov for the period ending March 31,
2010, according to state officials. They also said that the state did
not receive the second phase of SFSF funding until late March, and as
a result, the funds were not available to LEAs until April. During the
same reporting period, a community college we contacted said that they
used SFSF funds to pay for staff salaries and utility costs, among
other things. The rate of draw down of funds varies among the major
education programs. As of April 16, 2010, the commonwealth had drawn
down more than half of its SFSF funds and less than a third of the
other two program funds. Massachusetts has recently expanded its SFSF
oversight plan to include a supplemental audit of selected school
districts. In addition, the commonwealth has recently applied for
another source of Recovery Act funding through the School Improvement
Grant (SIG) program, but its submission was delayed in order to
integrate federal and state requirements.
* Highway infrastructure investment. Massachusetts has met the March
2, 2010, obligation deadline for Recovery Act federal-aid highway
funds. A total of $378.2 million has been obligated for 84 projects--
several paving improvement projects as well as projects that may
promote economic and business development--and $59.7 million has been
transferred to the Federal Transit Administration (FTA) for eligible
projects. On average, bids for highway projects were 15-20 percent
below state cost estimates. Massachusetts lags behind the national
average on its reimbursement rate, an indicator that it is not
expending funds as quickly as most other states. State officials
raised concerns about Massachusetts's ability to meet its highway
maintenance of effort requirement as a result of construction season
timing and an increase after recertifying its required commitment in
March 2010.
* Transit Capital Assistance funds. The $290 million in Transit
Capital Assistance funds that were apportioned to Massachusetts and
urbanized areas in the commonwealth were obligated by the March 5,
2010 deadline. Massachusetts transit agencies are using their Recovery
Act funding to finance a variety of fleet enhancements and capital
improvement projects designed to enhance customer service and improve
safety. In addition, $59.7 million was transferred from the Federal
Highway Administration (FHWA) to FTA for use by several of the
commonwealth's regional transit agencies for their operating costs as
well as many of their planned Recovery Act capital expenditures. The
two transit agencies we visited used construction management firms to
expedite project implementation, although their use requires transit
agencies to consider potential increased risks related to higher costs
and more remote oversight.
* Public Housing Capital Fund. Public housing agencies in
Massachusetts were allocated about $82 million in Public Housing
Capital Fund formula grants under the Recovery Act. All public housing
agencies in the commonwealth met the March 17, 2010, deadline for
obligating 100 percent of these funds, and as of May 1, 2010, housing
agencies had expended $28.5 million. Many housing agencies used the
funds to accelerate projects that were already on their 5-year capital
plans, ranging from window replacement and landscaping to substantial
rehabilitation of multiple units of housing. Some are using Recovery
Act funds to permanently transfer state-supported housing units to
their portfolios of federally-supported housing. The Massachusetts
Department of Housing and Community Development (DHCD) estimates that
this process could result in the commonwealth receiving an additional
$10 million in federal operating subsidies annually in the future.
* Clean Water and Drinking Water State Revolving Funds (SRF).
Massachusetts received about $185 million in Recovery Act funds
through its Clean Water and Drinking Water SRFs and met the Recovery
Act's deadline of February 17, 2010, to have its 115 selected projects
under contract.[Footnote 2] These ranged from rehabilitation of a 70-
year old water transmission line to green projects enhancing energy
efficiency and producing renewable energy. Massachusetts provided
nearly all the Recovery Act funding in the form of "principal
forgiveness," meaning that the portion of projects funded with
Recovery Act money--about 12 percent of clean water projects and 20
percent of drinking water projects--will not need to be repaid.
Further, for green projects, none of the funds will need to be repaid.
* Workforce Investment Act of 1998 (WIA) Dislocated Worker Program.
Massachusetts was allotted about $21 million in WIA Dislocated Worker
funds. The commonwealth distributed 60 percent of these funds to the
local workforce areas and retained the balance. As of March 31, 2010,
the commonwealth had drawn down at least $7.5 million of its Recovery
Act allotment. Guided by the commonwealth, local areas have used most
of their Recovery Act funds to place more workers in training. From
the date the commonwealth started using Recovery Act WIA funds through
January 31, 2010, about 2,300 dislocated workers received training
under Recovery Act or regular WIA funds. Local areas have taken steps
to address the U.S. Department of Labor's (Labor) Recovery Act
priorities, such as training for green jobs.
* Massachusetts government's and cities' use of Recovery Act funds.
The commonwealth of Massachusetts continues to experience budget
pressures resulting from multi-year revenue shortfalls along with
caseload growth in some of its programs. Because of the unexpected
levels of revenue decline, Massachusetts accelerated the use of
Recovery Act funds that freed up funds for other uses, but has taken
steps to prepare for when Recovery Act funds are no longer available.
Cities we visited also discussed fiscal difficulty and reported using
Recovery Act funds to prevent layoffs of teachers, police, and
firefighters. They reported preparing for the challenges they face as
Recovery Act funds end; some pointed to new sources of funds,
including hotel and meals taxes and careful use of Recovery Act funds
on projects that would not require sustained funding.
* Oversight and accountability efforts. The Massachusetts Office of
the State Auditor has several Recovery Act audits underway and is
incorporating Recovery Act-related work into all its regular audits,
including the state's Single Audit. Similarly, the state Inspector
General is focusing efforts on investigating Recovery Act programs.
Localities we spoke with utilize the Single Audit process to audit
Recovery Act funds, although SFSF funds were the only Recovery Act
funds that these local entities reported addressing during the
recently completed 2009 audits. Areas addressed so far related to the
WIA Youth Program and to SFSF.
Massachusetts Expands Oversight of a Large Education Program and
Applies for Recovery Act Funding from Another Program:
Through the Recovery Act, Massachusetts has been awarded education-
related funds through three major programs:
* SFSF, which is divided into education stabilization and government
services funds;
* Title I, Part A of the Elementary and Secondary Education Act of
1965, as amended (ESEA); and[Footnote 3]
* Individuals with Disabilities Education Act, as amended, (IDEA)
Parts B and C.
In addition to these funds, Massachusetts has been allocated funding
through the Recovery Act for SIG. The U.S. Department of Education
(Education) recently made available 5 percent of the commonwealth's
SIG allocation for planning purposes, the maximum amount allowed for
administration, technical assistance, and evaluation. (See figure 1
for more information on select funds awarded to Massachusetts.)
Figure 1: Financial Information on Four Recovery Act Education
Programs as of April 16, 2010:
[Refer to PDF for image: vertical bar graph]
Program: SFSF;
Allocated by Education: $994 million; Awarded to state: $934 million;
Drawn down by state: $612 million.
Program: IDEA Part B;
Allocated by Education: $291 million; Awarded to state: $291 million;
Drawn down by state: $81 million.
Program: ESEA Title I;
Allocated by Education: $164 million; Awarded to state: $164 million;
Drawn down by state: $36 million.
Program: SIG;
Allocated by Education: $50 million;
Awarded to state: $2 million;
Drawn down by state: $0.
Source: GAO analysis of Education and state reported data.
[End of figure]
Unlike previous reporting periods, LEAs did not have SFSF funds
available and so did not report any SFSF expenditures or jobs to
Recovery.gov for the period ending March 31, 2010, according to state
officials. They also said that the commonwealth did not receive the
second phase of SFSF funding until late March, and as a result, the
funds were not available to LEAs until April. One LEA told us that it
plans to reallocate some of these funds to cover salary expenses for
staff who worked during the previous reporting periods. State
officials acknowledged this approach and said that they expect a
significant increase in the number of jobs reported during the period
ending June 30, 2010. Meanwhile, other entities did report SFSF
expenditures for the period ending March 31, 2010. Officials from a
community college we contacted said that they used SFSF education
stabilization funds to pay for staff salaries and utility costs, among
other things. Further, some SFSF government service funds were used to
support staff at local fire departments and state police services.
Massachusetts Expands its SFSF Oversight Plans:
The Massachusetts Executive Office of Education expanded its SFSF
oversight efforts to include a supplemental audit of select LEAs. In
December 2009, we reported that the office planned to primarily use
the Single Audit to monitor SFSF expenditures.[Footnote 4],[Footnote
5] However, state officials said that the U.S. Department of Education
recently made it clear that oversight efforts beyond the Single Audit
were necessary. According to the draft monitoring plan the
Massachusetts Executive Office of Education submitted on March 12,
2010, the commonwealth has several SFSF oversight activities planned,
including a supplemental audit that aims to verify reported
expenditures, identify ineligible expenses, and assess the consistency
of reported data. According to state officials, this new audit will
provide a more detailed review of SFSF funded transactions than the
Single Audit process. State officials said that they plan on engaging
a public accounting firm to conduct on-site reviews of at least 15
LEAs. Selected LEAs include recipients of the 10 largest SFSF grants,
which represent more than a third of the SFSF funds provided to LEAs,
and some other LEAs with previous audit findings. Federal education
officials are currently reviewing Massachusetts' monitoring plan, and
said they do not have a schedule for completing their review of state
monitoring plans and will contact states whose plans are considered
inadequate.
Massachusetts Applied for SIG Recovery Act Funding, but Its Submission
Was Delayed:
The commonwealth has recently applied for SIG Recovery Act funding,
but its application was delayed in order to address differences
between federal and state requirements. In order to receive nearly $50
million in formula-based funding, the commonwealth recently provided
Education with its SIG application, which lays out the information low-
performing schools must provide when requesting SIG funding. However,
according to state officials, the content and timing of recent state
legislation complicated and ultimately delayed completion of this
application by more than a month.[Footnote 6] Both the state
legislation and SIG program require that LEAs develop reform
strategies for low-performing schools to implement in an effort to
improve student achievement; however, the information LEAs must submit
in each case varies. For example, state officials told us that the
measurable annual goals required by SIG differ somewhat in number and
substance from those required by the state legislation. In order to
minimize the burden on LEAs, state officials integrated these varying
approaches into a streamlined process for LEAs to follow whereby LEAs
must only come up with one plan that would meet both state legislative
and SIG requirements. According to state officials, this time and
resource-intensive effort combined with the short time frame between
the legislation's passage and Education's application deadline
resulted in delayed submission of the commonwealth's application to
Education.
Massachusetts Met Obligation Deadline for Recovery Act Highway Funds,
but Questions Remain Regarding the Maintenance of Effort Requirement:
Massachusetts has met the March 2, 2010, Recovery Act highway
obligation deadline. As of this date, $378 million of its $438 million
apportionment has been obligated to 84 projects--the majority of which
are pavement improvement projects. Massachusetts continued to
recommend projects that may promote economic and business development.
For example, the commonwealth recommended that $15 million be
obligated to make roadway access and signal improvements to the
Assembly Square Mall, in Somerville, Massachusetts. The remaining
$59.7 million of the highway apportionment was transferred to the
Federal Transit Administration (FTA) for use by several of the
commonwealth's regional transit authorities for their operating costs
as well as many of their planned Recovery Act capital expenditures.
The rate by which the Federal Highway Administration (FHWA) has
reimbursed Massachusetts for Recovery Act highway projects (an
indicator of the portion of highway work completed) has increased from
8.1 percent on October 31, 2009, to 13 percent on May 3, 2010--below
the national average of 29 percent (see table 1).
Table 1: Massachusetts Recovery Act Federal Aid Highway Amounts as of
May 3, 2010:
Total available apportionment: $438 million; Amount obligated: $378.2
million;
Amount transferred to FTA for use by regional transit agencies: $59.7
million; Reimbursement rate: 13%.
Source: GAO analysis of FHWA data.
[End of table]
According to Massachusetts Department of Transportation (MassDOT) and
FHWA Region I officials, on average, bids on the final round of
advertised projects continued to come in 15 to 20 percent below state
cost estimates, resulting in contracts being awarded below state cost
estimates. As a result of these contract savings, MassDOT estimates
that approximately $24 million will need to be deobligated and has
begun to develop a list of additional Recovery Act projects to which
it may apply these contract savings to meet the September 30, 2010,
obligation deadline. The MassDOT Economic Stimulus Coordinator told us
that MassDOT will not have difficulty ensuring any contract savings
are obligated by the deadline and funds may support roadwork on major,
federal-aid eligible arteries in municipalities across the
commonwealth.
Massachusetts May Face Challenges Meeting Maintenance of Effort
Spending Goals:
As a result of construction season timing and an increase after
recertifying its maintenance of effort (MOE) commitment, the MassDOT
Chief Financial Officer told us that, although it is too early to make
a determination, the state may face challenges in meeting its MOE
spending goals by the September 30, 2010, deadline.[Footnote 7] In
March 2010, Massachusetts recertified its MOE commitment to include
$300 million in state highway aid to local governments for state
fiscal years 2010 and 2011. Although MassDOT officials feel they have
committed to enough nonfederally funded projects to meet the MOE
requirement, they explained that uneven spending caused by weather and
the seasonal construction schedule throughout a year may result in the
commonwealth not meeting the requirement. Massachusetts's typical
seasonal construction schedule may be affected by the winter
construction shut down or a rainy spring. According to the MassDOT
Chief Financial Officer, in calendar year 2009 approximately 40
percent of the commonwealth's highway expenditures took place in the
fourth quarter (October to December). If this pattern is repeated, a
significant portion of the commonwealth's highway construction
expenditures would occur after the September 30, 2010, MOE deadline,
and as a result, the commonwealth may not meet its MOE requirement.
FHWA Region I officials have said that they continue to track the
commonwealth's MOE spending and monitor their progress toward meeting
the deadline.
Although Its Focus Is Not Recovery Act Impact, MassDOT Measures Agency
Performance:
MassDOT and FHWA Region I officials said that they did not develop
performance measures, other than a measure of jobs created, to assess
the impact of Recovery Act highway projects. However, MassDOT monitors
overall agency performance with periodic scorecard reports related to
its different divisions. As part of the commonwealth's reorganization
of MassDOT, the agency has begun to develop an Office for Performance
Management. According to the MassDOT Economic Stimulus Coordinator,
this office is in a nascent stage, but it will eventually focus on
measuring the impact of MassDOT's entire portfolio of work. According
to FHWA Region I officials, although not required by the Recovery Act,
FHWA will be able to provide the number of highway miles improved with
Recovery Act funding. Additionally, FHWA Region I officials told us
they are working to assist the new MassDOT Office for Performance
Management by bringing in best practices for performance management
from other states' departments of transportation; it will focus on
using asset management and budget health as tools to help manage
MassDOT.
MassDOT Hires New Engineers for Recovery Act Field Oversight, but
Project Planning and Contracting Oversight Staff Capacity May Be
Strained:
The Recovery Act Federal-Aid Highway apportionment for Massachusetts
has funded 84 new highway projects for the commonwealth. According to
FHWA Region I officials, they have concerns about MassDOT highway
staff capacity and are monitoring its staff resources, especially with
regard to MassDOT's recent reorganization. An FHWA staffing review
from 2003 expressed concerns over Massachusetts's state highway
construction and materials staffing levels and training. According to
MassDOT officials, in June 2009, MassDOT was approved to hire 100 full-
time equivalents to conduct oversight and field inspection work
related to construction of Recovery Act projects. As of April 1, 2010,
according to the MassDOT Economic Stimulus Coordinator, MassDOT has
officially hired 89 new employees to be placed in its highway district
construction offices, with the majority of hires being entry-level
civil engineers. According to the MassDOT Economic Stimulus
Coordinator, Recovery Act project planning and contracting takes place
at the MassDOT central office, and they have not made any additional
Recovery Act hires for this work. All of the central office project
planning and contract oversight staff perform Recovery Act work in
addition to their normal duties. The MassDOT Economic Stimulus
Coordinator told us that a second round of stimulus money would
present staff capacity challenges, as the volume of work related to
planning and contract oversight at MassDOT's central office has
increased as a result of the Recovery Act projects, the Accelerated
Bridge Program and the state's regular federal-aid highway
apportionment.[Footnote 8]
Massachusetts Transit Agencies Met the 1-Year Obligation Deadline, but
Use of Construction Management Firms May Pose Challenges:
In March 2009, $290 million in Recovery Act Transit Capital Assistance
funds was apportioned to Massachusetts and urbanized areas in the
state. FTA concluded that by the March 5, 2010, deadline, 100 percent
of this apportionment had been obligated. Massachusetts transit
agencies are using their Recovery Act funding to finance a variety of
fleet enhancements and capital improvement projects designed to
enhance customer service and improve safety. For example, the
Massachusetts Bay Transportation Authority (MBTA) is using its $181
million in initial Recovery Act Transit Capital Assistance funding to
purchase new paratransit vans, expand bicycle parking, improve bus
stop and train station amenities, and increase safety throughout the
MBTA system. In addition, MBTA was able to use additional funding from
money transferred from the commonwealth's federal-aid highway
apportionment to fund projects that would not have been done without
the Recovery Act funds. These projects include the installation of new
wheel chair accessible ramps at the Wedgemere Commuter Rail Station in
Winchester, Massachusetts and emergency repairs to the deteriorating
floating slab system on the portion of the Red Line subway serving the
cities of Cambridge and Somerville, Massachusetts.[Footnote 9]
In addition to the Recovery Act Transit Capital Assistance
apportionment, $59.7 million of Massachusetts's federal-aid highway
apportionment was transferred from FHWA to FTA. The transfer of these
additional funds enabled several transit agencies to use Recovery Act
funds for their operating costs as well as many of their planned
Recovery Act capital expenditures. After transit agencies had
submitted their Transit Capital Assistance applications, they were
granted the authority to use up to 10 percent of their Recovery Act
apportionment for operating expenses.[Footnote 10] These operating
expenses were funded by reducing the funds originally committed for
capital expenses by 10 percent. For example, the Greater Attleboro
Taunton Regional Transit Authority (GATRA), one of the transit
agencies we spoke with, told us that they made line-item reductions to
capital expenditures in their original grant in order to fund
operating expenses. According to these officials, the flexibility to
amend the original grant to include operating expenses has helped them
avoid cutting both staff and service. In addition, these officials
told us that the portion of the transferred funds that they will
receive will be used to backfill some of the line-item reductions in
their original grant and will allow them to replace buses that have
been in operation since 1994.
Massachusetts Transit Agencies Used Construction Management Firms to
Supplement and Expedite Project Implementation:
In order to handle the influx of Recovery Act funds and the
requirement that projects funded under the act be implemented quickly,
Massachusetts transit agencies used construction management/project
management (CM/PM) firms to supplement their internal project
management staffing resources. According to transit officials, there
are several advantages in using private consulting firms to provide
CM/PM services, including that they are a source of additional
expertise and provide transit agencies with the flexibility to
supplement internal staff on a temporary basis in response to
increased workloads. For example, the spike in capital spending
resulting from the Recovery Act exceeded MBTA's capacity to manage
this work without additional resources. As a result, MBTA used a CM/PM
firm to provide project and construction management support for
several of its Recovery Act projects because officials determined it
was not prudent to "staff up" for the 2 years that Recovery Act
projects would be ongoing. Smaller transit agencies, which typically
do not have the capacity to manage capital projects, also used CM/PM
firms to manage their Recovery Act projects.
Our previous work on states' increased use of contractors to oversee
highway projects found that state officials generally perceive
contracting out to be more expensive than using internal staff to
oversee projects.[Footnote 11] Similarly, transit officials we spoke
to on this work believe that using CM/PM firms to manage their
Recovery Act projects is likely to be more costly than managing these
projects internally. Officials from FTA and MBTA told us that they
believed this to be true for transit projects, as well, although they
were not aware of any formal assessment comparing the cost of projects
managed by private firms with projects managed internally. While
government employees are always ultimately responsible for the
oversight of federally-funded projects, they may be increasingly
further removed from the day-to-day project oversight when they use
private firms to do this work. Although transit agencies' use of CM/PM
firms in response to temporary spikes in demand for construction
services seems appropriate, in order to ensure the best use of
Recovery Act funds, it is important that transit agencies that hire
these firms give appropriate consideration to the identified areas of
potential risk, such as those related to the increased cost and the
adequacy of oversight of projects managed more remotely.
Although Not Required by FTA, Transit Agencies Use Qualitative
Measures to Assess the Impact of Recovery Act Funding:
MBTA and GATRA are able to provide a qualitative assessment of
improvements to local transit systems that resulted from the increase
in federal transit spending, but other than measuring jobs created,
they have not developed metrics specifically for measuring the impact
of Recovery Act funds. GATRA and MBTA officials said that other than
measuring jobs created and project status, FTA does not mandate
additional measures beyond the requirements for all formula grant
programs. MBTA is measuring Recovery Act impact in terms of jobs,
contracts awarded and expenditures, but officials also report that the
projects funded under the act provide significant benefits to their
customers, while addressing safety issues. GATRA officials told us
that they have qualitative evidence of the positive impact on customer
service and the overall efficiency of their operations, but they do
not have a set of metrics for quantifying these results. For example,
renovations made to the Attleboro Commuter Rail Station have addressed
critical safety and liability issues and are expected to reduce
utility bills.
Local Housing Agencies Met Obligation Deadline for Formula Funds, and
Some Are Using These Funds to Federalize State Housing:
Sixty-eight housing agencies in Massachusetts were allocated a total
of $81.9 million in Public Housing Capital Fund formula grants under
the Recovery Act.[Footnote 12] All 68 housing agencies obligated 100
percent of their formula funds by March 17, 2010, the deadline to
obligate all funds and avoid recapture by the federal government. As
of May 1 2010, 57 of the 68 housing agencies had drawn down $28.5
million in formula grants. We contacted local housing agencies in four
Massachusetts communities--Cambridge, Clinton, Lowell, and Taunton--as
well as the Department of Housing and Urban Development's (HUD) Boston
field office and DHCD.
Housing Agencies Met Obligation Deadline, Often by Accelerating
Already Planned Projects:
All housing agencies met the deadline, although they had just 1 year
to obligate 100 percent of their Recovery Act Public Housing Capital
Fund formula grants, compared to the 2-year time frame for obligating
regular Capital Fund grants. According to officials from HUD's Boston
field office, many housing agencies were able to obligate their funds
quickly because they are using Recovery Act funds primarily to
accelerate projects that were already on their 5-year capital plans
and required little additional development. Of the housing agencies we
visited, two used Recovery Act funds mainly to accelerate already
planned projects that required minimal additional planning. For
example, Clinton Housing Authority officials said they are using their
entire Recovery Act allocation to speed up the completion of a
multiphase window replacement project that had already been started
with regular Capital Fund grant dollars and required no additional
planning. While the Cambridge Housing Authority opted to use Recovery
Act funds for a large project on its capital plan, that project had
not yet been designed and required considerable additional work to
develop. Officials told us they accelerated this project to take
advantage of the fact that projects funded entirely by the Recovery
Act are procured under federal rather than state procurement law. They
said Massachusetts procurement requirements are more onerous than
federal requirements, and include, for example, time-consuming
separate sub-bids for specific trades.
The Buy American provision in the Recovery Act was cited as a
challenge by two of the housing agencies we contacted, but not
necessarily one that delayed the obligation of Recovery Act funds.
Lowell Housing Authority officials, for example, said it could be
difficult to find materials and products that are purely U.S.-made, as
many products are assembled in the United States but include some
component parts that were produced overseas.[Footnote 13] Cambridge
Housing Authority officials said they are having trouble finding
energy efficient heating systems and refrigerators that are made in
the United States, and may apply for a waiver from the requirement.
Federalization of State Housing Will Result in Higher Federal Spending
in the Future, although Several Factors Limited the Extent of
Federalization:
Eighteen housing agencies in Massachusetts are taking advantage of a
provision in the Recovery Act allowing the use of Recovery Act funds
to permanently transfer state-supported housing units to the agencies'
portfolios of federally-supported housing--a process known as
federalization. According to DHCD, housing agencies in Massachusetts
are federalizing about 3,600 of the approximately 55,000 units of
state-supported housing units in the commonwealth. Federal legislation
passed in 1998 prohibited housing agencies from increasing their total
counts of federally-supported public housing units.[Footnote 14] The
Recovery Act lifted this restriction specifically with regard to the
use of Recovery Act funds.
HUD indicated, in guidance issued in the spring and summer of 2009,
that the Recovery Act lifted the prohibition on adding new units of
federally supported housing when only Recovery Act and no other
federal housing funds are used. A housing agency in Massachusetts--a
state that funds public housing--identified that by lifting the
restriction on increasing their total number of federal housing units,
the Recovery Act allowed housing agencies to transfer state-supported
housing to their portfolios of federal housing. Officials from DHCD
and two local housing agencies told us federalization is a good option
because the federal government provides higher and more stable funding
for public housing than the commonwealth. Additionally, several
housing officials said the majority of residents will see no negative
consequences as a result of federalization.[Footnote 15]
Federalization will result in higher future levels of federal
subsidies for public housing in Massachusetts, although the total
additional commitment is not yet clear. DHCD officials estimate that
federalization will bring an additional $10 million annually in
federal operating subsidies to the commonwealth, as well as additional
capital subsidies that cannot be easily estimated. DHCD officials said
the commonwealth plans to maintain its current level of state spending
for public housing, with state funds being distributed across a
smaller number of state units.
HUD's headquarters office and Boston field office developed procedures
for federalizing state housing, after this opportunity had been
identified. First of all, HUD determined that the Recovery Act allows
housing agencies to add state housing developments to their federal
portfolios by using Recovery Act funds to rehabilitate these
developments.[Footnote 16] HUD then set two main conditions that
housing agencies had to meet to federalize: (1) the state units must
meet HUD's Uniform Physical Condition Standards after they have been
rehabilitated with Recovery Act funds and (2) housing agencies must
spend an average of $2,000 per unit or more in Recovery Act funds to
rehabilitate a state housing development. Officials from HUD's Boston
field office inspected all housing developments that housing agencies
proposed to federalize, to assess the condition of these developments
relative to the federal standards. (See figure 2 for an example of one
housing agency's federalization project.):
Figure 2: Federalization of State Housing Development in Taunton:
[Refer to PDF for image: 2 photographs]
Boiler to be replaced:
Heating unit to be replaced:
The Taunton Housing Authority is using its $615,072 allocation of
Recovery Act capital funds to federalize 232 units of state-supported
housing in three housing developments for the elderly. For example,
the Taunton Housing Authority will federalize its Fitzsimmons Arms
development by using Recovery Act funds to replace an aging boiler and
heating units with more up-to-date, energy efficient models:
Source: GAO.
[End of figure]
Despite the benefits they perceived from federalization, housing
agencies faced challenges that prevented some from acting on this
opportunity. These challenges stemmed partly from the timing of when
housing agencies learned about this opportunity. DHCD sent a memo to
all housing agencies in the commonwealth in August 2009, informing
them that federalization was a possibility. However, according to HUD
officials, many housing agencies had already obligated all or most of
their Recovery Act funds by the time they heard about federalization,
and were unable to reprogram their funds. Taunton Housing Authority
officials told us they were able to federalize primarily because they
heard very early on about federalization--before DHCD's memo--and
immediately stopped their originally planned obligation of Recovery
Act funds. Furthermore, the short time frame between the HUD Boston
field office's issuance of guidance on federalization (October 28,
2009) and the deadline for submitting proposals (November 23, 2009)
made it difficult for housing agencies to prepare applications,
according to one HUD official and one housing agency we spoke with.
Finally, state officials told us that some housing agencies did not
have state housing developments that could be relatively quickly and
easily brought into compliance with HUD Uniform Physical Condition
Standards, because of the unstable state subsidies for
housing.[Footnote 17] Clinton Housing Authority officials, for
example, cited problems such as lead paint and out-of-date heating
systems as being among the reasons they could not federalize state-
supported housing within the allowed time frame.
Recovery Act Funding Supports Improvements for Clean and Safe Drinking
Water:
The Massachusetts Department of Environmental Protection, working in
collaboration with the Massachusetts Water Pollution Abatement Trust,
has selected 115 clean water and drinking water projects to receive
about $178 million in Recovery Act funds through its SRF (see table
2).[Footnote 18]
Table 2: Recovery Act Funding for Massachusetts SRF Projects:
Type of projects: Clean water projects; Recovery Act funds:
$127,735,008;
Recovery Act funds: Number of projects: 61; "Green" projects:
$54,287,508;
"Green" projects: Number of projects: 11.
Type of projects: Drinking water projects; Recovery Act funds:
$50,127,360;
Recovery Act funds: Number of projects: 54; "Green" projects: Dollars:
$12,580,834; "Green" projects: Number of projects: 10.
Type of projects: Total;
Recovery Act funds: $177,862,368;
Recovery Act funds: Number of projects: 115; "Green" projects:
$66,868,342;
"Green" projects: Number of projects: 21.
Source: GAO analysis of U.S. Environmental Protection Agency and
Massachusetts data.
[End of table]
* The Clean Water and Drinking Water SRF programs generally provide
low interest loans for water quality protection projects.
Massachusetts provided nearly all the Recovery Act funding in the form
of "principal forgiveness," meaning that the portion of projects
funded with Recovery Act money--about 12 percent of clean water
projects and 20 percent of drinking water projects--will not need to
be repaid. Further, for green projects, none of the funds will need to
be repaid.[Footnote 19]
State officials and officials at two sites we visited reported several
benefits they expected from Recovery Act-funded projects.[Footnote 20]
Benefits of projects we reviewed are described in table 3.
Table 3: Uses and Amount of Recovery Act Funding at Sites Visited:
Entity: MWRA;
Project description: Lower Hultman Aqueduct: Rehabilitation in order
to restore it to safe operation after more than 70 years of service
without an overhaul. This project will result in two independent,
reliable, and fully interconnected water transmission lines; Recovery
Act funding: $3,602,688.
Entity: MWRA;
Project description: DeLauri Wind Turbine Project: Installation of new
wind turbine at a wastewater pumping facility intended to utilize
renewable power resources. As a green project, estimated to provide
100 percent of the energy needs of the pump station; Recovery Act
funding: $4,750,000.
Entity: Town of Spencer;
Project description: Drinking Water System: Construction of new
500,000 gallon water tank, installation or replacement of 2.75 miles
of water main and various treatment plant improvements, such as a new
monitoring system to prevent future public health emergencies.
Malfunction of this system in 2007 led to the release of a hazardous
amount of sodium hydroxide (lye) into the town's water supply;
Recovery Act funding: $1,495,872.
Source: MWRA, Town of Spencer and U.S. Environmental Protection Agency
data.
[End of table]
For example, officials told us that Recovery Act funding accelerated
their ability to support green projects which would not have been
funded otherwise. Massachusetts placed a special emphasis on green
projects--described by officials as providing benefits through
renewable energy and energy efficiency. Of the 21 green projects, 14
had already been identified as part of an earlier state energy pilot.
Recovery Act funding also supported the undertaking of multimillion
dollar projects with multiple benefits. For example, MWRA officials
described the Lower Hultman Aqueduct Project, which will rehabilitate
a 70-year old water transmission line, as critical to public health
and homeland security. In addition to the direct benefits of these
projects, municipalities benefited from reductions in payments on
loans. For example, the MWRA estimates that because of the loan
forgiveness funded by Recovery Act money, it will save $41 million in
debt service payments, including interest costs.
Massachusetts officials told us that federal requirements and new
state legislation posed challenges in meeting Recovery Act SRF
deadlines or may pose challenges going forward. For example, state
officials cited the Recovery Act's requirement that each state
prioritize funds for use on projects that are ready to proceed to
construction within 12 months of enactment of the act (by February 17,
2010) and compliance with the Recovery Act's Buy American
requirements. According to Massachusetts officials, confusion over the
U.S. Environmental Protection Agency's Buy American guidance meant
that some SRF projects had to redo project specifications to include
American pipes after already purchasing Canadian pipes. The agency
developed a process for recipients to provide documentation supporting
a waiver to the Buy American provision in the Recovery Act. This
provision generally requires the use of U.S.-produced iron, steel, and
manufactured goods in public works projects.[Footnote 21] As a result,
to construct the wind turbine at the DeLauri Pump Station, MWRA had to
document why the turbine needed to be purchased from China, and
described additional MWRA efforts needed to support the waiver. Other
issues that may pose challenges relate to requirements in
Massachusetts statutes. For example, officials said that a state
statute requires that on any Recovery Act public works project
spending more than $1 million, the use of on-site apprentices must
account for 20 percent of labor hours.[Footnote 22] MWRA anticipated
that some contractors would find complying with this requirement a
challenge. State officials also said that agreements on funding were
delayed by the need to change a Massachusetts statute that had
previously set limits on financial assistance.[Footnote 23]
Both state and local officials noted that new controls have been
established for accountability of Recovery Act funding. Massachusetts
environmental officials said they have developed tools for monitoring
fraud, waste, and abuse, such as a checklist to document that proper
fiscal and contract management procedures are being followed. In
addition, the Massachusetts Department of Environmental Protection has
designated a compliance officer to help implement its fraud, waste,
and abuse policy. The Water Pollution Abatement Trust also hired a
compliance officer to assist with the review of single audits required
for SRF loan recipients receiving principal forgiveness.
Localities Used Recovery Act Funds to Train More Dislocated Workers,
and Addressed Some New Program Priorities:
Massachusetts received $21.2 million in WIA Dislocated Worker Recovery
Act funds, through the same statutory formula used to distribute
regular WIA Dislocated Worker Program funds. The Massachusetts
Executive Office of Labor and Workforce Development (EOLWD)
distributed 60 percent of this allotment to the 16 local workforce
areas, with the remaining funds set aside for rapid response
activities to address layoffs and plant closings, and other statewide
activities (see table 4). As of March 31, 2010, the commonwealth had
drawn down at least $7.5 million of its Recovery Act funds.[Footnote
24]
Table 4: Massachusetts' Uses of its WIA Dislocated Worker Funds:
State activity: Distributed to local areas; Amount: $12,734,068.
State activity: Rapid response activities; Amount: $5,305,862.
State activity: Statewide activities; Amount: $3,183,517.
State activity: Total allotment[A];
Amount: $21,223,447.
Source: GAO survey of 50 states and the District of Columbia,
conducted March to April 2010.
[A] Massachusetts reported that it also opted to transfer $200,000
from its WIA Adult Recovery Act program allotment and use these funds
for services to dislocated workers.
[End of table]
Local Workforce Areas Used Recovery Act Funds to Increase the Number
of Dislocated Workers Receiving Training:
With the infusion of Recovery Act funds as well as increased demand
for services, the number of dislocated workers trained in the
commonwealth between July 1, 2009 and December 30, 2009 was 56 percent
higher than in the corresponding period in the previous year,
according to the EOLWD.[Footnote 25] The EOLWD reported that from the
date the commonwealth started using Recovery Act Dislocated Worker
funds through January 31, 2010, about 2,300 dislocated workers
received training through Recovery Act or regular WIA Dislocated
Worker funds. Local workforce areas used their funds for training in
accordance with state guidance, as EOLWD instructed local areas to
spend at least 60 percent of their Dislocated Worker allocations for
training and to spend their funds quickly. The local areas had
expended over half of their funds by January 31, 2010, according to
EOLWD.
The two local workforce areas we visited--Bristol and Boston--used at
least 60 percent of their funds for training, and both addressed a
high demand for training. The Bristol local area in southeastern
Massachusetts had expended more than 90 percent of its $1,100,223
allocation by January 31, 2010, and had enrolled 143 dislocated
workers in training in whole or in part with its Recovery Act funds.
Officials said the workforce area enrolled twice as many adults and
dislocated workers in training as in a typical year; many in the area
enter training for a Commercial Driver's License or in the health care
field. Bristol also used Recovery Act funds to hire new staff to help
serve the increased number of visitors to career centers and to reach
out to employers. Boston had expended about two-thirds of its $919,400
allocation by January 31, 2010, and had enrolled 100 dislocated
workers in training in whole or in part with Recovery Act funds.
Boston enrolled about 15 percent more dislocated workers in training
during this program year compared to the previous program year. Boston
officials said that the Recovery Act funds were critical to
maintaining services for dislocated workers because the city saw a
reduction in its regular Dislocated Worker funds for program year 2010
and that the city had obligated all of its regular Dislocated Worker
funds that had been set aside for Individual Training Accounts (ITAs)
by April 2009.
In terms of training approaches, EOLWD officials told us that while
local workforce areas are primarily using Recovery Act funds for ITAs--
through which individuals purchase training from, for example,
community colleges and community-based organizations--seven are using
some of their funds to contract for group training classes. A total of
122 dislocated workers are enrolled in contracted training through
Recovery Act funds, according to EOLWD. Dislocated Worker funds
provided through the Recovery Act may be used to provide training
through contracts, which are authorized only in limited circumstances
for regular WIA funds. Boston is using about one quarter of its
Recovery Act training funds for contracts, for example for classes in
health care and in English as a Second Language. A Boston official
told us that contracts are helpful because they allow the local area
to customize training classes for specific populations. Bristol used
all of its training funds for ITAs. Officials said that given the high
demand for funds there was not enough time to develop training
contracts.
Local Workforce Areas Took Some Steps to Address Labor's Recovery Act
Priorities:
Local areas have taken some steps to address the priorities emphasized
by Labor in implementing the Recovery Act. For example, the local
areas we visited have attempted to train for and place participants in
green jobs, with mixed success. Bristol officials told us that
enrolling participants in green jobs training has been challenging
because there is no firm definition of a green job. Regarding
supportive services, such as child care and housing, EOLWD officials
said there has been little demand for such services, especially given
the availability of benefits such as Unemployment Insurance. Officials
at one Boston career center told us they do not have the resources to
provide extensive supportive services to clients; primarily they
provide public transit passes.
Recovery Act Funding Continues to Help Massachusetts State Government
and Selected Localities with Fiscal Relief:
Massachusetts state government continues to experience budget
pressures driven primarily from multi-year revenue shortfalls, as well
as caseload growth in some programs. Since the beginning of the
Recovery Act, the commonwealth has addressed its fiscal year budget
gaps through a combination of Recovery Act funds, spending reductions,
use of "rainy day" funds, and the addition of new revenue sources such
as an increase in state sales tax. Because of the unexpected magnitude
of revenue decline, Massachusetts accelerated the use of Recovery Act
funds, particularly the SFSF funds, which freed up funds for other
purposes. For fiscal year 2011, the Governor's plan proposes using
less Recovery Act funding to close its projected budget gap than was
used during fiscal year 2010. According to a senior state official,
relying less on Recovery Act funds is important to the state's bond
issuing agencies, as well as to prepare for future budgets which will
not include Recovery Act funds.[Footnote 26] In addition, the
Governor's plan includes $608 million in increased FMAP funds based
upon the state's expectation that Congress and the President will
extend the temporary increase in the FMAP under the Recovery Act.
[Footnote 27]
Overall, most of the $6 billion Massachusetts officials expect to
receive through the Recovery Act has been awarded. According to state
documents, as of May 7, 2010, Massachusetts state government has been
awarded $5 billion in Recovery Act funds and has drawn down $3.4
billion of this amount. Among the largest categories of Recovery Act
funding have been increased Medicaid FMAP, SFSF, and highways and
transit funding. State officials reported they anticipate future
Recovery Act funds coming to the state through a Department of Energy
grant for appliance rebates as well as additional money for Broadband
expansion. Furthermore, Massachusetts hopes to receive funding for
education through the "Race to the Top" grants.
We also visited the cities of Boston, Everett, Springfield, and
Worcester (see table 5) to review their use of Recovery Act funds.
[Footnote 28]
Table 5: Characteristics of Selected Local Governments:
Local government: Boston;
Population: 609,023;
Unemployment rate (percentage): 8.1%; Fiscal Year 2010 operating
budget: $2.40 billion; Full-time equivalent government employees:
17,661[A].
Local government: Everett;
Population: 37,353;
Unemployment rate (percentage): 9.9%; Fiscal Year 2010 operating
budget: $132 million; Full-time equivalent government employees: 1,088.
Local government: Springfield;
Population: 150,640;
Unemployment rate (percentage): 13.7%; Fiscal Year 2010 operating
budget: $529 million; Full-time equivalent government employees: 5,125.
Local government: Worcester;
Population: 175,011;
Unemployment rate (percentage): 10.4%; Fiscal Year 2010 operating
budget: $491 million; Full-time equivalent government employees: 5,165.
Sources: U.S. Census Bureau; U.S. Department of Labor; and Boston,
Springfield, Worcester, and Everett budget documents.
Notes: Population data are from the latest available estimate, July 1,
2008. Unemployment rates are preliminary estimates for March 2010 and
have not been seasonally adjusted. Rates are a percentage of the labor
force. Estimates are subject to revisions.
[A] Total full-time equivalent count includes 1,132 grant-funded
employees.
[End of table]
The four selected cities have used Recovery Act funds to prevent
layoffs of teachers, police, and firefighters, and were used in some
cases on one-time investment purchases. For example, Everett used $3
million in Phase II SFSF funds to pay 61 teachers' salaries.
Springfield used $4.4 million in IDEA money to pay education costs,
including special education teachers' salaries, rather than draw from
the city's stretched education budget. Worcester officials also
reported using $15 million in Recovery Act funds to prevent
significant teacher layoffs. In the area of public safety, three of
the four cities were able to use either the Community Oriented Police
Services Hiring Recovery Program grant or the Edward Byrne Memorial
Justice Assistance Grant (JAG), or both, to prevent some police
officer layoffs. Everett also used a $91,202 JAG grant to improve
police department efficiency by hiring a part-time crime analyst,
while Boston used a Fire Service Staffing Grant of almost $1.4 million
to pay for firefighter overtime and maintain fire service staffing
levels. In addition to public safety and education funding, some
localities used Recovery Act funds to make one-time purchases that
represent an investment in the city's future operations. Everett, for
example, used a $149,300 Department of Energy block grant to purchase
solar trash receptacles, which officials calculate will cut Everett's
fuel costs and lower maintenance costs. Springfield officials told us
that Recovery Act funds allowed them to complete some pending projects
sooner, including a new computer database of student education
information.
Although all of the selected cities expressed concern about further
reductions in state aid, Boston reported that its present budget is
stable. Officials in Boston reported that they increased the hotel tax
by 2 percent and added a new meals tax of 0.75 percent. In
Springfield, officials characterized their 2010 fiscal year operating
budget as on track, however, it had increased its use of local
reserves by $2.5 million, for a total of $12.5 million, to close the
budget gap for fiscal year 2011 (which begins July 1, 2010). Both
Worcester and Everett reported experiencing various spending
pressures, including increased health insurance premiums for city
workers. While there were no mid-year cuts to state aid in fiscal year
2010, officials in some of the cities we spoke to anticipate the state
will further reduce aid during fiscal year 2011. According to state
budget officials, the legislature is considering up to a 4 percent cut
in aid to local governments for the coming fiscal year. For Boston
this could amount to approximately $25 million less for the city. In
Worcester and Springfield state aid comprises about 55 and 60 percent
of the cities' budgets respectively, according to local officials. A
Worcester official recalled that a 25 percent cut in aid in fiscal
year 2009 had a significant impact on the city's operating budget.
The cities we spoke to are preparing for the challenges posed by the
end of Recovery Act funds in a variety of ways. Some of the cities
have raised, or are considering raising, taxes and fees to increase
revenues. Boston officials expect increased hotel and meals tax rates
to add $28.4 million to the fiscal year 2011 budget, while officials
in Everett are considering increasing city fees and charges for
permits. Springfield and Everett will continue to look for new sources
of grant funding. Springfield, for example, hired an outside grant
writing consultant to address its lack of grant writing capacity. In
Worcester, to cut costs in advance of the end of Recovery Act JAG
funding, which is paying for the salaries of 24 police officers
through January 2011, city officials restructured their police
department by eliminating unfilled managerial positions and positions
soon to be vacant due to retirement. In anticipation of the limited
duration of Recovery Act dollars, Springfield officials stated that
they restricted their use of some of their Recovery Act funds to one
time purchases that would not require sustained funding. Springfield's
$1.26 million Recovery Act JAG grant, for example, was spent entirely
on technology upgrades; none was spent on personnel.
State and Local Officials Have a Variety of Recovery Act Program
Audits Underway:
The Massachusetts Office of the State Auditor (OSA), with authority to
audit state agencies, has several audits underway specifically focused
on Recovery Act-funded programs. OSA, which according to officials has
been affected by state furloughs and hiring reductions, has
incorporated Recovery Act related questions into its audit work,
including the Single Audit. The 2009 state Single Audit covered
Recovery Act FMAP and SFSF funds and had one procedural finding. OSA's
audits of Recovery Act funds include programs funding weatherization,
housing, highways, transit, higher education, and youth employment.
Though most audits are ongoing, OSA is completing its audit of the WIA
Youth Program, which will address participants' eligibility and the
number of jobs reported under this program.
The Massachusetts Office of the Inspector General (OIG) is focusing
its efforts on investigating Recovery Act programs for fraud, waste,
and abuse. OIG officials say they are at different stages in their
review of Recovery Act programs, but have had delays partly due to
some federal agencies' slow sharing of information. In December 2009,
OIG officials, as instructed by the U.S. Department of Justice's
Office of Justice Programs, filed a Freedom of Information Act request
to get needed information, including JAG grant applications. The OIG
reported that after a delay it received the final transmission of the
documents it requested from the Department of Justice on April 30,
2010. In addition to its oversight role, the OIG has undertaken
Recovery Act educational efforts, including training on proper
procurement methods and fraud prevention.
All localities we spoke with plan to conduct Recovery Act oversight
through the Single Audit process. Boston officials stated that the
city's 2009 Single Audit included an audit of $23.3 million in SFSF
funds from the commonwealth and the audit indicated that Boston
complied with the requirements of the grant. The only Recovery Act
funds reviewed in the 2009 Single Audit for Everett and Worcester were
SFSF grants to schools. In Worcester, auditors found expenses from
before the eligible period incorrectly charged to the SFSF grant. The
city made an adjusting entry to accurately reflect only eligible
fourth quarter expenses and submitted an amended financial report.
Springfield's Single Audit for 2009 also included only Recovery Act
SFSF grants to schools and the audit indicated the city had complied
with the requirements of these grants. Boston officials are studying
their options regarding auditing the spending of Recovery Act funds.
They expect that their fiscal year 2010 Single Audit will cover most
of Recovery Act-funded programs.
State Comments on This Summary:
We provided a draft of this appendix to the Governor of Massachusetts,
the Massachusetts OSA, the Massachusetts OIG, the Massachusetts Joint
Committee on Federal Stimulus Oversight, and the Massachusetts Senate
Committee on Post Audit, and provided excerpts of the draft to other
entities including cities, local housing agencies, and regional
transit agencies we visited. The Governor's office that oversees
Recovery Act implementation, in general, agreed with our draft report.
State and local officials provided clarifying and technical comments,
which we incorporated where appropriate.
GAO Contacts:
Stanley J. Czerwinski, (202) 512-6806 or czerwinskis@gao.gov:
Laurie E. Ekstrand, (202) 512-6806 or ekstrandl@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Carol L. Patey, Assistant
Director; Lorin M. Obler, analyst-in-charge; Anthony M. Bova, Nancy J.
Donovan; Kathleen M. Drennan; Keith C. O'Brien; Kathryn I. O'Dea; and
Robert D. Yetvin made major contributions to this report.
[End of section]
Footnotes:
[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009).
[2] In addition to these funds, the state also received $1,343,900 in
funding for section 604b Water Quality Management Planning. In this
report we use the word "project" to mean an assistance agreement,
i.e., a loan or grant agreement made by the state revolving fund
program to a subrecipient for the purpose of a Recovery Act project.
[3] Moreover, state educational agencies may reserve an additional
percentage of Recovery Act ESEA Title I, Part A funds (0.3 or 0.5
percent, depending on whether the state educational agency requests
waivers of certain requirements) to help defray the costs associated
with data collection and reporting requirements under the Recovery Act.
[4] GAO, Recovery Act: Status of States' and Localities' Use of Funds
and Efforts to Ensure Accountability (Appendixes), [hyperlink,
http://www.gao.gov/products/GAO-10-232SP] (Washington, D.C.: Dec. 10,
2009).
[5] Single Audits are prepared to meet the requirements of the Single
Audit Act, as amended, and provide a source of information on internal
control and compliance findings and the underlying causes and risks.
The Single Audit Act requires states, local governments, and nonprofit
organizations expending $500,000 or more in federal awards in a year
to obtain an audit in accordance with the requirements set forth in
the act. A Single Audit consists of (1) an audit and opinions on the
fair presentation of the financial statements and the Schedule of
Expenditures of Federal Awards; (2) gaining an understanding of and
testing internal control over financial reporting and the entity's
compliance with laws, regulations, and contract or grant provisions
that have a direct and material effect on certain federal programs
(i.e. , the program requirements); and (3) an audit and an opinion on
compliance with applicable program requirements for certain federal
programs.
[6] 2010 Mass. Acts Chap. 12, sec. 3.
[7] States were required to certify that they will maintain the level
of spending that they had planned to expend between the date of
enactment, February 17, 2009, and September 30, 2010.
[8] In May 2008, the commonwealth introduced the $3 billion
Accelerated Bridge Program to reduce the commonwealth's growing
backlog of structurally deficient bridges.
[9] A floating slab consists of a concrete slab supported by rubber-
like material or steel-coil springs designed to reduce noise and
vibration levels. Deterioration of a floating slab system has the
potential to become a significant safety hazard.
[10] Under the Supplemental Appropriations Act, 2009, recipients and
subrecipients of the Transit Capital Assistance Urbanized Area Program
funds and the Transit Capital Assistance Nonurbanized Area Program
funds may use up to 10 percent of the amount apportioned for operating
expenses. Pub. L. No. 111-32 § 1202 (June 24, 2009).
[11] GAO, Federal Aid Highways: Increased Reliance on Contractors Can
Pose Oversight Challenges for Federal and State Officials, GAO-08-198
(Washington, D.C.: Jan. 8, 2008).
[12] In addition, a total of $72.7 million in competitive grants was
awarded to seven housing agencies in Massachusetts.
[13] According to HUD notice PIH 2009-31, component or subcomponent
parts may be from other countries as long as the components and
subcomponents are assembled into manufactured goods in the United
States.
[14] Pub. L. No 105-276, title V, 112 Stat. 2461 (Oct. 21, 1998).
[15] Some housing agency officials told us that a small portion of
residents of state-funded housing will pay higher rents after their
units are federalized because the federal and state governments have
different deductions from the income that is counted in calculating
rent.
[16] The regulations governing this process are at 24 CFR 941.
[17] In a 2006 audit report, the Massachusetts Office of the State
Auditor found that inadequate funding by the state has contributed to
significant deterioration in the conditions of state-supported housing
developments.
[18] According to Massachusetts officials, of the $185 million
received in Recovery Act funds, over $7 million is being used for
program administration with the remainder spent on projects.
[19] "Green" projects are those that promote green infrastructure
(which can reduce, capture, and treat stormwater runoff at its source
before it reaches the sewer system) and energy or water efficiency.
Green projects also include demonstrations of new or innovative ways
to manage water resources in a sustainable fashion.
[20] We visited the town of Spencer, a new SRF recipient, which
received funds for one project, and the MWRA, which received funding
for multiple projects.
[21] Section 1605 of the Recovery Act permits the provision of a
waiver by the head of an appropriate agency, here EPA, under certain
circumstances. Pub. L. No. 111-5, 123 Stat. 115.
[22] 2009 Mass. Acts ch. 30, § 33 (An Act Mobilizing Economic Recovery
in the Commonwealth).
[23] 2009 Mass. Acts ch. 30, § 12 (An Act Mobilizing Economic Recovery
in the Commonwealth). According to a Massachusetts official, before
passage of this act, the Massachusetts Water Pollution Abatement Trust
was not authorized to provide any principal forgiveness, grant, or
loan interest rate except 2 percent for 20-year terms, but the act
authorized the trust to adapt the financing structure to conform to
the Recovery Act requirements.
[24] These are cash drawdowns from the U.S. Department of Health and
Human Services' Payment Management System. Under the procedures for
using these funds, funds are to be drawn down no more than 3 days in
advance of paying bills. According to Labor, drawdown data for March
2010 may be significantly understated as a result of complications
with the transition to a new accounting system. Labor is taking steps
to correct these issues and expects to release accurate data by the
end of May 2010.
[25] This comparison includes dislocated workers trained with regular
and Recovery Act WIA funds.
[26] The Governor's budget also includes a proposal to help prepare
the state for future revenue volatility by smoothing out capital gains
receipts and depositing capital gains revenue over a fixed dollar
amount ($1 billion) into its "rainy day" fund.
[27] State officials noted that if by June 1, 2010, Congress has not
acted to extend the increased FMAP provision, the Governor plans to
revise his fiscal year 2011 budget.
[28] City Recovery Act funds referred to in this section cover funds
which are administered by city government and not the full scope of
Recovery Act funds that benefit city residents, such as unemployment
insurance and Medicaid. This section includes sources of Recovery Act
funds which substitute for declines in city operating revenues. Other
city-administered Recovery Act funds provide expanded services and
include funds for community development, homelessness, and energy
efficiency.
[End of Appendix IX]
Appendix X: Michigan:
Overview:
This appendix summarizes GAO's work on the sixth of its bimonthly
reviews of American Recovery and Reinvestment Act of 2009 (Recovery
Act)[Footnote 1] spending in Michigan. The full report covering all of
GAO's work in 16 states and the District of Columbia may be found at
[hyperlink, http://www.gao.gov/recovery].
What We Did:
Our work in Michigan focused on the (1) use of Recovery Act funds for
selected programs, (2) approaches taken by Michigan to provide
accountability over Recovery Act funds, and (3) impacts of these
funds. We reviewed specific programs funded under the Recovery Act
related to public housing and dislocated worker training. In addition
to these programs, we obtained and reviewed expenditure details and
other information on the state's use of State Fiscal Stabilization
Fund (SFSF) government services funds. We also reviewed the state's
and selected localities' fiscal condition and use of Recovery Act
funds. We considered selected reports to the federal government by
recipients of Recovery Act funds as well as oversight and
accountability practices including selected financial statement audit
reports and selected Single Audit reports at both the state and local
levels. We selected these program areas and activities because they
had a number of risk factors, including the receipt of significant
amounts of Recovery Act funds or a substantial increase in funding
from previous years' levels. These program areas and activities also
provided an opportunity for us to consider the design of internal
controls over the program areas and activities as well as those put in
place to obtain and report information to the federal government on
Recovery Act spending and jobs created or retained. To address
financial management and internal control challenges we previously
reported on, we followed up on actions taken and those planned by the
Michigan Department of Education (MDE) and Detroit Public Schools
(DPS), and state and local agencies with responsibility for the
state's Workforce Investment Act (WIA) Summer Youth Employment
Program. For descriptions and requirements of the programs we covered,
see appendix XVIII of GAO-10-605SP.
We performed our work at state and local agencies responsible for
implementing and monitoring and overseeing the programs. For our
review of public housing, we visited two public housing authorities
that we visited in prior rounds--Detroit and Lansing--and two
additional public housing authorities--Port Huron, and Mount Clemens,
as well as the U.S. Department of Housing and Urban Development (HUD)
Detroit Field Office. For our review of the WIA Dislocated Worker and
Summer Youth Employment Programs, we met with officials from the
Michigan Department of Energy, Labor and Economic Growth--the state
agency responsible for administering these programs--as well as
officials from two local workforce agencies.
We continued to track the use and impact of Recovery Act funds on
state and local fiscal stabilization. We met with state budget
officials and local officials from the cities of Flint and Lansing to
assess the economic challenges they faced and the Recovery Act's
impact on their communities. To understand the state's Recovery Act
oversight and accountability efforts, we visited with officials from
the Economic Recovery Office, Office of the Auditor General (OAG),
Office of Internal Audit Services (OIAS), and the Detroit Office of
Auditor General. We also reviewed the most recent single audit reports
and met with officials responsible for oversight and monitoring for
the City of Flint and the City of Lansing. We reviewed the most recent
single audit reports for three of the four public housing authorities
that we visited. We did not review the other because it was not
complete at the time of our review. Officials with the Lansing Housing
Commission told us that their audit for the fiscal year ended June 30,
2009, was in process and that HUD had granted an extension of time.
Finally, to understand the state's experience in meeting the March 31,
2010, Recovery Act reporting requirements, we focused our work on the
recipients' methodology for computing jobs data and reviewed steps
recipients took to assess the quality of the data. We discussed these
issues with state and local officials with responsibilities for
recipient reporting and reviewed documentation used by recipients to
support the number of jobs reported.
What We Found:
* Public Housing Capital Fund. Public housing authorities (PHA) in
Michigan received over $53 million in Recovery Act Public Housing
Capital Fund formula grants. PHAs in Michigan are using these funds
for activities including plumbing improvements and kitchen renovations
at apartment complexes and single family home rehabilitations. All
public housing authorities in Michigan met the March 17, 2010,
deadline for obligating 100 percent of these funds. According to HUD,
as of May 1, 2010, 122 housing agencies had drawn down approximately
$22 million. Officials of the four public housing authorities we
visited reported successfully meeting difficulties associated with
Recovery Act requirements. For example, officials from the Detroit
public housing authority said that documenting compliance with the
Recovery Act's Buy America requirement has been a challenge because
they did not have a process in place prior to the Recovery Act to
address this requirement. Officials from HUD's Detroit Field Office
told us that although they successfully instituted additional
monitoring protocols for Recovery Act grants, this work limited staff
availability to focus on other ongoing public housing program areas.
* Education. The U.S. Department of Education (Education) allocated
$1.592 billion in SFSF moneys to Michigan, of which $1.302 billion are
education stabilization funds and $290 million are government services
funds. Michigan used its education stabilization funds primarily for
teacher salaries, and its government services funds primarily for
public safety programs in fiscal year 2009. In addition, Education
allocated Michigan $390 million for Title I, Part A of the Elementary
and Secondary Education Act of 1965, as amended (ESEA)--which Michigan
schools used to pay for salaries for academic counselors, social
workers, tutors, and other specialists--and $414 million for Parts B
and C of the Individuals with Disabilities Education Act, as amended
(IDEA)--which Michigan used to pay salaries for teachers of students
with cognitive impairment, school psychologists, and social workers.
In our September bimonthly Recovery Act report we noted that to help
provide accurate and timely Recovery Act reporting, MDE, in
coordination with DPS, needed to implement policies and procedures to
provide reasonable assurance that education-related Recovery Act funds
are reported accurately and timely, that jobs retained and created are
accurately and timely reported, and that funds are used only for
allowable purposes. MDE has begun implementing a monitoring plan, and
DPS has taken actions to improve its internal controls.
* WIA Dislocated Worker Program. Michigan received approximately $78
million in WIA Dislocated Worker Program Recovery Act funds. As of
March 31, 2010, Michigan and its local areas had drawn down at least
34 percent of these funds. Michigan officials reported that despite a
nearly 43 percent reduction in formula funds from the previous program
year, they were able to nearly double the number of dislocated workers
receiving intensive services and training compared to the same period
in the previous year. The state also reported that as of January 31,
2010, nearly 16,000 dislocated workers are in training. State
officials said Recovery Act funds are primarily used to place
dislocated workers in existing state training initiatives, by using
Individual Training Accounts (ITA).[Footnote 2] Detroit and Grand
Rapids reported that they used or intend to use Recovery Act funds
primarily to establish ITAs for dislocated workers in training,
although to a limited extent they have used other training options
emphasized by the U.S. Department of Labor (Labor), including on-the-
job-training and contracting with institutions of higher education.
* WIA Summer Youth Employment Program. Michigan was allotted
approximately $74 million in WIA Youth Program Recovery Act funds. The
WIA Youth Program is designed to provide low-income, in-school and out-
of-school youth with services that lead to educational achievement and
successful employment. The Department of Labor issued guidance
encouraging states to use Recovery Act funds for summer employment.
Officials told us that as of March 31, 2010, a total of $55.9 million
had been expended and met the state's enrollment goal by serving over
21,000 youth in Michigan's Summer Youth Employment Program. Our prior
review of Detroit's program identified a number of internal control
challenges involving payroll preparation and distribution and program
eligibility determinations and documentation. Detroit officials
addressed our payroll findings by (1) streamlining the check
distribution process, (2) moving to a larger distribution center, and
(3) developing a procedures manual. To address issues of eligibility
determination and documentation, Detroit officials developed a
procedures manual, increased training of contractor staff, and are
working with an advisory board to clarify criteria to be used for
eligibility determinations.
* State and local governments' fiscal condition and use of Recovery
Act funds. Michigan continues to face economic challenges. In March
2010, the state's unemployment rate was 14.9 percent, the highest in
the nation. For the fiscal year ending September 30, 2010, Michigan
expects to use almost $1.1 billion in funds made available as a result
of the increased Federal Medical Assistance Percentage (FMAP) to
support the state's general fund. In response to a projected $1.497
billion shortfall in fiscal year 2011 as Recovery Act funding slows,
Michigan's Governor proposed a series of cost reductions and
restructuring of the state's sales and use taxes. Flint city officials
told us that Recovery Act funds provided the city with temporary
relief but had little effect on the city's fiscal stability because of
continuing economic pressures. Lansing city officials said that the
city's economic situation would have been much worse without Recovery
Act funds.
* Recipient reporting. Recipients' processes for calculating jobs and
reviewing data varied for the quarter ending March 31, 2010. Office of
Management and Budget's (OMB) guidance states that recipients are to
include jobs created and retained from subrecipients and vendors in
their quarterly reports to the maximum extent practicable. We found
that the Department of Energy, Labor, and Economic Growth (DELEG) did
not do so. In addition, Detroit Public School (DPS) officials told us
that their initial report to the Michigan Department of Education did
not include staff jobs paid for with SFSF funds or contractor jobs
paid for with Recovery Act funds. When we brought this to the
attention of DPS officials in April 2010, they discussed the matter
with MDE and subsequently submitted an amended report. ERO officials
told us that they will work with DELEG to address recipient reporting
requirements.
* Oversight and accountability efforts. Michigan's OAG and OIAS serve
key roles in overseeing Recovery Act-funded programs in Michigan. OAG
officials told us that they are including Recovery Act funds as part
of their Single Audit work at state agencies. These officials also
told us that it would be helpful for OMB to clarify the criteria that
the audit community should use for auditing recipient reports and
complying with the "Buy American" provision for Recovery Act spending.
OIAS officials told us that they assigned 2 of their 45 internal
auditors to work full-time on programs funded by the Recovery Act.
Based upon their assessment of risks, OIAS officials selected eight
key programs for review. They plan to evaluate the agencies' ongoing
monitoring activities. OIAS officials also told us that they would
include steps as appropriate in their audit work plans for agencies
that our work identifies as having internal control challenges.
Housing Agencies Continue to Make Progress on Public Housing Capital
Fund Recovery Act Projects:
Michigan has 131 public housing authorities (PHAs), 122 of which
received Recovery Act-funded Public Housing Capital Fund (PHCF)
grants.[Footnote 3] These grants are intended to improve the physical
condition of, and modernize, public housing units. Michigan PHAs
received over $53 million in Recovery Act PHCF formula grants. The
Recovery Act mandated that housing agencies obligate 100 percent of
these funds within 1 year of award by HUD--by March 17, 2010--
representing a shorter timeline than that for the regular PHCF
grant.[Footnote 4] Michigan PHAs also received approximately $41
million through the regular fiscal year 2009 PHCF grant
program.[Footnote 5] We met with officials from four PHAs--the
Detroit, Lansing, Mount Clemens, and Port Huron Housing Commissions--
to better understand how Michigan PHAs are using and monitoring the
Recovery Act funds.[Footnote 6] We also met with officials from HUD's
Detroit Field Office (Field Office) to better understand their
interactions with PHAs regarding meeting the obligation deadline and
steps they are taking to oversee Recovery Act spending, as well as to
obtain their perspectives on implementing Recovery Act requirements,
such as the recipient reporting and Buy American provisions.
Michigan PHAs Successfully Met Obligation Deadline:
According to HUD officials, Michigan's 122 PHAs that received Recovery
Act funds obligated 100 percent of Recovery Act PHCF formula grants
prior to the obligation deadline of March 17, 2010, and as of May 1,
2010, had drawn down approximately $22 million (see figure 1).
Figure 1: Percentage of Public Housing Capital Fund Formula Grants
Allocated by HUD That Have Been Obligated and Drawn Down in Michigan
as of May 1, 2010:
[Refer PDF for image: 3 pie-charts and 1 horizontal bar graph]
Funds obligated by HUD: 100% ($53,467,210); Funds obligated by public
housing agencies: 100% ($53,467,210); Funds drawn down by public
housing agencies: 41.9% ($22,400,715).
Number of public housing agencies:
Were allocated funds: 122;
Obligated 100% of funds: 122;
Have drawn down funds: 115.
Source: GAO analysis of data from HUD's Electronic Line of Credit
Control System.
[End of figure]
The four PHAs we met with are using Recovery Act-funded PHCF grants
for a variety of projects. For example, the Detroit Housing Commission
(Detroit) is using the funds for, among other things, plumbing
improvements at a 156-unit development as well as rehabilitating 178
single family homes. The Lansing Housing Commission (Lansing) is using
its grant to upgrade two different apartment developments and 75
single-family homes. Figure 2 depicts two Recovery Act-funded projects
at Detroit and Lansing.
Figure 2: Photos of a Detroit Single-Family Home and Units at a
Lansing Housing Complex That Are in the Process of Being Renovated
with Recovery Act Funds:
[Refer to PDF for image: 2 photographs]
Source: GAO.
[End of figure]
The two smaller PHAs we spoke with targeted their Recovery Act funding
on one development. For example, the Port Huron Housing Commission
(Port Huron) reported that it will use its Recovery Act grant for
exterior and interior kitchen renovations of 90 units at one
development.
HUD's Detroit Field Office Identified PHAs Needing Assistance to Meet
the Obligation Deadline:
Field Office officials described communication with PHAs as "a core
element" of their strategy to monitor grant implementation and ensure
obligation rates would meet Recovery Act deadlines. They reached out
to PHAs in a variety of ways, including participating in industry
association meetings, supporting local PHA training sessions, and
contacting executive directors. In cases where Field Office staff
identified PHAs at risk of failing to meet the obligation deadline,
they contacted either housing commission board commissioners or
locally elected officials to communicate their concerns about a PHA's
lagging obligation rate. The Field Office contacted each of the four
PHAs we reviewed to help identify and address any issues that could
have prevented them from meeting the obligation deadline. For example,
Field Office officials told us that they helped the Ecorse Housing
Commission through several processes involved with its plan to
demolish a number of public housing units as part of a Recovery Act-
funded project.
Recovery Act Requirements Created Some Challenges:
PHA officials reported varying degrees of difficulty associated with
meeting Recovery Act requirements. For example, PHA officials told us
that in administering prior capital fund grants, there was no
requirement to identify and report on the source of materials used for
capital fund activities, and processes were not in place to gather
this information. As a result, officials from all four PHAs we visited
told us that they modified their procurement processes to obtain
information from contractors to meet the Recovery Act's Buy American
provision.[Footnote 7] Detroit officials said that the Buy American
provision required some of its contractors to find new suppliers that
would meet the Buy America provision requirements and that documenting
the source of materials used for Recovery Act-funded projects has been
a challenge as not all manufactured products provide this information
and some products are not available from American sources.
We also analyzed the impact of Recovery Act-funded PHCF grants on the
administration of regular PHCF grants. Two of the PHA officials we
visited reported that the requirement to obligate 100 percent of their
Recovery Act funds by March 17, 2010, had affected their ability to
administer other funds. Officials from Lansing and Mount Clemens told
us that limited staffing made administering both Recovery Act-funded
and regular PHCF grants a challenge, but that, despite their focus on
obligating Recovery Act funds first, they still expect to meet the
September 2011 obligation deadline for regular fiscal year 2009 funds.
PHAs Are Using Existing Processes to Oversee Recovery Act Funds:
Officials from Detroit and Lansing--the PHAs we reviewed that made
significant expenditures by the beginning of April--told us that they
are using existing monitoring processes, such as conducting periodic
inspections, for Recovery Act-funded work. Detroit officials, for
example, told us that their staffs are producing daily field reports
as part of their regular procedures to monitor construction progress.
Similarly, Lansing officials told us that they conduct periodic site
visits and review progress reports provided by their architects.
Each PHA that receives HUD funds is responsible for having its
activities audited by an independent public accountant in accordance
with Government Auditing Standards, and submitting the audit report to
HUD within 9 months after its fiscal year-end. We obtained the audit
reports for three of the four PHAs we visited--Detroit, Mount Clemens,
and Port Huron.[Footnote 8] These audits covered the PHAs' fiscal year
ended June 30, 2009, and two of the three audits included coverage for
some Recovery Act spending (Detroit and Port Huron). All three PHAs
received an unqualified or "clean" audit opinion on their financial
statements and none of the audits reported any significant internal
control or compliance matters.
HUD's Detroit Field Office Instituted Additional Monitoring Protocols
for Recovery Act Funds:
Field Office officials, who have responsibility for monitoring all 122
PHAs in Michigan receiving Recovery Act-funded PHCF grants, provided
us with their monitoring plan. Although this plan provided monitoring
procedures for all PHAs, it focuses the Field Office's efforts on the
15 Michigan PHAs that HUD has designated as "troubled."[Footnote 9]
Field Office officials said that they required all troubled PHAs to
obtain Field Office approval before obtaining bids and awarding
contracts. They also told us that they reviewed troubled PHAs'
obligation actions, such as award packages and final contracts and any
subsequent change orders, for compliance with Recovery Act
requirements including the Buy American provision.
Field Office staff said they also are reviewing obligations and
expenditures equal to 25 percent of each grant award at PHAs that are
not "troubled." Field Office officials told us that they believe this
process has helped them identify and resolve compliance issues. For
example, Field Office staff told us that they identified the need to
update PHA procurement procedures and prevented the allocation of
funds by PHAs for ineligible work items (e.g., computers or office
equipment) prior to the commitment of funds. However, Field Office
officials told us that overseeing Recovery Act grants using the
monitoring plan had limited their staff's availability to conduct
timely monitoring, oversight, and technical assistance over other
program areas. For example, they postponed some planned monitoring
activities for other HUD programs, such as Section 8 rental
assistance, until later in fiscal year 2010.
Michigan Is Using Recovery Act Funds from the U.S. Department of
Education for Education and Public Safety Programs:
The U.S. Department of Education (Education) made Recovery Act
education funds available to Michigan through three major programs:
* Education allocated $1.592 billion in State Fiscal Stabilization
Fund (SFSF) moneys, of which $1.302 billion are education
stabilization funds and $290 million are government services funds, as
of May 29, 2009. Education stabilization funds must first be used to
alleviate shortfalls in state support for education to school
districts, also known as local educational agencies (LEA), and public
institutions of higher education.[Footnote 10] Government services
funds must be used for public safety and other government services,
which may include education.
* Education allocated $390 million in funding for ESEA Title I, Part A
to help educate disadvantaged youth, on April 1, 2009.
* Education allocated $414 million in funding for IDEA, Parts B and C
for programs that ensure preschool and school-age children with
disabilities have access to a free and appropriate public education
and that provide early intervention and related services for infants
and toddlers with disabilities--or at risk of developing a disability--
and their families, on April 1, 2009.
LEAs in Michigan used SFSF education stabilization funds to retain
jobs--primarily teachers--that would otherwise have been lost. LEAs
used ESEA Title I funds to pay for salaries for academic counselors,
social workers, tutors, and other specialists. In some cases, they
used funds to train teachers or enhance curriculum. For example,
Detroit Public Schools used ESEA Title I funds for professional
development and instructional materials. Finally, MDE reported using
IDEA funds to pay salaries for teachers of students with cognitive
impairment, school psychologists, and social workers. As of April 16,
2010, Michigan had drawn down $923.1 million (71 percent) of its SFSF
education stabilization funds; $86.9 million (22 percent) of its ESEA
Title I, Part A funding; and $82.2 million (20 percent) of its IDEA
Part B funding.
In our September report we noted that to provide accurate and timely
Recovery Act reporting, the Michigan Department of Education (MDE), in
coordination with the Detroit Public Schools (DPS), will need to
consider implementing policies and procedures in the near term to
provide reasonable assurance that education-related Recovery Act
funds, including those provided to DPS, are reported accurately and
timely; that jobs retained and created are accurately and timely
reported; and that funds are used only for allowable purposes. To
accomplish this, MDE has begun implementing a monitoring plan and DPS
has taken actions to improve its internal controls. We discussed our
prior findings with MDE and DPS officials in April 2010 and they told
us that they would provide us with written responses to these issues
at a later date.
The Recovery Act created SFSF in part to help state and local
governments stabilize their budgets by minimizing budgetary cuts in
education and other essential government services. On April 1, 2009,
Education allocated $290 million in SFSF government services funds to
Michigan. As of March 31, 2010, Michigan had expended almost all of
its government services funds (over $288 million). Specifically, these
funds were used during Michigan's fiscal year ended September 30,
2009, for the following:
* Payroll and related expenses for the Michigan State Police: $98
million. Funds were used for staff payroll and the state's share of
employee benefits for uniformed troopers, investigative services, and
laboratory operations.
* Payroll and related expenses for the Department of Corrections: $190
million. Funds were used for staff payroll and the state's share of
employee benefits for operations at one correctional facility; mental
health care staff; and food services staff.
* Expenses of the Economic Recovery Office (ERO), which administers
the Recovery Act for Michigan: $324,000. Michigan used these funds for
staff salaries, the state's share of employee benefits for 3.5 full-
time equivalents, and the general operational and administrative
expenses of the ERO. In addition, it used Recovery Act funds to
develop a centralized database and portal to support recipient
reporting.
State budget officials told us that these payroll, benefit, and other
expenses were incurred during the period starting on February 17,
2009, the Recovery Act's enactment date, and ending on September 30,
2009, the last day of the state's fiscal year. Officials said that
they identified specific staff salaries and the related estimated
employer share of benefit expenses to support the amounts charged to
Recovery Act funds. Officials told us that as of March 31, 2010,
Michigan had about $1.6 million of its government services funds
remaining, most of which are to be used to pay for ERO operations
through September 30, 2011.
Michigan Has Made Progress on Monitoring and Internal Controls for
Education Funds:
As required, MDE submitted its monitoring plan for education
stabilization funds to Education in March 2010. MDE's plan states that
the department will implement an integrated, comprehensive monitoring
program for all Recovery Act grants, and that for the first year the
effort will focus on SFSF education stabilization funds. According to
MDE officials, this monitoring began in March 2010, and they
determined the schedule for monitoring based on a risk-based analysis
of numerous factors, including whether the district has a deficit,
prior audit findings, and the amount of SFSF funds received.
In order to meet the requirements to effectively monitor Recovery Act
grant programs, MDE plans to follow a phased approach, while building
capacity. Officials told us that MDE currently conducts programmatic
monitoring on all Education grants, and they plan to add fiscal
monitoring over time. During the 2009-2010 school year, MDE plans to
leverage its resources by using existing staff. Using a risk-based
approach, MDE officials told us they identified recipients to receive
on-site visits and will conduct monitoring of SFSF funds for
subrecipients with a Recovery Act award during these visits. MDE
assigned a Recovery Act monitoring coordinator to coordinate MDE
monitoring efforts of all Recovery Act grants, but with a special
focus on on-site and desk reviews for SFSF grants. Officials told us
that program monitors have been trained on SFSF-specific monitoring
protocols and tools. MDE also plans to collect data from all
subrecipients as part of its Recovery Act monitoring.
State officials said that although they have not developed a specific
oversight plan to provide assurance of accountability of Recovery Act
SFSF government services funds, Michigan intends to rely primarily
upon existing safeguards, which is consistent with the state's
practices for other Recovery Act funds. Michigan's Department of
Management and Budget, the Michigan State Police, and the Department
of Corrections each have responsibility for overseeing and monitoring
their operations' use of SFSF government services funds. Education
required states to submit monitoring plans for both the education
stabilization and government services funds. Michigan provided
monitoring plans from the Department of Corrections and the Michigan
State Police by the March 12, 2010, deadline. In addition, in April
2010 officials in the Office of the Auditor General told us that they
are including these funds in their Single-Audit Act work.[Footnote 11]
MDE Performs Targeted Monitoring and Oversight of the Detroit Public
Schools District:
MDE performs targeted monitoring and oversight of DPS based on the
significant education funds provided to the district--including
increases in funds through the Recovery Act--and the risks posed by
long-standing financial management challenges. In addition, as a
result of financial management weaknesses and DPS's budget deficits,
[Footnote 12] Michigan's Governor appointed an Emergency Financial
Manager for the district in March 2009 and extended his initial 1-year
term through March 1, 2011. The Emergency Financial Manager also
appointed two officials to help improve DPS's financial oversight, an
Inspector General and an Auditor General.
MDE allocated $62.3 million in SFSF funding and $150 million in ESEA
Title I Recovery Act funds to DPS through fiscal year 2010, along with
$25.7 million in Recovery Act funds to DPS for IDEA Part B grants, for
a total of $238 million. As of April 20, 2010, DPS had drawn down
$98.2 million of these funds ($60.4 million from SFSF grants, $32.4
million from ESEA Title I grants, and $5.4 million from IDEA Part B
grants). MDE officials told us that as part of the department's
enhanced monitoring of DPS, including its Recovery Act spending, they
have created a team that meets on a regular basis to discuss and
review DPS's applications, draw-down requests, policies and
procedures, and strategic planning documents. MDE also has a core team
that conducts biweekly phone calls with DPS to discuss internal
control issues.
In addition, MDE officials told us that they engaged an independent
public accountant (IPA) to test DPS payment transactions. They hired
the IPA to assist in evaluating whether DPS maintained documentation
and followed specified procedures regarding federally funded payroll
and fringe benefit costs for employees, as well as nonpayroll federal
expenditures for fiscal year 2010. According to MDE officials, DPS is
working with MDE to establish new procedures. DPS's rate of compliance
with these procedures is periodically tested by the IPA, which in turn
is responsible for reporting the test results to MDE. Although MDE
officials told us that the new procedures have led to improved
controls over payroll and nonpayroll expenditures, they did not
maintain a record of the change in error rates reported by the IPA
over time or other metrics to monitor progress. Without preparing and
continually updating such a record, MDE may not be assured that
actions taken are appropriate or that the desired effect occurs, or be
able to assess whether the impact is being sustained.
The Detroit Public Schools District Has Taken Steps to Improve Its
Internal Controls:
DPS has made progress in improving its financial management in a
number of areas. For example, in contrast to prior years, the IPA
submitted the district's 2009 audit in advance of the November 15,
2009, deadline. The 2009 audit also contained fewer findings than the
prior year's audit. DPS officials also told us that they hired a
consulting firm to assist them in organizing and addressing audit
findings and to help develop long-term solutions.
DPS officials told us that DPS's Inspector General has instituted a
monitoring system that seeks to continuously evaluate and reduce risk
of fraud. In addition to this monitoring system, the DPS Auditor
General, an internal audit office, has recently begun a formal
internal control risk management analysis involving interviews of
various DPS administrators, contractors, vendors, and other
stakeholders. In April 2010, DPS Auditor General officials told us
that they conducted preliminary assessments of all departments and are
working to understand and document what controls are currently in
place for each department. Officials also told us that, in an effort
to encourage program managers to take ownership of internal control
improvements, they plan to ask each program manager to identify
initiatives he or she wants to complete within a year.
DPS officials said that they also developed a procedures manual for
financial reporting and they plan to provide financial training,
including training in accounting, bookkeeping, and preparing financial
statements for school administrative staff. The manual is not specific
to Recovery Act funding; rather, it is designed to address financial
reporting on a district-wide basis. Specific issues addressed in the
manual are allowable use of funds, contract suspension and debarment,
equipment management, personnel management, and contracting policy.
However, as of April 2010, although much has been done in each of the
five targeted areas to document policies and procedures, officials
acknowledged that none of these efforts have been fully completed or
placed in operation.
Work Remains to Address Systemic Weaknesses at DPS:
To ensure accountability over Recovery Act funds, it is important for
MDE, DPS, and other stakeholders to continue their efforts to provide
sustained attention to these long-standing financial management
challenges. In addition, it is important to ensure that the underlying
causes of control weaknesses are addressed and that improvements--once
put into place--are monitored.
For example, MDE officials told us they were concerned that the
district inadequately documented conflicts of interest. To address,
they said that DPS has adopted new policies and procedures, but still
needs to train about 15,000 employees. According to DPS officials, DPS
has also implemented new controls over computers. These include
equipping all new computers with an electronic tracking system and
working with schools to complete an inventory of all equipment.
Although there are plans to do so, DPS officials informed us in April
2010 that the computer physical inventory has not yet been reconciled
with DPS property records. In addition, DPS has not established
essential management processes for controlling physical assets--
including, for example, periodic inventories and reconciliations to
books and records.
MDE officials told us that they are focusing on improvements at DPS in
the following areas: conflict of interest, allowable use of federal
funds, cash management, contracting, procurement, internal monitoring,
property and equipment, and personnel. DPS is charged with documenting
its policies and procedures in each of these areas. MDE officials are
benchmarking DPS's performance with that of other large city school
districts, evaluations of external consultants, and MDE's own policies
and procedures.
In addition, as discussed earlier, the DPS Inspector General is
conducting work that results in recommendations to management.
However, there is no formal process for tracking the recommendations
from the Inspector General or actions to address the recommendations
and there is no requirement for DPS departments to provide responses
to the findings.
Michigan Has Made Progress in Using Recovery Act Funds to Provide
Services and Training to Additional Dislocated Workers, Mainly through
Existing Training Programs:
Michigan has made progress in using Recovery Act funds for the WIA
Dislocated Worker Program. The state received $78.4 million in
Recovery Act funds for the program and as of March 31, 2010, total
state draw downs account for at least 34 percent ($27.3 million) of
available funds.[Footnote 13] Drawdowns represent cash transactions:
funds drawn down by states and localities to pay their bills, such as
payments for training provided. Localities must spend Recovery Act
funds by June 30, 2011 to provide job training and other employment
assistance.
Funds Have Been Used to Increase the Number of Workers Receiving
Services and Training:
Officials from the Michigan Department of Energy, Labor, and Economic
Growth said that economic conditions contributed to an increased
number of customers seeking services at one-stop centers across the
state. At the same time, in 2009 Michigan received nearly 43 percent
less in regular WIA Dislocated Worker formula funds than it did the
previous program year.[Footnote 14] Despite this reduction, state
officials said that they were able to serve and train more WIA
customers using both Recovery Act and regular formula funds. For
example, according to state officials, for the month of December, when
they typically see fewer customers, one-stop centers statewide saw an
increase in customers from around 7,000 in 2007, to around 14,000 in
2009.[Footnote 15] Moreover, dislocated workers receiving intensive
services and training nearly doubled compared to the same time period
in the previous year, according to our survey.[Footnote 16] The state
also reported that nearly 16,000 dislocated workers are in training
using Recovery Act or regular WIA dislocated worker funds, as of
January 31, 2010.
Michigan Used Recovery Act Funds to Provide Training in Existing
Programs and to Address Local Plans:
State officials said that Recovery Act funds are primarily being used
to place dislocated workers in existing training initiatives, such as
the state's No Worker Left Behind program (NWLB), using individual
training accounts (ITAs). The goal of this program is to accelerate
the transition of thousands of workers into good paying jobs by
providing up to two years worth of tuition at any community college,
university, or other approved training provider. Both Grand Rapids and
Detroit reported that they have used or intend to use Recovery Act
funds primarily to establish ITAs for dislocated workers.[Footnote 17]
Labor encouraged states to use Recovery Act funds for a variety of
training methods such as on-the-job training (OJT) and contracts with
institutions of higher education, community based organizations and
other training providers.[Footnote 18] Grand Rapids officials said
that they offered some OJT, but have not placed any dislocated workers
in training through contracts with institutions of higher education.
According to Grand Rapids officials, local community colleges are
reluctant to develop group training programs because Recovery Act
funds are temporary and would not be available to support these
programs when funds are exhausted. Detroit officials said they are
considering ideas to increase industry interest in OJT during the
economic downturn and said they are using Recovery Act funds to place
dislocated workers in training contracted through a local community
college for coursework aligned with the Weatherization Assistance
Program.[Footnote 19] In summary, Grand Rapids and Detroit have a
number of planned uses for Recovery Act funds in their local areas,
such as providing training for the health care industry or for green
jobs, among others, as shown in table 1.
Table 1: Selected Uses of WIA Dislocated Workers Program Recovery Act
Funds in Detroit and Grand Rapids, MI:
Locality: Detroit;
Allocation: $7,224,075;
Planned uses:
* Serve an increased number of customers at one-stop centers, in part
by increasing career planning staff;
* Provide training coordinated through the NWLB program;
* Provide training in the health care industry due to strong local
demand;
* Provide training contracted with higher education institutions for
the Weatherization Assistance Program.
Locality: Grand Rapids;
Allocation: $2,740,261;
Planned uses:
* Serve an increased number of customers in one-stop centers;
* Offer more basic skills programs to prepare workers for entry-level
college courses;
* Provide training in the health care industry due to strong local
demand;
* Provide increasing training opportunities for green jobs.
Source: GAO analysis of interviews and information provided by the
Detroit Workforce Development Department and Grand Rapids' Area
Community Services Employment and Training Council. This table is not
intended to present all planned uses for Recovery Act funds.
[End of table]
State and Local Officials Have Taken Steps to Address Detroit's WIA
Summer Youth Employment Program's Internal Control Challenges:
Michigan was allotted approximately $74 million in WIA Youth Program,
Recovery Act funds. The WIA Youth Program is designed to provide low-
income, in-school and out-of-school youth with services that lead to
educational achievement and successful employment, and the Department
of Labor issued guidance encouraging states to use Recovery Act funds
for summer employment. DELEG--the state agency responsible for
administering the program--allocated $62.9 million to its 25 local
Michigan Works! Agencies and reserved $11.1 million (15 percent) for
statewide activities. DELEG officials told us that as of March 31,
2010, the Michigan Works! Agencies had expended $55.9 million and that
the program had met the state's enrollment goal and served over 21,000
youth in Michigan's Summer Youth Employment Program.
Our prior review of Detroit's program identified a number of
significant internal control challenges that needed attention.
[Footnote 20] The Detroit program served approximately 7,000 youth.
These challenges included control weaknesses with the payroll
preparation and distribution process and program eligibility
determinations and documentation. In September 2009 we reported that
DELEG needed to work with the Detroit Workforce Development Department
(DWDD)--the Michigan Works! Agency responsible for Detroit's program--
and its WIA contractors to address internal control issues with youth
not being paid on time and checks being prepared with incorrect
amounts, payee names, and addresses, as well as to resolve past
payroll preparation issues and payroll distribution challenges. We
also reported that DELEG should work with Detroit program officials to
identify program risks and implement appropriate internal controls to
address issues involving eligibility determinations and the lack of
documentation supporting eligibility decisions.
State officials concurred with our assessment of Detroit's payroll
weaknesses and recommended that DWDD modify its entire weekly payroll
process and restructure the distribution process to ensure sites are
adequately staffed to serve participants in an organized and timely
manner. Through a series of biweekly meetings and conference calls,
DELEG officials provided DWDD officials with technical assistance,
including staff training and best practices from another Michigan
Works! Agency. Based in part on this assistance, DWDD worked with its
program contractor to address our payroll findings by (1) streamlining
the check distribution process, (2) moving to a larger distribution
center, and (3) developing a procedures manual. DELEG and contractor
officials told us that during the last two payroll periods for the
2009 program, the streamlined payroll procedures and change of venue
resulted in shorter waiting times for youth picking up their paychecks
and faster resolution of complaints and they expect further
improvements in payroll procedures going forward.
Actions Are Under Way to Improve Safeguards for Documenting
Eligibility Determinations:
Two DWDD-led reviews determined that some files contained improper or
incomplete eligibility certification documentation and that 119
ineligible youth received a total of $40,253 from WIA Recovery Act
funds that should not have been paid. For example, DWDD found that
medical files--which DELEG officials told us was unacceptable for
verification purposes--were used to verify age and eligibility for
some participants. On April 27, 2010, DWDD officials provided us with
evidence that the Detroit WIA Summer Youth program had been reimbursed
for $40,253 for improper payments made to youth in Detroit using
Recovery Act funds.[Footnote 21]
DWDD officials told us that because complete documentation and
evidence of eligibility verifications were missing from some files,
they had conducted an assessment of their eligibility determination
and documentation processes. DWDD officials also said they trained 24
contractor staff on required and acceptable alternative documentation.
Our earlier review of participant files had also revealed inadequate
or nonexistent support of the "youth in need of special assistance"
basis for WIA eligibility decisions. In March 2010, the DWDD Director
told us that DWDD officials were collaborating with an advisory body
to develop a working definition of the "youth in need of special
assistance" category that was used during the 2009 program.[Footnote
22] They expect that once the definition is approved by the DWDD
board, it will provide clear instructions on which youth meet this
definition.
Recovery Act Funds Continue to Provide Assistance to the State of
Michigan and Its Local Governments as They Address Ongoing Budget
Challenges:
The State of Michigan continues to face economic difficulties. In
March 2010, the state's unemployment rate was 14.9 percent,[Footnote
23] the highest in the nation and an increase from 13.3 percent in
March 2009. As noted in our previous reports, Michigan took a number
of cost-cutting measures midway through fiscal year 2009 to help
ensure that the state's budget ended the fiscal year in balance. These
measures included mandating furlough days for state employees, closing
three correctional facilities, and implementing a 4 percent across-the-
board cut for most state agencies. The ongoing difficulties are also
reflected in projected revenues for the state's two largest budget
funds--the general fund and the School Aid Fund--which are estimated
to total $17.4 billion[Footnote 24] for the fiscal year ending
September 30, 2011. This would be a 4.6 percent decline from fiscal
year 2009. The Governor's proposed fiscal year 2011 budget states that
expected revenues, along with current spending policies, would create
a $1.497 billion shortfall in fiscal year 2011.
Recovery Act Funds Used to Maintain Balanced Budget:
In fiscal year 2010, Michigan officials expect to use almost $1.1
billion in funds made available as a result of the increased FMAP
under the Recovery Act to support the state's general fund. In
addition, the School Aid Fund is bolstered by $450 million in Recovery
Act SFSF education stabilization funds.[Footnote 25] State officials
said that without these funds, the state would likely have had to make
cuts to school spending and its Medicaid program, and even more
drastic cuts in local government aid than it did for fiscal year 2010.
[Footnote 26] State officials said that through March 2010, fiscal
year 2010's actual revenues have matched projections and that--with
the assistance of Recovery Act funds--the state has not had to
implement employee furloughs or supplemental budget cuts as it did in
fiscal year 2009. State officials said that the State Budget Office
will continue to monitor the state's fiscal situation to determine if
additional action is necessary.
Michigan Is Preparing for the Cliff Effect:
As mentioned above, Michigan is facing a $1.497 billion shortfall in
fiscal year 2011. According to the Governor's proposed fiscal year
2011 budget, over $1 billion of this shortfall is due to a funding gap
that is expected to exist when Recovery Act funds run out. The
Governor has proposed a series of cost reductions and a restructuring
of the state's sales and use taxes[Footnote 27] to help fill the
anticipated gap. The proposed budget also includes $514 million in
increased FMAP payments to the state in the first two quarters of
calendar year 2011 based upon the state's expectation that the
Congress will extend the temporary increase in the FMAP that was
provided under the Recovery Act. State officials told us that if
Congress does not extend this increase, the state's fiscal year 2011
budget would not balance and officials would need to find alternative
sources to address the additional budget shortfall of $514 million.
We also visited the cities of Flint and Lansing (see table 2) to
review their use of Recovery Act funds.
Table 2: Background on Selected Local Governments:
Locality: Flint;
Population: 112,900;
Locality type: City;
Unemployment rate: 27.0%;
Fiscal year 2010 operating budget: $279.4 million.
Locality: Lansing;
Population: 113,968;
Locality type: City;
Unemployment rate: 16.3%;
Fiscal year 2010 operating budget: $219.1 million.
Source: GAO analysis of U.S. Census Bureau and U.S. Department of
Labor, Bureau of Labor Statistics, Local Area Unemployment Statistics.
Operating budget information provided by local budget officials.
Notes: City population data are from the latest available estimate,
July 1, 2008. Unemployment rates are preliminary estimates for March
2010 and have not been seasonally adjusted. Rates are a percentage of
the labor force. Estimates are subject to revisions.
[End of table]
City of Flint:
Flint was awarded $12.2 million in Recovery Act funds through April
30, 2010, an increase of $7.7 million from the $4.5 million we
reported in December 2009.[Footnote 28] City officials told us that
this increase was due to two Recovery Act grants:
* an Energy Efficiency and Conservation Block Grant (EECBG) of about
$1 million, which they plan to use for increasing energy efficiency as
they rehabilitate houses and construct group housing, and:
* a Staffing for Adequate Fire and Emergency Response Grant of $6.7
million awarded by the U.S. Department of Homeland Security, which
they expect to use to rehire 39 firefighters that had been previously
laid off.
Flint officials noted that similar to what we reported in December
2009, Recovery Act funds continue to have little effect on the city's
fiscal stability because of continuing economic pressures. Officials
told us that while Recovery Act funding has provided the city with
temporary relief, the city is still losing more jobs than are created
or retained with the use of Recovery Act funds. Flint officials told
us that the city has recently experienced declines in its primary
sources of revenue--income taxes and state revenue sharing. To help
balance its budget, the city is decreasing the number of municipal
employees and reducing government services, such as garbage
collection. Flint officials told us that a Recovery Act funded COPS
Hiring Recovery Program (CHRP) grant helped the police department
prevent further reductions in staffing by hiring eight police
officers, but that city has not determined how it will pay these
officers' salaries when the grant runs out.
Flint's most recent Single Audit report--dated December 18, 2009, for
the fiscal year ended June 30, 2009--included a report on internal
controls. One control weakness reported was the absence of
documentation confirming that contractors being paid through the
city's Community Development Block Grant (CDBG) program had not been
debarred. The city has received Recovery Act funds through the CDBG
program, but after the time period covered by the Single Audit report.
To correct this weakness, city officials told us that before expending
any Recovery Act funds they had begun to include confirmation
documentation in their contract records.
City of Lansing:
As of April 30, 2010, Lansing was awarded approximately $26.5 million
in Recovery Act funds through a number of different programs--
including an $867,768 CHRP award, which will be used to add or retain
four police officers for a three year period, and approximately $5
million through a Neighborhood Stabilization Program award which will
be used to acquire, manage, rehabilitate, or demolish 323 foreclosed
homes. Lansing officials also described instances in which they worked
with other entities to maximize the effectiveness of Recovery Act
grants. For example, they told us that the city is currently
collaborating with the state on a solar demonstration project using
EECBG funds received separately by the city and state.
City officials said that Lansing's economic situation would have been
much worse without Recovery Act funds. Officials told us that they are
allocating most of the Recovery Act funds that Lansing receives to
nonrecurring projects that will not need continued funding once the
Recovery Act funds run out. For example, city officials told us that
Lansing is using its CDBG grant to fund improvements to walkways at
the Boys and Girls Club and install light-emitting diode traffic
lights.
Although city officials primarily relied upon preexisting internal
controls and oversight practices, they told us that they modified
their controls as a result of control weaknesses reported in the most
recent Single Audit report. The audit--dated December 17, 2009, for
the fiscal year ended June 30, 2009--included internal control
findings. In response to the audit, officials said that among other
things, Lansing is now performing closer monitoring of subrecipients
by instructing all monitoring staff to ensure that single audit
findings of subrecipients are followed up on.
Recipients Varied in Compliance with OMB's Guidance on Reporting Jobs:
The Recovery Act requires each recipient of Recovery Act funds to
report information quarterly to the federal government on each award,
including (1) the total amount of Recovery Act funds received, (2) the
amount of funds expended or obligated to projects or activities, and
(3) the estimated number of jobs created and retained by the projects
and activities.[Footnote 29] For this report, we met with state and
local officials to discuss processes and procedures selected
recipients have in place to implement the Office of Management and
Budget's (OMB) guidance on full-time equivalent (FTE) calculations.
[Footnote 30] We also reviewed steps recipients took to assess the
quality of the data they used in their most recent recipient reports,
which covered the period January 1 through March 31, 2010. We reviewed
supporting documents and held discussions with state officials from
the Economic Recovery Office (ERO), Michigan Department of Education
(MDE), and Michigan Department of Energy Labor and Economic Growth
(DELEG), as well as officials from Detroit Public Schools (DPS),
Michigan State University, Detroit Workforce Development Department
(DWDD), and the Detroit Housing Commission. In Michigan, state
agencies--such as MDE and DELEG--report to the ERO through a
centralized reporting process, while entities that receive Recovery
Act funds directly from the federal government--including the Detroit
Housing Commission--report on an individual basis to the federal
government and do not participate in the state's centralized process.
Improvement May Be Needed to Meet Recovery Act Reporting Requirements:
We found that preparers of recipient reports that we reviewed
generally followed the OMB guidance; however, their interpretations of
guidance and their processes varied and did not consistently ensure
that complete and accurate information was reported to the federal
government. OMB's guidance states that recipients are to include jobs
created and retained from subrecipients and vendors in their quarterly
reports to the maximum extent practicable. Consistent with OMB's
guidance, Detroit Housing Commission officials told us that their
recipient report FTE calculation did include hours worked by
contractors and subcontractors.[Footnote 31] However, we found that
DELEG and DWDD (which is one of 25 Michigan Works! Agencies that
reports to DELEG) did not report consistent with OMB guidance. DWDD
officials told us that the FTE information they provided to DELEG
included the number of youth employed in the summer youth employment
program, but did not include hours worked by their contractor or
subcontractor personnel.[Footnote 32] DELEG officials told us that
they did not require their Michigan Works! Agencies to include hours
worked by their contractors or subcontractors. Similarly, DPS
officials told us that their initial report to MDE did not include
hours worked by their Recovery Act-funded contractors because they
were not aware of the requirement. When we brought this to the
attention of DPS officials in April 2010, they told us they would
discuss the matter with MDE. MDE officials later told us DPS submitted
an amended report to include contractor and subcontractor jobs.
Without processes in place to obtain information from the contractors
for hours worked, DELEG's reporting of jobs created or retained may be
misstated. DELEG should pursue with appropriate ERO and federal
officials what information they may be responsible for obtaining from
contractors, and provide appropriate direction to their subrecipients--
including the 25 Michigan Works! Agencies--as appropriate. In May
2010, ERO officials told us that they will work with DELEG to address
this issue.
We also found one instance where jobs created by Recovery Act funds
were not initially reported because, according to DPS officials, the
school system concluded that it had not been reimbursed with Recovery
Act funds by March 31, 2010.[Footnote 33] DPS officials told us that
they reported jobs for their ESEA and IDEA grants, but not for their
SFSF grant because they had not received reimbursement during the
quarter ended March 31, 2010. DPS subsequently received reimbursement
from the state. When we brought this to the attention of DPS officials
in April 2010, they discussed the matter with MDE and subsequently
submitted an amended report to include 430 jobs.
Similarly, another recipient we spoke with told us that they needed
further guidance from state or federal officials regarding salaries
that had been paid from operating funds but will be retroactively
funded by SFSF education stabilization funds. Michigan State
University officials told us that the Michigan Department of
Management and Budget awarded them $35.7 million in SFSF education
stabilization funds in February 2010. Officials also said that through
March 31, 2010, they had spent approximately $2.5 million of their
award on scholarships and had reported zero jobs in the March 31,
2010, recipient report. Approximately $30.1 million of these funds
will be used to fund university salaries and related benefits
retroactive to October 1, 2009.[Footnote 34] The university plans to
offset budget cuts by transferring employee salaries and benefits paid
from operating funds to SFSF education stabilization funds, and is
currently working to identify these expenses. However, officials told
us that they will seek guidance from Michigan's Department of
Management and Budget about how to report the jobs created or retained
by Recovery Act funds and paid for in previous quarters. Because OMB's
December 18, 2009, guidance states that a funded job is one in which
the wages or salaries are either paid for or will be reimbursed with
Recovery Act funding, these jobs should be reported as jobs created or
retained with Recovery Act funds. Michigan officials with the ERO, the
Michigan Department of Management and Budget and MDE should consider
what actions might be taken to ensure that jobs that are paid for by
Recovery Act SFSF education stabilization funds are being reported
consistently and timely. In May 2010, ERO officials told us that they
will work with stakeholders to address this issue.
Data Quality Review Processes Varied among Recipients:
We found that recipients conducted various levels of data quality
reviews. For example, MDE officials told us that their subrecipients--
including DPS--provide them with FTE and vendor payment information on
each Recovery Act grant they received using an electronic system with
a built-in error-checking mechanism. Officials provided us with a copy
of their written review procedures, which include steps for program
offices to review subrecipient reports for missing information, verify
that the number of FTEs is consistent with the award amount and is
reported for the quarter only, and contact subrecipients in instances
where the program offices have concerns. MDE sent its completed
recipient report to the ERO, where it was again reviewed before it was
submitted to the federal government. On the other hand, the Detroit
Housing Commission, which reports directly to the federal government,
told us that it collected and aggregated FTE information from each of
its contractors and submitted the completed recipient report.[Footnote
35] Although the housing commission does not require contractors to
provide documentation supporting their FTE information, officials told
us that they review the information that contractors do provide for
reasonableness.
State and Local Officials Have a Variety of Recovery Act Program
Audits Under Way, but Believe Additional Federal Guidance Is Needed:
Michigan's Office of the Auditor General (OAG) and the Office of
Internal Audit Services (OIAS) serve key roles in safeguarding
Recovery Act-funded programs in Michigan. OAG is responsible for
conducting financial, performance, and Single Audits[Footnote 36]--
under the Single Audit Act--of Michigan's state agencies. In April
2010, OAG officials told us that they are including Recovery Act funds
as part of their audit work and that the Single Audit reports covering
the 2-year period ended September 30, 2009, are planned for issuance
by June 30, 2010. They told us that the scope of work covered in each
state agency's single audit differs because it is based on the results
of risk assessments, but typically includes, as applicable, compliance
work in areas such as Davis-Bacon Act provisions, state cost matching
or maintenance-of-effort requirements, allowable costs, recipient
reporting, and subrecipient monitoring.[Footnote 37]
OAG officials told us that one challenge in their Single Audit process
for state agencies is the absence of Office of Management and Budget's
(OMB) guidance on audit requirements for the mandated quarterly
recipient reports of Recovery Act spending and jobs created and
retained. OAG officials told us that they were uncertain about the
usefulness of auditing the September 30, 2009, recipient reports,
since OMB's December guidance changed the jobs calculation methodology
from calculating jobs on a cumulative basis to a quarterly basis. As a
consequence, OAG officials stated that for their single-audit work on
recipient reporting they will obtain an understanding of the internal
control structure established and make an assessment of the process
based on that understanding, but likely will not audit the
effectiveness of the controls. Because Michigan is one of the few
states with a September 30 fiscal year-end--the same date as the first
required recipient reports--this challenge is unusual compared to
states with a June 30 fiscal year-end because at the close of these
audits state officials had not yet completed any recipient reports.
[Footnote 38]
Another challenge OAG officials discussed with us is the lack of
federal guidance related to the "Buy American" provision of the
Recovery Act.[Footnote 39] OAG officials said that it would be helpful
for OMB to clarify the criteria that the audit community should use
for assessing compliance with the Buy American provision. Similar to
the recipient report issue discussed above, OAG officials are
concerned that additional guidance from federal agencies is needed to
help ensure that the Single Audits provide sufficient information for
the report users and that OAG investments of scarce audit resources
are targeted on areas that are at higher risk.[Footnote 40]
In April 2009, Michigan established the ERO to, among other things,
provide oversight and enhance transparency over the availability and
uses of funds, and maintain a Web Site on Michigan's Recovery and
Reinvestment Plan (www.michigan.gov/recovery). The ERO is the central
state office that collects, reviews, and transmits state agencies'
quarterly recipient reports to the federal government through
federalreporting.gov. According to ERO officials, state agencies are
responsible for the data in their recipient reports and ERO staff
review the reports for inconsistencies and reasonableness.
OIAS is the central internal audit group for Michigan with
responsibility for internal audit and related services--such as
reviews and technical assistance--to assist executive branch
departments and state agencies in assessing risk and implementing,
maintaining, and monitoring internal controls. In January 2010, OIAS
officials told us that when Congress enacted the Recovery Act in
February 2009, they began designing an approach for monitoring
Recovery Act funds. Officials told us that the office assigned two of
its 45 internal audit staff to work full-time on programs funded by
the Recovery Act, and plans to increase staffing as necessary. In
addition, OIAS officials told us that they selected eight programs for
detailed review based on an assessment of the control risks posed by
the programs, and that they planned to conduct further reviews of the
selected programs as spending occurred.[Footnote 41] OIAS officials
told us that they would include steps as appropriate into their audit
work plans for issues that GAO's Recovery Act work identifies, such as
the internal control challenges we reported in September 2009 for MDE,
DPS, DELEG and the Detroit Workforce Investment Act (WIA) program.
[Footnote 42]
Along with OIAS and OAG efforts to monitor Michigan's state agencies
through audits, reviews, and technical assistance, state agencies are
responsible for monitoring their subrecipients. For example, MDE is
responsible for monitoring its local educational agencies. An OIAS
official told us that they observed MDE staff monitoring the local
educational agencies in April 2010. They also told us that they plan
to observe how the Michigan Department of Human Services--the state
agency that oversees the Weatherization Assistance Program--completes
on-site reviews of the local agencies that administer the program to
determine if any changes to the Department of Human Services' review
procedures are necessary.
The localities whose officials we spoke with typically conduct
Recovery Act oversight through the Single Audit process. For example,
the Detroit Housing Commission's audit for the year ended June 30,
2009, included Recovery Act funds HUD awarded to the commission.
However, the in-process audit of the Lansing Housing Commission and
the City of Flint's completed audit for the year ended June 30, 2009,
did not address Recovery Act funds because the audit period predated
their Recovery Act spending. Officials in the Detroit Office of
Auditor General told us that their office's Recovery Act initiatives
included an internal control risk assessment and review of the control
structure and the preparedness of three city departments that were
allocated Recovery Act funds: Detroit's Department of Human Services,
the Detroit Workforce Development Department,[Footnote 43] and the
Detroit Police Department. In October 2009, the Detroit Office of
Auditor General recommended to the Detroit City Council that the city
strengthen its overall reporting process to comply with the
accountability and transparency requirements of the Recovery Act. The
auditor's report noted that conditions related to weaknesses in
reporting, bank reconciliations and other internal controls cited in
the City's single audits increased the financial control risks of
Recovery Act funds. In April 2010, officials from the Office of
Auditor General told us that as the city's spending of Recovery Act
funding increases, they plan to follow up on their preliminary work
and anticipate that they may issue an updated assessment to city
departments and the City Council after completion of follow-up work.
State and Locality Comments on This Summary:
We provided the Governor of Michigan with a draft of this appendix and
staff in the ERO reviewed the draft and responded on May 6, 2010. We
also provided relevant excerpts to officials from the localities we
visited. Officials agreed with our draft and provided technical
suggestions that were incorporated, as appropriate.
GAO Contact:
Susan Ragland, (202) 512-8486 or raglands@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Robert Owens, Assistant
Director; Ranya Elias, analyst-in-charge; Kevin Finnerty; Patrick
Frey; Henry Malone; Giao N. Nguyen; Laura Pacheco; and Amy Sweet made
major contributions to this report.
[End of section]
Footnotes:
[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009).
[2] Except in limited circumstances, WIA requires the use of
individual training accounts (ITAs) through which WIA participants
purchase services from training providers.
[3] The remaining nine PHAs did not receive PHCF grants because they
only administer the U.S. Department of Housing and Urban Development's
Section 8 rental assistance program and do not manage any housing
developments themselves.
[4] In contrast to Recovery Act deadlines, PHAs must generally
obligate 100 percent of regular PHCF grant funds within two years.
[5] These funds are in addition to fiscal year 2010 regular PHCF
grants.
[6] Recovery Act PHCF grants awarded to selected PHAs are as follows:
Detroit, $17,275,908; Lansing, $1,997,093; Mount Clemens, $582,013;
and Port Huron, $946,655.
[7] Recovery Act, div. A, § 1605, 123 Stat. 303.
[8] The fourth PHA, Lansing, received an extension from HUD to submit
its audit for the fiscal year ending June 30, 2009, and told us on
April 23, 2010, that the auditor expects to issue a report soon.
[9] HUD identifies "troubled" PHAs through its Public Housing
Assessment System, which evaluates the overall condition of housing
agencies and measures performance in major operational areas of the
public housing program. In Michigan, these PHAs are the Algonac,
Benton Harbor, Detroit, Ecorse, Flint, Grayling, Highland Park, Iron
County, Jackson, Luna Pier, Pontiac, Rapid River, River Rouge, Royal
Oak Township, and Wakefield Housing Commissions.
[10] States must maintain state support for K-12 education and
institutions of higher education at least at fiscal year 2006 levels
in fiscal years 2009, 2010, and 2011. States must first use education
stabilization funds to restore state funding to the greater of fiscal
year 2008 or 2009 levels for state support to K-12 school districts
and institutions of higher education in fiscal years 2009 through 2011.
[11] For more discussion of single audits, see the full report at
[hyperlink, http://www.gao.gov/recovery].
[12] DPS reported a deficit of $139 million for its fiscal year ended
June 30, 2008; and $219 million for fiscal year ended June 30, 2009.
[13] According to Labor officials, the total amount of Michigan's
drawdowns is a minimal estimate because of programming issues with
Labor's new computer system. Labor is taking steps to correct the
problem and officials told us on April 21, 2010 that they expect the
issue to be resolved within the next 30 days. Labor officials said
that actual drawdown amounts will be publicly available at that time.
[14] GAO has previously found that as states and localities have
implemented WIA, they have been hampered by funding issues, including
statutory funding formulas that are flawed. As a result, states'
funding levels may not always be consistent with the actual demand for
services. For more information, see [hyperlink,
http://www.gao.gov/products/GAO-03-636] and GAO, Workforce Investment
Act Potential Effects of Alternative Formulas on State Allocations,
[hyperlink, http://www.gao.gov/products/GAO-03-1043], (Washington,
D.C.: August 28, 2003).
[15] One-Stop customers in Michigan may be served through a variety of
programs, including WIA Adult and Dislocated Worker Programs, and the
Wagner-Peyser Employment Service Program, among others.
[16] GAO conducted a nationwide Web-based survey of state workforce
agencies regarding their use of Recovery Act funds for dislocated
workers. However, GAO did not review the data used to provide these
estimates.
[17] In Grand Rapids we visited the Area Community Services Employment
and Training Council, the Workforce Development Board representing
Kent and Allegan Counties.
[18] To facilitate increased training for high-demand occupations, the
Recovery Act expanded the methods for providing training with Recovery
Act funds, allowing states to directly enter into contracts with
institutions of higher education or other training providers.
[19] The Recovery Act appropriated $5 billion over a 3-year period for
the Weatherization Assistance Program, which the U.S. Department of
Energy (DOE) administers through each of the states, the District of
Columbia, and seven territories and Indian tribes. The program enables
low-income families to reduce their utility bills by making long-term
energy efficiency improvements to their homes.
[20] GAO, Recovery Act: Funds Continue to Provide Fiscal Relief to
States and Localities, While Accountability and Reporting Challenges
Need to Be Fully Addressed (Appendixes), [hyperlink,
http://www.gao.gov/products/GAO-09-1017SP] (Washington, D.C.:
September 2009).
[21] Program officials told us that their work had identified $40,253
of improper payments made with Recovery Act funds. Our work did not
extend to testing the methodology used or the support for the amount
management identified. The $40,253 represents unaudited information.
[22] DWDD was consulting with the Education & Youth Advisory Council,
an advisory body to the Detroit Workforce Development Board charged
with developing policy to operate youth services.
[23] GAO analysis of U.S. Department of Labor, Bureau of Labor
Statistics (BLS) data. Unemployment rates are preliminary estimates
for March 2010 and have not been seasonally adjusted. Rates are a
percentage of the labor force. Estimates are subject to revisions.
[24] According to state budget officials, general fund revenues in
fiscal year 2011 are expected to be $6.96 billion, and revenues for
the School Aid Fund are expected to be $10.48 billion.
[25] According to state budget officials, general fund spending in
fiscal year 2010 is expected to be $8.1 billion; School Aid Fund
spending in fiscal year 2010 is expected to be $12.8 billion.
[26] According to officials, Michigan cut revenue sharing with local
governments from $1.03 billion in fiscal year 2009 to an estimated
$917 million in fiscal year 2010.
[27] According to a March 2010 Michigan Senate Fiscal Agency memo on
the Governor's proposed tax changes, this proposed restructuring would
lower the sales and use tax rate from 6 percent to 5.5 percent while
expanding the sales and use tax to consumer services such as repair
and maintenance services; cable and satellite television; and live
entertainment. The Governor's proposed budget excludes certain items
from this tax, such as health care and social assistance, education,
and new construction.
[28] See [hyperlink, http://www.gao.gov/products/GAO-10-232SP] for our
discussion of Flint's previous Recovery Act grant awards.
[29] Recovery Act, div. A, title XV, § 1512(c).
[30] OMB Memorandum, M-10-08, Updated Guidance on the American
Recovery and Reinvestment Act - Data Quality, Non-Reporting
Recipients, and Reporting of Job Estimates (Dec. 18, 2009), among
other things, standardized the period of measurement of jobs created
or retained as one quarter.
[31] OMB Memorandum, M-10-08, December 18, 2009, states that, "To the
maximum extent practicable, information should be collected from all
sub-recipients and vendors in order to generate the most comprehensive
and complete job impact numbers available."
[32] Of the $11.4 million of Recovery Act funding allocated to Detroit
Michigan Works! Agency, DWDD retained $8.3 million for youth payroll
and internal administration and used $3.1 million to contract with a
vendor that administered the summer youth employment program. In
total, DELEG allocated $62.9 million to the 25 Michigan Works!
Agencies for the WIA summer youth program.
[33] On October 21, 2009, MDE initially made approximately $12.1
million in SFSF funds available to DPS. On March 12, 2010, MDE made an
additional $14.7 million in SFSF funds available to DPS.
[34] Officials told us that they plan to use approximately $5.2
million of the award to reinstate Michigan Promise scholarships, about
$400,000 on economic hardship scholarships, and the balance on making
up for budget cuts that had affected the Michigan Agricultural
Experiment Station and the Michigan State University Extension Service.
[35] Detroit Housing Commission officials told us that contractors
also provide FTE information from their subcontractors.
[36] Single Audits are prepared to meet the requirements of the Single
Audit Act, as amended, and provide a source of information on internal
control and compliance findings and the underlying causes and risks.
The Single Audit Act requires states, local governments, and nonprofit
organizations expending $500,000 or more in federal awards in a year
to obtain an audit in accordance with the requirements set forth in
the act. A Single Audit consists of (1) an audit and opinions on the
fair presentation of the financial statements and the Schedule of
Expenditures of Federal Awards; (2) gaining an understanding of and
testing internal control over financial reporting and the entity's
compliance with laws, regulations, and contract or grant provisions
that have a direct and material effect on certain federal programs
(i.e., the program requirements); and (3) an audit and an opinion on
compliance with applicable program requirements for certain federal
programs.
[37] The Davis-Bacon Act is codified at 40 U.S.C. §§ 3141-3144, 3146-
3148. The Recovery Act's Davis-Bacon provisions are located at section
1606 of the act. Recovery Act, div. A, § 1606, 123 Stat. 303.
[38] The first recipient reports covered the period through September
30, 2009, and were due on October 10, 2009.
[39] Section 1605 of the Recovery Act imposes a Buy American
requirement on Recovery Act funding, subject to certain exceptions.
Recovery Act, div. A, § 1605, 123 Stat. 303.
[40] For more discussion of Single Audits, see the full report at
[hyperlink, http://www.gao.gov/recovery].
[41] The eight programs selected for review are the: (1) State Energy
Program, (2) Byrne Memorial Justice Assistance Grant, (3) Grants to
Local Educational Agencies, (4) Individuals with Disabilities
Education Act - Special Education Grants, (5) School Improvement
Grants, (6) Workforce Investment Act of 1998, (7) Clean Water/Drinking
Water Revolving Funds, and (8) Weatherization Assistance Program.
[42] In September 2009 we reported that the Department of Energy,
Labor and Economic Growth should work with the Detroit WIA program to
implement internal controls to address weaknesses with the program's
payroll preparation and distribution process as well as program
eligibility determinations. We also noted that the Michigan Department
of Education, in coordination with Detroit Public Schools, will need
to consider implementing procedures to provide reasonable assurance
that Recovery Act funds are reported accurately and timely and used
only for allowable purposes. [hyperlink,
http://www.gao.gov/products/GAO-09-1017SP].
[43] Our Recovery Act work includes the Workforce Investment Act of
1998 summer youth employment program. Michigan's Department of Energy,
Labor and Economic Growth is the state agency that administers the
program and does so in Detroit through the Detroit Workforce
Development Department, one of 25 Michigan Works! Agencies. Please see
our report, [hyperlink, http://www.gao.gov/products/GAO-09-1017SP]
beginning at page MI-28 for a more detailed discussion of the control
challenges that we identified.
[End of Appendix X]
Appendix XI: Mississippi:
Overview:
This appendix summarizes GAO's work on the sixth of its bimonthly
reviews of the American Recovery and Reinvestment Act (Recovery Act)
spending in Mississippi.[Footnote 1] The full report on all of our
work, which covers 16 states and the District of Columbia, is
available [hyperlink, at http://www.gao.gov/recovery].
What We Did:
We reviewed two programs funded under the Recovery Act--the
Weatherization Assistance Program and the Mississippi Clean Water and
Drinking Water State Revolving Funds (SRF). We selected these programs
because the Recovery Act significantly increased the programs'
funding. Our work focused on the status of program funding, the
programs' use of funds, and other issues. As part of our review of the
Weatherization Assistance Program, we visited community action
agencies located in Columbia, D'Lo, McComb, and Meridian. We also
visited the Mississippi Department of Environmental Quality (MDEQ) and
the Mississippi Department of Health (MSDH), which administer loans
for clean and drinking water projects that are funded through the
Recovery Act. For description and requirements of the programs we
covered, see appendix XVIII of GAO-10-605SP.
Our work in Mississippi also included meeting with officials of two
Mississippi cities to determine the amount of Recovery Act funds each
has or will receive directly from federal agencies and to learn how
those funds are being used. We also wanted to determine the amount of
Recovery Act funds that flow indirectly into these communities from
state and federal agencies and the funds' impact on the communities.
We chose to visit the cities of Hattiesburg and Greenwood. We selected
Hattiesburg because its unemployment rate was below the state's
average and it is one of the largest cities in Mississippi. We
selected Greenwood because of its small population and because its
unemployment rate is higher than the state's average.
What We Found:
* Weatherization Assistance Program. The U. S. Department of Energy
(DOE) allocated $49.4 million in Recovery Act weatherization funding
to Mississippi. Based on information available as of March 31, 2010,
more than 2,400 homes have been weatherized statewide and $8 million
has been expended. To ensure that funds are expended appropriately and
efficiently, the Department of Community Services (DCS) monitors the
programmatic and fiscal operations of its subgrantees, which execute
the program. DCS cancelled its subgrant with one community action
agency because of improper weatherization of homes and mismanagement
of the program. We reviewed the amounts paid to contractors for labor
for home weatherization and brought them to the attention of DCS, who
determined that the amounts exceeded DCS' established guidance. DCS
subsequently required the community action agency to reimburse DCS
more than $38,000 paid to contractors for excess labor charges.
* Clean Water and Drinking Water revolving funds. Two Mississippi
agencies--MDEQ and MSDH--received $35,665,000 and $19,500,000
respectively, in Recovery Act funding for their Clean Water and
Drinking Water SRF programs. Overall, bids on projects were lower than
state estimates, freeing up Recovery Act funding for other projects.
According to the Directors of the Clean Water and Drinking Water
programs, the Environmental Protection Agency (EPA) has been slow to
distribute guidance and states are left to decide how to monitor the
implementation of Recovery Act requirements.
* Localities' use of Recovery Act funds. Both Hattiesburg and
Greenwood received Recovery Act funds directly from federal agencies.
Hattiesburg received a total of $1,829,233 and Greenwood received a
total of $462,042. In addition, other entities within the cities of
Hattiesburg and Greenwood received Recovery Act funds that did not
directly affect the two cities' budgets, but did benefit the cities.
According to city officials, Recovery Act funds helped Hattiesburg and
Greenwood, but did not prevent budget reductions or meet all of the
cities' critical needs.
* State fiscal condition. Mississippi continues to experience
significant fiscal challenges. Tax revenue collections for July 2009
through April 2010, the first 10 months of fiscal year 2010, totaled
$300.4 million, or 7.7 percent below expectations. Based on the
current revenue forecast, the expected shortfall for the fiscal year
is projected to be $499.1 million.
* Accountability. To ensure accountability and oversight over federal
funds received by Mississippi, the Office of the State Auditor (OSA)
conducts an annual Single Audit that reports on internal controls over
financial reporting and compliance with pertinent laws and
regulations.[Footnote 2] In addition, to provide increased oversight
and accountability of Recovery Act funds, OSA has contracted with a
national accounting firm, BKD, to assist with monitoring and
oversight. BKD plans to monitor entities such as local governments,
not-for-profit organizations, community health centers, and school
districts. The Mississippi Department of Finance and Administration
(DFA) is monitoring state agencies receiving Recovery Act funds. To do
so, it has contracted with the accounting firm KPMG LLP to assess all
state agencies for their compliance with Recovery Act provisions.
Mississippi Progresses in Weatherizing Homes and Curtails Abuse:
DOE allocated $49.4 million in Recovery Act funding to Mississippi for
its Weatherization Assistance Program, which the Department has
indicated is to be spent by March 31, 2012. This represents a large
increase over prior years when DOE's allocation to Mississippi
typically ranged from $1.5 million to $2 million. This large influx of
Recovery Act funding has significantly increased the oversight
responsibilities of DCS, the office within the Mississippi Department
of Human Services (MDHS) that administers the Weatherization
Assistance Program. DCS provides subgrants to community action
agencies to weatherize homes and oversees these agencies' activities
to ensure that homes are weatherized efficiently and economically and
that contractors being used by the agencies perform quality work.
Of the total $49.4 million in Recovery Act weatherization funds that
DCS is to receive, $35.5 million has been allocated to 10 community
action agencies statewide to purchase materials and contract for
weatherization services.[Footnote 3] DCS expects to use the remaining
$13.9 million, or 28 percent, for administrative costs, technical and
training assistance, and audit fees for community action agencies'
year-end audits by private accounting firms. According to information
provided by DCS, of the $13.9 million, the department will expend
approximately $8.6 million for training and technical assistance; $4.9
million, shared equally by DCS and the community action agencies, for
administrative costs; and $255,000 for the audits performed by the
accounting firms.
The Recovery Act has allowed states to increase the average amount of
funds that may be used to weatherize a home. Formerly, DOE allowed an
average of $3,055 per home, but the Recovery Act increased this to a
maximum average of $6,500. DCS has directed community action agencies
to allocate no more than $4,500 of that amount for material and labor.
The Director of DCS told us that he has also directed that labor cost
should not be more than 125 percent of material costs. This action was
taken after our work found that one community action agency's labor
costs were 200 to 400 percent of material costs. DOE allows the
remainder of the $6,500 per home, or $2,000, to be spent on overhead
costs, such as program staff salaries, travel, supplies, rent, and
utilities.[Footnote 4]
DCS initially determined that it could weatherize a total of 5,468
homes with Recovery Act funds ($35.5 million allocated to community
action agencies divided by $6,500). An agency official told us that
the 5,468 homes is a minimum goal and is based on projected costs per
home. Further, the official told us that should weatherization cost
per home be less than $6,500 additional homes will be weatherized.
DCS officials stated that they have divided the Recovery Act
Weatherization Assistance Program into two segments. As shown in table
1, the first segment, which stretched from April 2009 through March
2010, called for the weatherization of 2,408 homes. The remaining
3,060 homes are to be weatherized during the second segment which runs
from April 2010 through September 2011. DCS officials stated that the
schedule for the second segment will reflect any additional homes that
can be weatherized if the average cost per home remains less than the
estimated $6,500 ($4,500 projected for labor and materials, plus
$2,000 for overhead).
Table 1: Homes Weatherized, by Community Action Agency:
Community action agency: Bolivar County;
Homes scheduled for weatherization: 117;
Actual number of homes weatherized: 145;
Variance: 28;
Average cost of homes weatherized[A]: $2,120.
Community action agency: Central Mississippi, Inc.;
Homes scheduled for weatherization: 136;
Actual number of homes weatherized: 204;
Variance: 68;
Average cost of homes weatherized[A]: $3,722.
Community action agency: Lift, Inc.;
Homes scheduled for weatherization: 167;
Actual number of homes weatherized: 196;
Variance: 29;
Average cost of homes weatherized[A]: $2,492.
Community action agency: Multi-County;
Homes scheduled for weatherization: 248;
Actual number of homes weatherized: 248;
Variance: 0;
Average cost of homes weatherized[A]: $3,131.
Community action agency: Northeast;
Homes scheduled for weatherization: 88;
Actual number of homes weatherized: 127;
Variance: 39;
Average cost of homes weatherized[A]: $3,568.
Community action agency: Pearl River Valley Opportunity;
Homes scheduled for weatherization: 429;
Actual number of homes weatherized: 404;
Variance: (25);
Average cost of homes weatherized[A]: $3,001.
Community action agency: Prairie Opportunity;
Homes scheduled for weatherization: 230;
Actual number of homes weatherized: 254;
Variance: 24;
Average cost of homes weatherized[A]: $3,788.
Community action agency: South Central;
Homes scheduled for weatherization: 337;
Actual number of homes weatherized: 392;
Variance: 55;
Average cost of homes weatherized[A]: $3,393.
Community action agency: Southwest Mississippi;
Homes scheduled for weatherization: 236;
Actual number of homes weatherized: 48;
Variance: (188);
Average cost of homes weatherized[A]: $3,016.
Community action agency: Warren Washington Issaquena Sharkey;
Homes scheduled for weatherization: 420;
Actual number of homes weatherized: 442;
Variance: 22;
Average cost of homes weatherized[A]: $3,769.
Community action agency: Total;
Homes scheduled for weatherization: 2,408;
Actual number of homes weatherized: 2,460;
Variance: 52;
Average cost of homes weatherized[A]: $3,278.
Source: Mississippi Department of Human Services/Division of Community
Services.
Note: All data through March 31, 2010:
[A] Average cost includes labor and materials.
[End of table]
As of March 31, 2010, the community action agencies had weatherized a
total of 2,460 homes, or 45 percent of the 5,468 scheduled to be
weatherized. Although the total number of homes weatherized is ahead
of schedule, one community action agency--Southwest Mississippi
Opportunity (SMO)--was 188 homes behind schedule because of poor
performance. As discussed later in this appendix, DCS officials stated
that they directed SMO to halt new weatherization activities and
subsequently terminated SMO's weatherization subgrant. According to
the DCS Director, SMO's backlog of homes will be redistributed between
South Central and Warren Washington Issaquena Sharkey community action
agencies.
Oversight of Weatherization Assistance Program Exceeds DOE
Requirements:
DOE requires that at least 5 percent of all homes weatherized each
year be inspected by the state, but DCS monitors 22.5 percent of all
weatherized homes. DCS regional weatherization coordinators are
required to monitor 20 percent of all completed homes. DCS state-level
personnel re-inspect 10 percent of the homes inspected by regional
personnel, and an additional 2.5 percent of homes that have not been
inspected. During the second segment of their work, DCS officials told
us that they have set a new goal of inspecting 40 percent of all
weatherized homes. To carry out its monitoring activities, DCS has
four site coordinators and six regional coordinators performing home
inspections and it plans to hire an additional six regional
coordinators.
The Division of Program Integrity (DPI), within MDHS, also has
oversight responsibilities. DPI is required to examine the fiscal and
programmatic records of the community action agencies and DPI
officials stated that their division is to inspect 10 percent of the
total number of homes weatherized. Currently, DPI has a staff of two
to inspect homes and plans to hire one additional staff member.
Oversight by Division of Community Services Identified Program
Weaknesses:
According to DCS and community action agency officials, DCS personnel
monitor the community action agencies' weatherization activities on a
regular basis. As of March 31, 2010, the community action agencies had
weatherized 2,460 homes using Recovery Act funds and DCS staff
reported that DCS monitors had inspected 810, or 33 percent of homes
weatherized, exceeding DOE's requirement of 5 percent. DCS staff noted
that problems found during home inspections included improperly
installed smoke and carbon monoxide detectors and incomplete work by
contractors, such as homes that were not properly insulated. The
Director of DCS told us that if a contractor is required to return to
a home to complete improper work, the work must be performed at the
contractor's expense.
As part of the inspection process, DCS monitors also review client
files for accuracy and completeness. Monitors stated that some of the
problems found most often in client files are incomplete labor
invoices and unfinished weatherization checklists. DCS staff explained
that when problems are identified, DCS directs community action agency
officials to correct the problem. We also reviewed client files at
four community action agencies and identified inconsistencies in the
reporting of labor costs. We discussed these findings with DCS and as
a result, DCS has created a uniform labor invoice to be used by all
community action agencies.
Serious Deficiencies at One Community Action Agency Led to Termination
of Weatherization Activities:
During routine monitoring at the SMO community action agency, DCS
found problems that resulted in the termination of the agency's
subgrant. SMO was allocated approximately $3.6 million of Recovery Act
funds to weatherize 507 homes in 10 counties. DCS monitors who
reviewed client files and inspected homes weatherized by SMO
contractors found that client files were incomplete and, according to
DCS officials, work performed on many of the homes was of poor
quality. DCS provided written notification to SMO on multiple
occasions, alerting SMO officials to the problems identified as well
as directing SMO to correct the problems. DCS officials stated that
they also provided additional training to SMO staff in an attempt to
correct problems it saw as pervasive. According to DCS officials, when
SMO did not achieve the results that DCS considered necessary, DCS
terminated SMO's Recovery Act Weatherization Assistance Program.
SMO Given Numerous Opportunities to Correct Deficiencies:
From September 2009 through February 2010, DCS completed numerous
reviews of SMO's operations and home weatherization activities. During
these reviews, DCS found that SMO was not in compliance with DCS
policies and procedures. For example, the work that contractors were
directed to complete did not match the work performed on homes;
documents were missing from client files or were incomplete; an
equipment inventory had not been maintained; and SMO had not provided
adequate oversight and assistance to contractors to ensure that
laborers were paid prevailing wages.[Footnote 5] Site visits to homes
weatherized by SMO contractors also revealed poor quality work.
Insulation in walls did not meet specifications; non-vented heaters
were not removed from homes that had been weatherized; and SMO
inspectors were not testing homes for carbon monoxide.
After each visit, DCS notified SMO's Executive Director of the
deficiencies and directed him to make corrections. To assist SMO
officials, DCS also provided additional training and information for
SMO contractors. In early October, after finding continuing problems
with client records and with completed homes, DCS also notified SMO
that it was not to weatherize additional homes and that it was to
correct the problems found in the homes it had weatherized.
During January and February, we reviewed client files as well as data
provided by SMO and DCS personnel and found several problems, which we
shared with DCS. Our review of labor and material costs showed that in
some cases the cost of labor exceeded material cost by 200 to 400
percent, which greatly exceeded DCS' established guidance at the time.
As a result of these findings, DCS established a state-wide policy
limiting labor costs to 125 percent of material costs. At our request,
the Executive Director of SMO also provided documentation that showed
the community action agency had incurred more than $16,000 in rework
costs to bring 23 of the 40 homes that it had weatherized up to
standard.
Officials told us that SMO's weatherization coordinators did not
respond to DCS training and that SMO's lead weatherization coordinator
stated that the demands of supervising the weatherization program were
overwhelming. The officials attributed SMO's problems to its failure
to hire enough qualified personnel to effectively operate the program,
as well as to poor program management. Officials also stated that
because SMO was unable to correct the deficiencies in its
weatherization program, DCS held a public hearing on March 4, 2010,
that terminated SMO's Recovery Act Weatherization subgrant.
DCS officials stated that SMO will be responsible for reimbursing more
than $38,000 in Recovery Act funding to DCS for excessive labor
expenditures. The Director of DCS also told us that SMO will be
required to repay any additional labor and material costs incurred to
correct poor quality workmanship in completed homes. Finally, the
Director gave SMO 30 days to show that contractors had paid all
laborers the prevailing wage as required by the Recovery Act, or DCS
would report SMO to the Department of Labor.
The Director of DCS told us that SMO's problems have increased the
costs of his division. He told us that the cost of re-inspecting and
reworking the homes SMO weatherized and the cost of providing
oversight and monitoring of SMO will amount to about $50,000. This
includes the cost of bringing in state coordinators and staff from
other community action agencies to review client files and the cost of
training SMO staff and contractors. Costs are expected to increase as
homes are redistributed to other community action areas and additional
staff are hired and trained. The director of DCS stated that Recovery
Act funds set aside for training, technical assistance, and
administrative efforts will pay for the additional cost.
Division of Program Integrity Was Unaware of Program Weaknesses at
Problem Community Action Agency:
The Division of Program Integrity (DPI) is an independent division of
MDHS that monitors all sub-grants from MDHS and assesses the audit
findings for and corrective action plans of MDHS funding divisions.
DPI officials stated that they monitor fiscal and programmatic
records, compare costs with the monthly reporting worksheets, and
conduct both payroll and non-payroll cash disbursement tests. Further,
officials stated that DPI tests equipment purchases to ensure that the
purchases are authorized, are used for the job specified, and have
appropriate invoices. Officials also told us that DPI checks the
fiscal and programmatic internal controls of community action agencies.
DPI's Oversight of Weatherization Program Is Limited:
As of March 31, 2010, DPI officials stated that they had visited 5
community action agencies that are responsible for Recovery Act
weatherization programs and inspected a total of 87 of the 2,460 homes
that have been weatherized throughout the state. In comparison, as of
March 2010, DCS officials reported that they had inspected 810 homes.
As discussed previously, DPI only has 2 staff conducting homes
inspections whereas DCS has a total of 10 staff.
DPI monitors visited SMO in early December 2009 and inspected the
files and homes of 10 clients, as well as SMO's fiscal and program
operations. During its review, DPI did not find any of the problems
that were identified by DCS during the same period. A draft report
prepared by DPI stated that there were no significant adverse findings
noted during its review of SMO.
DPI Unaware of Problems at SMO Due to Lack of Coordination:
DPI conducted its review of SMO during the same period that DCS
personnel were reviewing and monitoring SMO's weatherization
activities. DPI found nothing significant during its review of SMO
even though 3 weeks after DPI's review DCS issued a letter to SMO's
Executive Director that listed numerous problem areas. DPI officials
stated that they were not aware of the ongoing DCS review of SMO. Nor
were DPI officials aware that in October 2009, DCS told SMO that it
was not to weatherize additional homes. DPI officials also told us
that they were unaware that homes weatherized by SMO required
additional work or that there was a backlog of 188 homes waiting to be
weatherized. In addition, DPI's review determined that SMO was in
compliance with all state regulations and policies and the requirement
to pay laborers the prevailing wage for the area. In contrast, in a
December 29, 2009, letter to SMO, DCS stated that its monitors found
that SMO was not in compliance with state procurement regulations and
was not paying laborers the prevailing wage. DPI monitors also
determined that SMO had adequate accounting and administrative
internal controls and that SMO had a system in place that allowed all
required financial reports to be completed correctly and submitted
before reporting deadlines. In contrast, the DCS December 29, 2009,
letter stated that SMO was unable to show DCS a monitoring system that
ensured programmatic and administrative controls were in place, and
that SMO did not meet reporting requirement standards.
In the future, DPI and DCS officials plan to meet once a month to
discuss ongoing reviews and to better coordinate their work. DPI
monitors have also attended weatherization training conducted by DCS.
In addition, DPI plans to hire one additional weatherization monitor
to assist in conducting reviews of community action agencies.
Recovery Act Significantly Increases Funding for Mississippi Clean
Water and Drinking Water Programs:
MDEQ and MSDH administer loans for Clean Water and Drinking Water
projects that are funded through the Recovery Act. MDEQ administers
the Clean Water SRF program, which provides assistance in constructing
publicly owned municipal wastewater treatment plants and implementing
pollution management programs. MSDH is in charge of the Drinking Water
SRF that provides assistance to public water systems in meeting
requirements of the Safe Drinking Water Act.[Footnote 6] MDEQ received
$35,665,000 in Recovery Act funding for the Clean Water program, which
is nearly six times the amount that the department received in fiscal
year 2008. Similarly, MSDH received $19,500,000, about six times as
much as it received in fiscal year 2008, to support the Drinking Water
program.
According to the Directors of the Clean and Drinking Water SRF
programs in Mississippi, the programs operate much like environmental
infrastructure banks that are capitalized with federal and state
contributions.[Footnote 7] The Directors explained that base SRF
programs are normally funded by grants from EPA and by state matching
funds equal to about 20 percent of the federal funds. These funds,
according to the Directors, are loaned to communities and loan
repayments are recycled back into the SRF program to fund additional
water projects and create a continuing source of assistance for
communities, known as subrecipients. Both Directors stated that the
Clean Water and Drinking Water SRF programs distributed all Recovery
Act funds to subrecipients in the form of principal forgiveness,
meaning that communities are not required to repay the portion of
their loan provided with these funds. Communities will repay the
portion of their loan financed with normal state revolving funds at
the programs' normal loan terms.
All Mississippi SRF Projects Met the February 17, 2010 Recovery Act
Deadline:
The Recovery Act required a project receiving Recovery Act funding to
be under contract by February 17, 2010, otherwise EPA would have to
reallocate the funds. According to the Clean Water SRF and Drinking
Water SRF Directors, all projects receiving Recovery Act funds met the
February 17, 2010, deadline. The Clean Water SRF Director told us that
to ensure that all projects met the February deadline, the program
established an internal deadline of February 8, 2010. In contrast, the
Drinking Water SRF Director told us that his program did not set an
internal deadline, but verbally urged all recipients of Recovery Act
funds to award contracts for their projects as soon as possible.
The Clean Water SRF Director also explained that to ensure contracts
for Clean Water SRF were signed by the Recovery Act deadline, the
program required applicants to complete the design of their proposed
project prior to submitting it for loan approval. This requirement,
according to the Director, deterred some applicants because they had
to plan and design the project without the guarantee that they would
receive funding.
MDEQ and MSDH Use a First Come, First Serve Approach to Select
Recovery Act Projects:
According to both SRF Directors, communities that completed all
applicable program requirements and were ready to advertise for
construction bids were the first to receive loans made with Recovery
Act funds. The Clean Water SRF Director stated that Mississippi's
Clean Water SRF program provided Recovery Act funds for the
construction of new treatment facilities, replacement of older pumps
with more energy efficient models, rehabilitation of sewer lagoons,
improvement of levees, and realignment of old sewer lines with new
material that will keep sand out of the ground water system. The
Drinking Water SRF director told us that the program provided Recovery
Act funds to communities to construct new water lines, install new
elevated tanks or storage reservoirs, and construct new drinking water
booster and pump stations, treatment plants, and water wells.
According to its Director, the Clean Water SRF program chose to
forgive a portion of the loan principal on all qualified Recovery Act
projects, which means that communities will not be responsible for
repaying the portion of their loan provided by Recovery Act funds, but
will repay the portion provided with base Clean Water SRF funds. The
Director told us that half of all clean water projects that received
Recovery Act funding were first time recipients of Clean Water SRF
funds. In addition, the Director stated that the program had three
large energy efficiency projects that assisted the Clean Water SRF
program in meeting the Recovery Act Green Reserve requirement. This
requirement, according to both SRF Directors, sets aside 20 percent of
Recovery Act funds for projects that address green infrastructure,
water or energy efficiency improvements, or other environmentally
innovative activities. Both Directors explained that MDEQ and MSDH
were responsible for determining the eligibility of green reserve
projects; however, according to EPA's Office of Inspector General, EPA
did not develop and issue clear and comprehensive guidance for states
on determining green project eligibility until after many states had
selected their green projects.[Footnote 8]
According to the Director, the Drinking Water SRF program chose to use
Recovery Act funds to fully forgive the loan principal for some
projects and partially forgive the principal for others. The Director
explained that communities receiving SRF loans made entirely from
Recovery Act funds will not be required to repay any part of that
loan. The Director told us that the Drinking Water SRF program
provided total principal forgiveness to 4 projects, with the remaining
16 projects receiving a combination of Recovery Act and base SRF
dollars.
Some Project Bids Are Lower Than State Estimates, While Others Are
Higher:
The Clean Water SRF Program Director stated that in general contractor
bids came in lower than the state's estimates for project costs. The
Director explained that the lower bids freed up Recovery Act funds to
increase funding for two clean water projects that had not received
all allowable principal forgiveness. According to the Director, the
state could provide principal forgiveness amounting to 50 percent of
the initial loan if the community's median household income was equal
to or greater than the state median household income. The amount of
the loan principal that could be forgiven increased to 85 percent if
the community's median household income was less than the state's
median household income. However, the Director explained that the
maximum amount of principal forgiveness for any single community was
$5 million.
Specifically, according to the Clean Water SRF Director, the lower
bids received for clean water projects freed up $1.9 million of
Recovery Act funds. This, according to the Director, allowed two
communities to reduce by $510,000 the cumulative loan amount that they
will be required to repay. In addition, it allowed the SRF program to
set aside the remaining $1.4 million, or 4 percent of the total amount
of Recovery Act funds received by Clean Water SRF, for administrative
activities.[Footnote 9]
According to the Drinking Water SRF Director, although a number of
contractor bids for drinking water Recovery Act projects came in under
state estimates, overall the bids balanced out. The Director explained
that the bids for water distribution projects, such as construction of
new water lines, the installation of new elevated tanks or storage
reservoirs, and the construction of new drinking water booster and
pump stations were lower than department estimates; however, the bids
for overhead water tanks, treatment plants, and water wells were
higher than state estimates. The Director attributed this difference
to the number of contractors available and competition for work.
SRF Directors Found EPA Guidance Vague and Open to Interpretation:
EPA has been slow to distribute guidance, according to both SRF
Program Directors. The Directors told us that the state was left to
decide how to monitor the implementation of Recovery Act requirements
and provisions and that the guidance EPA provided on other subjects
was vague and left to state interpretation. Two Clean Water SRF
subrecipients stated that the guidance provided by EPA on substantial
transformation for Buy American requirements was unclear and left too
much room for interpretation by government inspectors. Section 1605 of
the Recovery Act generally requires assistance recipients to use
domestic iron, steel, and manufactured goods that are produced in the
United States when working on public buildings or public works, though
this requirement is subject to multiple exceptions. According to EPA
guidance, a manufactured good that consists in whole or in part of
materials from another country meets the Section 1605 requirement if
it is substantially transformed in the United States into a new and
different manufactured good, distinct from the materials from which it
was transformed. However, two loan recipients told us that government
inspectors are left to decide whether substantial transformation has
taken place.
In addition, MDEQ staff also explained that they had challenges
dealing with rapidly changing rules and guidance. Clean Water SRF
program staff stated that additional work imposed by the Recovery Act
and the Office of Management and Budget's issuance of new guidance on
reporting job creation/retention so close to the recipient reporting
deadline increased their workload significantly. However, Clean Water
SRF officials told us that the program could not afford to hire
additional employees.
Existing Controls Used to Monitor Recovery Act Projects:
The Clean Water and Drinking Water SRF programs, according to both SRF
Directors, did not make any changes to existing oversight policies and
procedures to monitor projects receiving Recovery Act funding.
Officials from both programs stated that Recovery Act projects do not
require more monitoring than other SRF projects. The Clean Water SRF
program administrators told us that all project requirements and
responsibilities are clearly stated in contracts signed by project
subrecipients and contractors. Both SRF Directors told us that if any
project requirements are not met, subrecipients and contractors do not
get paid; additionally, MDEQ and MSDH reserve the right to revoke
funding and reallocate the money to another project.
According to the program Directors, all SRF projects are monitored by
an on-site consulting engineer whether the project is receiving
Recovery Act dollars or base SRF dollars. The Directors explained that
the consulting engineer is not associated with the contractor
responsible for completing the project, but is a contractor for the
local governmental entity. The engineer is on-site any time
significant work is performed on the project to ensure that contract
requirements are met. The Directors also stated that contractors
verify that laborers and mechanics are paid prevailing wages by
conducting random interviews of all workers at the jobsite. In
addition, the Directors told us that contractors submit a
certification with each pay request as another way to ensure that
workers are paid the prevailing wage, that the random interviews to
confirm the wage rate were conducted, and that periodic reviews of a
representative sample of the payroll data have been performed. Along
with each pay request, contractors also submit a Buy American
Certification, which, according to the Directors, assures that all
goods used in the project are manufactured in the United States and
meet the Buy American requirement of the Recovery Act.
To meet recipient reporting requirements, subrecipients receiving
Clean Water SRF or Drinking Water SRF are required to report the
number of jobs funded by Recovery Act projects. In some cases,
according to the Directors, certified payrolls are required to ensure
that the data reported are correct and workers are paid the prevailing
wage rate. However, the Directors stated that MDEQ and MSDH do not
have the time or manpower to compare the data reported against
certified payrolls. Although MDEQ and MSDH staff told us that neither
program validates the jobs information that is reported by
subrecipients of Recovery Act funds, both MDEQ and MSDH check for
outliers and ensure that reported data is complete.
Recovery Act Funds Benefit Cities, but Do Not Prevent Budget
Reductions:
We visited two Mississippi cities--Greenwood and Hattiesburg--to
assess the impact the Recovery Act is having on local government.
Greenwood lies on the eastern edge of the Mississippi Delta, about 96
miles north of the state's capital, and is the 26th largest city in
the state in terms of population. According to a 2008 U.S. Census
Bureau estimate, Greenwood's population is 16,084, which is a decline
of approximately 13 percent since 2000. According to the last complete
census, about 65 percent of Greenwood's citizens are African American,
33 percent are Caucasian, and 2 percent are various other races. The
census also showed that Greenwood's median household income is
$21,867, or a little over half of the U.S. median household income.
The population of Hattiesburg, which lies about 87 miles southeast of
the state capital, is 51,993, according to a 2008 Census Bureau
estimate. Between the years of 2000 and 2008, Hattiesburg,
Mississippi's third largest city, increased in population by about
13.2 percent. The racial composition of the city's residents,
according to the last complete census, is about equally split between
African Americans (47.3 percent) and Caucasians (49.9 percent), with
other races represented by small percentages. Census data also shows
that Hattiesburg's median household income of $24,409 is larger than
that of Greenwood, but still well below the U.S. median household
income of $41,994.
Greenwood is home to several large corporations, including Viking
Range, Milwaukee Electric Tool, and Heartland Catfish. Conversely,
Hattiesburg, according to Moody's Investor Services, has developed
into a diverse trade and service center, along with becoming a
regional health care center. Moody's reported that Hattiesburg's
largest employers are state-owned Camp Shelby and Forrest County
General Hospital. The University of Southern Mississippi is also
located within the city and, with an enrollment of approximately
15,000, is the third largest university in the state. In the opinion
of Moody's Investor Services, the presence of the university and other
institutional facilities provides some degree of economic stability to
the city.
Recession Forces Cities to Tighten Budgets:
Greenwood and Hattiesburg officials told us that their cities first
began to feel the effects of the recession in late 2008 and early
2009. This is supported by unemployment figures that show the
unemployment rates were relatively stable from 2006 through 2007 but
rose more than 2 points in 2009 and even more in 2010. With more
people out of work, Greenwood and Hattiesburg officials expected sales
tax collections to drop, which the cities reflected in their general
fund budgets.[Footnote 10] Table 2 shows each city's unemployment
rates and sales tax collections for fiscal years 2007 through 2010.
Table 2: Greenwood and Hattiesburg Unemployment Rates and Sales Tax
Collections:
Fiscal year: 2007;
Greenwood[A]: Unemployment rate: 10.3%;
Greenwood[A]: Percent change in rate: [Empty];
Greenwood[A]: Sales tax collections: $4,453,970;
Greenwood[A]: Percent change in collections: [Empty];
Hattiesburg: Unemployment rates: 6.4%;
Hattiesburg: Percent change in rates: [Empty];
Hattiesburg: Sales tax collections: $22,545,201;
Hattiesburg: Percent change in collections: [Empty].
Fiscal year: 2008;
Greenwood[A]: Unemployment rate: 9.7%;
Greenwood[A]: Percent change in rate: (0.6%);
Greenwood[A]: Sales tax collections: $4,433,128;
Greenwood[A]: Percent change in collections: (0.47%);
Hattiesburg: Unemployment rates: 6.3%;
Hattiesburg: Percent change in rates: (0.1%);
Hattiesburg: Sales tax collections: $22,362,399;
Hattiesburg: Percent change in collections: (0.8%).
Fiscal year: 2009;
Greenwood[A]: Unemployment rate: 12.2%;
Greenwood[A]: Percent change in rate: 2.5%;
Greenwood[A]: Sales tax collections: $4,325,125;
Greenwood[A]: Percent change in collections: (2.4%);
Hattiesburg: Unemployment rates: 8.3%;
Hattiesburg: Percent change in rates: 2.0%;
Hattiesburg: Sales tax collections: $20,594,947;
Hattiesburg: Percent change in collections: (7.9%).
Fiscal year: 2010;
Greenwood[A]: Unemployment rate: 15.1%;
Greenwood[A]: Percent change in rate: 2.9%;
Greenwood[A]: Sales tax collections: $4,162,000[B];
Greenwood[A]: Percent change in collections: (3.8%);
Hattiesburg: Unemployment rates: 10.5%;
Hattiesburg: Percent change in rates: 2.2%;
Hattiesburg: Sales tax collections: $19,500,000[B];
Hattiesburg: Percent change in collections: (5.3%).
Source: Mississippi Department of Employment Security, January 2010
publication and sales tax collections provided by the City of
Greenwood and the City of Hattiesburg.
[A] The unemployment rates presented for Greenwood are the rates for
LeFlore County, that includes Greenwood. The Mississippi Department of
Employment Security does not maintain separate unemployment data for
Greenwood.
[B] Fiscal Year 2010 sales tax collections are projections based on
collection of sales taxes through March 2010.
[End of table]
Both Greenwood and Hattiesburg reduced general fund expenditures of
city departments to address declining sales tax collections. Between
2008 and 2010, Greenwood reduced capital outlays--expenditures for
equipment and projects needed to provide city services--to zero for
all city departments, with the exception of the police and fire
departments. However, the capital outlay budgets for these departments
were limited. The city budgeted $25,000 in 2010 to purchase a fire
department vehicle and $4,220 for police department equipment. In
addition to reducing General Fund Capital Outlay budgets, Greenwood's
City Clerk told us that in fiscal year 2010, the city also used some
of its cash on hand to balance its operating budget.
Hattiesburg chose to make its primary reductions in city budgets to
accounts that pay for services or repairs performed by outside
vendors, including services provided by engineers, attorneys, and
consultants. Comparisons of the city's fiscal year 2008 and 2010
budgets show that the cumulative reduction to all city departments'
budgets for these "other services and charges" was about 29 percent.
Hattiesburg's capital outlay budget actually increased between the
2008 and 2010 budgets. However, according to the Chief Financial
Officer, the city's increase in capital outlays is partially accounted
for by the receipt of Recovery Act funds.
City officials in Greenwood and Hattiesburg told us that reductions to
their city's general fund expenditures have prevented layoffs and
furloughs of city personnel. However, Greenwood officials told us that
they are not replacing personnel who retire or leave the city's
employment. Hattiesburg's Chief Financial Officer also told us that
the Mayor was not calling for raises for city employees this year,
although that has been one of the mayor's major initiatives in prior
years.
Recovery Act Dollars Are Beneficial, but Did Not Prevent Budget
Reductions or Meet All Critical Needs Recognized by Officials:
Funds provided by the Recovery Act, according to city officials,
helped Greenwood and Hattiesburg initiate projects that were needed
and that would not otherwise have been possible. However, because
Recovery Act funds were provided for specific purposes, the funds
could not be used to replace all budget cuts made to address declining
sales tax collections. In addition, city officials told us that
although some of the funds received addressed infrastructure needs,
which the officials identified as a priority for their cities, the
needs far exceeded the Recovery Act funds received.
Both cities received Recovery Act grants. Greenwood received two, both
awarded by the Department of Justice-an Edward Byrne Memorial Justice
Assistance Grant (JAG) and a COPS Hiring Recovery Program grant
(CHRP). Hattiesburg received four grants, which were awarded by the
Department of Energy (DOE), the Department of Housing and Urban
Development (HUD), the Department of Transportation (DOT), and the
Department of Justice (DOJ). Table 3 presents the Recovery Act grants
that Greenwood and Hattiesburg received from the various federal
agencies, the amount of each grant, and the specific purpose for which
each grant was used.
Table 3: Recovery Act Funds Received Directly by the Cities of
Greenwood and Hattiesburg:
City receiving grant: Greenwood;
Funding agency: Department of Justice: $347,052 COPS Hiring Recovery
Program Grant (CHRP);
Planned use of funds: Used to hire three full-time police officers.
City receiving grant: Greenwood;
Funding agency: Department of Justice: $114,990 Justice Assistance
Grant (JAG);
Planned use of funds: Provides overtime pay for officers to patrol
high-crime areas during summer months when crimes are most prevalent.
City receiving grant: Hattiesburg;
Funding agency: Department of Justice: $134,390.40 Justice Assistance
Grant (JAG);
Planned use of funds: Allows the city to purchase six police vehicles.
City receiving grant: Hattiesburg;
Funding agency: Department of Energy: $536,400 Energy Efficiency;
Planned use of funds: Allows the removal of an older aeration system
from a water treatment facility lagoon and its replacement with a new
energy efficient diffusion treatment system.
City receiving grant: Hattiesburg;
Funding agency: Housing and Urban Development: $166,632 Community
Development Block Grant;
Planned use of funds: Provides for the repair and construction of
sidewalks in an area of Woodley Elementary School.
City receiving grant: Hattiesburg;
Funding agency: Department of Transportation: $991,811 Transit Capital
Assistance Grant;
Planned use of funds: Allows the city to purchase one trolley bus and
a new transportation management system, as well as reconstruct bus
stops to comply with Americans with Disabilities Act requirements.
Source: Recovery.gov and interviews with Hattiesburg and Greenwood
officials.
[End of table]
The Recovery Act grants provided extra funds for the budgets of some
Greenwood and Hattiesburg city departments, but did not affect many
other departments whose budgets were reduced as sales tax collections
declined. For example, Department of Justice JAG and CHRP grants
increased the Greenwood Police Department's Personnel Services budget
by $462,042, allowing the department to hire additional officers and
place more officers on the street for longer hours. However, none of
the Recovery Act funds received by Greenwood could be used for other
city departments, such as the Public Works and Parks and Recreation
departments, whose capital outlays budgets were reduced to zero in
fiscal years 2009 and 2010. Similar to Greenwood, Hattiesburg's Chief
Financial Officer told us that the Recovery Act grants increased
revenue for some general fund and specific use accounts, but could not
be used in ways that would have prevented all general fund budget
reductions.[Footnote 11]
Both Greenwood and Hattiesburg officials identified infrastructure
improvements as their city's most pressing need. The Director of
Greenwood's Public Works Department told us that the city's streets
and sewer lines require immediate attention. The Mississippi
Department of Transportation (MDOT) is improving about 2.25 miles of
streets in Greenwood with MDOT Recovery Act funds that are available
to improve streets considered connectors or collectors of the National
Highway System.[Footnote 12] However, the Director said that many
other streets that do not qualify for federal funding are in need of
repair.[Footnote 13] Greenwood budgets show that in 2010, the city had
$151,350 available for this purpose. Although the city does not have a
street improvement plan that identifies the cost of making all needed
street repairs, the Director told us the cost would greatly exceed the
funds available. He also told us that the city's sewer system is aging
and badly in need of improvement, and that recently, three cave-ins
ruptured sewer lines and forced the city to make emergency repairs.
Although the Director did not have an estimate for the cost of sewer
projects that are needed in the near future, he told us that he
estimated the cost would be significantly more than $10 million.
Hattiesburg's City Engineer, as well as other Hattiesburg city
officials, identified sewer and water improvements as Hattiesburg's
greatest needs. However, the engineer also noted that city roads and
bridges need improvement as well. According to a plan developed by the
city's Public Works Department and engineering consulting firm, within
the next 5 years Hattiesburg needs about $21 million to make water
line improvements; around $6 million for sewer system improvements;
and approximately $47 million to complete 15 road projects and improve
aging bridges. In fiscal year 2010, Hattiesburg budgeted about $9
million to improve water and sewer lines and about $5.5 million to
improve city roads and bridges. However, the $536,400 DOE grant for
improving the aeration of one city lagoon is included in the $9
million available for water and sewer improvements, which means that
about $8.5 million is available for additional projects in 2010.
Recovery Act Funds Could Have Been Used to Improve Sewer System:
Both Greenwood and Hattiesburg would have been eligible for Recovery
Act funds to improve their sewer systems through the Clean Water SRF
and Hattiesburg could have also applied for Drinking Water SRF funding
for new water lines, pumps, and tanks.[Footnote 14] However, according
to the cities' officials, neither Greenwood nor Hattiesburg applied
for the funds. According to the Director of Mississippi's Clean Water
SRF, using the state's Recovery Act funding, the state could provide
principal forgiveness amounting to 50% of the initial loan amount for
a project if the community's median household income was equal to or
greater than the state median household income. The amount of
principal forgiveness, that is, the amount that did not have to be
repaid, would increase to 85 percent for communities with a median
household income that was less than that of the state. The maximum
Recovery Act Clean Water SRF loan principal forgiven for any single
community was $5 million. If Greenwood and Hattiesburg had submitted
clean water projects and the state had approved the projects, each
city could have qualified for principal forgiveness up to $5 million.
Greenwood officials told us that the city's current administration was
unaware that Recovery Act funding was available for sewer improvements.
In addition to being eligible for a Clean Water SRF loan, Hattiesburg
might also have qualified for a Drinking Water SRF loan. Similar to
the Clean Water SRF program, the amount of principal forgiveness that
a community could receive for a Drinking Water project was based on
the community's median household income. Hattiesburg's Chief Engineer
said that the city was aware that Recovery Act funds were available
and intended to apply for them, but the city misunderstood the
application deadline.
Other Local Entities Also Benefit from Recovery Act Funds, but
Experience Challenges in Using Funds for Greatest Needs:
Other entities within the cities of Greenwood and Hattiesburg received
Recovery Act funds that did not directly affect the two cities'
budgets, but did benefit the cities. Table 4 identifies two Greenwood
and four Hattiesburg entities that received Recovery Act funding.
During interviews we conducted with each of the six entities,
officials described how the Recovery Act funds have benefited and
could potentially benefit the populations that their entities serve.
Table 4: Other Greenwood and Hattiesburg Entities Receiving Recovery
Act Funds:
Entity: City of Greenwood: Greenwood Public School District;
Program/project funded: City of Greenwood: ESEA Title I[A];
SFSF[B]; and IDEA[C];
Amount received: $4,486,214;
Realized benefits:
* Employment for 15 new staff;
* Current employee salaries for the 2009 school year;
* Instructional technology;
Potential benefits:
* Lower incidences of student drop-outs[D];
* Higher percentages of parental involvement and graduations[D];
* Better educated public[D].
Entity: City of Greenwood: Housing Authority of Greenwood;
Program/project funded: City of Greenwood: Capital Fund Program;
Amount received: $913,410;
Realized benefits:
* Siding, fence replacement, painting, bath tub restoration, and new
refrigerators for 408 housing units;
* Foundation correction for one vacant unit;
Potential benefits:
* Better housing for residents[E].
Entity: City of Hattiesburg: University of Southern Mississippi;
Program/project funded: City of Greenwood: Edward Byrne Memorial
Competitive Grant; SFSF;
Amount received: $7,179,888;
Realized benefits:
* Seven Campus Security Officer salaries for the 2009 and 2010 school
years;
* 5,226 scholarships for the 2009 school year;
Potential benefits:
* Reduces crime[D];
* Improves local economy[D].
Entity: City of Hattiesburg: University of Southern Mississippi State-
Wide 1808 Funded School District;
Program/project funded: City of Greenwood: IDEA;
Amount received: $77,503;
Realized benefits:
* Employment for three new staff;
Potential benefits:
* Reduces the number of children waiting to enroll[D];
* Provides additional instructional support[D];
* Increased parental involvement[D].
Entity: City of Hattiesburg: Hattiesburg Public School District;
Program/project funded: City of Greenwood: Title I;
SFSF; and IDEA;
Amount received: $5,528,151 estimated;
Realized benefits:
* Current employee salaries for the 2009 school year;
* Instructional technology;
* Professional developmental opportunities for staff;
* Continued implementation of district-wide school transitional model;
* Travel funds for early intervention program;
* Classes for parents of children with disabilities;
Potential benefits:
* Lowers incidences of student dropouts[D];
* Increased parental involvement[D];
* Higher percentage of graduations[D];
* Better educated public[D].
Entity: City of Hattiesburg: Housing Authority of Hattiesburg;
Program/project funded: City of Greenwood: Capital Fund Program;
Amount received: $551,249;
Realized benefits:
* New roofs, kitchen cabinets, and HVAC units for single family
residences;
Potential benefits:
* Better housing for residents[E].
Source: Recovery.gov, and interviewees.
[A] Title I, Part A of the elementary and secondary education act of
1965, as amended.
[B] State Fiscal Stabilization Fund.
[C] Individuals with Disabilities Education Act, as amended.
[D] Potential Benefits are based on local officials' opinion.
[E] Potential Benefits are based on GAO conclusion.
[End of table]
Officials also explained that the Recovery Act presented certain
challenges in using the money in ways that were most needed. In
particular, Hattiesburg officials were concerned with Department of
Education guidance that suggested that local educational agencies not
invest their funding in ways that would result in unsustainable
continuing commitments after the act's funding expires. Because of
this guidance and the looming threat of additional state budget cuts,
officials with the Hattiesburg Public Schools District decided that
they could not use their funding to fill positions that would greatly
benefit their district, including hiring social workers, nurses, and
psychologists. Conversely, the Greenwood Public School District and
the University of Southern Mississippi decided to hire staff even
though they were unsure as to whether they would be able to continue
to pay them after their Recovery Act funds expired.
In addition, officials from the Housing Authority of Hattiesburg
explained that although the Recovery Act had enabled them to improve
many of their 56 single family units, they did not receive enough
funding to fulfill the authority's largest need: the construction of
new apartment buildings. According to housing authority officials, the
authority's current apartment buildings, which were built in the
1940s, are the oldest public housing units in the state. In addition,
officials from the housing authority explained that the apartments
lack many of the amenities available to low-income families that hold
housing vouchers, which means that the housing authority cannot
compete with other housing options that are offered to these families.
Mississippi's Fiscal Challenges Continue:
The state of Mississippi continues to experience significant fiscal
challenges. While tax revenue collections for fiscal year 2009 were
more than $384 million below estimates, tax revenue collections for
fiscal year 2010 are projected to decline even more. As shown in
figure 1, tax revenue collections for July 2009 through April 2010,
the first 10 months of Fiscal Year 2010, were $300.4 million or 7.7
percent below expectations. Based upon the current revenue forecast,
the expected shortfall for fiscal year 2010 is projected to be $499.1
million. The major causes for decreasing tax revenue are declines in
sales and individual income taxes.
Figure 1: Aggregate Revenue Shortfall for Fiscal Year 2010:
[Refer to PDF for image: vertical bar graph]
Month: July 2009;
Aggregate Revenue Shortfall: -$26 million.
Month: August 2009;
Aggregate Revenue Shortfall: -$32 million.
Month: September 2009;
Aggregate Revenue Shortfall: -$83.4 million.
Month: October 2009;
Aggregate Revenue Shortfall: -$111.9 million.
Month: November 2009;
Aggregate Revenue Shortfall: -$136.8 million.
Month: December 2009;
Aggregate Revenue Shortfall: -$183 million.
Month: January 2010;
Aggregate Revenue Shortfall: -$223.6 million.
Month: February 2010;
Aggregate Revenue Shortfall: -$257.9 million.
Month: March 2010;
Aggregate Revenue Shortfall: -$255.3 million.
Month: April 2010;
Aggregate Revenue Shortfall: -$300.4 million.
Month: May-June 2010;
Aggregate Revenue Shortfall: -$499.1 million.
Source: GAO analysis based on Mississippi Department of Finance and
Administration and Joint Legislative Budget Committee documents.
[End of figure]
In the face of declining tax revenues, the Governor ordered a series
of reductions to state agencies' fiscal year 2010 budget expenditures
totaling $499.1 million, or about 9.5 percent. According to the
Governor, he is statutorily prohibited from cutting an agency's budget
by more than 5 percent until he has cut spending for all agencies by 5
percent. After reaching the 5 percent threshold, the Governor may make
additional cuts, but those reductions must be equal across all
agencies. The budget cuts reduce fiscal year 2010 funding for
education by approximately $319.6 million while reducing funding for
non-education agencies by about $179.5 million.
Recovery Act and Rainy Day Funds Used to Reduce Impact of Revenue
Shortfall:
Funding provided by the Recovery Act and "rainy day funds" have helped
Mississippi reduce the impact of tax revenue shortfalls in fiscal
years 2009 and 2010, but have not stabilized the budget, as evidenced
by the continuing budget cuts.[Footnote 15] The Governor has also
proposed using these funds to help reduce the impact of projected
revenue shortfalls in fiscal year 2011.
The use of Recovery Act funds must comply with specific program
requirements, but also, in some cases, enables states to free up state
funds to address their projected budget shortfalls. Mississippi was
able to use Recovery Act funds in this manner. The Mississippi
legislature approved the fiscal year 2010 Mississippi state budget
using more than $523 million of Recovery Act funds to bring it into
balance. The legislature appropriated $111.5 million and $19.6 million
of State Fiscal Stabilization Fund monies for K-12 education and
institutions of higher education (IHE), respectively. This amount,
plus $78.5 million of Recovery Act education stabilization funds
appropriated in fiscal year 2009 that were carried forward into fiscal
year 2010 freed up $209.6 million in General Funds that had been
planned for K-12 education, IHEs, and community colleges. In addition,
a provision of the Recovery Act that increased the Federal Medical
Assistance Percentage (FMAP) requirement made another $313 million
available by lowering Mississippi's share of Medicaid costs, which
made a like amount of state funds available for other uses. According
to a state budget official, these state funds were redirected to other
programs. Likewise, more than $201 million in State Fiscal
Stabilization Fund monies and funds made available as a result of
increased FMAP were used to reduce the impact of revenue shortfalls on
the fiscal year 2009 budget.
The Governor has proposed using $383 million of Recovery Act funds to
offset revenue shortfalls in the fiscal year 2011 budget that begins
July 1, 2010. Table 5 shows the planned use of these funds.
Table 5: Proposed Use of Recovery Act Funding in Fiscal Year 2011
Budget:
State Program: Hospital and Hospital Schools;
Amount: $22,969,561.
State Program: Institutions of Higher Learning, Agricultural Units;
Amount: $1,681,525.
State Program: Public Education;
Amount: v128,365,837.
State Program: Higher Education;
Amount: $74,686,001.
State Program: Social Welfare;
Amount: $154,171,907.
State Program: Public Health;
Amount: $1,316,501.
State Program: Total;
Amount: $383,191,332.
Source: Mississippi Fiscal Year 2011 Proposed Budget.
[End of table]
Mississippi has also used its rainy day funds to reduce the impact of
declining tax revenues. To help close out and balance the fiscal year
2009 budget, the State Fiscal Officer transferred almost $20 million
of rainy day funds to the general fund. Similarly, the legislature
transferred $65.2 million of rainy day funds to the Budget Contingency
Fund to help cover a projected shortfall in the 2010 general fund
budget.[Footnote 16] The Governor has also proposed using $80 million
in rainy day funds to cover projected shortfalls in the fiscal year
2011 budget. If the legislature approves the Governor's proposal, this
would leave a balance of some $80 million in rainy day funds for
fiscal year 2012 and 2013, years in which the Governor predicts
revenues may continue to decline.
Planning for the End of Recovery Act Funds:
The Governor's assessment is that Mississippi faces significant fiscal
challenges beyond fiscal year 2010. He believes that revenue is
unlikely to significantly rebound in the years to come and that
savings in excess of $715 million will be necessary to balance the
shortfall for fiscal year 2011. According to the Governor, fiscal year
2012 will be even bleaker. Current projections indicate that
Mississippi will be faced with a budget gap of more than $1.2 billion
during fiscal year 2012.
In anticipation of continuing revenue shortfalls and the end of
stimulus funding, the Governor has proposed, as part of the fiscal
year 2011 budget, a number of steps to reduce spending and restructure
how the state government operates. These steps include:
* Reducing the fiscal year 2011 budget for most state agencies 12 to
17 percent below fiscal year 2010 appropriations;
* Asking all state agencies to find innovative solutions to trim the
budget, including reviewing and renegotiating all contracts to reduce
their cost by 5 to 10 percent;
* Requesting that the legislature:
- consider major reforms and restructuring of state departments and
agencies;
- allow department and agency heads maximum flexibility in managing
their agencies, including allowing lump sum budgeting and streamlining
of departments by exempting them from State Personnel Board rules for
two years;
- consider adopting proposals for a strategic statewide plan,
reforming performance based budgeting, and creating a state agency
from existing entities to provide continuous review and improvements
of state government operations:
* Reducing administrative costs in the state's educational system by
consolidating school districts to reduce short-term administrative
costs; and:
* Reforming the state's community and junior colleges as well as
universities to help reduce administrative costs.
Mississippi Initiated Several Efforts to Ensure Accountability for
Recovery Act Funds:
To ensure accountability and oversight over federal funds received by
Mississippi, OSA conducts, on an annual basis, a "Single Audit" that
reports on internal controls over financial reporting and compliance
with pertinent laws and regulations. With regard to Recovery Act
funding, OSA reported that the Mississippi Department of Employment
Security did not record $23,999,054 of Recovery Act funding for
unemployment insurance on its accounting records even though these
funds were expended, thereby understating both revenues and
expenditures by this amount.[Footnote 17] In addition, the agency did
not report these funds on the Schedule of Expenditures of Federal
Awards. As a result of these audit findings, an adjustment was made to
properly account for the funds. MDES also agreed to strengthen
controls and improve supervisory review of these funds and to move
financial management responsibilities for the Unemployment Insurance
Trust Fund to the Office of the Comptroller, Business Management
Department.
In addition to normal oversight of federally funded programs,
Mississippi has undertaken several efforts to hold state recipients
accountable for the Recovery Act funds that they receive. National
accounting firms, under the auspices of OSA and DFA, are carrying out
two of these efforts. Other more limited efforts are being carried out
by other state agencies. In addition, one local government that we
visited intends to audit Recovery Act funds received by the city.
OSA has contracted with a certified public accounting and advisory
firm, BKD, to conduct monitoring and oversight of Recovery Act funds.
BKD is expected to monitor entities such as local governments, not-for-
profit organizations, community health centers, and school districts.
According to an OSA official, the reviews will not include state
agencies, which are being monitored by the DFA.
Overall, OSA expects that its contract with BKD will allow the firm to
monitor about 85 to 90 percent of all local entities receiving
Recovery Act funds. This includes all school districts, with an
emphasis on 43 school districts identified by the Mississippi
Department of Education as the districts most at risk, and all
community action agencies weatherizing homes. An OSA official
explained that each site visit will determine if an entity receiving
Recovery Act funds is complying with requirements, such as paying
laborers and mechanics the prevailing wage for the area, following
published guidelines in reporting on the uses of the funds, and,
awarding contracts that include all required terms and conditions.
According to officials, OSA's primary objective is to determine if
internal control changes are needed and to provide an audited entity
with specialized training or individualized technical assistance, if
it is needed. However, if BKD's reviews should find fraud, OSA's
performance division will refer the issue to its Investigative
Division.
Based on a review of selected BKD reports, we noted that some
weaknesses were consistent across most of the audited entities. For
example, BKD found that internal controls for the preparation and
review of recipient reports were either not effective or not in place;
supporting documentation for the jobs that grant recipients reported
as part of their recipient reports was not available; and jobs were
not calculated according to the latest OMB guidance. An OSA official
stated that OSA is reviewing BKD's reports and expects to identify
trends that can be shared with the Governor's office, DFA, and others.
In addition to OSA's efforts, DFA is monitoring internal controls of
state agencies receiving Recovery Act funds to ensure that they are
spent responsibly and effectively while maintaining the appropriate
controls and reporting mechanisms necessary for accountability and
transparency. DFA has contracted with national accounting firm KPMG
LLP to assist with monitoring thru June 30, 2011. KPMG and DFA
officials stated that if they identify gaps in an agency's internal
controls, DFA will work with the agency to correct the deficiencies,
or if fraud is identified, DFA will notify OSA.
DFA and KPMG jointly developed a risk assessment tool that summarizes
financial risk, internal controls, public interest risks, and
operational and delivery risks. Monitoring may be prioritized based on
the total scoring of each individual grant and/or high risks in one or
more individual areas. Before its contract ends, KPMG will conduct on-
site visits to all state agencies receiving Recovery Act funds. After
each on-site visit, KPMG will provide a document identifying
observations, potential next steps for the agency, and actions that
DFA should consider, including the addition of new monitoring
procedures.
Some state agencies and cities that we visited also expect to provide
oversight of Recovery Act projects. For example, the Mississippi
Department of Transportation's internal audit office provides limited
oversight of Recovery Act contracts and in the near future, the City
of Jackson plans to initiate an audit of Recovery Act funds awarded to
the city.
State Comments on This Summary:
We provided the Governor of Mississippi with a statement of facts on
the Mississippi Appendix on May 3, 2010. The General Counsel to the
Governor, who serves as the stimulus coordinator, responded for the
Governor on May 6, 2010. The official provided technical suggestions
that were incorporated, as appropriate.
GAO Contacts:
John K. Needham, (202) 512-5274 or needhamjk1@gao.gov:
Norman J. Rabkin, (202) 512-9723 or rabkinn@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Barbara Haynes, Assistant
Director; James Elgas, analyst-in-charge; Anna Russell; Gary Shepard;
Erin Stockdale; and Ryan Stott made major contributions to this report.
[End of section]
Footnotes:
[1] Pub. L. No. 111-5, 123 Stat. 115, (Feb. 17, 2009)
[2] Single Audits are prepared to meet the requirements of the Single
Audit Act, as amended, and provide a source of information on internal
control and compliance findings and the underlying causes and risks.
The Single Audit Act requires states, local governments, and nonprofit
organizations expending $500,000 or more in federal awards in a year
to obtain an audit in accordance with the requirements set forth in
the act. A Single Audit consists of (1) an audit and opinions on the
fair presentation of the financial statements and the Schedule of
Expenditures of Federal Awards; (2) gaining an understanding of and
testing internal control over financial reporting and the entity's
compliance with laws, regulations, and contract or grant provisions
that have a direct and material effect on certain federal programs
(i.e., the program requirements); and (3) an audit and an opinion on
compliance with applicable program requirements for certain federal
programs.
[3] Initially 10 community action agencies weatherized homes using
Recovery Act funding. However, as of March 4, 2010, DCS terminated
funding to Southwest Mississippi Opportunity (SMO) and DCS officials
stated that they plan to redistribute the remaining funds to other
community action agencies for home weatherization.
[4] The overhead costs charged to each home are in addition to
administrative costs that DOE allows the community action agencies to
recover.
[5] The Recovery Act requires all laborers and mechanics employed by
contractors and subcontractors on projects funded directly by or
assisted in whole or in part by and through the federal government
with Recovery Act funds be paid wages at rates that are not less than
those paid on local projects of a similar character as determined by
the Secretary of Labor. Recovery Act § 1606, 123 Stat. 303.
[6] The Safe Drinking Water Act, as amended, requires public water
systems to take actions to protect drinking water. Public water
systems must comply with federal drinking water standards set by EPA
based on their type and size. The health based standards set by EPA,
considering feasibility, are intended to protect drinking water
consumers against certain naturally and man-made contaminants that may
be found in drinking water. EPA, states, and water systems each have
roles in ensuring that these standards are met. See 42 U.S.C. § 300f
et seq.
[7] Environmental Infrastructure banks make loans that provide capital
for a wide variety of environmental projects within a range of market
interest rates.
[8] EPA Office of Inspector General, EPA Needs Definitive Guidance for
Recovery Act and Future Green Reserve Projects, EPA-OIG Report No. 10-
R-0057, February 1, 2010.
[9] The Clean Water Act caps the amount of Recovery Act funds that can
be used to support administrative activities at 4 percent. 33 U.S.C. §
1383(d)(7).
[10] Sales tax revenues are accounted for in a city's general fund,
which is the city's primary operating account.
[11] Some revenue received by cities is separated from the general
fund because it is only available for a specific type of expenditure.
For example, a city may establish a Water and Sewer Operation and
Maintenance fund that receives revenue from the fees that citizens pay
for these services. The revenue in this account can only be used for
expenditures that allow the city to provide this service.
[12] 23 U.S.C. § 133(b)(1).
[13] 23 U.S.C. § 133(c).
[14] According to the Directors of the Clean and Drinking Water
programs, projects that met all requirements for eligibility and
readiness to proceed were selected to receive Recovery Act funding on
a first come, first serve basis.
[15] The Mississippi rainy day fund, normally called the Working Cash-
Stabilization Reserve Fund, is intended, among other uses, to cover
any projected deficits that may occur in the general fund at the end
of a fiscal year as a result of revenue shortfalls. Miss. Code § 27-
103-203.
[16] The Budget Contingency Fund was created in 2001 by the
legislature to identify nonrecurring funding--such as funds received
from a legal judgment--that the legislature could use in the budget
process. The sources of funds deposited in the Budget Contingency Fund
can differ from Special Fund transfers to the General Fund that are
identified as nonrecurring.
[17] State of Mississippi, Single Audit Report for the Year Ended June
30, 2009.
[End of Appendix XI]
Appendix XII: New Jersey:
Overview:
This appendix summarizes GAO's work on the sixth of its bimonthly
reviews of American Recovery and Reinvestment Act of 2009 (Recovery
Act)[Footnote 1] spending in New Jersey. The full report covering all
of GAO's work in 16 states and the District of Columbia may be found
at [hyperlink, http://www.gao.gov/recovery].
What We Did:
We reviewed four specific programs funded through the Recovery Act:
Clean Water and Drinking Water State Revolving Funds (SRF), Highway
Infrastructure Investment Program, Public Housing Capital Fund, and
COPS Hiring Recovery Program (CHRP). We selected these programs for
various reasons. The SRF, highway, and public housing programs all had
1-year obligation or contracting deadlines during the course of our
review. Our work focused on the ability of these programs to meet the
1-year deadlines and challenges agencies faced in meeting them. (For
descriptions and requirements of the programs we covered, see appendix
XVIII of GAO-10-605SP.) To gain a further understanding of these
issues, we met with state agency officials and conducted site visits
to SRF subrecipients in Long Branch and the Borough of Beach Haven and
public housing agencies in Elizabeth and Bergen County. We selected
the SRF subrecipients because they incorporated green components into
their projects, which was a new requirement under the Recovery Act. We
selected the public housing agencies because they had obligated less
than 50 percent of their Recovery Act funds as of January 30, 2010,
and were required to have 100 percent of these funds obligated by
March 17, 2010.[Footnote 2] New Jersey CHRP recipients used more of
their grant funds to hire new officers rather than to avoid layoffs or
rehire officers compared to the national average. We met with
officials from the East Orange and Trenton Police Departments to gain
an understanding of their need for additional officers and the impact
of the CHRP funds on their policing efforts.
In addition to the four program-specific reviews, we also interviewed
state and local budget officials about their use of Recovery Act funds
and the impact of these funds on state and local budgets. We selected
three counties and one city--the Counties of Bergen, Burlington, and
Cape May, and the City of Newark--to gain a deeper understanding about
the use and impact of Recovery Act funds. The localities were selected
based on various factors, including population, unemployment rates,
type of government, and geographic dispersion. Finally, to gain an
understanding of state efforts to oversee and monitor the use of
Recovery Act funds, we interviewed officials from the state's
accountability community about their oversight roles and audits
related to Recovery Act funds.
What We Found:
* SRF. The New Jersey Department of Environmental Protection (DEP)
received approximately $162 million in Recovery Act funds for the
Clean Water SRF program and approximately $43 million in Recovery Act
funds for the Drinking Water SRF program. For example, the Long Branch
Sewerage Authority received $7.5 million under the Clean Water SRF to
make improvements to its wastewater treatment plan and the Borough of
Beach Haven received $3.1 million under the Drinking Water SRF to
install residential water meters. DEP changed its priority ranking
systems and financing for the Recovery Act SRF program to ensure
Recovery Act deadlines and requirements, such as the 1-year deadline
to have all Recovery Act projects under contract by February 17, 2010,
were met. According to local officials, these changes delayed the
implementation of some projects under the base and Recovery Act SRF
programs.[Footnote 3]
* Highways. The U.S. Department of Transportation's Federal Highway
Administration (FHWA) apportioned $652 million in Recovery Act funds
to New Jersey and obligated New Jersey's full apportionment by the 1-
year deadline of March 2, 2010. However, the New Jersey Department of
Transportation (NJDOT) faced challenges in meeting the deadline due,
in part, to contracts being awarded at prices lower than state cost
estimates. As a result of the lower contract prices, funds had to be
deobligated by FHWA and obligated on new projects. Some of these
deobligated funds became available for obligation close to the 1-year
deadline and required NJDOT to identify additional projects in a short
time period. Although NJDOT is not directly assessing the impact of
Recovery Act funds on the state highway system, NJDOT officials stated
the funds have allowed them to, among other things, rehabilitate or
replace deficient bridges and pavement at both the state and local
levels.
* Public Housing Capital Fund. New Jersey's 80 public housing agencies
met the 1-year obligation deadline of March 17, 2010, obligating $104
million in Recovery Act funds. The U.S. Department of Housing and
Urban Development (HUD) field office provided guidance and technical
assistance to help public housing agencies meet the obligation
deadline. Despite the condensed time period, HUD officials, as well as
officials from the public housing agencies we visited, stated that the
obligation of their regular public housing capital funds is on track
compared to previous years.
* CHRP. A total of 18 law enforcement agencies in New Jersey received
CHRP grants totaling $26.8 million. Officials from the East Orange and
Trenton Police Departments told us their departments were understaffed
due to budget constraints, and therefore used their CHRP funds to hire
additional officers. Specifically, East Orange received funds to hire
14 additional officers over a 3-year period, and Trenton received
funds to hire 18 additional officers. Officials from both police
departments stated that they are confident they will be able to meet
the requirement to retain officers for one additional year after the 3-
year CHRP grant expires because they anticipate retirements over the
next 3 years. As of April 1, 2010, East Orange had obligated about
$1.4 million and expended about $20,606 of its CHRP grant, and Trenton
had obligated its entire CHRP grant and expended $352,289.
* Budget stabilization. Although Recovery Act funds helped New Jersey
stabilize its budget, New Jersey faced a $2.2 billion budget gap in
its current year budget and faces a larger projected shortfall of
$10.7 billion for fiscal year 2011. The localities we visited also
face budget challenges and may be unable to retain some positions
funded by the Recovery Act. However, these localities largely used
their Recovery Act funds for nonrecurring projects and to maintain
services. For example, the County of Burlington received Recovery Act
funds for 14 programs and used these funds for delivering meals to the
elderly, homelessness prevention, and workforce training, among other
things.
* Accountability efforts. New Jersey's Recovery Accountability Task
Force continues to hold regularly scheduled meetings on the use of
Recovery Act funds by state agencies. The Office of the State
Comptroller and the Office of the State Auditor recently issued audit
reports on the use of Workforce Investment Act of 1998 (WIA) and
Weatherization Assistance Program funds, respectively. The
weatherization audit identified internal control weaknesses in the
oversight of Recovery Act funds and made recommendations to strengthen
accountability over the use of these funds.
New Jersey Met Recovery Act SRF Requirements and Is Using Existing
Controls to Ensure Accountability:
New Jersey received approximately $205 million in Recovery Act funds
for its Clean and Drinking Water SRF programs. Specifically, the Clean
Water SRF program, which is designed to provide assistance in
constructing publicly owned wastewater treatment plants and
implementing other types of water quality projects, received
approximately $162 million. The Drinking Water SRF, which provides
assistance to public water systems in meeting the requirements of the
Safe Drinking Water Act, received approximately $43 million. New
Jersey used its Recovery Act SRF funding to fund 44 Clean Water SRF
projects and 19 Drinking Water SRF projects in 20 of the 21 counties
in New Jersey. We visited the Long Branch Sewerage Authority, a Clean
Water SRF subrecipient, and the Borough of Beach Haven, a Drinking
Water SRF subrecipient, during the course of our review. Information
about these subrecipients is summarized in table 1.
Table 1: Summary of Recovery Act Clean Water SRF and Drinking Water
SRF Projects Visited by GAO:
Project category: Clean water:
Location: Long Branch, N.J.;
Description: Improvement of a wastewater treatment plant that includes
installation and replacement of equipment to make the plant more
energy efficient, which is intended to provide cost savings;
Total cost: $13.7 million;
Total Recovery Act funding: $7.5 million;
Total green Recovery Act funding: $2.5 million.
Project category: Drinking water:
Location: Beach Haven, N.J.
Description: Installation of residential water meters for all
residential units to provide greater incentive for residents to
conserve water and, upon installation, the ability for the city to
electronically monitor water readings and usage;
Total cost: $4.1 million.
Total Recovery Act funding: $3.1 million.
Total green Recovery Act funding: $3.1 million.
Source: DEP.
[End of table]
New Jersey's Recovery Act and base SRF programs are administered
jointly by DEP and the New Jersey Environmental Infrastructure Trust
(EIT). Through this partnership, DEP manages aspects of the SRF
program including project approval, document reviews, project
certification, and construction oversight. EIT works directly with
DEP, and based on DEP's project approval, provides a portion of the
project financing to every project funded through the SRF program in
addition to overseeing the credit worthiness of borrowers, preparing
loan agreements, and processing payments of these loan funds.
New Jersey Revised Its Ranking Systems and Financing to Meet Recovery
Act Requirements, Which Delayed the Implementation of Some SRF
Projects:
DEP officials told us they revised their existing priority ranking
systems and financing to ensure Recovery Act requirements and
deadlines would be met. Under the base SRF programs, DEP assigned
points to projects based on various factors, such as improvement to
the local environment, impact on public health, type of water
facility, primary use of water, water quality, and population of the
area to be impacted. DEP officials told us that improvements to
wastewater treatment facilities scored high under the Clean Water SRF
ranking system because these projects were a priority under the base
SRF program. However, DEP slightly revised the ranking systems to
ensure Recovery Act SRF program requirements and time frames would be
met. For example, officials told us that they were concerned about
meeting the requirement to reserve 20 percent of Recovery Act funds
for green projects, which includes green infrastructure, water and
energy efficiency, and innovative environmental projects. Therefore,
projects that could qualify as green were ranked higher on the
priority list for Recovery Act funding. In addition, DEP gave priority
to projects that were considered shovel-ready in order to ensure that
they would meet Recovery Act time frames, including that all Recovery
Act SRF project funds be under contract within 1 year.[Footnote 4]
New Jersey also set up favorable financing in order to distribute
Recovery Act SRF and base SRF funding to more subrecipients. In the
past, base SRF projects were funded through a combination of a zero
percent interest and market-rate loans through EIT that each accounted
for 50 percent of the project's cost. Officials told us that based on
U.S. Environmental Protection Agency (EPA) guidance they developed
more favorable loan terms for Recovery Act projects. Specifically, DEP
provided each eligible project a combination of principal forgiveness
loans using Recovery Act funds (50 percent), zero percent interest
loans using Recovery Act funds (25 percent), and market-rate loans
through EIT (25 percent). DEP capped the total amount of Recovery Act
SRF funds for an individual project at $7.5 million, meaning that a
$10 million project would receive $7.5 million in Recovery Act SRF
funds and $2.5 million in market-rate loans administered through
EIT.[Footnote 5] Officials told us they capped this total at $7.5
million per project because they wanted to spread out Recovery Act SRF
funds to a number of projects rather than to only two or three large
projects. In addition, DEP officials told us that for their base SRF
programs, they utilized a state stimulus program initiated by the
Governor's office for projects that did not qualify for Recovery Act
SRF funds under the revised ranking system or because they were unable
to meet deadlines. These projects received a combination of zero
percent interest and market rate loans that were more favorable than
previous years' base SRF funding. (See figure 1 for a summary of the
state's SRF financing mechanisms.) Officials believe that due to the
attractive financing structure of both their Recovery Act SRF and base
SRF programs that they were able to fund more projects. For example,
DEP funded 164 SRF projects in 2009, up from 81 projects in 2008.
Figure 1: New Jersey SRF Loan Terms in Previous Years and Fiscal Year
2009:
[Refer to PDF for image: illustrated table]
Financing Incentives: Previous years‘ base SRF projects;
Principal forgiveness loan: Not Applicable;
Zero percent interest loan: 50%;
Market rate loan: 50%.
Financing Incentives: Fiscal year 2009 base SRF projects;
Principal forgiveness loan: Not Applicable;
Zero percent interest loan: 75%;
Market rate loan: 25%.
Financing Incentives: Recovery Act projects;
Principal forgiveness loan: 50%;
Zero percent interest loan: 25%;
Market rate loan: 25%.
Source: DEP.
[End of figure]
Although DEP revised its priority ranking and financing mechanisms to
ensure that Recovery Act milestones were met, these changes delayed
the implementation of some SRF projects, according to local officials.
For example, according to Long Branch Sewerage Authority officials,
projects that were on the base SRF priority list or that planned to
apply for base SRF funding before the Recovery Act SRF funds were
announced were passed over by new projects seeking the improved
financing structure provided by the Recovery Act SRF program. These
officials stated that projects already in the pipeline should have
been given preference for the Recovery Act funds because they were
considered priority projects before Recovery Act SRF funding became
available. Furthermore, a Beach Haven project engineer told us that he
submitted six applications for Recovery Act funds on behalf of various
localities, but only the Beach Haven project was selected. According
to the project engineer, the Beach Haven project was likely selected
because it helped address the green reserve requirement. However,
according to the project engineer, DEP did not provide guidance on the
criteria it planned to use to select projects to receive Recovery Act
funds when it issued its call for applications. As a result, the
engineer had to wait for DEP to review all of the applications before
receiving authorization to advertise projects that were not selected
to receive Recovery Act funds. The project engineer stated that
although these projects were ultimately funded through the base SRF
program, their implementation was delayed by about 6 months.
New Jersey Met the 1-Year Contracting Deadline, Despite Facing
Challenges:
New Jersey successfully met the 1-year deadline to have 100 percent of
Recovery Act SRF funds under contract by February 17, 2010, but
experienced challenges in meeting this requirement. Specifically, DEP
officials identified the following challenges in meeting the deadline:
* Administering a record number of applications. DEP officials told us
that they put out a statewide call for clean and drinking water
projects in December 2008 in anticipation of receiving Recovery Act
SRF funds and received 421 applications, which was twice the number of
applications that they normally receive for their base SRF programs.
Officials told us that while the influx of applications demonstrated a
statewide need for the funds, it also created an administrative burden
for DEP because of staff retirements and the inability to fill key
positions because of the state's budget situation. To address the
staffing shortage, DEP officials told us they reassigned DEP personnel
from other internal departments to ensure that 100 percent of their
Recovery Act SRF program funds were under contract by the 1-year
deadline, and used EPA consultants to oversee their base SRF program.
DEP officials told us the ability to use EPA consultants to work on
their base SRF program was instrumental in helping New Jersey meet the
1-year deadline.
* Complying with the Recovery Act's Buy American provision. DEP
officials told us that they set internal state deadlines prior to the
February 17th deadline to ensure that any potential savings from
contracts being awarded at prices lower than state cost estimates
could be used for other eligible Recovery Act SRF projects. However,
DEP officials told us that EPA provided guidance on the Buy American
provision late in the application process, which caused confusion for
both DEP and the applicants about eligibility and slowed down the
contracting process. For example, officials from the Long Branch
Sewerage Authority stated that different project equipment may have
been needed to ensure compliance with the Buy American provision and
the guidance should have been provided sooner. Instead, officials told
us they had to go back to their vendors to ascertain compliance, which
was both burdensome and time-consuming. In addition, officials told us
that the Buy American provision is not always the best for
subrecipients because the best equipment for a specific project may
not be American-made.
DEP is Using Existing Processes to Monitor Compliance with Recovery
Act Requirements, but Inconsistencies Exist in Recipient Reporting:
DEP officials told us that they are using existing monitoring
procedures for Recovery Act SRF projects. That is, DEP will continue
to conduct on-site monitoring of all base SRF recipients and Recovery
Act SRF subrecipients on a quarterly basis, as well as conduct
inspections at each quarter completion interval for individual
projects in order to ensure subrecipients are complying with Recovery
Act requirements, providing appropriate documentation, and completing
work in accordance with the project contract. Additionally, DEP
requires SRF subrecipients to hire a project engineer to oversee the
daily aspects of the project, monitor contractors, and approve
contractor invoices. The state, in turn, oversees the engineer and
monitors and approves contract modifications as needed to ensure the
project is meeting the requirements of Recovery Act SRF funding. A
Beach Haven official concurred with this and told us that DEP makes
unannounced site visits to verify construction is proceeding as
planned and prevailing wages are being paid.
DEP provided guidance to localities on recipient reporting, but we
found inconsistencies among subrecipients on what hours need to be
reported. DEP officials told us that they require each subrecipient to
submit a quarterly jobs reporting form on their hours worked,
expressed as full time equivalents (FTE), and provide a narrative
explanation on the types of jobs created 15 days before the end of
each quarter. For example, for the first quarter of 2010, which ended
March 31, they required subrecipients to submit their jobs reporting
information on March 15, for the number of FTEs worked during the
months of December 2009, January 2010, and February 2010. DEP
officials told us that they developed an early reporting deadline to
ensure that subrecipients and DEP met federal quarterly recipient
reporting requirements. However, by reporting one month early, DEP is
collecting FTE data that is inconsistent with how OMB defines a
quarter for recipient reporting purposes and is inconsistent with the
way that other Recovery Act funded agencies report the data.[Footnote
6] Thus, its data will not be comparable to that supplied by other
recipients.
DEP requires subrecipients to report total FTEs for both Recovery Act-
and non-Recovery Act-funded portions of their project, and DEP then
prorates the totals using EPA's SRF reporting databases to calculate
jobs created by Recovery Act SRF funding. Specifically, 75 percent of
the jobs are attributed to the Recovery Act SRF program because 75
percent of the project's costs are funded using Recovery Act SRF
funds.[Footnote 7] Some subrecipients we spoke with told us that
recipient reporting requirements are fairly easy to follow and they
have received adequate guidance from DEP. However, we also found some
inconsistencies among subrecipients on the hours reported. For
example, we contacted additional Clean Water SRF subrecipients about
the hours used to calculate their FTEs.[Footnote 8] In one case, a
subrecipient included hours worked by the project engineer in their
FTE calculation, and in another case, a subrecipient did not include
the project engineer's hours. According to DEP officials, they did not
include engineering hours in the FTE calculation because they were
advised by the EPA consultants overseeing their SRF reporting
databases that because project engineers are not responsible for the
actual construction of the projects, they are not considered prime
contractors. However, based on additional guidance DEP received during
the course of our review, it plans to include project engineers' hours
in the FTE calculation going forward.[Footnote 9]
NJDOT Is Meeting Recovery Act Milestones and Identified Benefits of
the Funds:
FHWA apportioned $652 million in Recovery Act funds to New Jersey for
highway infrastructure and other eligible projects. The federal
government obligated the state's full apportionment of $652 million by
the 1-year deadline of March 2, 2010. As of May 3, 2010, $177 million
had been reimbursed by FHWA. As of May 3, 2010, New Jersey had awarded
79 contracts for $504 million. Of those awarded contracts, 68 awarded
for a value of $494 million were under construction, of which 10
awarded for a value of $17 million were substantially complete.
In accordance with the Recovery Act, states needed to ensure that all
apportioned highway funds, including suballocated funds, were
obligated within 1 year (by March 2, 2010). Although NJDOT met the
Recovery Act's obligation deadline, as the deadline approached, the
agency and other stakeholders, including the FHWA division office,
state Metropolitan Planning Organizations (MPO),[Footnote 10] and
local government units, had concerns about whether the deadline would
be met. As required under the Recovery Act, about $196 million was
suballocated in New Jersey, primarily based on population, for
metropolitan, regional, and local use. As we previously reported, the
state had been slow in having FHWA obligate its suballocation for
projects planned by local agencies.[Footnote 11] Officials' concerns
rested in part with local transportation enhancement projects, such as
bike and pedestrian improvements, whose planning, preparation, and
need for more extensive local involvement and different funding
streams took longer to complete. According to FHWA officials, funds
for the last project were obligated about a week before the deadline.
NJDOT officials stated that the savings from bids being received that
were lower than the state's estimated costs also presented challenges
in meeting the 1-year obligation deadline. According to NJDOT
officials, bids on projects continue to come in 10 to 12 percent lower
than state cost estimates. Lower bids on highway infrastructure and
other eligible projects have produced savings of about $45 million
that NJDOT immediately requested FHWA deobligate and then reprogrammed
for other projects. Officials stated that the $45 million in funds
associated with savings from these contract awards were reprogrammed
for six additional projects--four state highway projects for $40
million and two additional local projects for $5 million--before the
March 2, 2010 obligation deadline. However, NJDOT officials said that
a joint effort with all stakeholders, including the FHWA division
office and state MPOs, was needed to identify local projects that were
ready for construction and could utilize the funds. NJDOT officials
stated that if it continues to realize substantial savings from bids
coming in lower than cost estimates, the agency may be challenged to
identify additional projects that are ready for construction.
Although NJDOT and FHWA Are Not Directly Measuring the Impact of
Recovery Act Funds, Officials Identified Benefits:
According to NJDOT officials, the state of New Jersey currently has 48
state highway projects and 115 county and municipal projects that are
utilizing Recovery Act funds. However, NJDOT and FHWA are not directly
measuring the impact that Recovery Act funds have on the state's
highway system. NJDOT and FHWA have not directly measured impact
because they are not required to and stated that it would be difficult
and time-consuming for the following reasons:
* Recovery Act funds for highway infrastructure improvements are
frequently used in conjunction with the state's matching share, as
well as other federal contributions, so it is difficult to identify
the unique effect of Recovery Act funds;
* it is too early to quantify impact as local projects have not yet
started and most of the state's projects, 42 out of a total of 48, are
ongoing and will not be completed until the end of the calendar year;
and:
* detailed guidance on the type of information to collect and the
portion of a highway project to include would be needed.
Although NJDOT has not measured the impact of Recovery Act funds on
its highway system, NJDOT officials identified several benefits these
funds have had for the state. NJDOT officials said that the biggest
impact of Recovery Act funds was that they allowed the department the
opportunity to address critical infrastructure needs at the state and
local levels and to relieve the funding pressure for over $1 billion
in projects that, prior to the Recovery Act, were deferred from year
to year due to state financial constraints. For example, Recovery Act
funds have allowed NJDOT to rehabilitate or replace deficient bridges
and pavement at both the state and local levels and to make other
repairs and improvements to its highway system (see table 2).
Table 2: NJDOT Summary of Projects Attributed to the Recovery Act:
Type of project: State;
Projects attributed to the Recovery Act[A]:
About 240 lane miles resurfaced or rehabilitated;
45 interstate highway bridges and 2 movable bridges painted;
40 bridge decks preserved;
27 structurally deficient bridges rehabilitated or replaced;
18.6 miles of guide rail installed;
5 priority drainage locations addressed.
Type of project: Local;
Projects attributed to the Recovery Act[A]:
55 pavement projects undertaken;
9 intersections improved;
5 bridges rehabilitated or replaced;
2 bridges painted;
1 dam repaired.
Source: NJDOT.
Note: According to NJDOT, all but a few of these construction projects
were fully funded with Recovery Act funds. Other phases, such as
design, may have been funded with other sources. GAO did not
independently verify the accuracy or completeness of the information
shown in this table.
[A] Other projects addressed with Recovery Act funds include bike/
pedestrian projects; other local guide rail projects; rail
rehabilitation; road realignment and pavement marking; projects to
improve signalization and address Americans With Disability Act
requirements; and projects to renovate historic train stations.
[End of table]
In addition to addressing critical infrastructure needs in the state,
NJDOT identified qualitative impacts of Recovery Act funds. For
example, Recovery Act funds have led to improved interagency
relationships and coordination between federal, state, and local
transportation departments and have increased local recipients'
understanding of the federal funding process. In addition, the state
has modified its internal practices to streamline the project review
and approval process. For example, NJDOT is now taking responsibility
for completing federal environmental documents that were formerly done
by local project recipients and is also loaning them consultants with
technical expertise in developing project plans and knowledge of the
federal application process. Finally, NJDOT officials told us that
they believe that Recovery Act funds are serving the intended purpose
of improving infrastructure and creating jobs.
New Jersey Is On Track to Meet Its Maintenance-of-Effort Requirement
This Year but It May Be an Issue in the Future:
Under the Recovery Act, a state must certify that it will maintain the
level of spending for the types of transportation projects funded by
the Recovery Act that it planned to spend the day the Recovery Act was
enacted. As part of this certification, the governor of each state is
required to identify the amount of funds the state plans to expend
from state sources from February 17, 2009, through September 30, 2010.
[Footnote 12] To meet its maintenance-of-effort requirement, NJDOT
uses expenditures from the state's transportation trust fund. NJDOT
officials stated the trust fund has the bonding capacity to support a
state-funded transportation program and receives its funds primarily
from the state gas tax.
As of February 17, 2010, the state had met 79 percent, or $1.244
billion of its $1.571 billion, maintenance-of-effort requirement. Both
NJDOT and FHWA officials said that the state will not have a problem
meeting the maintenance-of-effort requirement by September 30, 2010.
However, meeting such a requirement may be an issue in the future.
According to NJDOT officials, the state's transportation trust fund
will need additional revenue after June 30, 2011, because it is being
depleted as more and more of the fund is used to service its bond debt
related to highway infrastructure improvements. If the entire trust
fund is used to pay debt service, FHWA officials are concerned that
NJDOT might not be able to satisfy future maintenance-of-effort
requirements unless the trust fund is renewed or another source of
funding is developed. However, FHWA officials stated it is not likely
that New Jersey will take action to raise the gas tax, the primary
source of trust fund revenue, to improve the long-term viability of
the fund.
New Jersey's Public Housing Agencies Met the 1-Year Obligation
Deadline with Little Impact to Regular Public Housing Capital Funds:
New Jersey has 80 public housing agencies that received Recovery Act
formula grant awards. In total, these public housing agencies received
$104 million in Public Housing Capital Fund formula grants to improve
the physical condition of their properties; develop, finance, and
modernize public housing developments; and improve
management.[Footnote 13] As required by the Recovery Act, all 80
public housing agencies obligated 100 percent of their funds by the
March 17, 2010, deadline. As of May 1, 2010, 78 of these public
housing agencies had drawn down a cumulative total of about $41.5
million from the obligated Recovery Act funds (see figure 2). The two
housing agencies we visited had drawn down about $423,000.
Figure 2: Percentage of Public Housing Capital Funds Allocated by HUD
that Have Been Obligated and Drawn Down in New Jersey, as of May 1,
2010:
[Refer PDF for image: 3 pie-charts and 1 horizontal bar graph]
Funds obligated by HUD: 100% ($104,165,767);
Funds obligated by public housing agencies: 100% ($104,165,767);
Funds drawn down by public housing agencies: 39.8% ($41,463,206).
Number of public housing agencies:
Were allocated funds: 80;
Obligated 100% of funds: 80;
Have drawn down funds: 78.
Source: GAO analysis of data from HUD's Electronic Line of Credit
Control System.
[End of figure]
Public Housing Agencies Identified Challenges in Meeting the
Obligation Deadline:
All of New Jersey's public housing agencies met the 1-year obligation
deadline, which required public housing agencies to have 100 percent
of their Recovery Act Public Housing Capital Formula Funds obligated
by March 17, 2010. The Housing Authority of the City of Elizabeth
obligated 100 percent of its Recovery Act funds, or $4.3 million, by
March 1, 2010, and the Housing Authority of Bergen County obligated
100 percent of its Recovery Act funds, or $937,001, by March 10, 2010.
Although both public housing agencies were able to meet the obligation
deadline, they identified various challenges in doing so. For example,
officials from the Housing Authority of the City of Elizabeth stated
that bids for one of their major projects to replace heating, hot
water, and boiler systems came in higher than anticipated and new bids
were solicited. In addition, the procurement process, which officials
stated can take up to 2 years from project design to construction, was
compressed by 1 year in order to meet the obligation deadline. This
condensed timeframe was exacerbated because the housing authority
undertook twice the number of projects that it normally undertakes in
a given year in half the time. An official from the Housing Authority
of Bergen County stated that turnover at the Director of Finance
position in the last year resulted in the loss of expertise at the
management level and delayed the obligation of funds. The Housing
Authority of Bergen County also hired a consulting firm to assess the
physical condition of its public housing properties and identify
needed capital improvements before selecting projects to receive
Recovery Act funds. The consulting firm did not complete its work
until October 2009, which delayed the selection of projects to be
funded. Despite the challenges the housing agencies faced in quickly
obligating their Recovery Act funds, officials from both housing
agencies stated that these funds allowed them to undertake projects
that otherwise would have been deferred or taken years to complete.
HUD Provided Technical Assistance to Ensure Housing Agencies Met the
Obligation Deadline:
Officials from the HUD field office provided ongoing communication and
technical assistance to ensure that public housing agencies in New
Jersey met the 1-year obligation deadline. According to these
officials, e-mail reminders were sent to those housing agencies that
were behind on their obligations, reminding them of the upcoming
deadline. In addition, field office officials provided each of the
public housing agencies with a grant compliance checklist obtained
from HUD headquarters to monitor compliance with Recovery Act
requirements and grant obligations and expenditures. HUD field office
officials stated they conducted on-site reviews for 28 public housing
agencies identified by HUD headquarters. The on-site reviews included
those public housing agencies characterized as troubled by HUD.
[Footnote 14]
Both public housing agencies we visited relied on technical assistance
from the HUD field office to ensure that their Recovery Act funds were
obligated by the 1-year deadline. Specifically, officials from both
housing agencies told us they received assistance from the field
office to ensure that their solicitations for bids contained all of
the necessary information to meet Recovery Act manufacturing, wage,
and workforce requirements. According to an official from the Housing
Authority of Bergen County, HUD field office officials contacted them
on a weekly basis to ensure that they met the March 17, 2010,
obligation deadline. The official stated they will request further
assistance from the HUD field office in the form of a technical file
review once the housing agency begins to expend funds to ensure
continued compliance with Recovery Act requirements.
The Administration of Regular Public Housing Funds Is on Track
Compared to Previous Years:
According to officials from the HUD field office, their ability and
the ability of public housing agencies to administer the regular
public housing capital funds has not been impacted by Recovery Act
requirements.[Footnote 15] According to HUD field office officials,
the process used to administer the Recovery Act funds is the same as
the process used to administer the regular public housing capital
funds in terms of meeting federal requirements. Although the number of
remote and on-site reviews increased significantly compared to prior
years to ensure Recovery Act requirements were met, officials from the
HUD field office stated that they had adequate resources and
experienced staff to complete the additional monitoring and continue
to administer the regular public housing capital funds.
Officials from both public housing agencies we visited stated that
they have been able to administer their regular public housing capital
funds despite additional reporting requirements and the condensed time
frame for obligating Recovery Act funds.[Footnote 16] Officials from
the Housing Authority of the City of Elizabeth stated that the overall
process for administering the Recovery Act funds was the same and that
they pulled forward projects they already had in their 5-year Capital
Plan, so they were able to implement them without compromising their
ability to continue projects under the regular capital fund program.
In addition, the housing agency has received fewer capital funds in
recent years as compared to the past, so it has been able to obligate
the funds fairly quickly. An official from the Housing Authority of
Bergen County stated that the Recovery Act funds may have delayed the
regular capital fund projects by 2 months, but at the time of our
visit, the housing agency was in the process of soliciting bids for
the four projects it plans to undertake with these funds. Officials
from the housing agencies provided their rates of obligation for
capital funds for fiscal years 2006 through 2009 based on the
percentage of funds that were obligated within 1 year of receiving the
funds. The rate of obligation for both housing authorities are on
track for 2009 compared to previous years (see table 3).
Table 3: Regular Public Housing Capital Fund 1-Year Obligation Rates,
for Fiscal Years 2006 to 2009:
2006:
Housing Authority of the City of Elizabeth: 30%;
Housing Authority of Bergen County: 54%.
2007:
Housing Authority of the City of Elizabeth: 63%;
Housing Authority of Bergen County: 30v.
2008:
Housing Authority of the City of Elizabeth: 31%;
Housing Authority of Bergen County: 33%.
2009[A]:
Housing Authority of the City of Elizabeth: 42%;
Housing Authority of Bergen County: 30%.
Sources: Housing Authority of the City of Elizabeth and Housing
Authority of Bergen County.
Note: The date at which public housing capital funds are received by
the housing agencies varies from year to year. The obligation rates
are based on the percentage of funds obligated within 1 year of
receiving the funds.
[A] Obligation rates for fiscal year 2009 are as of February 28, 2010,
for funds received on September 15, 2009.
[End of table]
Although officials from the HUD field office and both housing agencies
stated that the implementation of their regular capital fund projects
are on track, ensuring compliance with Recovery Act requirements will
require greater oversight once construction begins and reimbursements
for expenditures of Recovery Act funds are incurred. As of May 1,
2010, almost 40 percent of Recovery Act funds had been drawn down by
public housing agencies in the state. Continued monitoring and
oversight will be important to ensure Recovery Act fund requirements
are met as funds are expended and delays to regular capital fund
projects do not occur.
CHRP Is Helping Cities Address Staffing Shortages in Their Police
Departments, and Officials Face Few Challenges in Meeting Reporting
Requirements:
Eighteen law enforcement agencies in New Jersey received CHRP grants
that totaled $26.8 million. According to officials from the East
Orange and Trenton Police Departments, fiscal conditions in their
cities, along with lower-than-desired police officer levels, led them
to apply for the CHRP grant to hire new officers. For example,
officials in East Orange told us that their city lost police officers
in the past few years due to attrition and the city was unable to
replace these positions due to a $13 million budget shortfall. Trenton
Police Department officials also cited understaffing due to
retirements and a budgetary shortfall as their reason for applying for
the CHRP grant.
Despite the current fiscal conditions, officials from the East Orange
and Trenton Police Departments are confident they can meet the CHRP
grant's fourth-year retention requirement.[Footnote 17] Officials from
both departments anticipate multiple retirements over the next 3 years
and believe that the officers hired through the CHRP grant can be used
to meet their staffing needs and fill shortages left by these
retirements. However, based on its review of the Governor's Proposed
Fiscal Year 2011 Budget, officials in the Trenton Police Department
expressed concern that the state's fiscal condition could result in
layoffs in their police department for those officers supported by
state and local funds. Specifically, Trenton Police Department
officials told us that potential cuts in state aid for the City of
Trenton could result in a $6 to $7 million cut in funding for the
police department. Although the police department is concerned about
potential cuts to its current staffing levels, Trenton Police
Department officials reiterated that they are not concerned about
meeting the CHRP staffing retention requirement four years from now
because fiscal conditions in the state may eventually improve.
CHRP Grant Helped Recipients Fill Needed Positions and Is Expected to
Enhance Community Policing Efforts:
Officials from the East Orange and Trenton Police Departments told us
that their departments are understaffed and that the CHRP grant
allowed them to fill some of the vacant positions. Specifically, the
East Orange Police Department received $3.2 million to hire an
additional 14 officers, while the Trenton Police Department received
$3.0 million to hire an additional 18 officers for the 3-year period.
Officials from the East Orange Police Department stated they did not
receive their initial request for 18 officers due to high demand for
funding for the grant nationwide. Officials from the Trenton Police
Department told us that they understood they did not receive their
initial request for 21 officers because it exceeded the number of
officers allowed under CHRP grant limits.[Footnote 18] The table below
summarizes the staffing needs at the East Orange and Trenton Police
Departments prior to and after receiving the CHRP grant.
Table 4: Projected Impact of CHRP Grant Funding on East Orange and
Trenton Police Department Staffing Levels:
Police department: East Orange;
Desired number of officers: 300;
Number of officers before CHRP grant: 278;
CHRP grant award (number of officers and grant amount): 14 ($3.2
million);
Officer total with CHRP grant addition: 292.
Police department: Trenton;
Desired number of officers: 371;
Number of officers before CHRP grant: 345;
CHRP grant award (number of officers and grant amount): 18 ($3.0
million);
Officer total with CHRP grant addition: 363.
Source: East Orange and Trenton Police Department data as of February
1, 2010.
[End of table]
The East Orange and Trenton Police Departments have completed some
hiring under the CHRP grant but still have positions that need to be
filled. East Orange officials told us that they have hired 6 of their
14 officers, who started on March 1, 2010, and the officers are
currently going through initial officer training. Officials expect to
have the remaining 8 officers hired by the end of the city's fiscal
year of June 30, 2010, and are actively recruiting to fill these
positions. As of April 1, 2010, East Orange obligated about $1.4
million and expended about $20,606 of their CHRP award. Trenton Police
Department officials told us that as of March 1, 2010, they hired 16
of the 18 officers for which they received funding under the CHRP
grant. These officers began on-the-job training on February 25, 2010,
and reported for official duty on April 1, 2010. They expect to fill
the remaining two positions in the near future. These two positions
were initially filled, but due to an injury and a dismissal, the
police department needs to recruit for these positions again.
Officials told us as of April 1, 2010, the Trenton Police Department
obligated all $3.0 million of its CHRP funds, and $352,289 was
expended.
In addition to increasing staffing levels, officials expect that the
CHRP grant will have a positive impact on their community policing
efforts. East Orange Police Department officials told us that the city
experienced a 76 percent decrease in crime over the last 3 years and
believes the CHRP grant will allow them to have sufficient police
presence to maintain this trend. Trenton Police Department officials
told us the CHRP grant will allow the department to enhance their
community policing efforts beyond core functions such as basic car
patrols and responding to emergencies. These enhanced policing efforts
include implementing foot and bike patrols to target high-crime areas,
having officers attend community events to strengthen neighborhood
relationships, and generally increasing police presence, which they
believe will deter criminals and reduce overall crime.
Recovery Act Recipient Reporting Requirements Posed Few Challenges:
East Orange and Trenton Police Department officials told us despite a
few early technical issues, Recovery Act recipient reporting has been
fairly straightforward, and they do not anticipate any major issues in
the future. East Orange Police Department officials told us that they
had some initial difficulties registering as a new recipient in
www.federalreporting.gov. East Orange Police Department officials
stated that reporting will take on a larger role once their full
allotment of officers is hired because they will have to account for
all of their officers under the CHRP grant, but they do not envision
major difficulties in meeting the reporting requirements. Similarly,
Trenton Police Department officials told us that reporting on
federalreporting.gov has not posed major challenges. However,
obtaining the required data to report this information can be
challenging because the police department needs to coordinate with
city hall to obtain information to satisfy various reporting
deadlines. Specifically, the police department relies on city hall to
obtain the payroll information it needs to calculate CHRP grant FTEs
in order to submit this information to federalreporting.gov within 10
days of the end of the quarter. In addition, the police department
relies on city hall to submit federal financial reports on its CHRP
grants to the U.S. Department of Justice within 30 days of the end of
each quarter. According to Trenton Police Department officials, the
different reporting deadlines and the reliance on city hall to obtain
necessary data, makes it difficult to accurately report on Recovery
Act requirements within 10 days. Thus, officials recommended extending
the reporting deadline from 10 days to 15 days to allow more time to
obtain the required information.
Although Recovery Act Funds Helped Stabilize New Jersey's Budget, the
State Faces a Severe Budget Shortfall That May Affect Localities:
New Jersey received approximately $5 billion in Recovery Act funds,
which the state used, in part, to help stabilize its fiscal year 2010
budget.[Footnote 19] However, despite the Recovery Act funds, New
Jersey is facing a $2.2 billion shortfall in its current-year budget
due to lower-than-projected tax revenues.[Footnote 20] As a result, in
February 2010, the Governor of New Jersey signed an executive order
declaring a fiscal state of emergency to address the estimated $2.2
billion budget gap that remains for fiscal year 2010.[Footnote 21]
Under this emergency initiative, the state took several actions to
close the budget gap, including freezing state spending, reducing aid
to state schools and school districts, re-examining employee salary
structures, and monitoring the collection of revenues and
expenditures. However, New Jersey is currently working to address a
projected $10.7 billion budget shortfall for fiscal year 2011.
While Recovery Act funds had a significant impact on the fiscal year
2010 budget, NJOMB officials do not believe that the impact will be
the same for fiscal year 2011. For example, since the state disbursed
all of the $1.2 billion in SFSF funds it received in fiscal year 2010,
total aid to New Jersey's school districts (approximately 590 school
districts in 21 counties) is expected to decrease by approximately
$820 million even though the fiscal year 2011 spending plan dedicates
almost $70 million in additional state funding to education than in
the previous year. To address the projected budget shortfall for
fiscal year 2011, the Governor's budget proposes to cut spending
across hundreds of state programs and operations, reducing fiscal year
2011 state-supported spending by 5.3 percent. The Governor's proposed
budget also makes reductions to projected growth and assumes the
continuation of increased federal Medicaid funding under the Recovery
Act. Figure 3 summarizes the Governor's proposal to close the
projected $10.7 billion shortfall in 2011.
Figure 3: Proposed Actions to Close the Fiscal Year 2011 Budget Gap:
[Refer to PDF for image: pie-chart]
Elimination of programs: $0.20 billion (2%);
Supported by nonstate resources: $0.42 billion (4%);
Increased federal medicaid funding: $0.49 billion (5%);
Resource solutions: $0.60 billion (6%);
Reductions to base budget: $1.95 billion (18%);
Eliminations or reduction of projected growth: $7.08 billion (65%).
Source: Fiscal year 2011 state of New Jersey, Budget in Brief, March
16, 2010.
[End of figure]
New Jersey's Fiscal Condition Impacts Localities:
The fiscal condition of the state directly impacts the fiscal
condition of localities throughout New Jersey. For example, the
Governor's fiscal year 2011 budget proposes cutting the funds it
provides to localities through its special municipal aid. Furthermore,
officials in some of the localities we visited stated that they expect
reductions in state aid as a result of the state's fiscal condition.
For example, officials in Newark told us that in fiscal year 2009,
they received $45 million in special municipal aid that they will not
receive in fiscal year 2010. Concerned about the impact of the state's
budget on the city's budget, officials noted that the city
administration is developing next-step scenarios, strategies, and
solutions to the city's budget challenges. To date, officials said
that there have not been any cuts in Newark services. Burlington
County officials also stated that the number and amount of grants that
the county typically receives from the state has decreased
considerably. Furthermore, officials stated that their budget has
declined due to decreases in revenue collected, including lower
amounts of fees collected for county services.
New Jersey Localities Primarily Used Recovery Act Funds for
Nonrecurring Projects and Maintaining Services:
Despite the budgetary challenges faced by the localities we visited,
officials in these localities told us that Recovery Act funds did not
help them stabilize their budgets because they generally used Recovery
Act funds for nonrecurring projects and to maintain services. The
following table summarizes characteristics of the state of New Jersey
and the localities we visited.
Table 5: Statistical Data of the State of New Jersey and Select
Localities:
Locality: State of New Jersey;
Population: 8,707,739;
Government type: State;
Unemployment rate: 10.2%;
FY 2009 budget (in millions): $30,000[B];
Total Recovery Act funds (in millions)[A]: $5,000.
Locality: City of Newark;
Population: 278,980;
Government type: City;
Unemployment rate: 15.5%;
FY 2009 budget (in millions): $677;
Total Recovery Act funds (in millions)[A]: $62.
Locality: County of Bergen;
Population: 895,250;
Government type: County;
Unemployment rate: 8.5%;
FY 2009 budget (in millions): $480;
Total Recovery Act funds (in millions)[A]: $16.
Locality: County of Burlington;
Population: 446,108;
Government type: County;
Unemployment rate: 9.6%;
FY 2009 budget (in millions): $224;
Total Recovery Act funds (in millions)[A]: $6.
Locality: County of Cape May;
Population: 96,091;
Government type: County;
Unemployment rate: 16.3%;
FY 2009 budget (in millions): $145;
Total Recovery Act funds (in millions)[A]: $1.
Source: GAO analysis of U.S. Census Bureau, U.S. Department of Labor,
Bureau of Labor Statistics, Local Area Unemployment Statistics, and
state budget data.
Notes: City population data are from the latest available estimate,
July 1, 2008. State and county population data are from the latest
available estimate, July 1, 2009. Unemployment rates are preliminary
estimates for March 2010 and have not been seasonally adjusted. Rates
are a percentage of the labor force. Estimates are subject to
revisions.
[A] Recovery Act fund totals do not include suballocated
transportation funds administered by the counties.
[B] The New Jersey state budget is for fiscal year 2010.
[End of table]
City of Newark Continues to Compete for and Receive Recovery Act Funds:
Officials in the Mayor's office stated that the City of Newark and its
community partners have received almost $360 million in Recovery Act
funds, which exceeded their original goal of $150 million.
Specifically, Newark received $62 million and its community partners
received $297 million.[Footnote 22] Of the $62 million, $46.2 million
was received through Recovery Act competitive grants. According to
officials, Newark has received nearly 26 percent of the competitive
Recovery Act grant funds for which it has applied. For example, a
consortium, of which the city was the lead applicant, received about
$20.8 million for a Neighborhood Stabilization Program 2 grant that
provided funding for the acquisition and redevelopment of foreclosed
and abandoned properties. Officials said that Newark works closely
with its community partners to maximize the use of Recovery Act funds.
For example, the consortium for the stabilization grant involved 16
consortium members, including Newark. If the city becomes aware of a
Recovery Act grant for which a community partner could apply, it
notifies them about the grant and offers assistance in putting the
application together. Officials scan the Internet daily for grant
opportunities, and the city is building a repository of grant
applications that it posts quarterly on the city's Web site.
Officials said that Newark included five nonrecurring Recovery Act
projects in its fiscal year 2009 budget, totaling $11.6 million. For
example, Newark included Recovery Act funding in its 2009 budget for
WIA services for adults, dislocated workers, and youth. These
workforce services provide adult employment and job-training
activities to individuals over the age of 18 and workers who have been
laid off or notified that they will be laid off. Newark is also using
Recovery Act funds to complete projects that it may not have been able
to complete absent the funds. For example, Newark is using its Energy
Efficiency and Conservation Block Grant to create a Climate Prosperity
Plan to strategically guide the city's carbon reduction efforts,
retrofit municipal buildings, install energy-efficient building
management technologies, support green neighborhood approaches, and
provide technical assistance to connect residents and businesses to
available energy efficiency programs.
Recovery Act Funds Help the County of Bergen Provide Vital Services
for Its Citizens:
According to Bergen County officials, the county has received
approximately $16 million in Recovery Act funds. For example, the
Bergen County Department of Public Works received a $7.4 million
Energy Efficiency and Conservation Block Grant to implement various
energy projects throughout the county. In addition, the Bergen County
Division of Community Development received a $4.3 million Homeless
Prevention and Rapid Rehousing Program grant to provide financial
assistance and housing relocation and stabilization services to low-
income citizens. Officials stated that without the Recovery Act funds
it would have taken 5 to 7 years to complete some of the projects. The
Bergen County Department of Human Services used about $30,000 in
Recovery Act funds to train and supervise 100 volunteers to serve on
crisis-response teams for domestic violence victims at municipal
police departments throughout the county. The Recovery Act funds
initially provided funding for the program through June 30, 2010.
According to a department official, the department was recently
notified that it will receive additional Recovery Act funds, along
with other federal funds, to support the program for the remainder of
the year.
County of Burlington Used Its Recovery Act Funds to Maintain a Variety
of Services:
Burlington County received approximately $6 million from the federal
and state governments in Recovery Act funds for 14 programs. Those
funds helped Burlington County provide a number of programs and
services to citizens, including home-delivered meals for the elderly;
homelessness prevention; services for victims of domestic violence;
energy-efficiency and conservation projects; wastewater management
planning; and workforce training for youth, adult, and dislocated
workers. Officials stated that the Recovery Act funds allowed the
county to complete projects that it would not have otherwise been able
to complete absent the funds.
According to a Burlington County official, once the Recovery Act funds
are depleted, the county will discontinue several of the programs, and
some jobs funded through the Recovery Act may be eliminated. The
official noted, however, that the Recovery Act funds did allow the
county to retain nine jobs that were not created by the Recovery Act.
The official went on to say that the county's 2010-2011 budget will
determine whether employees holding these positions will be retained.
One Burlington County official remarked that the number of retirements
due to normal attrition may allow the county to retain some employees,
but as of March 2010, no retirements had been announced.
County of Cape May Used Recovery Act Funds to Support Workforce
Stabilization:
Cape May County received about $1 million in total Recovery Act funds,
which it used for the provision of homebound and congregate meals,
development of a water quality management plan, workforce projects,
and job retention.[Footnote 23] For example, funding for the county
prosecutor's Gangs, Guns, and Narcotics Task Force helped to stabilize
salaries for three full-time employees and to purchase needed
equipment. The prosecutor's office has received federal funding for
the last 6 months of 2009 and expects Recovery Act funds for the first
6 months of 2010 to cover the salaries. According to Cape May County
officials, the county also received $884,841 to support WIA summer
youth employment opportunities. Tourism is the primary industry for
Cape May County but, as officials explained, receiving the funds
during peak tourist season made it difficult to create jobs under the
summer youth program due to competition with the prevailing wages
offered by other employers in the county. Consequently, the county
spent only $182,634 of the funds received, resulting in the seasonal
employment of 40 young adults between the ages of 16 and 24.[Footnote
24] Given the relatively small amount spent and the general stability
of the Cape May economy, officials asserted that the grant could have
been easier to implement in nonpeak tourist months or better used in
other localities.
New Jersey's Accountability Community Plays an Active Role in
Monitoring the State's Recovery Act Funds:
The New Jersey Recovery Accountability Task Force, co-chaired by the
Governor's Deputy Chief of Staff and the State Comptroller, has
primary responsibility for oversight of the state's Recovery Act
funds. In addition, the Office of the State Auditor reviews internal
controls over Recovery Act funds as part of its planned audits of
state agencies. Ongoing oversight activities by these entities over
Recovery Act funds are summarized below.[Footnote 25]
* Recovery Accountability Task Force. The task force plays a
significant managerial role in the oversight of Recovery Act funds and
is responsible for monitoring the distribution of Recovery Act funds
in the state and promoting the effective and efficient use of those
funds. The task force continues to receive updates from state agencies
that are receiving Recovery Act funds during its regularly scheduled
meetings to ensure the agencies are disbursing funds in an efficient
and transparent manner and in accordance with the goals of the
Recovery Act. The task force is also considering taking on a more
proactive role in directing state agencies that have their own audit
departments to conduct audits of their Recovery Act funds. Other
issues discussed in the task force meetings include findings of other
agency audits, federal recipient reporting requirements, and
weaknesses identified in the Single Audit report, coordinated by
NJOMB.[Footnote 26],[Footnote 27]
* Office of the State Comptroller. In addition to the State
Comptroller serving as co-chair on the Recovery Accountability Task
Force, the New Jersey Office of the State Comptroller conducts its own
audits of Recovery Act funds in coordination with the Office of the
State Auditor. For example, the Comptroller's Office issued a report
of its audit of WIA Youth Program Recovery Act funds received by the
Department of Labor and Workforce Development for its summer youth
employment program on April 29, 2010. The audit focused on the
administration and monitoring of both the fiscal and programmatic
components of the program, including compliance with applicable
federal, State, and department policies related to the program; the
department's monitoring and oversight of the program; and the
achievement of federal and State program goals and the measurement of
program outcomes. The audit found, among other things, that although
the program attained its minimum objectives, a lack of detailed
guidance at the federal and State levels resulted in significant
variations in the design and implementation of the program across the
state, such as differences in assessing work readiness skills, which
will make it difficult to assess such outcomes as the level of work
readiness achieved in the state. The state also did not recruit
private sector employers to participate in the program, limiting the
range of work experiences for participants and did not accurately
report FTEs during the first round of required recipient
reports.[Footnote 28] The Comptroller's Office made 7 recommendations
to improve the department's oversight and monitoring of the program.
The department stated that it would take the recommendations into
consideration in the event that the program is funded again in the
future.
* Office of the State Auditor. The Office of the State Auditor issued
a report on its audit of the Department of Community Affairs' Recovery
Act Weatherization Assistance Program on March 26, 2010.[Footnote 29]
The audit focused on the eligibility process at the local and
community-based agencies that administer the program to determine
whether adequate controls were in place to confirm the eligibility of
recipients scheduled to receive weatherization assistance. The audit
found that the controls to determine eligibility were not adequate
because of a lack of supporting documentation for household income and
size, as well as the lack of Social Security numbers maintained by the
weatherization agencies. As a result, ineligible program applicants
were determined to be eligible and could receive weatherization
services. The Office of the State Auditor recommended that the
Department of Community Affairs update its weatherization bulletins to
address the determination of annual income on a consistent basis and
to require the inclusion of Social Security numbers for applicants and
all household members to minimize the potential for fraud and program
abuse. The Office of the State Auditor also recommended that the
Department of Community Affairs strengthen controls and edit checks in
the software system used by weatherization agencies to determine
eligibility, monitor the progress of applications, and track
expenditures. According to the State Auditor, deficiencies identified
in the Weatherization Assistance Program were communicated to the
Department of Community Affairs as the audit was under way and the
department has already begun to implement the recommendations. The
department stated that based on the recommendations, it will now
require Social Security numbers, update and clarify department
policies, and verify applicant wages. The Office of the State Auditor
will continue to monitor the department's progress in implementing the
recommendations and plans to further audit the administration of the
program, as well as some of the homes that have already been
weatherized in the coming months.
State Comments on This Summary:
We provided the Governor of New Jersey with a draft of this appendix
on May 6, 2010. On behalf of and in concert with the Governor's Deputy
Chief of Staff, who serves as co-chair for the Governor's Recovery
Accountability Task Force, the Governor's Policy Advisor for Recovery
Act matters responded for the Governor on May 11, 2010. The official
provided technical comments that were incorporated, as appropriate.
GAO Contacts:
David Wise, (202) 512-2834 or wised@gao.gov:
Gene Aloise, (202) 512-6870 or aloisee@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Diana Glod, Assistant
Director; Nancy Lueke, analyst-in-charge; Kisha Clark, Alexander
Lawrence Jr.; Tarunkant Mithani; and Nitin Rao made major
contributions to this report.
[End of section]
Footnotes:
[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009).
[2] We also obtained follow-up information from the Newark Housing
Authority and Rahway Housing Authority on the impact, if any, the
Recovery Act funds had on their ability to administer their regular
public housing capital funds. These housing agencies had obligated
more than 50 percent of their public housing capital funds as of
January 30, 2010 and were therefore not a focus of this review.
[3] The base SRF program refers to all SRF funds generated through
yearly appropriations, state-match, or repaid loans and does not
include Recovery Act funds.
[4] The Recovery Act required each state to prioritize funds for
projects that are ready to proceed to construction within 12 months of
enactment of the Act (by February 17, 2010) and directed EPA to
reallocate any funds that were not under contract by this date.
[5] If the total project cost is more than $10 million, the balance of
the costs are funded through a combination of zero percent interest
loans using base SRF funds (75 percent) and additional market rate
loans through EIT (25 percent).
[6] According to the Office of Management and Budget's (OMB) December
18, 2009 guidance, recipient reporting for the first quarter of 2010
should include FTEs worked in January, February, and March 2010.
[7] Projects costs that exceed $10 million will have a lower ratio of
FTEs attributed to Recovery Act funding since Recovery Act funds
cannot exceed $7.5 million of a project's total cost.
[8] We contacted Bayonne Municipal Utilities Authority, City of
Newark, and Stony Brook Regional Sewerage Authority about their
experience with recipient reporting.
[9] DEP received updated guidance from the consulting firm that
oversees its EPA Clean Water and Drinking Water reporting databases
stating that FTEs and payroll dollars should be reported for
engineering firms working directly for Recovery Act SRF loan
recipients.
[10] MPOs are federally mandated regional organizations, representing
local governments and working in coordination with state departments
of transportation that are responsible for comprehensive
transportation planning and programming in urbanized areas. MPOs
facilitate decision making on regional transportation issues,
including major capital investment projects and priorities.
[11] GAO, Recovery Act: Status of States' and Localities' Use of Funds
and Efforts to Ensure Accountability, [hyperlink,
http://www.gao.gov/products/GAO-10-232SP] (Washington, D.C.: Dec. 10,
2009).
[12] Recovery Act, div. A, title XII, § 1201(a).
[13] Public housing agencies receive money directly from the federal
government (HUD). Funds awarded to the public housing agencies do not
pass through the state budget.
[14] HUD developed the Public Housing Assessment System to evaluate
the overall condition of housing agencies and to measure performance
in major operational areas of the public housing program. These
include financial condition, management operations, and physical
condition of housing agencies' public housing programs. Housing
agencies that are deficient in one or more of these areas are
designated as troubled performers by HUD and are statutorily subject
to increased monitoring.
[15] A public housing agency generally must obligate all Capital Fund
Program assistance not later than 24 months after the date on which
the funds become available to the public housing agency or the date on
which the public housing agency accumulates adequate funds, and
generally must spend all Capital Fund Program assistance not later
than 4 years after the date on which funds become available to the
public housing agency for obligation. 42 U.S.C. § 1437g(j).
[16] Officials from the Newark and Rahway Housing Authorities also
stated that the administration of their regular public housing capital
funds is on track.
[17] CHRP grants cover 100 percent of grantees' approved expenses and
benefits associated with entry-level salaries for both newly hired and
rehired full-time sworn officer positions for three years. When the
grant term expires, grantees must retain all positions funded through
CHRP for one additional year.
[18] The CHRP grant provided a capping methodology that allowed local
law enforcement agencies to request and have funded no more than 5
percent of their current sworn officer workforce up to a 50-officer
maximum.
[19] We have discussed the Recovery Act's impact on New Jersey's
budget in previous reports. See GAO, Recovery Act: States' and
Localities' Current and Planned Uses of Funds While Facing Stresses
(Appendixes), [hyperlink, http://www.gao.gov/products/GAO-09-830SP]
(Washington, D.C.: July 8, 2009) and Recovery Act: Funds Continue to
Provide Fiscal Relief to States and Localities, While Accountability
and Reporting Challenges Need to Be Fully Addressed (Appendixes),
[hyperlink, http://www.gao.gov/products/GAO-09-1017SP] (Washington,
D.C.: Sept. 23, 2009).
[20] New Jersey's budget fiscal cycle is July 1st through June 30th.
[21] 42 N.J. Reg. 660(b) (March 15, 2010) (Executive Order No. 14).
[22] Community partners are nonprofits, educational institutions,
faith-based, and other community organizations, as well as other
government and quasi-government organizations.
[23] Congregate meals, or group meals, are usually provided in
locations such as senior centers, schools, or churches, whereas
homebound meals are provided to older persons who are homebound due to
illness, an incapacitating disability, or isolation.
[24] According to NJOMB and Atlantic County officials, there is an
agreement in place that states any funding left over from Cape May's
summer program will be pooled for both counties to use until the end
of the Recovery Act funding period on June 30, 2011.
[25] See GAO, Recovery Act: As Initial Implementation Unfolds in
States and Localities, Continued Attention to Accountability Issues Is
Essential, [hyperlink, http://www.gao.gov/products/GAO-09-580]
(Washington, D.C.: Apr. 23, 2009) for additional information about
agencies responsible for the state's Recovery Act oversight efforts.
[26] The Single Audit Act of 1984, as amended (31 U.S.C. §§ 7501-
7507), requires that each state, local government, or nonprofit
organization that expends at least a certain amount per year in
federal awards--currently set at $500,000 by OMB--must have a Single
Audit conducted for that year subject to applicable requirements,
which are generally set out in OMB Circular No. A-133, Audits of
States, Local Governments and Non-profit Organizations (June 27,
2003). If an entity expends federal awards under only one federal
program and when federal laws, regulations or grant agreements do not
require a financial statement audit of the entity, the entity may
elect to have an audit of that program.
[27] New Jersey's Single Audit report for fiscal year 2009 was due on
March 31, 2010. However, NJOMB sent a letter to the Department of
Health and Human Services on March 2, 2010, requesting an extension
until April 30, 2010. NJOMB submitted the audit report to the Federal
Audit Clearinghouse on April 27, 2010.
[28] The Office of the Comptroller examined FTE calculations for the
six highest-funded Workforce Investment Boards in the state.
[29] New Jersey Office of Legislative Services, Office of the State
Auditor, Department of Community Affairs American Recovery and
Reinvestment Act Weatherization Assistance Program Eligibility, April
1, 2009 to December 4, 2009 (Trenton, N.J., 2010).
[End of Appendix XII]
Appendix XIII: New York:
Overview:
This appendix summarizes GAO's work on the sixth bimonthly review of
American Recovery and Reinvestment Act of 2009 (Recovery Act)[Footnote
1] spending in New York. The full report on all of GAO's work in 16
states and the District of Columbia may be found at [hyperlink,
http://www.gao.gov/recovery/].
What We Did:
We reviewed seven programs funded by the Recovery Act--the Clean Water
and Drinking Water State Revolving Funds (SRF), the Edward Byrne
Memorial Justice Assistance Grants (JAG), the Highway Infrastructure
Investment Program, the Weatherization Assistance Program, and three
education programs: (1) the U.S. Department of Education (Education)
State Fiscal Stabilization Fund (SFSF); (2) Title I, Part A of the
Elementary and Secondary Education Act of 1965, as amended (ESEA); and
(3) the Individuals with Disabilities Education Act, as amended
(IDEA), Part B. These programs were selected primarily because they
are receiving significant amounts of Recovery Act funds, recently
began disbursing funds to states, or both. We focused on how funds
were being used, how safeguards were being implemented, and how
results were being assessed. For descriptions and requirements of the
programs we covered, see appendix XVIII of GAO-10-605SP.
Our work in New York also included understanding the state's fiscal
condition and obtaining an update on two of the localities we visited
for our December 2009 report. We visited New York City because it is
the largest city in the state and its unemployment rate is above the
state's rate.[Footnote 2] We also visited Westchester County because
it is a suburban county with an unemployment rate below the state's
rate. Finally, we reviewed the work being done by the accountability
community to oversee the use of Recovery Act funds.
What We Found:
Funds from the programs we reviewed are helping New York state and
local governments stabilize their budgets while also stimulating
infrastructure development and expanding existing programs. The
following summarizes findings for the areas we examined.
* Clean Water and Drinking Water SRFs. New York received about $436.9
million in Recovery Act funding for the Clean Water SRF, more than any
other state, and about $86.8 million in Recovery Act funding for the
Drinking Water SRF. Both SRFs relied primarily on project lists
developed before the Recovery Act was passed to identify eligible
projects. New York took innovative approaches to meeting Recovery Act
requirements, such as partnering with another agency to identify new
and existing green elements in clean water projects and developing a
new grant program to meet the green reserve requirement.[Footnote 3]
We visited three SRF projects--an ecological restoration and improved
stormwater management project in Brooklyn, a wastewater treatment
plant upgrade project in Westchester County, and a new drinking water
system project in Poestenkill. All three projects we visited reported
that their final contract awards were lower than official cost
estimates.
* Highway Infrastructure Investment Program. The U.S. Department of
Transportation's Federal Highway Administration (FHWA) apportioned
$1.12 billion in Recovery Act funds to New York in March 2009 for
highway infrastructure and other eligible projects.[Footnote 4] The
federal government obligated the state's full apportionment by the 1-
year deadline of March 2, 2010. The New York State Department of
Transportation (NYSDOT) reports that the majority of Highway Recovery
Act funds are going towards the rehabilitation and repair of highways
and bridges, as well as bridge replacement and highway reconstruction
projects. As of May 3, 2010, $238 million had been reimbursed by the
federal government. NYSDOT officials report that bids for state
projects were 13 percent lower than the state's original estimated
costs of the projects.
* JAG Program. The U.S. Department of Justice's Bureau of Justice
Assistance (BJA) awarded $110.6 million in Recovery Act JAG funding to
New York. On the basis of a statutory formula, BJA awarded about 60
percent to New York state ($67.3 million), part of which ($43.8
million) was passed on to localities. According to officials, the bulk
of the state funds have been obligated to implement recently enacted
drug law reforms and continue recidivism pilot programs.[Footnote 5]
BJA also awarded $43.3 million in Recovery Act JAG funds directly to
eligible localities in New York.[Footnote 6] We visited two localities-
-New York City and Utica--that received such funds. While, according
to officials, New York City is using nearly its entire direct local
Recovery Act JAG award to retain personnel--such as New York City fire
department and corrections officer positions--Utica is using most of
its direct local Recovery Act JAG funds to purchase law enforcement
equipment.
* Weatherization Assistance Program. The U.S. Department of Energy
(DOE) allocated $394.7 million in Recovery Act funds to New York in
March 2009 for the Weatherization Assistance Program. Through March
31, 2010, New York had weatherized 1,309 units--2.9 percent of its
goal of 45,000 units. In part, this low completion rate reflects the
emphasis in the state plan on weatherizing multifamily projects, which
account for over half of this goal. Multifamily projects typically
take longer to complete than one-to four-family homes. Yet state
officials were confident that they would not only meet but exceed
their goal. They reported that work on an additional 10,546 units was
currently under way and that energy audits--which are required before
weatherization can begin--of an additional 14,008 units had been
completed. Once these 24,554 units are completed, New York will have
completed 57.5 percent of the units needed to meet its goal.
* Education programs. Education allocated $549 million in SFSF
government services funds to New York, most of which the state
appropriated to education programs that were facing cuts prior to the
enactment of the Recovery Act. Although the state has disbursed only
15 percent of the funds (partly because of administrative delays), a
senior state budget official said that she believes the SFSF
government services funds will be obligated by the federal deadline of
September 30, 2011, with disbursements also occurring by federal
deadlines. The New York State Education Department is undertaking new
monitoring of SFSF funds and some additional monitoring of Recovery
Act ESEA Title I, Part A and IDEA, Part B funds.
* State and localities' use of Recovery Act funds. New York's
persistent fiscal challenges have led to a projected budget gap of
$9.2 billion for fiscal year 2010-2011. The Governor's proposed 2010-
2011 Executive Budget, as amended and supplemented by additional gap-
closing recommendations, closes this deficit, but the state's
legislature has not approved a budget. Officials reported that the
fiscal stability of the localities we revisited have been positively
affected by Recovery Act funds. However, localities are concerned
about cuts in state aid and future budget gaps, especially after the
Recovery Act ends.
* Accountability. The Stimulus Oversight Panel,[Footnote 7] Office of
the State Comptroller (OSC), and Economic Recovery and Reinvestment
Cabinet, which is headed by the Governor's office, are primarily
responsible for statewide oversight of Recovery Act funds.[Footnote 8]
In addition, an estimated 90 percent to 95 percent of the state's
Recovery Act funding will be reviewed in the state's Single Audit.
[Footnote 9] The most recent Single Audit, which was issued November
25, 2009, for the fiscal year ending March 31, 2009, found material
weaknesses in internal controls for two Recovery Act programs.
[Footnote 10] These involved 238 duplicate payments totaling $5,950 in
the Recovery Act Unemployment Insurance program and inadequate
identification of Recovery Act funds as separate from regular program
funds for the Medical Assistance Program (Medicaid). The state
implemented a manual process to prevent future duplicate payments and
took steps to improve identification of Recovery Act funds for
Medicaid. According to New York State Inspector General (NYSIG)
officials, NYSIG also has ongoing investigations related to complaints
received through the Stimulus Complaint hotline.
Clean and Drinking Water SRFs in New York Used Innovative Approaches
to Meet Recovery Act Requirements:
New York Used Existing Plans to Identify "Shovel-Ready" Projects and
Met the 1-year Deadline for Having Funds under Contract:
New York received about $436.9 million in Recovery Act funding for its
Clean Water SRF, more than any other state.[Footnote 11] The Clean
Water SRF program is managed jointly by the New York State Department
of Environmental Conservation (NYSDEC) and the New York State
Environmental Facilities Corporation (NYSEFC). New York City received
an allocation of $219.5 million--or over half--of the total state
funding for clean water. Officials reported that New York City has a
large need for clean water funds and has annual capital construction
costs of over $2 billion. New York state also received about $86.8
million in Recovery Act funding for its Drinking Water SRF. The
Drinking Water SRF is managed jointly by the New York State Department
of Health (NYSDOH) and NYSEFC. Both SRF programs relied primarily on
their 2009 Intended Use Plans, which were developed before the passage
of the Recovery Act and are developed annually as part of the base SRF
programs, to select projects that were "shovel ready." New York
awarded Recovery Act funds to 80 clean water projects and 30 drinking
water projects, and met the deadline to have 100 percent of its
Recovery Act funds awarded to projects that were under contract by
February 17, 2010. These projects range from a clean water project to
construct three sludge transportation vessels serving New York City's
water pollution control plants, which was awarded $65.5 million in
Recovery Act funds, to a drinking water project in the Town of
Schodack, New York, which was awarded $812,000 in Recovery Act funds
to interconnect two water districts, replace water pipes, and improve
a pump station.
New York Used Innovative Approaches to Meet the Green Reserve
Requirement:
The Recovery Act required states to reserve at least 20 percent of
their funds for projects that address green infrastructure, water or
energy efficiency, or other environmentally innovative activities. New
York state's SRFs took two innovative approaches to meet the green
reserve requirement:
(1) NYSEFC partnered with the New York State Energy Research and
Development Authority (NYSERDA) to identify new and existing green
elements in clean water projects, such as installing energy-efficient
pumping motors and lighting where appropriate. NYSERDA conducted
project-by-project energy audits to identify green project elements,
both within existing project plans and as potential project
improvements. In total, NYSERDA identified $91 million in energy
efficiency improvements that were incorporated into Recovery Act
projects.
(2) New York used a portion of its Recovery Act funds to create a new
grant program called the Green Innovative Grant Program (GIGP). NYSEFC
officials reported that GIGP was created to identify projects with a
green focus and to assist in meeting the green reserve requirement.
Projects awarded GIGP funds include green roofs, permeable pavement,
rain harvesting, and progressive wastewater treatment processes. GIGP
funded 35 clean water projects with $38.2 million in Recovery Act
funds, including 16 energy-efficiency projects; 13 green
infrastructure projects, such as water harvesting and reuse programs
or wet weather management systems projects; 4 environmental innovation
projects; and 2 water-efficiency projects. GIGP funded 14 drinking
water projects with $6.1 million of Recovery Act funds, including 7
water meter projects, 3 water-efficiency projects, and 4 energy-
efficiency projects.
Officials Reported That Projects Will Benefit the Community; Also,
Contract Awards on Some Recovery Act Projects Have Been Lower Than
Official Cost Estimates:
We visited three (two Clean Water and one Drinking Water) SRF projects
funded by the Recovery Act (see figure 1).
Figure 1: Profile of Recovery Act Clean Water SRF and Drinking Water
SRF Projects Visited by GAO:
[Refer to PDF for image: illustrated table]
Clean water:
Location: Paerdegat Basin, Brooklyn, NY;
Description:
* Ecological restoration of land adjacent to a Combined Sewer Overflow
facility;
* Creation of natural area and ecology parks with walking trails and
viewing platforms;
Total Recovery Act funding/total cost: 14.6 million/$14.6 million;
Total Recovery Act Green Reserve funding: 14.6 million;
Reported impact of project:
* Restoring wetlands, naturally filtering stormwater runoff, and
providing a community amenity;
* Creating an estimated 57.5 jobs a year during construction, and 3
jobs after completion to maintain the park.
Location: Mamaroneck, NY;
Description: Biological nutrient removal upgrades to the Mamaroneck
Wastewater Treatment Plant in Westchester County;
Total Recovery Act funding/total cost: $24.4 million/$55.4 million[A];
Total Recovery Act Green Reserve funding: $2.9 million;
Reported impact of project: Reducing the amount of nitrogen the plant
discharges in the Long Island Sound.
Drinking water:
Location: Town of Poestenkill, NY;
Description:
* New drinking water system to supply 553 residences, an elementary
school, and several businesses;
* Reduce current reliance on private wells (primarily residential),
some of which are contaminated;
Total Recovery Act funding/total cost: $4.8 million/$9.5 million;
Total Recovery Act Green Reserve funding: None;
Reported impact of project:
* Providing safe drinking water and promoting local business
development;
* Generating an estimated 30 full time equivalent jobs.
Sources: GAO analysis; Town of Poestenkill (street sign photograph);
Map Resources (NY map); and GAO (Mamaroneck WastewaterTreatment Plant).
[A] The total project was originally estimated to cost $55.4 million.
Of this, the municipality was to contribute $400,000 for non-SRF-
eligible project components and the remainder was financed through a
$55 million bond that was issued for the project before the contract
was awarded. However, the award was below the estimate at $45.9
million. As a result, the $55.4 million now includes a $9.1 million
contingency, which is funded by base SRF funds, to be used in the
event of cost overruns if needed.
[End of figure]
Officials at each of the projects we visited reported community
benefits from the project and noted benefits from having the project
funded through the Recovery Act. For example, officials at the
Paerdegat Basin project reported that it would not have been funded
without Recovery Act funds. With Recovery Act funds, the project was
not only able to proceed, but project planners were also able to
increase the size of the project and add green components, such as
porous pavement. This project is considered entirely green
infrastructure, since it involves coastal habitat restoration and
infrastructure to improve stormwater management. In the town of
Poestenkill, where we visited a drinking water project, a local
official stated the additional incentive of the Recovery Act helped
focus the project stakeholders to move the long-planned project ahead.
All three of the projects we visited had final bids that came in lower
than the official cost estimates. Subsequently, the lower than
expected contract awards allowed NYSEFC to redistribute Recovery Act
funds to other projects. For example, savings in New York City allowed
NYSEFC to devote Recovery Act funds to projects involving upgrades and
repairs for four water pollution control plants serving communities in
Queens, Brooklyn, and Staten Island.
Internal Audit Departments Have Issued Findings on Recipient Reporting
and NYSEFC is Hiring a Contractor to Provide Recovery Act Compliance
and Monitoring Assistance:
As requested by the state's Economic Recovery and Reinvestment
Cabinet, both NYSDEC and NYSDOH have issued internal audit reports
related to the recipient reporting process for the SRFs.[Footnote 12]
The NYSDOH internal audit of recipient reporting recommended that
NYSDOH (1) rework its process to ensure timely collection and
reporting of all data; (2) implement the planned change to separate
the data collection and review functions; (3) finalize the draft
written procedures; and (4) ensure the procedures are complete, clear,
and updated as necessary. NYSDOH officials report that they have fully
implemented these recommendations and established a process for timely
collection of reporting data, including a formal tracking system.
However, NYSDOH reported that even with multiple follow-ups, a few
recipients were late in reporting and NYSDOH withheld reimbursement as
a means of enticing compliance. A NYSDOH Internal Audit official
indicated she will continue to monitor the Drinking Water SRF Recovery
Act quarterly recipient reports, with an emphasis on the expenditure
and employment information. The audit of NYSDEC's Recovery Act
recipient reporting process contained similar recommendations--to
review and compare reported data with sources to verify the data, to
develop written policies and procedures for recipient reporting data
quality assurance plans, and to periodically review and update the
risk assessments prepared relative to recipient reporting. NYSDEC
developed a corrective action plan in response to these
recommendations. According to a NYSDEC official, NYSDEC does not have
any other internal audits of the Recovery Act SRF funds planned or
under way.
NYSEFC officials reported that NYSEFC issued a Request for Proposals
(RFP) on March 15, 2010, to hire a firm to provide compliance
assistance and monitoring of Recovery Act recipients. According to a
senior NYSEFC official and our review of the RFP, the selected firm's
duties will include bi-monthly project site visits, inspections of
project compliance with Recovery Act requirements, and reporting any
allegations or suspicions of waste, fraud, or abuse to NYSEFC. The
selected firm also will be required to undergo training from NYSIG
with regard to identifying and reporting allegations of mismanagement
of Recovery Act funds. A senior NYSEFC official reported that NYSEFC
would like to have the firm under contract by May 21, 2010, and in the
field visiting projects as early as June 1, 2010.
New York Plans to Meet Recovery Act Requirements for Highway
Infrastructure Investment Program Funds and Is Implementing Changes to
Improve Reporting:
In March 2009, FHWA apportioned $1.12 billion in Recovery Act funds to
New York for highway infrastructure and other eligible projects. The
federal government obligated the state's full apportionment by the 1-
year deadline of March 2, 2010.[Footnote 13] NYSDOT reports that the
majority of Highway Recovery Act funds are going towards the
rehabilitation and repair of highways and bridges, as well as bridge
replacement and highway reconstruction projects. As of May 3, 2010,
$238 million had been reimbursed by FHWA. From March 2 through April
26, 2010, the FHWA deobligated $717,032 of the highway funds for New
York and has until September 30, 2010, to obligate these funds to
other projects. NYSDOT officials attributed the deobligated amounts to
a few specific projects--for example, one project had funds
deobligated because of savings from contract awards that were below
original state cost estimates and another project had issues with a
right-of-way permit.
NYSDOT officials reported that bids for state projects were 13 percent
lower than the state's original estimated costs of the projects.
However, they also pointed out that approximately 16 percent of their
projects were awarded to contractors who submitted bids that were
higher than the state's estimated costs.
New York Is on Track to Meet Its Maintenance of Effort Requirement:
The Recovery Act required the governor of each state to certify that
the state would maintain the level of state spending for the types of
transportation projects funded by the Recovery Act that it planned to
spend the day the Recovery Act was enacted (which is known as a
maintenance of effort--or MOE--requirement). Both FHWA and NYSDOT
officials believe New York will meet its MOE requirement of $2.1
billion. However, NYSDOT officials said the state's multiyear budget
deficits present a significant challenge in doing so.
NYSDOT's Internal Audit Bureau Made Recommendations for Recipient
Reporting Improvements and Plans Further Audit Work:
NYSDOT submits quarterly recipient report information on all of its
Recovery Act highway projects, which is reported on the federal
www.recovery.gov Web site. As requested by the state's Economic
Recovery and Reinvestment Cabinet, NYSDOT's Internal Audit Bureau
completed a review of the department's recipient reporting process.
This audit was focused on highway project reporting and contained 13
recommendations, including recommendations to verify data elements to
a third-party source, perform periodic data reviews, and develop
policies and processes for identifying differences in data posted and
reported. NYSDOT accepted all of the recommendations and is
implementing them as part of the Corrective Action Plan. In addition,
NYSDOT's Internal Audit Bureau is conducting "real-time" audit work of
reported project information, which is shared with NYSDOT officials
for immediate action; a formal audit report is not prepared. As a part
of this work, on April 5, 2010, NYSDOT's Internal Audit Bureau issued
an assessment of the completeness of 42 data fields that regional
offices are required to provide for Recovery Act projects. NYSDOT
officials report that corrective actions are underway in response to
this review. Further, NYSDOT Internal Audit Bureau officials report
that they plan future reviews, including a review of the completeness
of NYSDOT's employment reporting. Additionally, the Internal Audit
Bureau is planning an audit of local Recovery Act projects, but the
timeline and audit plan have not been finalized.
New York's JAG Award Is Planned to Largely Support Implementation of
State Drug Law Reform:
The Department of Justice's BJA awarded New York state and local
governments about $110.6 million in Recovery Act JAG funds. On the
basis of a statutory formula, BJA awarded about 60 percent to New York
state ($67.3 million), part of which ($43.8 million) was passed on to
localities.[Footnote 14] The Division of Criminal Justice Services
(DCJS) administers JAG funds in New York and monitors the allocation
of funds that are passed on to localities based on priorities outlined
in the DCJS strategic plan. BJA awarded the remaining approximately 40
percent ($43.3 million) directly to eligible localities in New York.
New York plans to use the majority of Recovery Act JAG funding to
support corrections (for probation and reentry services), drug
treatment and enforcement, and prosecution and courts program areas
(see figure 2).
Figure 2: State Allocation of JAG Funds by Program Area:
[Refer to PDF for image: pie-chart]
Administration: $810,000 (1%):
Law enforcement: $513,706 (1%);
Program planning, evaluation, and technology improvement: $1,100,000
(2%);
Unencumbered funds: $3,503,210 (5%);
Prosecution and courts: $12,086,534 (18%);
Drug treatment and enforcement: $22,307,239 (33%);
Corrections: $26,960,000 (40%).
Source: New York State Division of Criminal Justice Services data.
[End of figure]
According to officials, the state will use most of its Recovery Act
JAG funds that it did not pass on to localities (the state's share,
which is the remaining 34.84 percent of the state's award) to support
implementation of reforms to the state's Rockefeller Drug Laws (RDL),
which emphasize treatment and prevention instead of incarceration for
drug offenders.[Footnote 15] For example, New York state plans to
spend about $22 million of Recovery Act JAG funds for drug treatment
and enforcement and plans to use a share of the nearly $27 million
allocated for corrections to help implement recent state law changes
eliminating mandatory prison terms for many drug offenses and
increasing judicial discretion to sentence many non-violent drug
offenders to probation. According to New York state officials, some
localities have already obligated and expended JAG funds to support
prosecution projects across the state that would help assistant
district attorneys reduce the number of prison commitments, as
required by the RDL reforms. DCJS officials also said Recovery Act JAG
funding has been critical in helping to maintain innovative pilot
programs, such as prisoner reentry programs that help reduce
recidivism.
Officials Report Using Recovery Act JAG Funding for Programs to Reduce
Recidivism and for Personnel and Equipment Costs:
According to state and local officials in New York, Recovery Act JAG
funding was used to support programs to reduce the pace of recidivism.
For example, six recipients used about $14 million in pass-through
Recovery Act JAG grants from New York state to fund job placement
programs to facilitate hiring returning offenders. In addition,
without direct local Recovery Act JAG funds, New York City officials
said they would have been unable to support the $6.9 million Institute
of Inner Development program, which focuses on combating adolescent
recidivism. The New York City Department of Corrections is tracking
performance benchmarks to evaluate its program and measure the impact
of Recovery Act JAG funds.
The two localities we visited--New York City and Utica--are also using
Recovery Act JAG funds for personnel and equipment costs. (See figure
3.) According to officials, nearly all of New York City's allocation
of $29.1 million in Recovery Act JAG funds has supported personnel
costs, such as New York City fire department and corrections officer
positions. New York City officials reported that without Recovery Act
JAG funds, New York City would have eliminated 158 jobs because of
budget cuts.
Figure 3: Profile of Recovery Act JAG Projects Visited by GAO:
[Refer to PDF for image: 2 photographs, illustrated table]
Location: New York, NY
Description: To largely support essential public safety personnel,
such as emergency call technicians, corrections officers, and fire
department officers. Several agencies, including five district
attorney‘s offices, the Department of Corrections, and the Fire
Department are expected to receive funds. Funds are also planned to
support implementation of Rockefeller Drug Laws reforms;
Total Recovery Act funding: $29.1 million;
* $9.8 million for corrections (33.8 percent);
* $7.9 million for law enforcement (27.2 percent);
* $6.8 million for prosecution and courts (23.3 percent);
* $3.2 million for program planning, evaluation and technology
improvement (10.9 percent);
* $1.4 million for crime victim and witness programs (4.8 percent);
Reported impact of project: Officials estimate that funds enable New
York City to retain 158 jobs that would otherwise have been eliminated
due to budget cuts, and helped create 51 new jobs.
Location: Utica, NY
Description: Funds will be shared between Utica and Rome police
departments and Oneida County Sheriff‘s Department to improve public
safety. Most funds will purchase equipment such as police patrol
vehicles; light bars that provide high intensity light for police
vehicles, and mobile computer systems. Funds will also be spent on
developing a police station in a high crime neighborhood;
Total Recovery Act funding: $271,831;
* $271,831 for law enforcement (100 percent);
Reported impact of project: Officials expect that funds will support
police officer overtime in a high crime neighborhood. Utica used JAG
funds for mobile computer systems in police vehicles.
Sources: GAO analysis; Art Explosion (firefighter photograph); and GAO
(computer systems photograph).
[End of figure]
DCJS Has Ongoing and Completed Audits Related to Recovery Act JAG
Funds:
As requested by New York's Economic Recovery and Reinvestment Cabinet,
DCJS issued an audit report related to its compliance with recipient
reporting requirements. DCJS's audit recommended that it clarify
written procedures for reporting subrecipient expenditures and jobs;
DCJS implemented a Corrective Action Plan as a result. In addition,
according to DCJS officials, they are conducting joint site visits
with the Office of Program Funding and Development to monitor selected
grantees that have relatively large Recovery Act JAG awards. Recovery
Act JAG funds were not reviewed as part of New York's fiscal year 2009
Single Audit.
New York Has Made Progress Using Recovery Act Weatherization Funds,
but the Number of Completed Units Is a Lagging Indicator:
The Recovery Act appropriated $5 billion for the Weatherization
Assistance Program, which DOE is distributing to each of the states,
the District, and seven territories and Indian tribes, to be spent by
March 31, 2012. This program enables low-income families to reduce
their utility bills by making long-term energy-efficiency improvements
to their homes by, for example, installing insulation or modernizing
heating or air conditioning equipment.
Through March 31, 2010, just over 9 months after the DOE approved New
York's weatherization assistance plan, DHCR has obligated $207.5
million of its total allocation of $394.7 million in Recovery Act
Weatherization Assistance Program funds. DHCR has disbursed $60.8
million to the 65 local weatherization agencies in New York to fund
weatherization activities under the Recovery Act and reported that a
total of 1,309 units had been weatherized using these funds. This is
only 2.9 percent of its stated goal of 45,000 units. In part, this low
completion rate results from the emphasis in the state plan on
weatherizing multifamily projects, which account for over half of this
goal. Multifamily projects typically take longer to complete than one-
to four-family homes. This emphasis reflects the fact that two thirds
of New York's income eligible population live in rental housing which,
for the most part, are multifamily residences. DHCR officials were
confident that they would not only meet but exceed their goal.
Although only 1,309 units are counted as completed, DHCR officials
reported that work on 10,546 units was currently under way (see figure
4 for an example of the work being done) and that energy audits--which
are required before weatherization can begin--of an additional 14,008
units had been completed. Once these 24,554 units are completed, New
York will have completed 57.5 percent of the units needed to meet its
goal.
Figure 4: Community Environmental Center Workers Insulate a Home Being
Weatherized in Brooklyn, New York:
[Refer to PDF for image: photograph]
Source: GAO.
[End of figure]
Many Factors Delay Completion of Multifamily Projects:
One explanation for the seemingly slow completion rates through March
31, 2010, is the proportion of planned multifamily projects. In its
approved plan, DHCR estimated that multifamily projects--those that
house more than four families--would constitute over 23,000 of its
stated goal of 45,000 units.[Footnote 16]
Many factors delay completion of multifamily projects. For example,
DHCR requires that an entity approved by DHCR conduct an energy audit
of the residence. While all 65 local weatherization agencies are
approved to conduct energy audits of one-to four-family homes, only
six are approved to conduct their own audits of multifamily projects.
The remaining agencies must contract with a DHCR-approved entity, such
as the Association for Energy Affordability. Local agencies' demand
for more energy audits as a result of the influx of funding from the
Recovery Act has created a backlog, resulting in delays in starting
projects. DHCR is in the process of training local agencies to allow
them to conduct their own energy audits of multifamily projects, but
according to DHCR officials, this process takes at least 1 year. DHCR
hopes to have over 30 local agencies approved to do multifamily energy
audits by the end of the year.
The process is further complicated by DHCR's requirement that the
owners of a multifamily project contribute to payment for the cost of
the project. According to DHCR officials, this requirement is
typically 25 percent of the project's cost, but the exact terms of the
ownership participation have to be negotiated, and until the agreement
is finalized, solicitations for bids on the project cannot be
requested.[Footnote 17]
[See PDF for image]
[End of figure]
Figure 15: Finally, according to DHCR officials, units in a
multifamily project cannot be counted as completed until all work on
each unit is finished and the project has been inspected and accepted
by the local weatherization agency. At one agency we visited, over 100
one-to four-family homes had been weatherized by March 1, 2010. The
director noted that in March, two multifamily projects consisting of
300 units would be completed, raising the agency's production from 100
to over 400 in 1 month.
DHCR Has Taken Steps to Improve the Training of the Weatherization
Work Force:
As of March 31, 2010, DHCR required that all energy auditors and crew
chiefs be certified by the Building Performance Institute.[Footnote
18] In addition, other skilled workers will be required to achieve
certification soon. Although DHCR does not require certification for
all weatherization workers, it does mandate that all workers receive
training in specific areas, such as Lead Safe Practices, and
encourages all local weatherization agencies to provide their workers
with appropriate training. DHCR funds two training centers in the
state operated by the Association for Energy Affordability and the New
York State Weatherization Directors' Association. DHCR officials
stated that, because they recognized a need to increase the pool of
qualified weatherization workers to meet the needs of local
weatherization agencies hiring additional staff, they used Recovery
Act funds to expand the training opportunities for workers at those
centers. To avoid training cancellations, local agencies are charged a
nominal fee for enrolling their worker in the training classes. For
the state fiscal year ending March 31, 2010, 2,688 workers attended
training at those centers compared with 1,138 the previous year--a 136
percent increase.
DHCR Has a Strong Program and Fiscal Monitoring System in Place:
A recent DOE review found that DHCR had a robust monitoring system in
place. As outlined in its approved Weatherization Plan for the use of
Recovery Act funds, DHCR has two sets of inspectors that visit each
local weatherization agency at least once every 2 months. The program
inspectors review the program files to ensure that the agency has
followed program guidelines in determining eligibility and developing
a work scope based upon an energy audit and that the work has been
properly inspected. At each of the three agencies we visited, we
reviewed a sample of program files. In every case, we found evidence
that client eligibility had been determined based on DHCR
guidelines,[Footnote 19] an energy audit had been conducted, the
proposed weatherization measures met program guidelines, that the work
had been done, and both the client and post inspector had signed off
on the project.
In addition, DHCR program inspectors physically visit homes
weatherized by the agency. Typically, DHCR visits 10 percent to 20
percent of the one-to four-family homes weatherized, although DOE only
requires that 5 percent be inspected, and every multifamily project
completed. We accompanied two program inspectors on their on-site
reviews of weatherization projects and found their inspections
consistent with the procedures detailed in the state's Weatherization
Policy and Procedures manual. In one case, the inspector reviewed the
project and found everything in order. However, he recommended that
the local agency add a door between the furnace room and the rest of
the home as an additional step. In another situation, we observed the
inspector discuss with agency staff the best strategy to deal with a
structural situation that arose during an energy audit of a single-
family home. Thus, in addition to their role as program monitors, the
inspectors are a source of technical assistance to agency staff.
In addition to program monitors, according to DHCR officials, DHCR
fiscal inspectors are supposed to do on-site reviews of agency
accounting procedures. During these reviews, they should determine
whether funds are properly accounted for and that the agency has
proper internal controls in place. Further, state officials stated
that they should review inventory practices used by the local agency
to monitor the use of weatherization materials. As a result of these
fiscal reviews, according to DHCR officials, two large recipients of
Recovery Act weatherization funds have been placed under what DHCR
calls "special conditions." This means that before any vouchers can be
submitted to DHCR for reimbursement, the on-site DHCR fiscal monitor
must first review and approve them.
Besides DHCR and DOE reviews, local agencies are subject to other
reviews conducted periodically by other entities, such as OSC and
NYSIG. For example, according to a recent report, NYSIG has conducted
recent reviews of weatherization activities in 11 counties and is
providing fraud awareness training to all local weatherization
agencies.
New York Is Disbursing SFSF Government Services Funds Slowly to
Programs Facing Cuts, and Recovery Act Education Programs Are Being
Monitored:
For this bimonthly report, we reviewed (1) the use of Recovery Act
SFSF government services funds by the New York State Education
Department (NYSED), Division of Budget, and DHCR and (2) the extent to
which the state is monitoring the SFSF and Recovery Act ESEA Title I,
Part A and IDEA, Part B funds to ensure that they are used
appropriately.
New York Primarily Is Using SFSF Government Services Funds for
Education Programs That Faced Cuts, but Disbursements Remain Slow
because of Administrative Delays:
Education allocated 81.8 percent of Recovery Act SFSF funds to states
to support education programs (education stabilization funds) and the
remaining 18.2 percent for public safety and other government services
(government services funds), which may also include education
programs. New York allocated most of its $549 million allocation of
government services funds on education programs that the state had
previously intended to cut and a small amount on a Mortgage
Foreclosure Prevention Program for homeowners. Two education programs
are receiving approximately 80 percent of the government services
funds--special education preschool and tuition assistance for low-
income college students. The following figure shows the programs New
York supported with Recovery Act SFSF government services funds.
Figure 5: Programs Funded by Recovery Act SFSF Government Services
Funds:
[Refer to PDF for image: pie-chart]
Special education preschool: $326.32 million (59%);
Tuition assistance program: $103.76 million (19%);
Public institutions of higher education funding: $37.64 million (7%);
Other: $81.5 million (15%):
- Teachers centers $35 million: (4%);
- Mortgage foreclosure prevention: $21.9 million (2%);
- Educational TV and radio: $11.2 million (1%);
- Roosevelt school district academic improvement grant: $6 million
(1%);
- Teacher-mentor intern program: $4 million (0.5%);
- Math and science high schools: $2.8 million (0.1%);
- Syracuse school district Say Yes to Education: $0.7 million (0.1%).
Source: GAO analysis of New York State Monitoring Plans and Protocols
for the State Fiscal Stabilization Education and Other Government
Services Fund.
Note: The SFSF funds have been programmed for Fiscal Year, School
Year, and Academic School Year 2009-2010 and 2010-2011. Although the
allocations were included in the NY 2010-2011 Executive Budget, they
are subject to change pending enactment of the 2010-2011 State Budget.
[End of figure]
As of April 23, 2010, only $83.8 million, or 15 percent, of the
government services funds allocation had been disbursed. As we
previously reported, New York is disbursing Recovery Act education
funds slowly, relative to other states.[Footnote 20] As of April 16,
New York's rate of 15 percent was one of the lowest rates of funds
disbursed compared with the 56 percent average among the 16 states and
the District of Columbia included in our Recovery Act review.
Nevertheless, a senior state budget official said she believes the
SFSF government services funds will be obligated by the federal
deadline of September 30, 2011, with disbursements also occurring by
federal deadlines, even though the program receiving the most funding--
the special education preschool program--and three other programs had
not disbursed any government services funds as of April 23, 2010.
State officials said this is partly because NYSED typically reimburses
counties for their expenditures on the preschool program approximately
9 months after the start of the school year on July 1. Although the
program begins at the start of the school year, it is funded by the
state's budget for the next fiscal year, which begins on April 1.
Officials are preparing to provide the first reimbursement to counties
by the end of June, after taking additional steps to ensure that only
Recovery Act funds are included in the reimbursement requests. An
official at another program that had not disbursed funds as of April
23, the Mortgage Foreclosure Prevention Program, said they did not
receive authorization from the state to disburse funds until March
2010. As of April 15, they have named 6 of the approximately 60
planned awardees and plan to expend all of the program's funds by
September 2010. We will continue to monitor the SFSF government
services funds disbursement rate for New York.
New York Has Begun to Implement a New SFSF Monitoring Plan and
Undertake Some Additional Monitoring of ESEA Title I and IDEA Funds:
The three state agencies responsible for overseeing the use of SFSF
education stabilization funds and government services funds in New
York--NYSED, the Division of Budget, and DHCR--finalized a new
monitoring plan in March 2010 that includes reviews of all SFSF
applications and quarterly reports, on-site monitoring visits, desk
reviews, and audits of a sample of school districts, community
colleges, and vendors to assess whether subrecipients are spending and
safeguarding the SFSF funds according to Recovery Act requirements.
[Footnote 21] New York provided Education with the monitoring plan on
March 12, 2010 and Education officials are currently reviewing the
plan along with plans from other states. Under the new plan, NYSED
expects to perform site visits at 37 of the state's approximately 700
local educational agencies (LEA) by June 2011; the Division of Budget
plans to visit 7 of the state's 36 2-year colleges by the end of this
summer; and DHCR plans to visit approximately 4 of 60 vendors
receiving Recovery Act mortgage foreclosure prevention grants by next
spring. Thirty of the 37 NYSED visits will oversee the use of all
Recovery Act funds, while the other NYSED, Division of Budget, and
DHCR visits will focus only on SFSF funds. Each agency selected sites
based on risk assessments or random sampling and will require
corrective action if a finding is made. Figure 6 highlights some new
and existing monitoring activities of Recovery Act funds for SFSF,
ESEA Title I, and IDEA by NYSED's program and administrative offices.
Monitoring Recovery Act education funds may pose a challenge as all of
the NYSED offices have lost staff in recent years, which have not been
replaced due to state budget cuts, and have incurred an increase in
workload from the Recovery Act, such as reviewing a greater amount of
grant applications from LEAs and providing support to LEAs struggling
with Recovery Act requirements.
Figure 6 Highlights of Some NYSED Monitoring Activities of SFSF,
Recovery Act ESEA Title I, and IDEA Funds:
[Refer to PDF for image: illustrated table]
NYSED Office: Title I program office;
LEAs apply for grant: Review of Title I applications‘ proposed amount
and use of funds;
LEAs begin requesting reimbursement of expended funds:
* Sample of desk audits;
* Sample of on-site visits;
* Detailed expenditure review on sample of requests for Title I
reimbursements;
LEAs request final reimbursement of expended funds: [Empty].
NYSED Office: IDEA program office;
LEAs apply for grant: Review of IDEA applications‘ proposed amount and
use of funds;
LEAs begin requesting reimbursement of expended funds:
* Quality assurance review of IDEA quarterly report data;
* Sample of desk audits;
* Sample of on-site visits;
* Detailed expenditure review on sample of requests for IDEA
reimbursements;
LEAs request final reimbursement of expended funds: [Empty].
NYSED Office: SFSF program office;
LEAs apply for grant: Review of SFSF applications‘ proposed amount and
use of funds[A];
LEAs begin requesting reimbursement of expended funds:
* Site visit to 12 LEAs on SFSF fund use[A];
* Quality assurance review of Recovery Act quarterly report data[A];
* Recovery Act quarterly reports compared to approved budget;
LEAs request final reimbursement of expended funds: Review all final
requests for SFSF reimbursement.
NYSED Office: Grants Finance;
LEAs apply for grant: [Empty];
LEAs begin requesting reimbursement of expended funds:
* Review LEA cash balances to ensure no excessive interest earned[A];
* Flag LEA for further review if request large reimbursement early in
project timeline;
* Detailed expenditure review on sample of all requests for Recovery
Act reimbursements;
LEAs request final reimbursement of expended funds: Review of final
request for reimbursement.
NYSED Office: Office of Audit Services;
LEAs apply for grant: [Empty];
LEAs begin requesting reimbursement of expended funds: Site visits to
30 LEAs on Recovery Act fund use[A];
LEAs request final reimbursement of expended funds: Audit of final
requests for reimbursement.
Source: GAO analysis of NYSED information.
[A] New monitoring initiative.
[End of figure]
Altogether, NYSED's program and administrative offices will conduct 42
visits to approximately 37 LEAs under its new SFSF monitoring plan.
Five of these LEAs will be visited by more than one office. As of
April 28, 2010, NYSED has published reports on four LEAs selected for
visits and found the following:[Footnote 22]
* Three LEAs had submitted requests to NYSED for reimbursement of
education stabilization funds that included estimated future
expenditures when they should only include expenditures to date.
* All of the LEAs lacked a process for ensuring compliance with
federal cash management requirements to minimize the amount of time
between receiving and disbursing funds and remitting interest on
federal funds earned in excess of $100. However, the audits concluded
that the LEAs did not earn interest exceeding $100 during the period
audited.
* Two of the four LEAs were not regularly preparing personnel activity
reports as federally required for staff salaries that are paid by
multiple funding streams.
However, NYSED ESEA Title I and IDEA program officials said their
offices have not enhanced their existing risk assessment for Recovery
Act funds to account for the greater risk that funds could be misused
because of the large increase in federal funding for these two
programs from the Recovery Act. The ESEA Title I and IDEA program
offices' existing monitoring protocols include reviews of annual
applications for the approximately 700 LEAs, and desk audits and on-
site visits of a sample of LEAs selected using risk based criteria,
according to officials.
Although Recovery Act Funds Provided the State and Localities with
Short-term Budget Support, Shortfalls Persist for Projected Budgets:
New York state continues to face fiscal challenges, and the state's
March 2010 unemployment rate increased to 8.8 percent, compared with
8.2 percent a year ago.[Footnote 23] Since our December 2009 report,
the Governor has proposed a 2010-2011 Executive Budget that closes a
projected $9.2 billion budget deficit through several avenues--
additional federal fiscal relief, spending reductions, and revenue
actions, such as increases in taxes and fees.[Footnote 24] The
Governor's plan recommends spending cuts in the following: school aid
($1.1 billion, or 5 percent year-to-year, decrease), health care ($1
billion, mainly in Medicaid and health care savings), and agency
spending ($1 billion in reductions to state agency operations). The
2010-2011 Executive Budget also proposes $1.2 billion in revenue
actions that increase taxes and fees. However, the state legislature
must approve a budget before the state can finalize it.[Footnote 25]
According to state budget officials, Recovery Act funds have provided
critical short-term support to state finances. For example, the state
has accelerated the use of $391 million in SFSF funds by moving funds
from future fiscal years to address the midyear budget gap in fiscal
year 2009-2010. According to these officials, New York state plans to
address the "funding cliff" that will result when Recovery Act funds
are no longer available as part of the 2011-2012 Executive Budget.
State officials will propose a range of efforts to close total
projected budget gaps that grow from $5 billion in fiscal year 2011-
2012 to approximately $12 billion by fiscal year 2013-2014.
As identified in our December 2009 report, Recovery Act funds have
provided short-term budget relief to several localities throughout the
state. We followed up with two of these localities, New York City and
Westchester County, to update their latest use of funds, current
fiscal condition, and preparation for the phasing out of Recovery Act
funds.[Footnote 26] (See table 1 for locality background information.):
Table 1: Background on Selected Local Governments:
Local government: New York City;
Population: 8,363,710;
Type of local government: City;
Unemployment rate: 9.9%;
Fiscal year 2010 operating budget: $63.5 billion.
Local government: Westchester County;
Population: 955,962;
Type of local government: Suburban;
Unemployment rate: 7.2%;
Fiscal year 2010 operating budget: $1.8 billion.
Source: U.S. Census Bureau and U.S. Department of Labor, Bureau of
Labor Statistics, Local Area Unemployment Statistics. Operating budget
detail obtained from the New York City May 2010 Budget Summary and
Westchester County's 2010 Adopted Summaries County Current Operating
Budgets.
Notes: City population data are from the latest available estimate,
July 1, 2008. County population data are from the latest available
estimate, July 1, 2009. Unemployment rates are preliminary estimates
for March 2010 and have not been seasonally adjusted. Rates are a
percentage of the labor force. Estimates are subject to revisions.
[End of table]
New York City:
Officials report that Recovery Act funds helped maintain fiscal
stability. Since we last visited, New York City received $383 million
in additional Recovery Act formula and competitive grants funds,
bringing the city's total Recovery Act funds to over $7.2 billion for
both capital and noncapital programs. Officials reported that Recovery
Act funds helped offset expenses and maintain the city's fiscal
stability to a significant extent. Programs in education ($1.9
billion) and Medicaid ($2.8 billion) continue to be the major use of
funds.[Footnote 27] Other programs that have recently received funding
include a formula grant for Clean Water SRF projects ($219.5 million)
and competitive grants for the Broadband Technology Opportunities
Program ($22.2 million), the Health Information Technology Extension
Program ($21.7 million), and the Neighborhood Stabilization Program 2
($20.1 million). New York City officials reported applying for 93
competitive grants. Of these, the city was awarded 21, denied 59, and
awaits the decision on 13 grants.[Footnote 28] City officials stated
they often work with local and nonprofit organizations to identify and
apply for Recovery Act funds.
Current and proposed cuts in state aid concern New York City
officials. Although New York City revenues are projected to grow in
fiscal year 2011, officials expect these levels to remain below
prerecession totals. The city closed a projected fiscal year 2011
budget gap of $4.9 billion through planned spending reductions and the
use of the $3.3 billion surplus funds from fiscal year 2010. However,
New York City officials noted that this gap-closure plan does not
account for proposed reductions in state assistance as part of the
state's budget actions. According to officials, the state's proposed
$1.3 billion reduction in funding to New York City would likely result
in potential layoffs in education (approximately 6,400 teachers) and a
reduction of 800 uniformed firefighters through attrition.
Officials are developing a plan for when Recovery Act funds are no
longer available. New York City officials said they are aware of the
funding cliff that will result when Recovery Act funds are no longer
available and are currently working on a plan to prepare for it.
Although the city's January 2010 Financial Plan closes the fiscal year
2011 budget gap, the phasing out of Recovery Act funds will affect the
budgets for fiscal years 2012 through 2014, when deficits above $3
billion each year are expected to persist. New York City officials
reported that any exit strategy from Recovery Act funds depends on the
state's plan as well.
Westchester County:
Officials reported that Recovery Act funds affected fiscal stability.
Since our December 2009 report, the county has received a $4.5 million
Energy Efficiency and Conservation Block Grant (EECBG).[Footnote 29]
However, the main uses of the county's $116.3 million in Recovery Act
funds are upgrading the county's Mamaroneck Wastewater Treatment Plant
($24.4 million) and for Medicaid ($35.6 million).[Footnote 30]
Officials added that Recovery Act funds have helped counter declines
in county revenues and offset some of the increased expenses in social
services. Finally, county officials stated that the county maintains
the application for and operation of many activities within the
county, minimizing their need to coordinate with other local entities
when applying for Recovery Act funds.
Declines in sales tax and state aid continue to affect the county. The
county budgeted about $1 billion in tax revenues for fiscal year 2010,
with an almost even split between receipts from property and sales tax
revenues. Although property tax revenues have held steady during the
downturn, sales tax revenues decreased about 10 percent from fiscal
years 2008 to 2009. Officials added that state aid has been stagnant
or decreasing in recent years, including reductions in funding for
major service areas such as health care and transportation. Officials
also stated that costs of health care and retirement benefits have
increased as well. As a result, officials forecast a fiscal year 2011
budget gap of about 9 percent, even though sales tax revenues in
fiscal year 2010 are predicted to increase 3 percent to 4 percent.
Officials are identifying actions to address future budget gaps.
Westchester County officials reported that they do not have a defined
plan for addressing the funding cliff that will result when Recovery
Act funds are no longer available. However, they are considering
several actions to mitigate the phasing out of funds and future budget
gaps. These actions include current fiscal year cuts to build a
surplus for next year's predicted budget shortfall; possible layoffs;
and addressing structural issues, such as Medicaid funding. Overall,
county officials have sought to minimize future liabilities by
focusing on grant applications for nonrecurring expenses in
transportation and infrastructure over those for social services,
which often require future-year funding.
New York Has Multiple Entities with Recovery Act Oversight
Responsibilities:
In New York, the Stimulus Oversight Panel,[Footnote 31] Economic
Recovery and Reinvestment Cabinet (headed by the Governor's office),
and OSC are primarily responsible for statewide oversight of Recovery
Act funds.[Footnote 32] In addition, an estimated 90 percent to 95
percent of the state's Recovery Act funding will be part of the
state's Single Audit. To date, these oversight entities have completed
audits of a number of Recovery Act programs and reviewed crosscutting
Recovery Act issues, such as civil rights compliance and recipient
reporting.[Footnote 33] According to NYSIG officials, NYSIG also has
ongoing investigations related to complaints received through the
Stimulus Complaint hotline, which will be posted on its Web site when
complete.
Some findings from completed audits or oversight activities have led
to enhanced guidance, revised procedures, or additional training. For
example, NYSIG identified that funds from the Weatherization
Assistance Program and Community Services Block Grants (CSBG)
consistently have been distributed to many of the same community
action groups with limited collective oversight and
accountability.[Footnote 34] Therefore, NYSIG is working to enhance
field reviews by having both state agencies responsible for these
programs--DHCR and the Department of State--and others, when
appropriate, jointly review community action groups. NYSIG also has
developed a training curriculum on fraud, waste, and abuse awareness
to provide on-site to community action groups, not-for-profits, and
localities receiving Recovery Act funding, which will commence shortly.
Another member of the Stimulus Oversight Panel, the Division of Human
Rights (Human Rights), has examined general civil rights compliance
procedures at agencies receiving Recovery Act funds. Human Rights
determined that most agencies were aware of their general obligations
to comply with the applicable civil rights laws and willing to
investigate specific complaints if received. However, it found those
agencies that do collect data about their contractors' employment
practices do not analyze the data or monitor compliance. In response,
it developed a set of best practices for compliance. It also has
referred to a federal agency a possible violation regarding the award
of a Recovery Act contract to a business fraudulently claiming
minority status.
OSC has completed four audits of procurement procedures for Recovery
Act related highway projects at 39 municipalities. These audits found
that the local governments followed sound procurement procedures when
awarding contracts funded with Recovery Act funds. However, OSC,
through its contract-review responsibility, uncovered an issue with
vendor responsibility on a contract awarded by the New York State
Department of Transportation. As a result, NYSDOT officials reported
that OSC initially did not approve the $26.8 million Recovery Act
highway contract and will now require more documentation of vendor
responsibility for all new NYSDOT contracts over $100,000. In
response, NYSDOT officials stated that NYSDOT convened a meeting of
its Contract Review Unit, conducted further investigation, obtained
additional documentation, and added an Integrity Monitoring Agreement.
NYSDOT officials reported that OSC ultimately approved the initially
rejected contract.
The most recent Single Audit, which was issued November 25, 2009, for
the fiscal year ending March 31, 2009, identified about $1.8 billion
in Recovery Act spending through March 31, 2009, in five programs:
Unemployment Insurance, Workforce Investment Act of 1998 (WIA) Adult
Program, WIA Youth Activities, WIA Dislocated Workers, and Medicaid.
The auditors reported material weaknesses in internal controls
concerning 238 duplicate payments totaling $5,950 in the Unemployment
Insurance program and inadequate identification of Recovery Act funds
as separate from regular program funds for Medicaid. The state
implemented a manual process to prevent future duplicate payments and
took steps to improve identification of Recovery Act funds for
Medicaid. According to officials, the Single Audit for the fiscal year
ending March 31, 2010, will focus resources on the Weatherization
Assistance Program and Highway Infrastructure Investment Program,
which received significant Recovery Act funds.
State Comments on This Summary:
We provided the Governor of New York with a draft of this appendix on
May 6, 2010. A representative from the Governor's office responded on
May 10, 2010. We also provided various state agencies and local
officials with the opportunity to comment. In general, they agreed
with our draft and provided some clarifying and technical suggestions
that were incorporated as appropriate.
GAO Contacts:
Susan Fleming, (202) 512-4431 or flemings@gao.gov:
Dave Maurer, (202) 512-9627 or maurerd@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Ronald Stouffer, Assistant
Director; Emily Larson and Tiffany Mostert, analysts-in-charge; John
Davis; Colin Fallon; Christopher Farrell; Sarah McGrath; Joshua
Ormond; Summer Pachman; Anthony Pordes; Frank Putallaz; Glenn Slocum;
and Yee Wong made major contributions to this report.
[End of section]
Footnotes:
[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009).
[2] The U.S. Department of Labor, Bureau of Labor Statistics (BLS)
reported an 8.8 percent unemployment rate for New York state for March
2010. This rate is preliminary and has not been seasonally adjusted.
[3] The Recovery Act required states to reserve at least 20 percent of
their funds for projects that address green infrastructure, water or
energy efficiency, or other environmentally innovative activities.
[4] This does not include obligations associated with over $175
million of apportioned funds that was transferred from FHWA to the
Federal Transit Administration (FTA) for transit projects. Generally,
FHWA has authority pursuant to 23 U.S.C. § 104(k)(1) to transfer funds
made available for transit projects to FTA.
[5] Recidivism is a tendency to relapse into a previous condition or
mode of behavior; especially relapse into criminal behavior.
[6] These are known as direct local awards.
[7] In July 2009, the Governor created a Stimulus Oversight Panel
chaired by the New York State Inspector General (NYSIG) with the state
Division of Human Rights Commissioner, Metropolitan Transportation
Authority Inspector General (IG), and Medicaid IG as members. The
panel meets on a biweekly basis to examine the use of Recovery Act
funds by each of the 22 New York state agencies designated to receive
them, to develop coordination with other state and federal law
enforcement partners responsible for the oversight of Recovery Act
funds, to discuss the progress of investigations whose allegations
were received through the Stimulus Complaint hotline, and to initiate
proactive reviews when deemed necessary.
[8] State program departments and agencies also have internal audit
departments that review Recovery Act funds and localities and transit
or housing authorities play a role in managing some Recovery Act funds
that do not pass through state offices.
[9] Single Audits are prepared to meet the requirements of the Single
Audit Act, as amended, and provide a source of information on internal
control and compliance findings and the underlying causes and risks.
The Single Audit Act requires states, local governments, and nonprofit
organizations expending $500,000 or more in federal awards in a year
to obtain an audit in accordance with the requirements set forth in
the act. A Single Audit consists of (1) an audit and opinions on the
fair presentation of the financial statements and the Schedule of
Expenditures of Federal Awards; (2) gaining an understanding of and
testing internal control over financial reporting and the entity's
compliance with laws, regulations, and contract or grant provisions
that have a direct and material effect on certain federal programs
(i.e., the program requirements); and (3) an audit and an opinion on
compliance with applicable program requirements for certain federal
programs.
[10] A material weakness is a significant deficiency, or combination
of significant deficiencies, that results in more than a remote
likelihood that material noncompliance with a type of compliance
requirement of a Federal program will not be prevented or detected by
the entity's internal control.
[11] This amount includes about $4.4 million in Clean Water Act (CWA)
Section 604(b) Water Quality Management Planning Grants. Section
604(b) of the CWA provides for the reservation of 1 percent of each
state's Clean Water SRF allotment (or $100,000, if that is greater)
each fiscal year to carry out planning under Sections 205(j) and
303(e) of the CWA. New York uses 604(b) grants to fund regional
comprehensive water quality management planning activities. According
to New York officials, the 604(b) program is administered separate
from the SRF program by NYSDEC.
[12] NYSEFC, which helps administer both the Clean Water and Drinking
Water SRFs, does not have an internal audit department.
[13] This does not include obligations associated with $175.5 million
of apportioned funds that were transferred from FHWA to FTA for
transit projects. Generally, FHWA has authority pursuant to 23 U.S.C.
§ 104(k)(1) to transfer funds made available for transit projects to
FTA.
[14] The minimum percentage of Recovery Act JAG funds that New York
state is required to pass through to local governments, referred to as
"state pass-through funds" in this report, is 65.16 percent.
[15] In April 2009, Governor Paterson signed a law to reform the RDL,
which previously required mandatory minimum prison terms for drug
offenses by eliminating mandatory prison sentences for many drug
offenses and emphasizing treatment and prevention. The legislation
also provides judges discretion to divert nonviolent drug-addicted
individuals to treatment alternatives.
[16] DHCR initially set aside $50 million and ultimately awarded $60.3
million of Recovery Act funds to target multifamily housing that have
specific weatherization needs. Much of this targeted housing consists
of large multifamily housing projects whose weatherization requires
special expertise to manage. In recognition of that need, DHCR awarded
grants to nine temporary subgrantees as well as to three local
weatherization agencies to manage these projects.
[17] According to DHCR officials, on April 1, 2010, DHCR amended this
policy by no longer requiring direct ownership investment for housing
under the control of the federal, state, or local government such as
public housing and publicly-assisted private housing.
[18] The Building Performance Institute is a national independent not-
for-profit standards development organization for residential energy
efficiency and weatherization retrofit work.
[19] Clients may be eligible for weatherization based on either
categorical or income eligibility. Clients are categorically eligible
if they receive public assistance, Supplemental Security Income, food
stamps or Home Energy Assistance benefits. DHCR uses the Low Income
Home Energy Assistance Program income guidelines to determine income
eligibility for the weatherization program.
[20] GAO, Recovery Act: Status of States' and Localities' Use of Funds
and Efforts to Ensure Accountability (Appendixes), [hyperlink,
http://www.gao.gov/products/GAO-10-232SP] (Washington, D.C.: Dec. 10,
2009).
[21] The SFSF monitoring plan was required as a condition of accepting
education stabilization funds from the U.S. Department of Education
and was recommended to New York by Education‘s Office of Inspector
General in New York State System of Internal Control over American
Recovery and Reinvestment Act Funds, Ed-OIG/A02J0006 (Washington,
D.C.: Nov. 10, 2009).
[22] NYSED's Office of Audit Services has published these reports on
its Web site at [hyperlink,
http://www.oms.nysed.gov/oas/Audit_Report/SchoolDistricts/SchoolDistrict
s.html]. The school districts reviewed include Saranac Central, Malone
Central, Hamburg Central, and Eden Central.
[23] The U.S. Department of Labor, BLS reported the 8.8 percent
unemployment rate for New York state for March 2010 and the 8.2
percent unemployment rate for March 2009. The March 2010 rate is
preliminary. Both the March 2010 and 2009 rates have not been
seasonally adjusted.
[24] State officials said that the state financial plan includes the
receipt of $1.06 billion in increased federal Medicaid funds for
fiscal year 2010-2011 and another $1.06 billion for fiscal year 2011-
2012. The Medicaid estimate is based upon the state's expectation that
Congress will extend the temporary increase in the Federal Medical
Assistance Percentage under the Recovery Act.
[25] New York state operates on an April 1 through March 31 fiscal
year. At the time of this report, the New York state legislature had
not yet approved the budget details.
[26] New York City operates on a July 1 to June 30 fiscal year while
Westchester County operates on a January 1 to December 31 fiscal year.
[27] New York City officials stated that this amount includes the
receipt of increased federal Medicaid funds. The Medicaid estimate is
based upon the city's expectation that Congress will extend the
temporary increase in the Federal Medical Assistance Percentage under
the Recovery Act.
[28] For more information on specific New York City grants, see the
Clean Water and Drinking Water SRFs and the Edward Byrne Memorial
Justice Assistance Grants sections of this appendix.
[29] Westchester County's Recovery Act funding detail is as of April
6, 2010.
[30] For more information on Westchester County's Mamaroneck
Wastewater Treatment Plant, see the Clean Water and Drinking Water
SRFs section of this appendix.
[31] The NYSIG, state Division of Human Rights Commissioner,
Metropolitan Transportation Authority IG, and Medicaid IG constitute
the Stimulus Oversight Panel.
[32] OSC is responsible for tracking and monitoring the progress of
Recovery Act funding and ensuring that the funding meets established
internal controls. OSC also must review and approve all contracts over
$50,000; OSC does not have pre-approval authority over contracts
awarded by local governments.
[33] The following programs have been audited: Weatherization
Assistance Program (Weatherization), Community Services Block Grants
(CSBG), Highway Infrastructure Investment Program (Highways),
Unemployment Insurance, Workforce Investment Act of 1998 (WIA) Adult
Program, WIA Youth Activities, WIA Dislocated Workers, and Medical
Assistance Program (Medicaid). Additional work is planned for
Weatherization, Highways, WIA, and Medicaid.
[34] NYSIG joined DHCR in fiscal and program audits of 11 community
action groups that received Recovery Act weatherization grants and
participated in a joint fiscal audit with the Department of State of a
community action group receiving Recovery Act CSBG funding.
[End of Appendix XIII]
Appendix XIV: North Carolina:
Overview:
The following summarizes GAO's work for the sixth of its bimonthly
reviews of the American Recovery and Reinvestment Act of 2009
(Recovery Act)[Footnote 1] spending in North Carolina. The full report
covering all of our work in 16 states and the District of Columbia is
available at [hyperlink, http://www.gao.gov/recovery].
What We Did:
Our work in North Carolina included gathering information about eight
programs funded under the Recovery Act--3 education programs, the
Weatherization Assistance Program, the Transit Capital Assistance
Fund, the Dislocated Worker program under the Workforce Investment Act
(WIA), and the Clean Water and Drinking Water State Revolving Funds.
We also reviewed the use of Recovery Act funds for budget
stabilization at the state level and in four local communities, and
reviewed the work of the accountability community in monitoring and
reporting on Recovery Act funds. For descriptions and requirements of
the programs we covered, see appendix XVIII of GAO-10-605SP.
For education, we reviewed North Carolina's monitoring plans for the
expenditure of funds under the State Fiscal Stabilization Fund (SFSF),
Title I of the Elementary and Secondary Education Act of 1965 (ESEA),
as amended, and Part B of the Individuals with Disabilities Education
Act (IDEA), as amended, to ensure local educational agencies (LEA) are
spending the funds in compliance with applicable laws and regulations.
We also reviewed the state's fiscal monitoring activities and visited
two local educational agencies--Winston-Salem/Forsyth County Schools
and Avery County Schools--to review Recovery Act spending and how LEAs
were ensuring appropriate use of the funds. Our review of LEAs
included an examination of local compliance with state directives
governing procurement with Recovery Act funds.
For the Weatherization Assistance Program in North Carolina, we
visited the State Weatherization Office and three community action
agencies that are executing the program (Four County Community
Services, Laurinburg, N.C.; Martin County Community Action,
Williamston, N.C.; and Watauga-Avery-Mitchell-and Yancey Counties
(W.A.M.Y.) Community Action Agency, Boone, N.C.). We interviewed
officials and reviewed guidance and other documents related to the
Weatherization Assistance Program pertaining to monitoring, client
eligibility, and program status. We also reviewed 10 client files from
each of the three community action agencies to determine completeness
of the files and inclusion of required documentation. We also
accompanied weatherization staff as they performed initial audits,
work in progress, and final inspection of nine homes.
For the transit program, we visited the North Carolina Department of
Transportation and AppalCART, a local transportation agency, to follow
up on their oversight of the construction of AppalCART's new transit
facility.
For the Dislocated Workers program, we visited the North Carolina
Department of Commerce to gather information about the state workforce
development board's use of Recovery Act funds for the program. We also
visited two local Workforce Development Boards, Lumber River and
Charlotte-Mecklenburg, to review the use of funds at the local level.
We reviewed the Clean Water and Drinking Water State Revolving Funds
(SRF) under the direction of the North Carolina Department of
Environment and Natural Resources (DENR), which is distributing these
funds; interviewed state officials; and reviewed documents. In
addition we interviewed officials at the Charlotte-Muddy
Creek/Campbell Creek Project for the Clean Water SRF and at the
Perquimans County Winfall Treatment Plant Project for the Drinking
Water SRF. The Clean Water project was in an urban area and a Green
Reserve Requirement Program project. The Drinking Water project was in
a rural community and serves a community in need of drinking water
infrastructure improvements.
To learn more about use of Recovery Act funds to stabilize state and
local budgets, we visited four local communities--Bladen County, the
City of Durham, Halifax County, and the City of Jacksonville. We also
interviewed state budget officials to gather information about the
state's fiscal condition, including challenges to future economic
recovery.
What We Found:
* Education. North Carolina conducts on-going fiscal monitoring of LEA
expenditures under the three Recovery Act programs--SFSF, IDEA Part B,
and ESEA Title I--through its existing processes of electronic systems
checks, yearly desk audits, and selected on-site monitoring as well as
some additional reviews incorporated specifically for SFSF. Although
North Carolina has a range of monitoring processes in place,
weaknesses in LEA monitoring efforts--allowing use of federal funds on
potentially unallowable purchases and failure to follow some
procurement regulations, for example--show the need for the state to
enhance its monitoring efforts related to the use of Recovery Act
funds. We also discussed with North Carolina officials their
experiences with meeting education reform assurances for SFSF and
implementing the Recovery Act School Improvement Grant (SIG) program.
These officials reported that additional funding would help further
enhance and expedite data collection efforts related to meeting the
assurances and that limited time to disburse funds to LEAs is the
primary challenge in implementing the SIG program in the state.
Finally, we found that while North Carolina has processes in place to
collect and review LEA and institution of higher education (IHE)
recipient reporting data, more review by the state is necessary to
ensure that the data local entities submit is accurate. For example,
in the second round of recipient reporting, the state likely missed
under-reporting by one IHE because the state does not collect and
review IHEs' supporting documentation.
* Weatherization. North Carolina weatherization officials have
established several controls to ensure subgrantees' compliance with
Recovery Act requirements, but face challenges meeting monitoring
goals due to staffing levels. Subgrantees reported that slow
allocation and reimbursement of funds by the state agency created
challenges for them in executing the program.
* Transportation. We found that the North Carolina Department of
Transportation and AppalCART, a local transit agency, are experiencing
challenges in providing oversight for the first non-urban, Recovery
Act-funded transit infrastructure project in the state; and the
Recovery Act Buy American and prevailing wage requirements for that
project had not been enforced or monitored.
* Dislocated Workers. The North Carolina Division of Workforce
Development distributed 60 percent of the nearly $44 million in
Recovery Act funds it received for the WIA Dislocated Worker program.
The state trained 38 percent more dislocated workers between July 1,
2009, and December 30, 2009, than in the corresponding period in the
previous year. The local areas we visited--Lumber River and Charlotte/
Mecklenburg had over a 300 percent increase in the number of
dislocated workers who participated in training compared to the same
period in the previous year. State officials told us Recovery Act
funds are primarily being used for individual training accounts, which
individuals use to purchase training.
* Clean and Drinking Water State Revolving Funds. State officials told
us they have met all the Recovery Act deadlines with minimal
challenges including the February 17, 2010, deadline for projects to
be under contract. In the Clean Water SRF Green Reserve Requirement
Program, challenges included applicants failing to obtain needed
easements prior to loan approval and the subsequent need to find other
loan applicants.[Footnote 2] In the Drinking Water Program, officials
noted late or insufficient guidance from the Environmental Protection
Agency (EPA) and the Department of Labor (Labor). The state set a
maximum loan amount of $3 million per project when distributing
Recovery Act funds in order to spread funding across a larger number
of assistance recipients and established principal forgiveness to
encourage participation.
* State and Local Budget Stabilization. The localities we visited used
Recovery Act funds to support a variety of initiatives. Although their
budgets differed in terms of stability, officials in all four
localities told us that the Recovery Act funds they received helped to
start, continue, or speed up a variety of programs and projects in
their jurisdictions. However, they also told us Recovery Act funds
were not enough to affect their government's fiscal stability. Local
officials told us they continue to face difficult budget decisions in
the wake of declining property and sales tax revenues. State officials
told us North Carolina continues to face significant budget
challenges, but reported signs of improvement in revenues for the
first quarter of 2010.
North Carolina Has Incorporated Monitoring of LEAs' Use of Recovery
Act Funds into Existing Education Monitoring Practices and Protocols:
As of April 16, 2010, North Carolina had drawn down about $546 million
(47 percent) of its $1.2 billion in SFSF education stabilization
funds, $82 million (20 percent) of its $258 million in ESEA Title I
funds, and $124 million (38 percent) of its $327 million in IDEA Part
B Recovery Act education funds.[Footnote 3] For these programs, we
reviewed North Carolina's monitoring plans to examine the extent to
which the state is ensuring that LEAs are spending the funds in
compliance with applicable federal laws and regulations. North
Carolina Department of Public Instruction (DPI) officials reported
that the department conducts ongoing fiscal monitoring of expenditures
of federal, state, and local funds for all LEAs through its electronic
systems and yearly desk audits. DPI has incorporated its review of
Recovery Act funds into these existing processes and conducts
additional checks of SFSF funds. Additionally, DPI staff makes on-site
fiscal monitoring visits to selected LEAs to review internal controls
and the extent to which education expenditures comply with federal
laws and regulations. DPI officials said that they have also
incorporated a review of Recovery Act funds into protocols staff use
during on-site visits. Although North Carolina has a range of
monitoring processes in place, weaknesses in LEA monitoring efforts
provide an opportunity for the state to enhance its efforts related to
the use of Recovery Act funds.
North Carolina Monitors Recovery Act Funds through Existing Electronic
Systems and Desk Audits:
DPI officials reported that they monitor LEAs' use of federal
education funds, including Recovery Act funds, through existing
systems and procedures. For example, DPI monitors how LEAs spend funds
through reports of all LEA expenditures that are electronically
generated by LEA accounting systems each month.[Footnote 4] LEAs are
also required to submit budgets to DPI through the state Budget
Utilization and Development (BUD) system, which captures salary data
and information on equipment purchases over $5,000. Each month, DPI
compares the monthly expenditure data that LEAs submit to the data in
BUD. These expenditure data are also run through a series of
electronic checks through DPI's Uniform Education Reporting System to
determine compliance with certain accounting specifications. Once the
expenditure data have passed these checks, they are validated against
the state's Uniform Chart of Accounts to determine which expenditures,
if any, are coded to unallowable or invalid account codes. DPI
officials said that they request corrections from those LEAs that have
expenditures assigned to an unallowable or invalid account code.
Additionally, DPI officials told us that it conducts a variety of
additional monitoring steps. For example, staff in the ESEA Title I
and IDEA Part B program offices conduct routine comparisons of LEA
budgets with expenditures in these programs. DPI officials also said
that the department conducts audits of all expenditures coded as
"certified personnel" (i.e., teachers) through the state's salary and
licensure database to ensure that the employees coded to a specific
grant are paid from an allowable fund and that the employees are
certified with the appropriate licenses. Finally, DPI officials
reported that the department conducts yearly reviews of findings from
the independent Single Audits required for all LEAs.[Footnote 5] DPI
officials said, based on the Single Audit findings, DPI would initiate
actions against LEAs ranging from a request for an action plan from an
LEA to a requirement for the LEA to repay funds.
North Carolina Conducts Some On-Site Monitoring of Recovery Act
Education Funds through Existing Procedures and Conducts Some
Additional Monitoring of SFSF Education Stabilization Funds:
DPI officials said that they also monitor LEAs' use of federal funds,
including Recovery Act funds, through visits to selected LEAs. DPI
officials reported that the ESEA Title I program monitoring schedule
determines the state's schedule for on-site fiscal monitoring of LEA
use and management of all federal funds, including Recovery Act funds.
[Footnote 6] DPI officials reported that they use a risk assessment
protocol for selecting LEAs that is primarily based on ESEA Title I
program issues, including factors such as number of schools designated
as "in improvement"[Footnote 7] but also includes information from LEA
Single Audit findings and other factors.[Footnote 8] LEAs deemed high
risk receive priority for an on-site visit from state ESEA Title I
staff and DPI's fiscal monitoring staff, with the goal of visiting all
LEAs once every 5 years.[Footnote 9] DPI officials reported that as of
April 2010 it had completed fiscal monitoring in all of the 11 LEAs
scheduled for on-site visits for the 2009-2010 year (visits were
scheduled to begin in December 2009 and conclude in April 2010).
However, DPI did not modify its existing risk assessment process for
selecting LEAs for on-site monitoring after the receipt of Recovery
Act education funds. DPI officials told us that they are currently in
year 5 of their monitoring cycle, meaning they are primarily visiting
LEAs with lower risk ratings. They said that they did not redo the
risk assessment based on the receipt of Recovery Act funds, but
decided to stick with their 5-year plan and visit LEAs that have not
been visited. A DPI official explained that because North Carolina
does not provide funding for fiscal monitoring, staff must work within
the Title I schedule in order to use federal funds for fiscal on-site
visits. Further, the North Carolina State Auditor recently reported
that, for the IDEA program, DPI did not alter its monitoring plans to
ensure that subrecipients of Recovery Act funds would be monitored
prior to the expiration of the grant.[Footnote 10] As we have
previously reported, a component of strong internal control is the use
of risk assessments to identify relevant risks for their possible
program impact and establish policies and procedures to manage those
risks. We have also reported that Recovery Act programs should be
reviewed before significant funding is expended.[Footnote 11] A risk
assessment that incorporates consideration of new risks from Recovery
Act funds, would allow DPI to identify those LEAs most at risk for
mismanagement of the funds.
While the fiscal monitors' visits are determined by the Title I
program, a DPI official reported that the scope of the fiscal reviews
conducted by the fiscal monitors goes beyond the scope of the ESEA
Title I office's protocol, which focuses on programmatic aspects of
ESEA Title I. DPI's fiscal monitoring checklist indicates that DPI
staff review the following to ensure compliance with state and federal
requirements:
* documentation certifying time and effort for employees paid with
federal funds,
* maintenance of records for equipment purchased with federal funds,
and:
* staff knowledge about written policies and procedures to ensure
proper internal controls are in place. A DPI official said that
monitors interview key LEA staff to ascertain their familiarity with
these policies.
After conducting fiscal monitoring visits, DPI issues a written report
to LEAs with observations and any recommendations for further action.
DPI officials reported that their ability to conduct the on-site
fiscal monitoring visits to LEAs had been limited because DPI's fiscal
monitoring office had only one staff member assigned to do on-site
monitoring until it hired a second person in February 2010.
As we reported in December 2009, DPI developed a plan to monitor SFSF
education stabilization funds.[Footnote 12] DPI's written monitoring
plan for SFSF funds incorporates all of the state's existing
electronic monitoring and desk audits conducted for all LEAs. In
addition, DPI officials said that in October 2009 they began to
conduct monthly comparisons of LEA budgets and monthly SFSF
expenditures for approximately 30 LEAs. Specifically, officials said
that each month DPI selects five LEAs based on the amount of funding,
five LEAs based on risk factors such as single audit findings, and 20
LEAs at random. Additionally, DPI staff conducts on-site monitoring of
SFSF funds during their visits to monitor the use of other federal
funds.
LEA Weaknesses in Monitoring Use of Federal Education Funds Highlight
Opportunities for North Carolina to Enhance Its Monitoring Efforts:
We visited two LEAs--Winston-Salem/Forsyth County Schools (WSFCS) and
Avery County Schools (ACS)--to review Recovery Act spending and how
the LEAs were ensuring appropriate use of the funds. Specifically, we
reviewed Recovery Act expenditures for SFSF, ESEA Title I, and IDEA
Part B and the supporting documentation, including contracts,
associated with these expenditures.[Footnote 13] We chose WSFCS
because of its sizable allocation of Recovery Act funds and multiple
Single Audit findings regarding its use of federal funds. We chose
Avery County Schools because it had received a monitoring visit from
DPI. A comprehensive account of our findings in both LEAs is outlined
in a letter to DPI.[Footnote 14] Our findings in these LEAs highlight
some opportunities for North Carolina to enhance its on-site
monitoring protocol to address issues arising from LEA use of Recovery
Act funds. Also, our findings indicate that North Carolina's
monitoring efforts could benefit from reassessing LEA risks in light
of additional risks resulting from Recovery Act funds. We have
discussed our findings with DPI officials, and they told us they are
taking actions to enhance their oversight of LEAs based on what we
found.
In February 2010, we visited WSFCS, the fifth-largest LEA in North
Carolina and the recipient of the fifth largest Recovery Act education
award in the state. WSFCS received about $36 million in SFSF, ESEA
Title I, and IDEA Part B Recovery Act funds. The district used these
funds for salaries, equipment purchases, professional development for
teachers, a summer youth program for students in ESEA Title I schools,
and other purposes. According to DPI officials, WSFCS had not received
an on-site fiscal monitoring visit since 2006--the first year of the
current 5-year monitoring cycle. In our review of documentation
supporting WSFCS's Recovery Act expenditures, we found that WSFCS
expended $38,400 of Recovery Act and non-Recovery Act ESEA Title I
funds[Footnote 15] for a 2009 summer program and that some of those
funds may have been used to pay for entertainment expenses, a possibly
unallowable use of the funds.[Footnote 16] The program, operated by
the Housing Authority of Winston-Salem, was designed to assist
students in ESEA Title I schools retain educational gains over the
summer months. Officials affiliated with the summer program told us
that students spent approximately 3 hours, 4 days a week, on
educational activities and one 8-hour day per week on academic field
trips that included trips to science centers, planetariums, and
colleges. However, in our review of documents held by the Housing
Authority of Winston-Salem, we found evidence that the program also
used ESEA Title I, Part A funds to pay for non-academic field trip-
related expenses, including tickets for movies, a water park, fast
food, and other potentially unallowable expenses. For example, field
trips for students included a trip to the movie theatre to see Ice Age
and Terminator for a total of $405.50, and a trip to a water park for
$961.23 (including food and locker rentals). WSFCS officials told us
that, to their knowledge, district staff did not monitor the summer
program but said that they related their expectations for how funds
were to be used to the housing authority officials implementing the
program. After learning about the potentially unallowable expenses
through our visit, WSFCS officials told us that they had submitted a
request to the state to reprogram the $38,400 used from their ESEA
Title I accounts (Recovery Act and non-Recovery Act) to their local
fund. A DPI official said that reprogramming the funds would be one
aspect of a solution the state would review, but that they would also
consider the extent to which an LEA has implemented controls to
prevent similar situations from occurring in the future.
We also visited Avery County Schools (ACS) in February 2010; it was
one of two LEAs that had received a 2009-2010 on-site fiscal
monitoring visit from DPI as of December 2009. ACS received about $1.5
million in SFSF, ESEA Title I, and IDEA Part B Recovery Act funds. ACS
officials reported that the district spent the funds for salaries,
purchases of equipment, and professional development for teachers. For
the district's small purchases of equipment, we found, and ACS
officials agreed that the district did not conduct price or cost
analyses for some purchases, document that they had obtained multiple
bids or price quotes, or document reasons for entering into
noncompetitive contracts. ACS officials said that they are using their
district's existing policies and procedures for purchases using
Recovery Act funds, but also acknowledged that, for at least one of
their contracts, they were out of compliance with the district's
policy regarding the requirement to obtain multiple bids for
expenditures over $10,000. ACS officials said that the district's
expenditure requirement of $10,000 exceeded the state's requirement
and that after our visit, the district revised the local policy so
that it is consistent with the state requirement. DPI's fiscal monitor
reviewed two ACS Recovery Act purchases totaling $104,738.98, and
reported that the invoices included sufficient detail to show that
services were rendered. The report also noted that the procurement
official did not have a clear understanding of written procurement
requirements.
Our initial observation regarding procurement in the two LEAs was that
the districts did not maintain documentation showing competition,
supporting decisions on competitive and non-competitive contracts, or
having conducted price or cost analyses. A senior finance
administrator with DPI said that in response to our initial
observations, the fiscal on-site monitoring visits would be expanded
to include a more robust review of LEA purchases. Specifically,
according to a DPI official responsible for LEA monitoring, DPI's
fiscal monitors have changed their review to interview LEA finance
staff regarding their written policies for procurement and ask these
staff to guide them through the LEA's procedures (written and
unwritten) on procurement. This official said that the interviews
would allow the monitors to assess internal controls on procurement
and ensure that the LEAs are following their own procurement policies
and procedures. This DPI official also reported that monitors request
documentation of multiple bids or price quotes for Recovery Act
purchases to ensure compliance with new state requirements for
Recovery Act purchases. However, DPI officials reported that the
department does not review whether LEAs have documentation required by
the state to support the type of procurement or whether or not a price
or cost analyses was conducted.
North Carolina's DPI Expands LEA Reviews to Ensure Compliance with
State Procurement Directive for Recovery Act Purchases:
In May 2009, according to state officials, North Carolina's Office of
Economic Recovery and Investment (OERI) issued a directive regarding
the use of Recovery Act funds for procurements of goods and services.
According to state officials, this directive states that recipients of
Recovery Act funds are required to advertise contracts for $5,000 or
more and obtain multiple bids or price quotes for Recovery Act
procurements, among other things.[Footnote 17] At the time of our LEA
visits, WSFCS and ACS reported that they were not yet in compliance
with OERI's directive. DPI officials told us that a review of LEA
compliance with the state procurement directive was not, at that time,
a part of their fiscal monitoring protocol. However, DPI has
subsequently added a review of LEA compliance with some aspects of the
OERI directive to its on-site visits.
OERI officials reported that in response to our observations regarding
LEA compliance, they began to increase communication about the
procurement directive among the state's LEAs through e-mail notices
and announcements in statewide meetings with administrators. For
example, in April 2010, OERI sent a letter to LEA superintendents and
finance officers reminding them of the state directives for
procurements with Recovery Act funds and the role DPI would take in
ensuring compliance. Also, in response to our observations, OERI
issued another management directive in April 2010 directing North
Carolina's state agencies to ensure compliance with Recovery Act
procurement requirements. According to state officials, this
management directive requires state agencies to design an audit
program for Recovery Act projects and contracts that includes
regularly scheduled on-site visits and desk reviews. Further, in this
audit program, state agencies are to check subrecipients' compliance
with OERI's May 2009 directives. According to state officials, OERI's
directive required an initial report on April 30, 2010, of state
agencies' plans and a report every 30 days thereafter certifying that
subrecipients used a competitive process for Recovery Act purchases.
OERI also scheduled several technical assistance seminars around the
state to provide guidance on complying with its directives. A DPI
official said that the department plans to ask LEAs to self-report
compliance with OERI's requirements and fiscal monitors will check the
accuracy of these reports during on-site monitoring visits. However,
DPI officials reported that OERI's additional monitoring requirements
pose an administrative challenge to the department given its limited
monitoring staff.
Some Efforts in North Carolina to Fully Meet SFSF Education Reform
Assurances Depend on Additional Federal Funding:
State officials said that some efforts in North Carolina to meet SFSF
education reform assurances were under way prior to the state
receiving Recovery Act funds. Additionally, these officials reported
to us that most of the indicators and descriptors related to these
reform assurances were also under way in the state prior to receiving
funds.[Footnote 18] However, state officials reported to us that
Recovery Act funds have helped to expedite ongoing efforts and
additional federal funding would help further expand their ongoing
efforts, including efforts to collect data linked to the assurances.
When we spoke with North Carolina officials in March 2010, they
described a need for additional federal funding to expand efforts in
teacher quality and to create state systems to collect teacher and
principal performance data and track high school student enrollment in
the state's institutions of higher education as required by Education.
North Carolina's 2009 equity plan for highly qualified teachers states
that North Carolina has a shortage of highly qualified teachers who
are able to teach special education students. The plan attributes the
shortage, in part, to a determination by Education that the test North
Carolina used to qualify teachers was not sufficient for demonstrating
mastery at the secondary level. State officials described wanting to
use Race to the Top funds to expedite the statewide rollout of a pilot
program to address this shortage.[Footnote 19] Without additional
federal funding, these officials said that while they would not
dismantle the program, the statewide rollout will be much slower.
State officials reported that they were also hoping to use Race to the
Top funds to implement a previously piloted, Web-based tracking system
to collect performance data on teachers and principals. North
Carolina's plan for this effort states that the system would cost
North Carolina about $6 million over 4 years. State officials said
that without the additional federal funding, they would continue to
meet this education reform goal but with a more limited system created
by a state agency that would cost $54,700.
North Carolina submitted an application in December 2009 to Education
for a Statewide Longitudinal Data Systems Grant award to fund
development of a statewide longitudinal data system that links high
school data with data from institutions of higher education to allow
the state to track the number of students who enroll in state
institutions of higher education. This system, estimated to cost
$536,000, would build upon North Carolina's current pre-K-12 state
longitudinal data system, which it created using a federal grant.
State officials reported that they intend to use the funds to
accelerate the establishment of the new portion of the system and
thereby create a more streamlined system that allows the various
educational sectors to share data and allows the integration of data
from independent colleges. If North Carolina does not receive a
Statewide Longitudinal Data Systems Grant award, state officials said
that they will be unable to bring independent colleges into a unified
system.[Footnote 20]
Limited Time to Disburse Funds Cited as Potential Challenge to
Implementation of ESEA Title I School Improvement Grants:
Education approved North Carolina's Recovery Act ESEA Title I School
Improvement Grant (SIG) application on April 6, 2010. States are
expected to disburse the majority of SIG funds to LEAs for the 2010-
2011 school year. DPI officials said that the limited amount of time
to get the funds out to LEAs was the most significant challenge in
implementing the grant. North Carolina's SIG application lists June 30
as the deadline for final approval of any LEAs receiving funds. DPI
officials said that they distributed a draft LEA application and held
webinars with LEAs and school administrators to mitigate the effect of
the short period for making awards to LEAs. DPI officials reported
that in order to ensure that LEAs and schools receiving SIG funds have
sufficient technical assistance from the state they are reserving the
permitted 5 percent of their SIG award for administration, evaluation,
and monitoring. DPI officials said that these additional
administrative funds reserved from their SIG grant are minimal but
would pay for the development of a teacher leadership program to train
teacher-coaches. The teacher leadership program will provide
professional development to teachers around the state who will serve
as local resources to assist schools in implementing their
intervention models.[Footnote 21] DPI officials said that by investing
in professional development they will create a sustainable cadre of
coaches to assist schools after Recovery Act funds end.
North Carolina Uses Most of its SFSF Government Services Funds for
State Salaries:
North Carolina received about $258 million in SFSF government services
funds. Table 1 provides a description of the state's spending of these
funds for fiscal years 2009 through 2012. North Carolina's largest
single use of the funds, about $150 million in fiscal year 2009, was
payroll in the state's Department of Correction. In total, salaries
for existing and new staff comprised about $250 million (97 percent)
of North Carolina's total government services funds allocation. About
$5 million of the funds will pay for a new budget system for the state
and about $2.3 million was or is scheduled to be spent on staff and
other efforts related to monitoring. North Carolina's Office of State
Budget and Management (OSBM) administers SFSF government services
funds.
Table 1: North Carolina's Uses of SFSF Government Services Funds for
Fiscal Years 2009 through 2012:
Office of State Budget and Management:
Information technology;
Funding amount: $428,570;
Fiscal year 2009: [Empty];
Fiscal year 2010: [Check];
Fiscal year 2011: [Check];
Fiscal year 2012: [Check].
Payroll for 4 new internal auditors;
Funding amount: $1,261,489;
Fiscal year 2009: [Empty];
Fiscal year 2010: [Check];
Fiscal year 2011: [Check];
Fiscal year 2012: [Check].
New budget system;
Funding amount: $5,170,453;
Fiscal year 2009: [Empty];
Fiscal year 2010: [Check];
Fiscal year 2011: [Check];
Fiscal year 2012: [Check].
OSMB Total;
Funding amount: $6,860,512;
Fiscal year 2009: [Empty];
Fiscal year 2010: [Empty];
Fiscal year 2011: [Empty];
Fiscal year 2012: [Empty].
Office of Economic Recovery and Investment:
Establishment of office (salaries and benefits);
Funding amount: $1,968,136;
Fiscal year 2009: [Empty];
Fiscal year 2010: [Check];
Fiscal year 2011: [Check];
Fiscal year 2012: [Empty].
Monitoring and compliance;
Funding amount: $565,000;
Fiscal year 2009: [Empty];
Fiscal year 2010: [Check];
Fiscal year 2011: [Check];
Fiscal year 2012: [Empty].
Other;
Funding amount: $622,400;
Fiscal year 2009: [Empty];
Fiscal year 2010: [Check];
Fiscal year 2011: [Check];
Fiscal year 2012: [Empty].
OERI Total;
Funding amount: $2,389,246[A];
Fiscal year 2009: [Empty];
Fiscal year 2010: [Empty];
Fiscal year 2011: [Empty];
Fiscal year 2012: [Empty].
Department of Administration:
Payroll for three new contract compliance monitors;
Funding amount: $444,600;
Fiscal year 2009: [Empty];
Fiscal year 2010: [Check];
Fiscal year 2011: [Check];
Fiscal year 2012: [Check].
Department of Correction:
Payroll;
Funding amount: $176,574,356;
Fiscal year 2009: [Check];
Fiscal year 2010: [Check];
Fiscal year 2011: [Check];
Fiscal year 2012: [Empty].
Administrative Office of the Courts:
Payroll;
Funding amount: $66,585,556;
Fiscal year 2009: [Check];
Fiscal year 2010: [Empty];
Fiscal year 2011: [Empty];
Fiscal year 2012: [Empty].
North Carolina Virtual Public School:
Payroll;
Funding amount: $3,877,840;
Fiscal year 2009: [Empty];
Fiscal year 2010: [Check];
Fiscal year 2011: [Empty];
Fiscal year 2012: [Empty].
Total SFSF government services funds;
Funding amount: $256,732,110[B].
Source: North Carolina Office of State Budget and Management.
[A] The total amount incorporates a reduction based on North
Carolina's reservation of 0.3 percent of Recovery Act grants in the
amount of $766,290 for fiscal years 2009 and 2010.
[B] According to an OSBM official, the $1.79 million remaining in
North Carolina's total government services funds award is reflected in
North Carolina's amended SFSF application and allocated for public
safety. At the time of our review, this official noted that the funds
had not yet been included in the budget.
[End of table]
OSBM officials reported that the administration of federal funds is a
new responsibility for the agency. These officials reported that in
order to ensure proper oversight of the state's use of government
services funds, they reviewed the plans of other states, worked with
OSBM internal auditors to design a monitoring protocol, and used
government services funds to hire four temporary internal auditors.
OSBM officials also said that the agency sent information to state
agencies receiving SFSF government services funds to ensure that these
agencies, as subrecipients, were aware of their responsibilities
regarding the uses of the funds. OSBM's written monitoring protocol
describes a three-pronged process for its ongoing monitoring of
government services funds. According to this plan, OSBM budget
analysts will conduct monthly reviews of state agencies' budget and
expenditure reports to verify that the budget and expenditures are
recorded using the correct Recovery Act expenditure code(s), charged
to the correct or authorized accounts, and recorded in the correct
amounts. OSBM also reviews agencies' data for recipient reporting to
ensure that the reported expenditures match the approved budget
allocation and draw down amounts. Finally, OSBM's internal audit staff
conduct periodic reviews of agencies' uses of government services
funds. To ensure accurate accounting for recipient reports, five
audits are scheduled to generally cover fiscal years 2009 through
2012, with the first audit having occurred in March 2010. OSBM's
protocol includes selecting a sample of SFSF government services funds
transactions to test for compliance with state and SFSF requirements
and cash management policies and procedures, as well as testing the
accuracy of performance data for a sample of subrecipients.
North Carolina Faces Challenges in Monitoring Subgrantees' Execution
of the Weatherization Assistance Program, Despite Established
Procedures:
The Recovery Act appropriated $5 billion for the Weatherization
Assistance Program, which the U.S. Department of Energy (DOE) is
distributing to each of the states, the District of Columbia, and
seven territories and Indian tribes, to be spent by March 31, 2012.
North Carolina's Department of Commerce (NCDOC) is the prime recipient
for the federal Weatherization Assistance Program's Recovery Act
funding. The goal of the program is to improve energy efficiency,
increase household safety, and educate the public about maintaining
energy efficiency. The program serves low-income individuals, with a
focus on reaching the elderly, individuals with disabilities, families
with children, and high energy users. Weatherization assistance is
available for single-family homes, apartments, condominiums, and
mobile homes. An applicant for weatherization assistance is not
required to own the home for which the assistance is sought, but the
applicant, if a renter, must have the landlord's permission for the
weatherization work to be done.
NCDOC is responsible for developing the state's Weatherization
assistance plan--currently covering April 1, 2009 through March 31,
2012--and for monitoring and overseeing its implementation. NCDOC
provides funding to 28 subgrantees--22 community action agencies, 3
nonprofit organizations, and 3 local government units--that administer
the program locally and provide weatherization services to all 100
North Carolina counties. As of March 31, 2010, the DOE had provided
North Carolina 50 percent--approximately $66 million--of its 3-year
Weatherization Assistance Program Recovery Act funding.[Footnote 22]
NCDOC retained $13 million of these funds for program administration,
training, and technical assistance for subgrantees, and awarded the
remaining $53 million to the 28 local subgrantees for weatherizing
over 22,000 homes by March 31, 2012. Each subgrantee is required to
submit an annual application that includes a description of the scope
of the weatherization work it will perform, including the number of
homes to be weatherized; an implementation schedule; and a detailed
budget. In order to determine the number of homes to weatherize, North
Carolina's Recovery Office established the average weatherization
expenditure at $4,000 per home, significantly less than the $6,500
federal maximum per home average limit for weatherization. As of March
31, 2010, the subgrantees reported completing 1,715 units--about seven
percent of the total homes identified for weatherization in the DOE-
approved state plan. According to the NCDOC Weatherization Program
Manager,[Footnote 23] the agency recently received approval from the
governor's office to use $6,000 as the average per home limit for
weatherization in North Carolina and plan to amend the state's
weatherization assistance plan to reflect this change.
Subgrantees can use the weatherization funds for a variety of
purposes, including educating clients in safety and energy efficiency;
professionally evaluating homes for safety and energy efficiency;
cleaning, evaluating and tuning heating and air conditioning systems;
insulating attics, floors, and walls; making minor home repairs for
health and safety reasons; installing smoke and carbon monoxide
detectors; and identifying average energy usage and general heat
waste. To identify weatherization measures a home needs, during the
initial home assessment, energy auditors conduct an inspection, which
generally includes a blower door test that reveals where air is
escaping from a home. The final inspector performs a post
weatherization test to determine the effectiveness of the measures
taken. Figure 1 shows exterior and interior views of a blower door
installed for home testing.
Figure 1: Blower Door Set up:
[Refer to PDF for image: 2 photographs]
Outside view of blower door set-up;
Inside view of blower door set-up.
Source: GAO.
[End of figure]
On the left is a photo of the outside view of the blower door set-up
and the photo on the right is of an inside view of the blower set-up.
A basic blower-door system includes three components: a calibrated
fan, a door-panel system, and a device to measure fan flow and
building pressure. The blower-door fan is temporarily sealed into an
exterior doorway using the door-panel system. The fan is used to blow
air into or out of the building, which creates a small pressure
difference between inside and outside. This pressure difference forces
air through all holes and penetrations in the building enclosure. The
tighter the building (e.g. fewer holes), the less air is needed from
the blower door fan to create a change in building pressure.
North Carolina Weatherization Officials Monitor Subgrantees' Use of
Recovery Act Funds but Face Challenges Due to Staffing Levels:
NCDOC officials have established several controls to ensure
subgrantees' compliance with Recovery Act requirements. These controls
include training and certification requirements for subgrantees, NCDOC
monitoring visits that include reviews of subgrantees' client files,
and periodic reports subgrantees are to submit to NCDOC via a
comprehensive, Web-based system called Accountable Results for
Community Action (AR4CA). NCDOC officials also do risk assessments of
subgrantees and require subgrantees to obtain NCDOC approval of
contractors who perform basic weatherization work, such as caulking,
duct sealing, and installing insulation. In addition, subgrantees that
weatherize homes using their own employees or contractors must have
their work inspected by an inspector who was not involved in
performing the work. Further, while the DOE requires comprehensive
monitoring of 5 percent of the units completed during the year, NCDOC
plans to monitor 20 percent. Based on NCDOC's current projections,
15,350 units will be completed during fiscal year 2010, meaning that
NCDOC will have to monitor about 768 units to be compliant with the
federal DOE requirement and 3,070 units to reach its 20 percent goal.
However, as of March 31, 2010, the NCDOC Weatherization Program
Manager said his office had only monitored 11 units weatherized by
subgrantees under the Recovery Act. As of March 31, 2010, NCDOC had
four staff members who are responsible for subgrantee monitoring as
well as subgrantee application and budget reviews, and for conducting
training and technical assistance appropriate to the subgrantees'
level of performance. To meet the monitoring requirement, NCDOC
officials stated four additional monitoring staff members are needed
and, at the time of our visit, were interviewing to hire those
individuals.
Subgrantees Also Report Challenges:
Subgrantees reported that NCDOC's slow funds allocation and
reimbursement created[Footnote 24] challenges for them and could
negatively impact their future allocations. Officials at one
subgrantee we visited, reported that prior to receiving Recovery Act
funds the subgrantee had to use its own funds to acquire two vehicles
needed for expanded weatherization work. Officials at another
subgrantee reported the subgrantee had to secure a $500,000 line of
credit, which it used twice in February 2010 due to slow reimbursement
by the state. The director of this subgrantee said it was able to
secure the credit line using the subgrantee's "good name" in the
community as collateral and pointed out that it was not clear how
subgrantees without this resource would pay their expenses while
waiting for state reimbursement. In addition, subgrantees that do not
meet production goals may receive smaller allocations in the future.
[Footnote 25] NCDOC officials said that in addition to receiving
smaller allocations, such subgrantees may be barred from receiving
advance payments, which could equal up to one-half of total contract
costs, and may be put in reimbursement status whereby they would only
receive funds after they had completed weatherizing homes. NCDOC
officials said that subgrantees not meeting production goals may also
face additional reporting requirements, such as more frequent progress
reports.
Requirements for Transit Infrastructure Project Were Not Monitored or
Enforced:
The Federal Transit Administration (FTA) has apportioned $33.1 million
in Transit Capital Assistance Funds for nonurbanized areas in North
Carolina.[Footnote 26] The North Carolina Department of Transportation
(NCDOT) is the primary recipient of those funds and is responsible for
allocating and distributing those funds to individual transit agencies
in nonurbanized areas. NCDOT is using about $9.1 million of those
dollars to fund 8 transit infrastructure construction projects. Only
one of those projects--the AppalCART transit facility--had begun the
construction process as of April 1, 2010. This project, which we
previously reported on in December 2009,[Footnote 27] is a new office
and maintenance facility for AppalCART, the transportation authority
serving all of Watauga County in North Carolina. AppalCART was able to
quickly utilize these funds because it had already completed a
prequalification process for eligible bidders and it had designed the
project before the Recovery Act went into effect on February 17, 2009.
AppalCART officials told us that, in anticipation of receiving
Recovery Act grant funds, AppalCART advertised for bids on February
18, 2009, opened bids on March 12, 2009, signed a contract with the
contractor on May 29, 2009, and began work in June of 2009.[Footnote
28]
In our review of the AppalCART project, we found that Recovery Act and
federal-aid contracting requirements were included in the bid and
contract documents, but not all of the requirements were being
enforced or monitored. NCDOT officials told us they assisted AppalCART
in the bidding and award process and provided contract provisions to
make sure federal and Recovery Act requirements were included in the
bid documents and contract. Our review showed, and NCDOT officials
confirmed, that the Buy American and minimum prevailing wage
provisions required by the Recovery Act were included in the contract,
and NCDOT officials told us that while the bid documents did not
include specific Recovery Act requirements--because they were created
before the FTA published Recovery Act guidance in the Federal
Register--they did include the customary FTA procurement requirements
for Buy America and prevailing wages.[Footnote 29] However, we found,
and AppalCART officials confirmed, that the Buy America requirements
were not being enforced. Specifically, neither AppalCART nor NCDOT had
made any checks to ensure that the steel being used on the project met
the Buy America requirements. In addition, neither had checked to
ensure that workers were being paid at least the minimum prevailing
wages, as required. Specifically we found, and NCDOT and AppalCART
officials confirmed, the following:
* Prior to our review, NCDOT and AppalCART had not been checking to
see if the steel being used on the project met the Buy America
requirements included in the contract. Steel certifications sent to us
by AppalCART for the project indicated, and the structural steel
vendor verified, that some of the steel erected on the site was made
in Canada.
* Even though an official for the project's contractor had certified
in its bid documents that the firm would meet the Buy America
requirements, an official of the contractor's structural steel vendor
stated the steel vendor was not aware of the Buy America requirements,
and the firm had used some steel for the project the origin of which
was not tracked. As a result, the official of the steel vendor stated
he could not verify for some of the steel used, whether or not it was
made in the United States.
* The Recovery Act also requires, and the contract called for, the
contractor's and subcontractor's workers to be paid at least
prevailing wages as determined by the Secretary of Labor in accordance
with subchapter IV of chapter 31 of title 40, United States Code.
However, AppalCART officials had not seen the minimum wage rates until
after our inquiry and both NCDOT and AppalCART had not, prior to our
review, made inquiries to the contractor, subcontractors, or workers
if they were being paid in accordance with the act.
* NCDOT had not developed written guidance regarding how the
nonurbanized area transit agencies should provide oversight of the Buy
America or prevailing wage requirements for the projects.[Footnote 30]
NCDOT officials told us since our review that they developed and
provided to AppalCART a "materials received report" for the transit
agency to use in documenting current and future payment requests, to
show that the materials meet the Buy America requirements. In
addition, since our review, they have utilized an audit program
developed by NCDOT's External Audit Branch to examine AppalCART's
compliance with Recovery Act requirements which identified several
areas of needed monitoring and oversight improvement including
prevailing wage verification, Buy America verification of materials,
change order approval process, and inclusion of Recovery Act special
provisions in all subcontractor agreements. FTA officials told us that
they rely on contractors and FTA grantees to perform due diligence in
complying with the Buy America requirement, and while the contractor
is responsible for certifying compliance, or non-compliance, the
grantee is responsible for assessing the validity of the
certification, and that FTA can investigate compliance when
petitioned. FTA officials told us they also conduct some oversight
reviews to assess the practices of their grantees.
NCDOT and AppalCART officials had plans to provide oversight of the
project, but both agencies had challenges providing that oversight. As
we reported in December 2009, NCDOT officials told us that their
oversight for their nonurbanized area projects would generally include
periodic site visits, reviewing and approving key steps in the
contracting process, review of contract documentation, progress
reviews, assistance on project management, and assistance on Recovery
Act reporting requirements. NCDOT officials told us that despite a
shortage of staff, they had plans to provide oversight of the project
through an existing services agreement for engineering services with a
private firm. However, NCDOT was unable to move forward with this
service agreement due to a North Carolina Office of Economic Recovery
and Investment (OERI) management directive issued in January 2010,
which clarified that state agencies are prohibited from utilizing
existing agreements of this type for Recovery Act work because they
want to ensure that the goods and services are competitively procured,
and that the existing agreements met the Recovery Act requirements.
NCDOT officials told us OERI gave them permission to use an existing
limited services contract, 2 months later, in March 2010. As of May
17, 2010, the NCDOT was still developing the scope of the engineering
services agreement with the private firm, based on the audit tool they
have developed for Recovery Act projects, but expected to give the
firm a notice to proceed as early as May 28, 2010. AppalCART also
faced challenges providing oversight. For example, an AppalCART
official told us that its project manager had left December 31, 2009,
leaving them without a project manager until they recruited a new
project manager, who began May 1, 2010.
NCDOT and AppalCART have had additional challenges resulting in
AppalCART not being reimbursed for the work completed to date and
incurring unplanned interest costs as a result. A NCDOT official told
us that it informed AppalCART, prior to AppalCART putting the project
out for bids that before AppalCART could get reimbursed for eligible
project costs, FTA had to award the grant to NCDOT, and then a grant
agreement between NCDOT and AppalCART had to be in place. NCDOT
officials told us that after the FTA awarded the grant on August 24,
2009, it took them until January 26, 2010, to write the agreement and
get it executed, because the State had to incorporate the Recovery Act
requirements into their agreement and there was an error in the period
of performance which needed to be corrected. Once executed, AppalCART
should have been able to begin requesting reimbursement. However, in
our meeting with NCDOT officials on April 1, 2010, they discovered the
period of performance error still existed in the AppalCART grant
agreement and an amendment would have to be made before NCDOT could
reimburse AppalCART for the period from June 2009 through July 31,
2009. AppalCART officials told us they had been working with NCDOT to
provide invoices for reimbursement in a format that NCDOT would
accept, but are unclear if invoices submitted to date are acceptable
yet. NCDOT officials told us that not all of the processes for funds
reimbursement and project management were in place when they were
needed because they had not constructed a nonurbanized area, federally
funded transit infrastructure project in over 20 years, which required
them to develop some new processes. While NCDOT was developing new
processes, AppalCART proceeded with construction, providing jobs, and
paying the contractor over $712,000. As a result of not being
reimbursed, AppalCART needed to acquire a bank line of credit to pay
the contractor for a portion of completed work. As of March 2010,
AppalCART officials reported paying almost $2,000 a month in loan
interest costs.
North Carolina Has Made Progress in Using Recovery Act Funds to
Increase Training to Dislocated Workers:
North Carolina was allotted about $44.4 million in Workforce
Investment Act (WIA) Dislocated Worker Program funds under the
Recovery Act. According to state officials, local workforce investment
boards have used Recovery Act funds to significantly increase the
number of dislocated workers enrolled in training. While local areas
primarily relied on the same type of training used under WIA, one of
the two local areas we visited, Charlotte-Mecklenburg, used the new
flexibility allowed under the Recovery Act to contract with
institutions of higher education for some group training.
North Carolina received WIA dislocated worker funds under the Recovery
Act through the same statutory formula used to distribute regular WIA
Dislocated Worker Program funds. The Division of Workforce Development
in North Carolina's Department of Commerce administers this program
and distributed 60 percent of its allotment to 24 local workforce
boards. The state set aside the remaining funds for rapid response
activities to address layoffs and plant closings, and other statewide
activities. As of March 31, 2010, the state had drawn down at least 37
percent ($16.4 million) of its Recovery Act funds.[Footnote 31] In the
two local areas we visited, Lumber River has fully committed--expended
or obligated--its Recovery Act allocation for the WIA Dislocated
Worker Program and Charlotte-Mecklenburg has committed 93 percent of
its allocation (see table 2).[Footnote 32]
Table 2: Selected Local Workforce Investment Areas Commitment of
Recovery Act WIA Dislocated Worker Program Funds as of January 31,
2010:
Workforce Investment Area: Charlotte-Mecklenburg;
Total allocation: $1,681,622;
Expended: $773,992;
Obligated: $794,858;
Percent obligated and expended: 93.
Workforce Investment Area: Lumber River;
Total allocation: $ 862,402;
Expended: $281,187;
Obligated: $581,215;
Percent obligated and expended: 100.
Source: GAO analysis of Charlotte-Mecklenburg Workforce Development
Board and Lumber River Workforce Development Board data.
[End of table]
With the combination of Recovery Act funds and increased demand for
services, the number of dislocated workers trained in the state
between July 1, 2009, and December 30, 2009, was 38 percent higher
than in the corresponding period in the previous year, according to
our state survey. The state reported that from the date it began using
Recovery Act funds through January 31, 2010, about 10,568 dislocated
workers in North Carolina received training through Recovery Act or
regular WIA dislocated worker funds. As shown in Table 3, both of the
local workforce areas we visited had over a 300 percent increase in
the number of dislocated workers who participated in training compared
to participation during the same period in the prior year. Despite
these significant increases in participants receiving training, Lumber
River officials told us that some dislocated workers in this largely
rural area were not interested in training because they would prefer a
job instead. To encourage participation in training, Lumber River
promoted short-term courses such as computer literacy courses and
occupational classes such as welding. However, these efforts were not
fully successful in recruiting those individuals mainly interested in
jobs. A state workforce development official told us that North
Carolina is working toward preparing a workforce for growth in the
green economy, but there are not sufficient training opportunities or
jobs available to motivate workers to invest in training for green
jobs.
Table 3: Number of WIA Dislocated Workers Who Participated in Training
July 1, 2008, to December 31, 2008, Compared to Those Who Participated
in Training July 1, 2009, to December 31, 2009:
Local workforce investment area: Charlotte-Mecklenburg;
WIA dislocated workers who participated in training 7/1/08 to
12/31/08: 122;
WIA dislocated workers who participated in training 7/1/09 to
12/31/09: 571;
Percent increase: 368.
Local workforce investment area: Lumber River;
WIA dislocated workers who participated in training 7/1/08 to
12/31/08: 57;
WIA dislocated workers who participated in training 7/1/09 to
12/31/09: 245;
Percent increase: 330.
Source: GAO analysis of Charlotte-Mecklenburg Workforce Development
Board and Lumber River Workforce Development Board data.
[End of table]
State officials said that the Recovery Act funds were primarily being
used for individual training accounts (ITA), which individuals use to
purchase training through, for example, community colleges and
community based organizations. Lumber River reported that all of its
Recovery Act funds devoted to dislocated worker training are being
used for ITAs. While Charlotte-Mecklenburg is using 83 percent of its
Recovery Act dislocated worker training funds for ITAs, it is also
using 17 percent to contract directly with institutions of higher
education for group classes. Dislocated Worker funds provided through
the Recovery Act may be used to provide training through contracts,
which are authorized only in limited circumstances for regular WIA
funds. Although the U.S. Department of Labor encouraged states and
local areas to use Recovery Act funds to provide training for green
jobs, both Lumber River and Charlotte-Mecklenburg officials said that
there has been little opportunity to do this because few green jobs
are available at this time. The Lumber River Workforce Development
Board Administrator told us North Carolina developed the JobsNow 12 in
6 Program, which coupled short-term occupational skills training with
a career readiness certificate program. Lumber River, this official
said, promoted recruitment of dislocated workers into this program but
said these efforts were not fully successful because the individuals
were more interested in working than attending training.
North Carolina Clean Water and Drinking Water State Revolving Funds:
The North Carolina Department of Environment and Natural Resources
(DENR) administers the state's Clean Water State Revolving Fund (SRF)
and its Drinking Water SRF and is responsible for providing loans from
the two revolving funds to North Carolina localities and overseeing
usage of the loan funds. The Clean Water SRF provides funds for the
construction of publicly owned wastewater treatment facilities,
implementation and management of non point source pollution control
programs,[Footnote 33] and development and implementation of estuary
conservation and management plans. The Drinking Water SRF provides
funds for the construction or upgrade of wells and intakes, water
treatment plants, storage, and water lines; eligible uses include
replacement of aging infrastructure and consolidation of water
systems. North Carolina received approximately $71 million in Recovery
Act funds for its Clean Water SRF and approximately $66 million for
its Drinking Water SRF. Under the Recovery Act, states were to give
priority to projects that were ready to proceed to construction within
12 months of enactment of the act. As of mid-April 2010, North
Carolina's Clean Water SRF and Drinking Water SRF used almost $132
million in Recovery Act funds to provide assistance for 129
projects.[Footnote 34] These projects include construction of
wastewater infrastructure, local government planning for improving
water quality, and restoring beaches and waterways. We interviewed and
reviewed documents from DENR program officials and officials at two
local projects--the Charlotte Muddy Creek/Campbell Creek Clean Water
SRF project and the Perquimans Winfall Water Treatment Plant Drinking
Water SRF project. We selected one urban and one rural project, both
of which received a large amount of Recovery Act loan funds.
Charlotte's Muddy Creek/Campbell Creek Project was awarded adjusted
loan funds in the amount of $1.57 million which helped the state
address the Recovery Act's green reserve requirement. The Perquimans
Winfall Water Treatment Plant Project, located in a rural location,
was awarded $3 million in funds in July 2009 and serves a community in
need of drinking water infrastructure improvements.
State Officials Report Minimal Challenges in Meeting Recovery Act
Requirements:
DENR program officials told us that they have met all Recovery Act
requirements for use of funds with minimal challenges, including
meeting the February 17, 2010, deadline for projects to be under
contract, despite the increased workload of processing approximately
250 Clean Water SRF applications and 600 Drinking Water SRF
applications in 2009.[Footnote 35] Clean Water SRF program officials
told us that the only challenge to date occurred when green reserve
requirement applicants failed to obtain easements prior to requesting
loan approval.[Footnote 36] However, DENR program officials reported
that this problem was quickly resolved and the easements were obtained
or other green projects on the priority list were funded.
The Drinking Water SRF program manager reported that the primary
challenge in meeting the February 2010 contractual deadline was late
or insufficient guidance from the U.S. Environmental Protection Agency
(EPA) and U.S. Department of Labor (Labor). This late guidance
pertained to the green reserve requirement as well as the Buy
American[Footnote 37] and Davis-Bacon[Footnote 38] provisions of the
Recovery Act. Guidance concerning the latter two requirements, which
call for language to be inserted into contracts and for subrecipients
and contractors to ensure compliance, arrived late in the contractual
process and were difficult to explain to subrecipients, according to
DENR program officials. Some officials said that Davis-Bacon
requirements were complicated. The Drinking Water Program Manager
noted that since all applicants are anticipated to pay locally
prevailing wages without this requirement, the mandate to ensure
compliance through documentation and tracking is resulting in
unnecessary costs that will not add to the value of the completed
project. Project officials and the County Manager we interviewed
praised state officials for their assistance and guidance with the
implementation of requirements. These officials told us the
information was provided via telephone calls, the DENR Web site, and
during onsite monitoring.
North Carolina Clean Water SRF and Drinking Water SRF Status:
DENR has used approximately $67.9 million in Recovery Act funds for 56
Clean Water SRF projects, and approximately $64 million in Recovery
Act funds for Drinking Water SRF projects. DENR program officials
reported that contracts for initial Clean Water SRF awards were $10.5
million less costly than expected, based on local cost estimates. As a
result, DENR program officials said they used these funds as allowed
under the Recovery Act to finance 5 additional clean water
infrastructure projects and augment loan amounts given at the same
financial terms for two additional clean water infrastructure
projects.[Footnote 39] DENR program officials also reported that as
additional Recovery Act funds for the North Carolina Clean Water SRF
and Drinking Water SRF funds become available, other Recovery Act
compliant projects will be funded in priority order.
GAO Visited Two Local Government Projects:
Charlotte project officials told us they received $1.57 million in
Recovery Act funds and all of these funds were spent on environmental
upgrades to restore Muddy Creek/Campbell Creek--a green reserve
requirement eligible project. This project reduces pollutants from
storm water and enhances and creates a wetland and river bank habitat.
The officials told us the project was a prime candidate for Recovery
Act funding because its engineering tests were complete and it was
ready to proceed to construction. They further told us that Recovery
Act funds allowed local funds previously dedicated to this project to
be freed up for other green programs that had not been prioritized as
high as the Muddy Creek/Campbell Creek Project.
Perquimans County received $3 million in Recovery Act funds to upgrade
the Winfall Water Treatment Plant. This project includes upgrading the
current water system to improve both the county's water quality and
appearance. According to the Perquimans County Manager, this project
was the number one priority for Perquimans County but had never been
submitted to the Drinking Water program before for consideration. In
the absence of Recovery Act funds, local officials said that user
rates would have been insufficient to cover the cost of the
infrastructure upgrade. According to the Perquimans County official,
with Recovery Act funding these fees are not expected to rise.
Review of Local Governments Receiving Recovery Act Funding:
As we have in developing prior bi-monthly reports, we visited local
governments in selected rural and urban areas of the state to learn
about the use of Recovery Act funds and their impact. Specifically, we
visited Bladen County, the City of Durham, Halifax County, and the
City of Jacksonville. We selected these localities based on variation
in unemployment rate, population size, and geographic location (see
table 4). This was our second visit to the City of Durham and Halifax
County in an effort to provide a more detailed account of Recovery
fund usage in those localities. Based on U.S. Census estimates, the
population in the four localities ranges from 32,343 to 223,284. With
budget cycles starting on July 1st and ending June 30th, the
localities' budgets range from $36 million to $346 million. We
interviewed officials in these cities and counties to obtain their
perspectives on the Recovery Act. We also interviewed officials from
the North Carolina League of Municipalities (NCLM)[Footnote 40] to
discuss their interactions with localities across the state pertaining
to the Recovery Act.
Table 4: Statistical Data on North Carolina Localities Visited:
Locality: North Carolina;
Population: 9,222,414;
Locality type: State;
Unemployment rate: 10.9%;
Budget: $19 billion;
Total Recovery Act funds[A]: $5.1 billion.
Locality: Bladen County;
Population: 32,343;
Locality type: County;
Unemployment rate: 12.2%;
Budget: $38.4 million;
Total Recovery Act funds[A]: $734,227.
Locality: City of Durham;
Population: 223,284;
Locality type: City;
Unemployment rate: 7.4%;
Budget: $345.6 million;
Total Recovery Act funds[A]: $8.9 million.
Locality: Halifax County;
Population: 54,582;
Locality type: County;
Unemployment rate: 13.2%;
Budget: $36.4 million;
Total Recovery Act funds[A]: $517,271.
Locality: City of Jacksonville;
Population: 76,233;
Locality type: City;
Unemployment rate: 8.5%;
Budget: $89.5 million;
Total Recovery Act funds[A]: $5.6 million.
Source: GAO analysis of Bureau of Labor Statistics, U.S. Census,
selected local government budgets, and Recovery.gov data:
[A] Based on Recovery Act funds reported to North Carolina's Office of
Economic Recovery and Investment as of May 4, 2010.
[End of table]
Local Officials said that Recovery Act Funds Helped but Did Not
Stabilize Their Budgets:
The localities used the Recovery Act funds to support a variety of
initiatives. Although their budgets differed in terms of stability,
officials in all four localities told us that the Recovery Act funds
they received helped to start, continue, or speed up a variety of
programs and projects in their jurisdictions. For example, the City of
Durham received $2.1 million in Energy Efficiency and Conservation
Block Grant funds. Durham officials told us that they will use about
one-half of these funds to improve energy efficiency in city
facilities and the other half will be used to start up a neighborhood-
based, residential energy efficiency upgrade program. According to the
officials, these upgrades will include increased insulation, sealing
air ducts, plugging air leaks in attics and crawlspaces, and
installing programmable thermostats. A $1.5 million Federal Transit
Administration formula grant will be used by the City of Jacksonville
to purchase five replacement buses; procure a design and commence
construction of a bus-washing facility; and purchase and install
automated passenger counters. Bladen County will use $24.6 million in
Recovery Zone Facility Bonds, under the Recovery Act, toward the
development of a water treatment plant[Footnote 41]. Officials from
all of these localities indicated that these projects and programs
would not have been initiated had they not received Recovery Act
funding.
While the officials we interviewed told us that the Recovery Act funds
were helpful in starting and advancing programs and projects in their
localities, most indicated that the funds were not enough to affect
their government's fiscal stability. For example, Bladen and Halifax
County officials indicated that, despite the Recovery Act funds, their
fiscal situations continue to decline. The officials told us that they
continue to face difficult budget decisions in the wake of declining
property and sales tax revenues. Halifax County officials told us
that, in December 2009, county departments were asked to reduce their
budgets by as much as 10 percent, which did not result in any layoffs
but many employees' work hours were reduced from full-time to part-
time. The officials said that the county is "dangerously close" to
making noticeable and potentially harmful cuts in services. City of
Jacksonville officials reported that receipt of Recovery Act funding
had only a moderate impact on their budget because the economy in
their area of the state has been generally stable when compared to
other regions of the state and country, due to the presence of two
large and growing military installations in close proximity to the
city. As a result, Jacksonville officials did not view Recovery Act
funds as a means to stabilize their budget, but to accelerate or
expand planned projects.
Officials Reported Usage of a Variety of Recovery Act Funds Based on
the Needs and Priorities of Their Localities:
Officials in the four localities that we interviewed chose to focus
their Recovery Act dollars on different priorities based on the needs
in their respective jurisdictions. Both Bladen and Halifax officials
told us that the Recovery Act funds supplemented existing programs and
allowed them to either serve more residents or enhance program
services. Both county officials also told us that their plan was to
not use the funding they received from the Recovery Act on programs
and projects that would require recurring expenses so that their
citizens would not be adversely affected when the funds were no longer
available. For example, at the time of our visit, Halifax officials
reported that the county had received a total of $517,271 in Recovery
Act funding through state and federal sources. The county plans to
spend nearly 90 percent of those funds on boosting social services
programs for children and the elderly, including day care provisions
and its Meals on Wheels program. Similarly, Bladen officials told us
that their county has a high population of senior citizens and plans
to spend a significant portion of its Recovery Act funding on social
services, which includes a portion of its Recovery Act funding for
programs geared toward assisting its aging residents. According to
officials from both counties, these programs will receive a one-time
infusion of Recovery Act funding designed to supplement existing
programs and allow them to either serve more residents or enhance
program services for a limited period of time. Conversely, the City of
Jacksonville, located in close proximity to two military installations
and cited as one of the youngest cities in the United States with an
average age of 22.9 years, will spend 100 percent of its Recovery Act
funding on physical infrastructure projects and the procurement of
four new police vehicles and other public safety equipment. The City
of Durham plans to use its Recovery Act funding on a variety of
programs and projects, including $746,013 from the Edward Byrne
Memorial Justice Assistance Grant (JAG)[Footnote 42] to fund one
Domestic Violence Assistant District Attorney and $205,146 from a
program under the Workforce Investment Act of 1998, administered by
the U.S. Department of Labor to provide subsidized work experience and
on-the-job training for eligible adult residents.
All Four Localities Planning for Phase Out of Recovery Act Funds; Only
One Has a Formal Exit Strategy:
One of the four localities that we visited had a formal exit strategy
in place for when Recovery Act funds are phased out, but officials
from the other localities indicated that their jurisdictions are
having ongoing phase out discussions with the departments within their
governments that are receiving Recovery Act funding. Specifically, the
City of Durham developed formal budget guidelines for fiscal year 2011
in which the City proposes a specific strategy for when Recovery Act
funds are no longer available. The proposal focuses on enhancing
revenues to replace non-recurring Recovery Act funding for core
services. Although Bladen, Halifax, and Jacksonville officials do not
have formal plans in place to address the so-called Recovery Act
funding "cliff," they told us that they have made it clear that the
Recovery Act supplements are one-time funding increases. Jacksonville
officials also told us that they plan to absorb the continuing costs
generated by projects.
North Carolina Budget Officials Report that Fiscal Challenges Persist,
but See Some Early Signs of Potential Recovery:
North Carolina budget officials told us that the state is still
experiencing significant budget challenges, but reported some
improvements over projections made in mid to late 2009. The officials
told us that most state agencies have been required to withhold 5
percent of their budget spending in response to the state's projected
budget shortfall. According to state budget officials, beginning in
January of this year the state temporarily withheld state income tax
refunds to individuals because the state did not have the cash to make
the payments. The officials also told us that while they did not speed
up or slow down their use of Recovery Act funds during fiscal year
2010, if the state had not received Recovery Act funding, it would
likely have had to make deeper program cuts and raise taxes. According
to a report issued by the North Carolina Fiscal Research Division
[Footnote 43], the state's fiscal year 2009-2011 biennial budget
relies heavily on Recovery Act funds. The report states that when
adjusted for the $1.7 billion in Recovery Act funds, the fiscal year
2009-10 total state budget actually decreased $2.3 billion, or 4.7
percent. For example, according to state budget officials, North
Carolina's reserve fund, or "rainy day" account, was approximately
$900 million before it received Recovery Act funds. State officials
told us that they used all but $150 million of its rainy day funds to
help close the budget shortfall from fiscal year 2009. The officials
also indicated that the state had spent nearly $1 billion in Recovery
Act assistance and would have been forced to deplete its entire rainy
day account if Recovery Act funds were not available. In April, the
Governor released her budget recommendations for fiscal year 2010-2011
proposing to put $100 million into the state's rainy day fund which it
plans to use in the event of an emergency or as a buffer in the event
the state does not impose an estate tax on the estates of individuals
who die in 2010. State budget officials explained that, according to
state law, North Carolina's estate tax mirrors the federal estate tax
and both expired in December 2009, but will return in January 2011.
The state will lose revenues in 2010-2011 if the state does not amend
its requirement to mirror the federal estate tax and the federal
estate tax is not applied to 2010.
State budget officials reported signs of improvement in revenues for
the first quarter of 2010. Specifically, the state budget office had
projected an $850 million shortfall in the summer of 2009, but
modified their shortfall projections in December to $450 million
deficit. Most of the improvement, however, is related to a corporate
settlement initiative that boosted revenue collections by $422
million. In addition, officials credited the improved budget standing
to slightly better than expected revenues in sales and individual
income taxes.
The officials told us that state officials have had executive
discussions regarding a state plan for when Recovery Act funds are no
longer available. The officials said that it is difficult to make
definitive plans for weaning their programs off of Recovery Act funds
because it is hard to predict what the condition of the state or the
overall economy will look like a year from now. They said that the
state will have a formal exit strategy developed in early 2011.
Reporting and Accountability: North Carolina Recovery Act
Accountability Community:
To ensure accountability and oversight over federal funds received by
North Carolina, the Office of the State Auditor (OSA) annually
conducts a "Single Audit" that reports on internal controls over
financial reporting and compliance with pertinent laws and
regulations, as well as a report on compliance with requirements
applicable to each major federal program and internal controls over
compliance in accordance with OMB circular 133. North Carolina's 2009
Single Audit report included 168 findings. Eight of these findings
were material weaknesses related to provisions of the Recovery Act for
the North Carolina Department of Public Instruction (DPI); ESEA Title
I Grants to Local Educational Agencies (2), Special Education Grants
to States (3), and Special Education Preschool Grants (3). All of the
8 material weaknesses were related to insufficient subrecipient
monitoring. The state auditor's office told us that single audit
reports have consistently reported findings related to subrecipient
monitoring by state agencies. Insufficient subrecipient monitoring and
other deficiencies leave Recovery Act funds vulnerable to fraud,
waste, and abuse.
North Carolina has various other entities, in addition to the State
Auditor, that provide oversight to ensure the state's recipients are
held accountable for the Recovery Act funds they receive. These
entities include the Office of Economic Recovery and Investment
(OERI), the Office of Internal Audit (OIA), as well as local
government oversight authorities.
Office of the State Auditor:
In addition to the 2009 Single Audit, OSA is performing interim agency
specific internal control and compliance audits for agencies receiving
Recovery Act funds. Four interim reports covering the North Carolina
Departments of Health and Human Services (NCHHS), Environment and
Natural Resources (DENR), Agriculture and Consumer Services (DACS),
and Commerce (NCDOC) were issued by OSA prior to the issuance of the
2009 Single Audit. These reports identified numerous issues that could
affect the oversight of Recovery Act funds administered by these
agencies. For example:
* At NCHHS, the State Auditor reported 10 findings, including internal
control deficiencies in cash management and subrecipient monitoring.
* At DENR, the State Auditor reported that Clean Water and Drinking
Water subrecipient audit reports were not reviewed, as mandated by
federal subrecipient monitoring requirements.
* At DACS, the State Auditor noted certain deficiencies in internal
control over financial reporting by DACS.
* At NCDOC, the State Auditor reported deficiencies in subrecipient
monitoring at the State Energy Office (SEO) and recommended that SEO
revise its monitoring plans and tools to ensure that Recovery Act
compliance issues are addressed timely.
OERI senior officials told us they reviewed the OSA reports with NCHHS
and NCDOC and detailed steps both agencies are taking to address the
OSA findings. NCDOC has revised its monitoring plans and tools to
ensure that Recovery Act-specific compliance requirements are
addressed timely. The agency has also assigned an internal auditor to
the Energy Program who is responsible for implementation of the plans
and compliance spreadsheets have been developed so that monitoring is
consistent. The Energy Office has filled 2 positions for compliance
monitoring and has taken steps to fill an additional 5 positions for
compliance monitoring, which will bring their total staff for
compliance monitoring to 18.
OERI senior officials also report that NCHHS has taken numerous
actions to address OSA findings. For example, NCHHS has sent letters
to all 100 North Carolina counties providing Recovery Act federal
award information and reporting requirements. The agency, according to
OERI, has also implemented processes to drawdown federal Medicaid
Program funds based on actual expenditures, rather than estimates and
an additional level of review has been added to ensure that federal
reimbursement codes are accurate. NCHHS is also taking steps to
address the reported deficiencies in subrecipient monitoring by
prioritizing completion of an internal tracking system that schedules
required monitoring activities within appropriate timeframes and
follow-up on any required corrective actions. In addition, OERI is
using a tracking system to monitor obligations and expenditures at the
subrecipeint level on a monthly basis. OERI staff, senior officials
report, will continue meeting with NCHHS staff to follow the impact of
these and other corrective actions until the findings have been
completely resolved.
Subsequent to the issuance of the 2009 Single Audit report, the State
Auditor issued 3 more interim agency specific internal control and
compliance audits for agencies receiving Recovery Act funds, one on
the Office of State Budget and Management (OSBM), the Employment and
Security Commission, and on DPI.
* The State Auditor reported that OSBM did not have controls in place
to ensure that the calculation of the state's elementary and secondary
education expenditures for fiscal year 2006 were accurate. Since the
SFSF, the Recovery Act requires states to assure that they will
maintain at least their 2006 level of education support in fiscal
years 2009, 2010, and 2011 in order to receive SFSF, errors in this
calculation could result in the state not maintaining adequate support.
* The State Auditor reported that DPI had material weaknesses in
subrecipient monitoring as reported in the Single Audit, plus
additional material weaknesses specific to DPI including:
- September expenditures omitted from initial Section 1512 Recovery
Act report;
- Failure to comply with federal suspension and debarment requirements
[Footnote 44];
- Verification of central contractor registration not performed timely
[Footnote 45].
Office of Economic Recovery and Investment:
As we previously reported, OERI was set up by the state to help
agencies track, monitor, and report on Recovery Act funds. The state
Web site www.NCrecovery.gov is designed to maintain a record of how
Recovery Act funds are being spent in a way that is transparent and
accountable. OERI officials told us that the implementation of a new
software system that is intended to integrate North Carolina's various
state agency systems into an overall state-wide system has been
experiencing delays. The new system will serve as the state's Recovery
Act tracking tool and will pull data from several state accounting and
procurement systems in order to present a more comprehensive
accounting of Recovery Act funds. OERI officials stated that the
software system, which was originally expected to be operational by
December 2009, is currently in the testing phase and should be
operational in the near future. In the meantime, OERI continues
tracking the status of the state's Recovery Act funds on an Excel
spreadsheet, referred to as the Weekly Funding and Disbursement
Report, which relies heavily on the state agencies weekly reporting of
complete and accurate information to OERI.
North Carolina's OERI Director issued a series of management
directives to state agency senior management to address reporting and
other accountability mechanisms. The first of these--dated April 9,
2009--stated that state agencies were to report to OERI on a weekly
basis the amount of Recovery Act funds they had obligated, disbursed,
and drawn down. OERI officials told us that they use the agency weekly
reports to update OERI's Weekly Funding and Disbursement Report that
in turn is used for tracking the amount of Recovery Act funds spent
and also as a monitoring tool. For example, OERI officials are
assigned specific agencies to track Recovery Act grants received in
order to ensure the agency is on track to meet statutory deadlines to
obligate funds. If it appears that the agency will not be able to
obligate the funds before the obligation period expires, OERI
officials said they work with the state agency and cognizant federal
agency on arrangements to have the funds redistributed.
Office of Internal Audit:
OIA is housed within OSBM and provides internal audit services for
eight of North Carolina's state agencies: (1) Department of
Administration (DOA); (2) NCDOC; (3) OSA; (4) Department of Labor; (5)
Community Colleges Central Office; (6) OSBM; (7) Governor's Office;
and (8) Wildlife Resource Commission.[Footnote 46] OIA's Assistant
State Budget Officer/Audit Director stated that in September 2009 her
office received $1.2 million of Recovery Act SFSF funds to cover the
salaries and other expenses (i.e. travel) for 5 additional auditors to
cover the extra workload associated with the risk assessments,
compliance reviews, and assessments of sub-recipient monitoring plans
for Recovery Act funds. NCHHS, DPI, and DENR were each assigned one of
the 5 newly hired auditors. A fourth auditor conducts an audit of the
SFSF funds every 6 months and other audits as assigned. A Memorandum
of Understanding (MOU) was established between OIA and the SEO where
the fifth auditor was placed to perform audits of the Weatherization
Program. This auditor was hired in October 2009 and resigned in March
2010; the position remains vacant. Thus far, these auditors have
issued 2 audit reports--an assessment of DENR's internal controls over
purchasing and accounts payable and a report on a special project to
compare other states' policies and procedures with the SEO's policy
and procedure manual and identify best practices related to the energy
programs. The DENR report indicated that DENR purchasers were
unfamiliar with Recovery Act requirements, which resulted in 5
findings including 2 purchases that lacked adequate competition, 1
that lacked adequate documentation to support the sole source
purchase, and 2 others that were made on a State contract without
proper approval. The SEO report resulted in a finding regarding SEO's
program policies and procedures manuals and identified several best
practices. OIA has an additional 9 audits that are in process with
more planned for the future. The OIA Assistant State Budget
Officer/Audit Director stated that, together, its auditors cover about
70 percent of the state's Recovery Act programs accounting for about
82 percent of the Recovery Act funds.[Footnote 47]
City Oversight:
The City of Charlotte's Internal Audit Department provides oversight
of Recovery Act funds received by the city and has begun to perform
audits and reviews. Department auditors told us that they issued their
first Recovery Act report before the first 1512 quarterly report in
order to encourage better record keeping. The department's report on
Recovery Act reporting readiness was issued on September 25, 2009.
This report addressed the problem encountered due to the software's
unavailability during the trial run and reported that problems had
been fixed. The report showed that 93 percent of the required data had
been entered into its computer system by September 25, 2009. The
Internal Auditors reported to us that by the first reporting deadline--
October 10, 2009--100 percent of the data had been entered into the
system. In fiscal year 2010, the group is focusing their Recovery Act
audit efforts on assessing the performance measures on a single
project, the Clean Water SRF, Muddy Creek.
North Carolina Officials Report Few Problems with Recipient Reporting,
but More Review Is Necessary to Fully Ensure Accuracy of Data:
After the April 2010 recipient reporting deadline, we interviewed
officials from two state education agencies, DPI and the University of
North Carolina General Administration (UNC-GA)[Footnote 48] to assess
their methods for calculating and validating full-time equivalents
(FTE) to meet the recipient reporting requirement for jobs paid for
with Recovery Act funds. We also interviewed officials in one LEA--
Wake County Public Schools System--and one institution of higher
education (IHE)--University of North Carolina at Chapel Hill--to
assess the methods these institutions used to calculate the FTE data
they send to the respective state agencies. North Carolina officials
we spoke with at the state and local levels reported few problems with
the most recent recipient reporting. These officials also described
similar processes for calculating FTEs, with LEAs having the
responsibility for reporting jobs to DPI and the University of North
Carolina's 16 individual university campuses reporting jobs to UNC-GA.
A senior official in DPI's finance office told us that the Department
uses its existing financial management system to collect LEAs' budget
data to report FTEs for jobs paid for with Recovery Act funds. LEAs
electronically submit budget and monthly payroll data to DPI.
According to this official, the budget data include the number of
positions paid with Recovery Act funds. DPI then uses these data to
report the FTEs for LEAs. Wake County Public Schools System (WCPSS)
officials explained that the state's budget system includes options
for designating (1) whether a salary paid with Recovery Act funds has
changed from prior budget submissions, (2) the salary represents a job
that is saved or one that is created (i.e., a new position) and (3)
options for LEA uses of the funds (hire new staff to support or expand
ESEA Title I programs, for example). However, this senior official in
DPI's finance office noted that the information the state receives
from LEAs reflects uses of the funds for direct personnel, but does
not include FTEs for vendors paid with Recovery Act funds. This DPI
official reported that DPI uses the budget data to determine the
number of staff FTEs and validates these data using the monthly
payroll data. This senior DPI official also said that if there are
discrepancies, staff will contact the LEA to reconcile the
differences. To report on SFSF funds, DPI submits data on the number
of FTEs to the North Carolina Office of State Budget and Management
(OSBM), the agency responsible for submitting recipient reports for
SFSF funds, which then reports the data through federalreporting.gov.
DPI directly reports data for ESEA Title I and IDEA Part B through
federalreporting.gov. While DPI's method for collecting recipient
reporting information can ensure that staff salaries paid with
Recovery Act funds are uniformly captured, the state is likely
underreporting uses of Recovery Act funds because it does not capture
FTEs for vendors (e.g., professional development providers). DPI
officials reported that the department will develop a web-based system
to collect vendor FTEs for the next recipient reporting period.
UNC-GA officials reported to us that institutions in North Carolina's
university system calculate FTEs individually and each institution
sends these data to UNC-GA. UNC-GA officials said that the office's
role is to provide state-specific guidance to IHEs based on OMB's
guidance, check the data that IHEs submit, and report the data to OSBM
in the same manner as DPI. For the most recent reporting period, for
example, UNC-GA sent guidance that required IHEs to report FTEs for 1
month (rather than 3), for the entire quarter, because SFSF funds were
used to pay 1 month of salaries for existing instructional staff. A
University of North Carolina at Chapel Hill (UNC-CH) finance official
said that the institution submits its total FTEs for the quarter to
UNC-GA. This official reported to us that UNC-CH uses a printout from
its payroll data system, which includes a list of employees paid for
the month (by university department and alphabetized within each
departmental category), the FTE for each employee, total salary for
each employee, and the total salary expenditure by the university, to
determine FTEs. This official also said that, to develop FTE data,
staff count FTEs, starting with the first employee on this list of
employees, until total salaries equal the total SFSF expenditure. UNC-
GA officials said that once they receive the FTE numbers from IHEs,
they conduct a check for "reasonableness" using factors such as the
IHE's past FTE submissions and similarity to other institutions. These
officials said that they do not request supporting documentation,
although IHEs are expected to maintain the documents related to their
submissions to UNC-GA. UNC-GA officials also said that they share
monitoring responsibilities with OSBM analysts who compare IHE budgets
to expenditures. However, our review of supporting documentation
revealed that UNC-CH underreported an estimated 44 FTEs, out of a
total reported FTE figure of about 606 FTEs, in the second round of
recipient reporting because teaching assistants were assigned "0"
FTEs.[Footnote 49] The UNC-CH finance official we spoke with
acknowledged the omission, and said that the institution has taken
action to include teaching assistants in future reporting. By spot
checking supporting documentation, UNC-GA could detect and correct
reporting errors, such as those of UNC-CH, to prevent possible under-
or overreporting by individual institutions. A UNC-GA official
reported that guidance for future reporting periods will include a
reminder that all salaries paid with Recovery Act funds, including
teaching assistants, must be included in the FTE totals that
institutions report.
State Comments on This Summary:
We provided a draft of this appendix to the Governor of North
Carolina, the North Carolina State Auditor's Office, and the North
Carolina Office of Economic Recovery and Investment. We also provided
various state agencies and local officials with excerpts of this
appendix related to their program. In general, state and local
officials agreed with our draft and provided some clarifying and
technical suggestions that we incorporated as appropriate.
GAO Contact:
Cornelia M. Ashby, Director (202) 512-8403 or ashbyc@gao.gov:
Paula M. Rascona, Director (202) 512-9816 or rasconap@gao.gov:
Staff Acknowledgements:
In addition to the contacts named above, Laura Acosta, Sandra Baxter,
Sarah Jane Brady, Bonnie Derby, Kaleb Dumot, Bryon Gordon, Laura
Heald, Sara S. Kelly, Leslie Locke, Christopher Lyons, Tahra Nichols,
Anthony Patterson, and Connie Sawyer, Jr. made key contributions to
this report.
[End of section]
Footnotes:
[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009).
[2] A project is defined in the Recovery Act as qualified for the
green reserve requirement funding if it addresses green
infrastructure, water or energy efficiency improvements or other
environmentally innovative activities. The Recovery Act requires that
a state set aside at least twenty percent of its grant for these types
of projects.
[3] Recovery Act funds must generally be obligated by September 30,
2011, for these programs.
[4] North Carolina requires all LEAs to use a benchmarked accounting
system.
[5] DPI has one staff person assigned to conduct the yearly review of
Single Audit findings for all of the state's LEAs and charter schools.
[6] DPI officials said that the department did not have a formal
program monitoring process for IDEA Part B.
[7] ESEA requires uniform statewide standards-based assessments and an
accountability system to determine whether Title I schools made
adequate yearly progress (AYP). Schools "in improvement" have failed
to make AYP for at least 2 consecutive years.
[8] Single Audits are prepared to meet the requirements of the Single
Audit Act, as amended, and provide a source of information on internal
control and compliance findings and the underlying causes and risks.
The Single Audit Act requires states, local governments, and nonprofit
organizations expending $500,000 or more in federal awards in a year
to obtain an audit in accordance with the requirements set forth in
the act. A Single Audit consists of (1) an audit and opinions on the
fair representation of the financial statements and the Schedule of
Expenditures of Federal Awards; (2) gaining an understanding of and
testing internal control over financial reporting and the entity's
compliance with laws, regulations, and contract or grant provisions
that have a direct and material effect on certain federal programs
(i.e., the program requirements); and (3) an audit and an opinion on
compliance with applicable federal requirements for certain programs.
[9] DPI officials reported that those LEAs determined to be low risk
complete self-monitoring tools and submit their findings to the state.
DPI assigns medium risk LEAs to a desk monitor who reviews the single
audit findings related to the Title I program. These actions are taken
in the same years as on-site visits. For example, as of May 2010,
DPI's 2009-2010 monitoring schedule lists 11 LEAs expected to submit
self-monitoring tools and six LEAs that would receive desk reviews.
[10] State of North Carolina Office of the State Auditor. Department
of Public Instruction: Statewide Federal Compliance Audit Procedures
for the Year Ended June 30, 2009 (North Carolina: Office of the State
Auditor), 8-9.
[11] GAO, Recovery Act: As Initial Implementation Unfolds in States
and Localities, Continued Attention to Accountability Issues Is
Essential, [hyperlink, http://www.gao.gov/products/GAO-09-580]
(Washington, D.C.: Apr. 23, 2009).
[12] GAO, Status of States' and Localities' Use of Funds and Efforts
to Ensure Accountability (North Carolina), [hyperlink,
http://www.gao.gov/products/GAO-10-232SP] (Washington, D.C.: Dec. 10,
2009).
[13] We did not review expenditures for salaries using SFSF in our
visit to ACS.
[14] For each of the LEAs we visited, we referred a full account of
our findings in a letter addressed to the State Superintendent of
Public Instruction, with copies of the letter to the LEA
superintendents and the U.S. Department of Education.
[15] Of those funds, $6,400 were Recovery Act ESEA Title I funds and
$32,000 were regular ESEA Title I funds.
[16] See 34 C.F.R. § 80.22(b), citing OMB Circular No. A-87. OMB
Circular No. A-87 states that the costs of entertainment, including
amusement, diversion, and social activities and any costs directly
associated with such costs (such as tickets to shows or sports events,
meals, lodging, rentals, transportation, and gratuities) are
unallowable.
[17] OERI Directive 3 and 3(b) (May 2009 and January 2010) "Contract
Provisions for the Procurement of Goods, Services, and Construction
Projects Including Design Services and Internal Procurement
Directives."
[18] The Recovery Act requires states receiving funds under the SFSF
program to provide assurances in four key areas of education reform:
(a) achieving equity in teacher distribution, (b) improving collection
and use of data, (c) standards and assessments, and (d) supporting
struggling schools. For each area of reform, the act prescribes
specific actions for states to implement. Education established
specific data and information collection and public reporting
requirements (the assurance indicators and descriptors) that states
receiving SFSF funds must meet with respect to these assurances.
[19] North Carolina was 1 of 16 state finalists for Education's
competitive Race to the Top program; however, the state did not
receive an award in the first round of funding.
[20] In May 2010, Education awarded Statewide Longitudinal Data
Systems Grant awards funded under the Recovery Act to 20 states. North
Carolina did not receive an award.
[21] In order to receive SIG funding, an LEA must identify its
persistently lowest-achieving schools and must show how it will use
the funding to implement one of four intervention models for each of
the schools. Generally, these are: (1) replace the principal, rehire
no more than 50 percent of the staff, and adopt a new governance
structure; (2) convert or close and reopen the school as a charter
school or under an education management organization; (3) close the
school and re-enroll students in other schools in the LEA that are
higher achieving; or (4) implement several strategies, such as
replacing the principal and implementing a rigorous staff evaluation
and development system.
[22] After meeting reporting, oversight, and accountability milestones
required by DOE, North Carolina will receive more than $65 million in
additional funding, for a total of more than $131 million, to
weatherize the number of homes in the DOE approved State Plan.
[23] This person manages day-to-day activities of the section
including supervision of staff; coordination of scheduling of program
and fiscal monitoring activities and ensuring that summaries of
monitoring activities are shared with subgrantees; coordination of
training and technical assistance activities for prime recipient staff
and subgrantees; preparation of the State Plan and reports to state
and federal agencies; promotion of the program and coordination with
other low-income energy programs; and ensuring that the program
operates in compliance with state and federal rules and regulations.
[24] Repayment for funds expended by subgrantees to weatherize homes,
including paying contractors for work performed. Advance payments
provide funds to subgrantees to cover cost of anticipated homes to be
weatherized.
[25] According to the approved state plan, this would allow the state
to give additional allocations to other subgrantees in order to meet
the state's total number of weatherized units.
[26] The FTA apportioned Recovery Act funds to states for nonurbanized
areas under the Transit Capital Assistance Program's formula grant
programs using the program's existing formula. Transit Capital
Assistance Program funds may be used for such activities as vehicle
replacements, facilities renovation or construction, preventive
maintenance, and paratransit services. Nonurbanized areas are areas
encompassing a population of fewer than 50,000 people.
[27] GAO, Recovery Act: Status of States' and Localities' Use of Funds
and Efforts to Ensure Accountability (Appendixes) [hyperlink,
http://www.gao.gov/products/GAO-10-232SP] Washington, D.C.: December
2009.
[28] A grant agreement between NCDOT and AppalCART for Recovery Act
funding was executed on January 26, 2010.
[29] The Buy American provision of the Recovery Act prohibits, with
certain exceptions, the use of Recovery Act funds "for the
construction, alteration, maintenance, or repair of a public building
or work unless all of the iron, steel, and manufactured goods used in
the project are produced in the United States." Recovery Act, div. A,
§ 1605. 123 Stat. 303. DOT has stated that, since Title XII of the
Recovery Act provides that funds made available under that act for
transit projects are subject to applicable 49 U.S.C. chapter 53
requirements, it is enforcing these provisions in accordance with its
existing Buy America requirements, as contained in 49 U.S.C. chapter
53 and FTA's implementing regulation at 49 C.F.R. Part 661.
[30] NCDOT officials told us they did not already have written
guidance in place for non-Recovery Act federally funded transit
infrastructure construction projects, because it had not used federal
funds for these types of projects in at least 20 years.
[31] These are cash drawdowns from the U.S. Department of Health and
Human Services' Payment Management System. This system disburses grant
funds to over 41 federal agencies, bureaus, and grant awarding
offices, including the Department of Labor. Under the procedures for
using these funds, funds are to be drawn down no more than 3 days in
advance of paying bills. According to Labor, drawdown data for March
2010 may be significantly understated as a result of complications
with the transition to a new accounting system. Labor is taking steps
to correct these issues and expects to release accurate data by the
end of May 2010.
[31] Expenditures represent actual cash disbursements or outlays,
while obligations represent financial commitments made by states or
local areas for which payment has not yet been made. For example, an
obligation would be incurred when a state or local area enters into a
commitment or contract with a service provider for training, but
training has not yet been completed or the service provider has not
yet been paid.
[33] Non point source pollution is generally caused by rainfall or
snowmelt moving over and through the ground. Non point source
pollutants could include excess fertilizers, herbicides, and
insecticides from agricultural lands and residential areas; oil or
grease from urban runoff; sediment from improperly managed
construction sites and forests; and bacteria and nutrients from
livestock.
[34] DENR awarded half of its Recovery Act funds in the form of
principal forgiveness and the other half in the form of interest-free
loans. Principal forgiveness means that half of each loan will not
need to be repaid. The other half of the loan will need to be repaid
at a zero percent interest rate. If a project's actual cost is lower
than originally projected or the scope of the project is reduced, the
same 50-50 split will be maintained. DENR program officials said that
there is a cap of $3 million for each project award and approximately
$1.7 million is expected to be repaid to the funds annually for 20
years. This money will be made available for other eligible projects,
according to department officials.
[35] In 2008, prior to passage of the Recovery Act, 10 localities
applied for Clean Water SRF loans and 15 applied for Drinking Water
SRF loans. DENR officials told us the large increase in the number of
applicants was because of Recovery Act funding.
[36] According to state officials, easements are defined in several
ways, including the granting of permission for a locality to run water
or drainage pipes through private property. For green projects,
program officers said that often an easement is granted when a
landowner donates a tract of property for conservation purposes.
[37] The Recovery Act's Buy American provision generally requires that
iron, steel, or manufactured goods used on a public building or public
work must be produced in the United States, subject to limited
exceptions. Federal agencies may issue waivers for certain projects
under specified conditions, for example, if using American-made goods
is inconsistent with the public interest or the cost of those goods in
unreasonable. The act limits the "unreasonable cost" exception to
those instances when inclusion of American made iron, steel, or other
manufactured goods increase the overall project cost by more than 25
percent. Agencies also need not use American made goods if they are
not sufficiently available or of satisfactory quality.
[38] Under the Recovery Act's Davis-Bacon provision, subrecipients of
Recovery Act funds must pay at least the prevailing wages established
by the Secretary of Labor for their area. The Recovery Act's Davis-
Bacon provision requires all laborers and mechanics employed by
contractors and subcontractors on projects funded directly by or
assisted in whole or in part by the act to be paid wages at rates not
less than those prevailing on projects of a similar character in the
locality.
[39] Bids came in 20 to 40 percent lower than estimated. North
Carolina commits to program funding before bids are solicited.
[40] NCLM is a nonpartisan association of municipalities in North
Carolina. NCLM provides member services designed to strengthen and
support municipal governing processes at the local, state, and federal
levels.
[41] Created by the Recovery Act, Recovery Zone Facility Bonds are tax-
exempt private activity bonds that states and localities may, in
general, use to finance certain recovery zone property. The recovery
zone property must generally be used within designated recovery zones
which can include areas having significant unemployment, rate of home
foreclosures, or general distress. Recovery Act, § 1401(a), 123 Stat.
350-351
[42] The City of Durham will partner with Durham County. The Durham
City Council approved a Memorandum of Understanding (MOU) with Durham
County to share and use JAG funds to pay for the following shared
public safety-related items: one Domestic Violence Assistant District
Attorney, Code Red/Reverse 911 communication system, and personnel-
related costs associated with the Warrant Control Center.
[43] The Fiscal Research Division is a non-partisan state agency that
provides budget and tax-related analysis and information to all
members of the State of North Carolina's General Assembly.
[44] DPI did not verify that any of the subrecipients of SFSF were not
suspended or debarred. This can be accomplished by checking the
Excluded Parties List System maintained by the U.S. General Services
Administration, collecting a certification from the entity, or adding
a clause or condition to be covered to the transaction with that
entity.
[45] The central contractor registration (CCR) database is the primary
government repository for contractor information required for the
conduct of business with the federal government. Since October 1,
2003, it is federally mandated that any contractor wishing to do
business with the federal government under a Federal Acquisition
Regulation (FAR)-based contract must be registered in CCR, with
exceptions prior to award of a contract or agreement.
[46] According to OIA's Assistant State Budget Officer/Audit Director,
other state agencies have their own Internal Audit office.
[47] These numbers do not include North Carolina's Department of
Transportation and Department of Correction because these agencies
have internal audit programs. The Department of Transportation has 29
audit positions in its Inspector General function and the Department
of Correction has 18 internal audit positions.
[48] The University of North Carolina - General Administration office
is responsible for administration related to North Carolina's public
higher education system. The office is responsible for executing the
policies of the UNC Board of Governors and providing administrative
oversight in such areas as academic affairs, business and financial
management, research, and governmental relations.
[49] The official reported that each teaching assistant should have
been calculated as a 0.15 FTE.
[End of Appendix XIV]
Appendix XV: Ohio:
Overview:
This appendix summarizes GAO's work on the sixth of its bimonthly
reviews of American Recovery and Reinvestment Act of 2009[Footnote 1]
(Recovery Act) spending in Ohio. The full report on all of our work,
which covers 16 states and the District of Columbia, is available at
[hyperlink, http://www.gao.gov/recovery].
What We Did:
To continue our ongoing analysis of the use of the Recovery Act funds
in Ohio, we updated information on the U.S. Department of
Transportation's (DOT) Highway Infrastructure Investment Program, the
Department of Housing and Urban Development's (HUD) Public Housing
Capital Fund, and three education programs administered by the U.S.
Department of Education.[Footnote 2] We also reviewed the Edward Byrne
Memorial Justice Assistance Grant Program (JAG), administered by the
Department of Justice. We previously reviewed this program for our
July 2009 report. In addition, we collected information on five
programs that we have not covered in the past:
* two programs administered by the U.S. Environmental Protection
Agency (EPA)--the Clean Water State Revolving Fund (SRF) and the
Drinking Water State Revolving Fund;
* one additional program administered by the U.S. Department of
Justice--the COPS Hiring Recovery Program (CHRP); and:
* two programs that provide capital investments in low income housing
tax credit projects--the Tax Credit Assistance Program administered by
HUD, and Section 1602 Tax Credit Exchange Program administered by the
U.S. Department of Treasury.
For descriptions and requirements of the programs we covered, see
appendix XVIII in GAO-10-605SP. In addition, we continued to gather
information about the state's economic condition and met with
officials from two local governments that we have visited in the past--
the City of Toledo and Putnam County. We also contacted officials from
oversight entities in Ohio responsible for monitoring Recovery Act
funds to discuss their most recent, ongoing, and planned audit
results; as well as Ohio's participation in the Office of Management
and Budget's (OMB) Single Audit pilot program.
What We Found:
Following are highlights of our review:
* Clean Water State Revolving Fund and Drinking Water State Revolving
Fund. The Ohio EPA funded more Recovery Act SRF projects than any
state. We found that Ohio EPA has not developed a written monitoring
plan for its oversight of Recovery Act projects. Workloads kept the
state from completing some project inspections quickly and during site
visits to three projects we found some issues with implementing key
aspects of the Recovery Act, including "Buy American" provisions and
Davis-Bacon wage rates requirement. Moreover, we found that Ohio EPA
lacks a system to verify the accuracy of the number of jobs reported
by contractors to subrecipients, as funded through these two programs.
* Education. Our work found that the Ohio Department of Education has
developed plans for monitoring subrecipients' use of Recovery Act
funds. However, we identified weaknesses in how the state plans to
monitor State Fiscal Stabilization Fund (SFSF) funds allocated to
institutions of higher education. In addition, we found that reporting
by the Ohio Board of Regents did not specifically identify the receipt
and use of SFSF funds for institutions of higher education, from
February through December 2009, which makes it difficult to determine
how the funds were used.
* Edward Byrne Memorial Justice Assistance Grant program and COPS
Hiring Recovery Program. We visited three localities in Ohio--the
cities of Columbus and Youngstown and Franklin County--and found that
Recovery Act funds are being used to support immediate criminal
justice needs. Generally, funds from both grant programs are being
used to fund law enforcement personnel; however, these localities are
also using Recovery Act funds to purchase equipment. At the state
level, Ohio Office of Criminal Justice Services has awarded over $35
million in Recovery Act funds to support more than 300 criminal
justice projects throughout Ohio.
* Highway Infrastructure Investment Program. The state Ohio was
apportioned $936 million in Recovery Act funds for highway
infrastructure and other eligible projects. Ohio continues to receive
bids averaging 10 percent below state cost estimates. These lower-than-
estimated project costs allowed the Ohio Department of Transportation
(ODOT) to fund more projects than originally planned. As of April 28,
2010, ODOT had awarded contracts for 339 out of 393 projects
authorized by the Federal Highway Administration. Recovery Act funds
account for almost one quarter of Ohio's transportation program for
fiscal year 2010 -2011. A decline in major sources of state
transportation revenue may affect the state's ability to meet the
maintenance-of-effort requirement.
* Public Housing Capital Fund. All 52 public housing agencies in Ohio
met the March 17, 2010 deadline to obligate funds provided by the
Recovery Act. However, seven agencies in Ohio had obligated less than
50 percent of the funding as the deadline neared. Officials at two of
those 7 agencies identified several challenges including (1) delays in
design work and bid specifications; (2) "Buy American" provisions; and
(3) new state environmental requirements.
* Low Income Housing Tax Credit programs. Ohio was allocated
approximately $201.6 million for the Tax Credit Assistance Program
(TCAP) and the Section 1602 Tax Credit Exchange Program. The Ohio
Housing Finance Agency is responsible for administering the funds
across the state and has committed almost all TCAP and Section 1602
Program funds to projects.
* Selected localities' use of Recovery Act funds. In Ohio, the state
and some localities continue to feel the effects of the economic
downturn and reduced revenues. We re-visited Putnam County and the
City of Toledo and found they continue to face fiscal challenges.
Recent Recovery Act awards went to specific projects that were not
funded from the general fund. For example, the city of Toledo was
awarded funds from the Neighborhood Stabilization Program 2 to fund
the removal of housing units and replace them with a mix of affordable
housing and market-rate housing. Putnam County received additional
Workforce Investment Act of 1998 funds to provide for further worker
assistance.
* Accountability. There are a number of state entities identified as
having responsibility for monitoring Recovery Act-funded projects in
Ohio, namely the State Audit Committee, the Office of Internal Audit
(OIA), the Auditor of State, and state-appointed Deputy Inspector
General for Recovery Act funds.
Ohio EPA Funded More Recovery Act SRF Projects Than Any Other State:
Ohio received a $58,460,000 allocation for its Drinking Water State
Revolving Fund (SRF) program from the U.S. EPA and funded 62 projects.
In addition, Ohio received an allocation of $222,851,900 from the U.S.
EPA for its Clean Water SRF program and funded 274 projects, making
Ohio the state with the most Recovery Act-funded SRF projects. Many
Clean and Drinking Water projects also received base SRF funds, and
all of the Recovery Act funding was provided in the form of principal
forgiveness.[Footnote 3] Ohio EPA officials told us they chose to fund
as many projects as possible to spread Recovery Act funds to
communities that may not have had an opportunity to participate in the
SRF programs in the past. In Ohio, 37 Drinking Water and 76 Clean
Water SRF subrecipients had not received funds from the respective SRF
program before. Ohio EPA also selected 118 Clean and Drinking water
projects to meet the Recovery Act green reserve requirement, as shown
in figure 1, and these projects used 22 percent of the Clean Water
funds, and 40 percent of the Drinking Water funds. Examples of green
projects in Ohio include, installation of solar powered circulators at
a wastewater treatment plant, and installation of a micro turbine to
convert methane gas into electricity for use at a wastewater treatment
plant.
Figure 1: Percentages of Ohio EPA's Recovery Act Clean and Drinking
Water Funds used for Green and Other Projects:
[Refer to PDF for image: 2 pie-charts]
Clean Water SRF:
Green projects: $49.1 million (22%);
Other projects: $171.5 million (78%);
Total: $220.6 million.
Drinking Water SRF:
Green projects: $23.2 million (40%);
Other projects: $35.3 million (60%).
Total: $58.5 million.
Source: GAO analysis of Ohio EPA data.
[End of figure]
Eleven Months after Making Its First Award, Ohio Is Developing Its
Monitoring Plan:
Ohio EPA does not have a written plan to monitor whether the
individual Recovery Act projects it funds through the programs comply
with Recovery Act requirements. According to U.S. EPA officials,
although U.S. EPA has established minimum requirements for
subrecipient monitoring, such as requiring states to review
reimbursement requests, states are allowed to determine their own
subrecipient monitoring procedures, including the frequency of project
site inspections. In March 2010, Ohio's Office of Internal Audit (OIA)
identified the lack of a monitoring plan as a program risk and
recommended that Ohio EPA develop a risk-based approach to monitoring,
document its monitoring procedures, and develop procedures to
communicate monitoring results. Ohio EPA officials said each project
would have a site visit and an administrative file review and they
anticipate completing a monitoring plan, including site visit
procedures, for Recovery Act SRF projects by May 2010. There were
delays in developing a written monitoring plan and scheduling site
visits because of the federal deadline to have all projects under
contract or construction resulted in the state using most of the
resources devoted to the program, according to state officials. As we
have reported, state officials said they limited the amount of
administrative costs each state agency could charge in order to
maximize the impact of Recovery Act resources in the state.[Footnote 4]
The state began awarding SRF funds in June 2009. By April 23, 2010,
Ohio EPA had inspected 53 out of the 54 Drinking Water projects under
construction. However, as late as March 12, 2010, Ohio EPA had
inspected only 67 Clean Water projects--about 29 percent--of the total
projects.[Footnote 5] By April 19, 2010, Ohio EPA had inspected about
41 percent of the Clean Water projects, but its reports show that at
least 6 projects are complete and have not been inspected and there
are still a number of others that are nearing completion and have not
been inspected.
The site visits are normally done by engineering staff, but in October
2009, to address the workload, non-engineering staff from district
offices began to visits project sites to conduct the required
inspections and monitoring, according to an Ohio EPA official.
However, in March 2010 the supervisor for the engineering team said
some of these inspections needed to be redone because the quality
varied or because of issues with the project identified during the
visit. The supervisor said they prioritized visits based on the award
date, and the project's construction period. However, some Clean Water
projects that had not started or had just started construction were
also visited.
On-site monitoring of projects while construction is ongoing can help
ensure compliance with Recovery Act requirements before the funds have
all been spent. To see how subrecipients implemented key aspects of
the Recovery Act, we visited three Clean Water projects under
construction that Ohio EPA had not yet visited.[Footnote 6] The
projects were selected to provide a mix of (1) green and nongreen
projects, (2) subrecipient service areas, and (3) projects at various
stages of completion. During our visits, we conducted interviews and
asked for documentation for selected items on Ohio EPA and U.S. EPA's
checklists for Recovery Act site visits. We noted, and the
subrecipients confirmed, the following issues:
* The Buy American documentation provided by one of the subrecipients
raised questions as to whether all of the manufactured goods used in
their project were produced domestically. Information provided by the
U.S. EPA states that without adequate documentation, compliance with
Buy American requirements cannot be credibly and meaningfully
demonstrated. For this subrecipient, the specificity and detail of the
documentation provided about one of the products in the project left
questions as to whether the product was produced at one of its
manufacturer's non-domestic locations.
* At the time of our visit, one subrecipient was almost 2 months late
in conducting interviews of contractor workers to ensure payment of
Davis-Bacon wage rates. U.S. EPA's award terms and conditions require
subrecipients to interview a sufficient number of contract workers
within 2 weeks of the first payroll.
* The jobs data submitted by one subrecipient included sewer district
employee hours that were not Recovery Act funded. OMB guidance states
that only Recovery Act funded hours should be included in quarterly
reports.[Footnote 7] This same subrecipient's fourth quarter 2009 data
covered September, October, and November, instead of October, November
and December. The subrecipient included data for this time period in
reports for two other projects. The employee who compiled the data
said the numbers for the first quarter of 2010 also lag by 1 month.
The employee said they staggered the months to give more time to
compile the data.
Ohio EPA developed a checklist to help its monitoring staff ensure
compliance with Recovery Act requirements, but the checklist does not
direct these staff to review reporting documentation that could aid in
verifying the accuracy of job counts. In March 2010, U.S. EPA released
a Recovery Act checklist for states to use when inspecting
subrecipients that includes a section on reporting compliance.
[Footnote 8] Ohio EPA's current monitoring procedures would not detect
noncompliance with reporting requirements, such as reporting on the
wrong time period, as described above. State oversight of subrecipient
job reporting during site inspections could help the state to ensure
data quality and compliance with OMB guidance.
Ohio Lacks a System to Verify the Accuracy of Jobs Data:
Ohio EPA has not instituted a process to validate subrecipients'
quarterly job reports. Although Ohio EPA has a process for basic
reviews of subrecipients' reporting forms, the agency has not
developed a process to validate job data quality.[Footnote 9] In
addition, Ohio EPA does not require subrecipients to collect
documentation and validate data collected from their contractors, and
Ohio EPA has not provided guidance to subrecipients on validating job
reports. In March 2010, Ohio's OIA also recommended that Ohio EPA
develop procedures for validating subrecipients' job data.
To learn what actions were being taken by subrecipients to verify job
data from its contractors for the fourth quarter 2009, we spoke with
staff responsible for providing data on jobs to the state at 25 of the
largest projects in Ohio that had awards by the end of 2009.[Footnote
10] Some subrecipient staff responsible for reporting jobs data to the
state expressed concern about the accuracy of data submitted by
contractors.
* Of the 16 projects that had activity to report, 14 did not have a
process to verify contractor job counts with payroll or other records.
Several subrecipients acknowledged they already collect payroll
information that could help confirm the job data, but did not take
steps to compare the two sets of numbers.
* Of the 14 projects that did not have a formal verification process,
staff at 3 projects had observed the work activity and had an idea of
job activity. However, these staff could not document the accuracy of
the job counts based on these visits. Eleven projects did not have any
manner to verify job counts.
Reliance on contractor submitted data without validation may result in
reports that do not accurately reflect the number of Recovery Act-
funded jobs in the reported time period. In order to ensure more
accurate accounting for the number of jobs created, the state may want
to provide guidance to its subrecipients to verify data on the number
of hours worked and paid with Recovery Act funds. Comparisons of job
numbers and payroll records, for example, could be conducted using
payroll documents required for Davis-Bacon compliance checks under the
Recovery Act. In addition, including oversight of subrecipient
reporting data during state project inspections and providing guidance
to subrecipients on how to validate job data could improve data
quality and ensure compliance with OMB guidance. Further, fully
implementing the OIA's recommendations should strengthen subrecipient
monitoring and reporting data quality.
Ohio EPA reviewed a draft of this appendix and said that it had
developed steps to validate subrecipients' quarterly job reports. We
have not tested the implementation of these steps, but note that while
the steps appear to check the calculations and completeness of the
forms submitted by subrecipients, they do not validate that the hours
reported were actually worked and funded with Recovery Act funds.
Monitoring of Recovery Act Education Funds in Ohio:
The Ohio Department of Education (ODE) administers all Recovery Act
funds for education, including Title I, Part A of the Elementary and
Secondary Education Act of 1965, as amended, (ESEA), the Individuals
with Disabilities Education Act, as amended, (IDEA), Part B, and the
State Fiscal Stabilization Fund (SFSF).[Footnote 11] ODE is passing
Recovery Act ESEA Title I and IDEA funds to school districts. It is
using SFSF funds to (1) fund a portion of the state's foundation
founding formula it uses to support local educational agencies (LEA)
each year, (2) provide funding to the state's public institutions of
higher education (IHE) through the state's share of instruction, and
(3) support operating costs such as salaries and other expenses for
the Ohio Department of Rehabilitation and Corrections.
Ohio Has Developed a Comprehensive Monitoring Plan but Some Weaknesses
Need to Be Addressed:
ODE has developed comprehensive plans for monitoring how its
subrecipients spend funds under ESEA Title I and IDEA; however, we
identified weaknesses in the state's plans for monitoring funds from
the SFSF. Specifically, we identified weaknesses in how the state
plans to monitor the SFSF funds allocated to IHEs.
For ESEA Title I and IDEA, ODE's Office of Federal Programs relies on
existing monitoring policies and procedures to monitor LEAs' use of
Recovery Act funds through a pre-existing online grants application
and verification system. This system provides ODE with information on
the amount and types of expenditures paid with Recovery Act funds when
LEAs request a payment. ODE has an established monitoring schedule to
ensure all LEAs are monitored on a 3-year cycle. In addition, ODE's
Office of Exceptional Children coordinates with the Office of Federal
Programs to monitor LEAs' use of IDEA by conducting management
assistance reviews. ODE's monitoring procedures include the following
steps:
* Annual off-site administrative reviews are completed for LEAs
receiving Recovery Act funds, including ESEA Title I and IDEA. These
reviews help ODE determine which LEAs may need an additional level of
review outside of the 3-year cycle.
* All LEAs being reviewed are required to submit a self-evaluation
annually prior to June 30.
* At least 10 percent of the LEAs being reviewed will be surveyed by
telephone to validate responses submitted in their self-evaluation. In
addition, telephone surveys will be conducted with all LEAs being
reviewed that do not submit their self-evaluation and selected LEAs
with certain risk factors including improvement status, allocation
amount, previous audit results, staffing changes, and date of the last
telephone survey.
* A minimum of 10 percent of the LEAs being reviewed will receive an
on-site monitoring visit each year. All on-site visits conducted by
the Office of Federal Programs and the Office of Exceptional Children
include data collection instruments, monitoring reports, and feedback
to LEAs.
* ODE has processes to verify that required corrective actions are
implemented.
Because the SFSF program is new, Ohio had to develop new monitoring
policies and procedures to track those funds and ensure its
subrecipients were in compliance with the rules governing Recovery Act
funds. Ohio received about $1.79 billion from the SFSF and allocated
those funds to LEAs, IHEs, and the Ohio Department of Rehabilitation
and Corrections. As required by the U.S. Department of Education, Ohio
submitted its plan for monitoring how these funds are spent to the
department.
* For LEAs, ODE's Center for School Finance and Options has developed
new monitoring policies and procedures and trained existing staff to
monitor LEAs' use of Recovery Act funds. The Center for School Finance
and Options will rely on 5-year financial forecasts, quarterly
expenditure data submitted to the Ohio Auditor of State, and on-site
visits to monitor SFSF funds. ODE required LEAs to include
supplemental data on the allocation and expenditure of SFSF funds in
their 5-year financial forecasts that are updated twice a year. In
addition, the Auditor of State requires LEAs to submit quarterly
expenditure data for all Recovery Act funds, including SFSF funds. ODE
has access to the Auditor's data and reviews the quarterly reports to
monitor expenditures. In addition, LEAs that have received fiscal
distress designations from the Auditor of State are subject to on-site
monitoring, which includes a review of SFSF funds.[Footnote 12]
* For IHEs, Ohio's Board of Regents (BOR) reviews quarterly and year-
end financial reports to ensure IHEs are in compliance with Recovery
Act reporting requirements. To ensure SFSF funds are being used to
support education and general expenditures, BOR shares federal
guidelines with IHE chief financial officers and requires them to
certify SFSF funds are being used appropriately. In addition, IHEs in
Ohio have been directed to report quarterly receipt and use of SFSF
funds to the Auditor of State.
* For Department of Rehabilitation and Corrections, the Ohio Office of
Budget and Management will monitor SFSF funds through appropriation
and allotment control processes in the state's accounting system.
According to Office of Budget and Management officials, the state will
document the allocation and spending of SFSF funds through its Monthly
Financial Report and use payroll reports to validate salaries paid by
the Department of Rehabilitation and Corrections using SFSF funds.
Although Ohio has developed a plan for monitoring SFSF funds,
reporting by the Ohio Board of Regents (BOR) did not specifically
identify the receipt and use of those funds during the first and
second reporting periods (February through December 2009) which makes
it difficult to determine how the funds were used. As noted above, BOR
reviews quarterly and year-end financial reports to monitor IHEs'
Recovery Act spending and also estimates the number of jobs retained
by IHEs. A senior BOR official told us that most SFSF expenditures by
IHEs were spent on salaries. IHEs also report the monthly receipt and
use of SFSF funds to the Auditor of State's Web site, as required by
the state's monitoring plan. However, when we reviewed the Web site in
April 2010, we found that Ohio State University, the largest SFSF
recipient in Ohio, had not reported any information on its SFSF
expenditures. Ohio State University financial officials told us that
they will report the required information to the Auditor of State's
Web site, and that SFSF funds were used for personnel costs during the
first and second reporting periods. Because BOR did not amend the
quarterly financial reports until the third quarter, BOR may have been
unable to determine how SFSF funds were used during the first and
second reporting periods. Moreover, a senior state official told us
that there is no mechanism to validate the expenditure information
submitted by IHEs. According to a senior BOR official, for the third
reporting period and going forward, all IHE CFOs and controllers have
certified that all SFSF expenditures by IHEs, including Ohio State
University, will be used for salaries-an allowable expenditure under
the Recovery Act; and the financial quarterly reports will identify
cumulative revenues and expenditures associated with SFSF funds. In
addition, after reviewing a draft copy of this appendix, BOR drafted
changes to their section of the state's SFSF monitoring plan, which
was originally submitted to the U.S. Department of Education on March
12, 2010. The state is currently in the process of reviewing these
changes and it is anticipated they will submit an updated plan to the
U.S. Department of Education by May 28, 2010.
Number of Challenges Could Impede Implementation of Ohio's Monitoring
Plan:
We identified a number of challenges facing the state in implementing
its plan to monitor Recovery Act education funds. As we discussed in
our September report,[Footnote 13] Ohio limited the amount of
administrative costs each state agency could charge in order to
maximize the impact of Recovery Act funds in the state. As a result,
ODE did not add additional staff to monitor how the LEAs were spending
Recovery Act funds. For ESEA Title I and IDEA, ODE did not increase
the number of staff responsible for monitoring Recovery Act funds,
despite double the number of applications that needed to be approved
in the grants application and verification system. For SFSF, ODE also
did not increase staff but has authorized overtime for staff making
programming changes to various reporting and monitoring systems and
convened a series of training sessions to educate staff about the new
SFSF monitoring policies and procedures and how to respond to LEAs
needing technical assistance.
The increased workload on existing staff may limit the state's ability
to carryout its monitoring program. For example, ODE has experienced
delays in filing the reports to LEAs on their on-site visits.
According to ODE's on-site monitoring procedures, the Office of
Federal Programs will issue a report of findings to the LEA within 30
days following the on-site review and the Office of Exceptional
Children will issue a report of findings to the LEA within 60 days
following the on-site review. These reports are important because some
LEAs may not have sufficient notice to take correction action or
receive technical assistance needed to ensure appropriate use of
Recovery Act funds. Between December 2009 and April 2010, ODE had
completed 44 on-site visits. As of April 22, 2009, the Office of
Federal Programs had issued reports to 21 LEAs on ESEA Title I and
IDEA of which 10 were issued within 30 days following the on-site
review. However, the Office of Exceptional Children has not issued any
management assistance reviews since April 8, 2009. When we visited
Toledo Public Schools in April 2010, district officials said that they
still had not received a report based on ODE's visit 3 months earlier.
A senior ODE official later confirmed that Toledo Public Schools was
issued a report of findings from the Office of Federal Programs on
April 19, 2009, but was still awaiting results from the management
assistance review conducted by the Office of Exceptional Children
during the same period.
CHRP and JAG Programs Are Supporting Immediate Local Criminal Justice
Needs:
We visited three localities in Ohio--the cities of Youngstown and
Columbus, and Franklin County. Youngstown and Columbus received both
JAG and CHRP funding, while Franklin County only received JAG funding.
Budget conditions in Columbus and Youngstown are such that police
departments have experienced budget cuts and were in danger of laying
off personnel. In Youngstown, the city is the prime recipient of JAG
funds and has provided funds to four other local governments. In
Columbus, the city is a subrecipient of funds from Franklin County,
which is responsible for meeting all federal reporting requirements
for JAG. Table 1 shows the amount of funding received by the state of
Ohio for CHRP and JAG programs.
Table 1: Amount of Funding Received by State of Ohio:
Funding type: CHRP;
Amount: $79,294,927.
Funding type: JAG local funding;
Amount: $23,596,436.
Funding type: JAG state funding;
Amount: $38,048,939.
Funding type: Total;
Amount: $140,940,302.
Sources: Department of Justice and Ohio Office of Criminal Justice
Services.
[End of table]
Recovery Act Funds are Being Used to Retain Jobs:
At the state level, officials told us that JAG funds awarded to
subrecipients are being used to support all seven program areas. The
largest percentage of pass-through funds was awarded to support law
enforcement activities. Table 2 shows the breakdown of funds, by
program area, awarded to subrecipients by the Ohio Office of Criminal
Justice Services (OCJS).
Table 2: Distribution of JAG Funds Awarded by OCJS, by Program Area:
JAG program area: Law Enforcement;
Amount: $12,401,035.52;
Percentage: 35%;
Total number of projects: 110.
JAG program area: Corrections;
Amount: $8,323,141.80;
Percentage: 24%;
Total number of projects: 46.
JAG program area: Crime Prevention & Education;
Amount: $4,593,430.22;
Percentage: 13%;
Total number of projects: 70.
JAG program area: Program Planning, Evaluation, & Technology
Improvement;
Amount: $3,290,903.82;
Percentage: 9%;
Total number of projects: 26.
JAG program area: Crime Victim & Witness Programs;
Amount: $2,676,585.32;
Percentage: 8%;
Total number of projects: 37.
JAG program area: Prosecution & Courts;
Amount: $2,805,401.38;
Percentage: 8%;
Total number of projects: 33.
JAG program area: Drug Treatment & Enforcement;
Amount: $934,406.45;
Percentage: 3%;
Total number of projects: 12.
JAG program area: Total;
Amount: $35,024,904.51;
Percentage: 100%;
Total number of projects: 334.
Source: Ohio Office of Criminal Justice Services.
[End of table]
Although JAG funds can be used to support 7 broad program areas, in
general, the localities we visited are using Recovery Act funds to
support law enforcement activities. Specifically, funds are being used
to retain personnel who would have otherwise been laid off. In
Youngstown, for example, the city was able to retain six officers with
its direct allocation JAG award and another four with its pass-through
award from the state. In Columbus, city officials told us the city was
able to provide jobs to 23 cadets once they graduated from the police
academy. Without Recovery Act JAG funds, the city would have been
unable to provide jobs to the 23 cadets after graduation. Table 3
shows how JAG funds are being used in the localities we visited.
Table 3: Distribution of JAG funds in selected localities, by Program
Area:
Law Enforcement:
Youngstown: $852,599 (100%);
Columbus: $1,688,000 (100%);
Franklin County: $3,134,173 (64%).
Law Enforcement: Personnel;
Youngstown: $586,419 (69%);
Columbus: $1,388,000 (82%);
Franklin County: $2,202,961 (70%).
Law Enforcement: Equipment;
Youngstown: $266,180 (31%);
Columbus: $300,000 (18%);
Franklin County: $545,032 (17%).
Law Enforcement: Other Costs;
Youngstown: N/A;
Columbus: N/A;
Franklin County: $386,180 (12%).
Prosecution & Courts:
Youngstown: 0 (0%);
Columbus: 0 (0%);
Franklin County: 82,000 (2%).
Crime Prevention & Education:
Youngstown: 0 (0%);
Columbus: 0 (0%);
Franklin County: 237,500 (5%).
Corrections:
Youngstown: 0 (0%);
Columbus: 0 (0%);
Franklin County: 1,031,565 (21%).
Drug Treatment & Enforcement:
Youngstown: 0 (0%);
Columbus: 0 (0%);
Franklin County: 0 (0%).
Program Planning, Evaluation, & Technology Improvement:
Youngstown: 0 (0%);
Columbus: 0 (0%);
Franklin County: 25,000 (.5%).
Crime Victim & Witness Programs:
Youngstown: 0 (0%);
Columbus: 0 (0%);
Franklin County: $396,585 (8%).
Total:
Youngstown: $852,599;
Columbus: $1,688,000;
Franklin County: $4,906,823.
Source: Columbus Division of Police, Franklin County Office of
Homeland Security & Justice Programs, and Youngstown Police Department.
Note: Funding and percentage amounts for Franklin County include city
of Columbus. The above total for Franklin County does not include
$402,088 withheld for administrative costs associated with managing
the grant. Percentages may not add to 100 percent due to rounding.
[End of table]
Although localities do not have much flexibility in the purposes for
which CHRP funds are to be used, Youngstown and Columbus have taken
different approaches in how they are using their awards. In
Youngstown, the city is using its CHRP award to retain 9 additional
officers within the police department. Officials told us because
Youngstown received Recovery Act JAG and CHRP funds, no officer
positions had to be eliminated. In Columbus, however, CHRP funding is
being used to hire 50 new officers. These 50 officers will allow the
city to move more experienced officers into neighborhood policing
programs.
Localities Have Concerns with Maintaining Positions Funded by the
Recovery Act:
Officials in the localities we visited expressed concerns with their
ability to maintain positions funded with Recovery Act dollars.
Officials in Youngstown told us that the city plans to use revenue
from the city's general fund to pay the salaries of those officers
funded by CHRP and JAG funding after those funds expire. However, the
ability of the city to do this is dependent on Youngstown not
replacing officers expected to retire this year and in 2011 and using
those funds to pay the salaries of those officers currently being
funded by the Recovery Act; overall the number of officer positions in
the department is expected to decrease. The city anticipates losing
approximately 30 officers to retirement from 2009 through early 2011.
In Columbus, voters passed a half percent income tax increase in
August 2009 to provide, among other things, the city with additional
general fund revenue. Officials told us they believe that the
additional revenue generated by the increase will be sufficient to
ensure that officers funded with JAG and CHRP grants can be retained
once funding expires. The proposed 2011 budget for the Columbus
Division of Police increases funding by more than $5.8 million from
fiscal year 2010. Officials told us that they believe this increase is
the result of the income tax increase and the commitment of the city
to maintain programs funded with Recovery Act dollars.
The ability to sustain programs once Recovery Act funds expired
influenced how one locality is spending JAG funds. Franklin County
officials told us that one subrecipient revised their application in
order to purchase an automatic license plate reader instead of funding
a school resource officer because of concerns with being able to
maintain the position once JAG funds were expended.
OCJS officials told us that the ability of subrecipients receiving
pass-through funding to sustain programs funded with their JAG award
was factored into the competitive award process. However, OCJS stated
that it is not their responsibility to ensure that programs can be
sustained once funding expires. According to OCJS officials, they
anticipate that sub-recipients will apply for JAG funding to continue
projects after Recovery Act funds have been expended. OJCS officials
also told us that they do not expect the Department of Justice to
increase its award to states in response to more applicants.
Oversight of Subrecipient Use of Recovery Act funds Varies:
In addition to collecting and validating subrecipient data for the
various federal reporting requirements, prime recipients also provide
oversight to ensure that subrecipients are appropriately using
Recovery Act funds. OCJS uses both on-site fiscal and programmatic
reviews and desktop fiscal reviews to track and monitor the progress
of subrecipient awards to ensure compliance. Although OCJS plans on
completing on-site reviews of all the sub-recipients, officials told
us they are using a risk-based assessment to prioritize which
subrecipients to visit first.
An official at OCJS told us that the use of on-site reviews resulted
in identifying a subrecipient that was unable to provide satisfactory
documentation of compliance with federal reporting requirements. This
official told us that the state pulled back the subrecipient's
Recovery Act funds, as well as non-Recovery Act grant funds.
Franklin County officials also told us that they are using desktop and
on-site reviews to ensure compliance with state and federal
requirements, not only for Recovery Act-funded grants but for all
criminal justice-related grants. As part of their monitoring,
officials told us they have developed a performance measurement tool
modeled after the Bureau of Justice Assistance's Performance
Measurement Tool for subrecipients to use with their Recovery Act
funds. The Franklin County measurement tool, in addition to assisting
officials with determining future criminal justice priorities for the
region, also serves as a way for subrecipients to identify positions
funded with Recovery Act dollars.
In Youngstown, however, oversight is limited to desktop reviews of
subrecipient reports submitted to Youngstown officials responsible for
managing the grant. Officials told us that they have not performed any
on-site reviews. They stated that they know Recovery Act funds were
spent appropriately because they had receipts for the equipment
purchased with JAG funds.
Highway Infrastructure Investment:
The Recovery Act provides additional funds for highway infrastructure
investment using the requirements and structure of the existing
Federal-Aid Highway Program, generally and its Surface Transportation
Program in particular, which apportions money to states to construct
and maintain eligible highways and for other surface transportation
projects. In March 2009, $936 million in Recovery Act funds was
apportioned to Ohio for highway infrastructure and other eligible
projects. The federal government obligated[Footnote 14] the state's
full apportionment by the 1-year deadline of March 2, 2010.
According to Ohio Department of Transportation (ODOT), the state
continues to receive bids averaging 10 percent below state cost
estimates, which means the state must request FHWA to deobligate funds
in order to recapture the funding not needed and subsequently obligate
those funds onto new projects. While lower-than-estimated project
costs reduced the obligation rate, they also allowed ODOT to fund more
projects (51) than originally planned. ODOT officials told us that the
increase in the number of funded transportation projects was directly
related to contracts being awarded below the state's project cost
estimate. According to ODOT, because so many contracts were awarded
below the state cost estimate, after the March 2, 2010 deadline, the
Federal Highway Administration (FHWA) deobligated $17 million of the
highway funds it had obligated for Ohio.
As of April 28 2010, ODOT had awarded contracts for 339 out of 393
projects funded by FHWA. These contracts were for new construction,
minor rehabilitation pavement, and bridge maintenance projects among
others; and had an estimated cost of $803 million. Of those awarded
projects 194--valued at $565.8 million--were under construction and
71--valued at $59.2 million--are substantially completed. ODOT
officials expect the number of contracts to increase tremendously
because they typically make a great number of awards during the spring
and summer months. As of April 5, 2010, $145 million had been
reimbursed by FHWA to Ohio.
No Overall Impact Assessment Planned for Use of Recovery Act's Highway
Funds:
According to FHWA Ohio Division officials, determining the impact of
the Recovery Act funding would be difficult because a number of
projects are funded with Recovery Act funds as well as other federal
transportation aid. ODOT reported that it has some capacity to
determine the impact of the Recovery Funds on Ohio's highway system.
ODOT annually assesses current and estimates future bridge, pavement,
and safety and congestion conditions. It also measures the impact of
its highway program by measuring miles of pavement and train track
improved and the number of bridges and ports improved. However, ODOT
officials reported because the Recovery Act does not require an impact
assessment, neither FHWA nor ODOT has plans to determine the extent to
which the Recovery Act funds have impacted Ohio's highway's system.
Officials did note that the $936 million Recovery Act funds account
for nearly one quarter of Ohio's transportation program for fiscal
year 2010-2011, and the majority of this funded transportation
construction projects.
Ohio Reported Some Challenges in Meeting the Maintenance of Efforts
Requirements:
According to ODOT, Ohio is encountering some challenges in meeting the
maintenance-of-effort (MOE) requirement. The Recovery Act's MOE--which
is designed to prevent states from substituting federal funds for
state funds--requires the governor to certify that the state will
maintain the level of spending for the types of transportation
projects funded by the Recovery Act that it had planned to spend the
day the Recovery Act was enacted. As part of this certification, the
governor of each state is required to identify the amount of funds the
state plans to expend from state sources from February 17, 2009 to
September 30, 2010. ODOT is concerned that the decline in major
sources of state transportation revenue may affect Ohio's ability to
meet its MOE requirement. ODOT reported that Ohio's transit and
aviation expenditures are about $5 million less than the forecasted
level as of March 31, 2010. Ohio relies on a number of revenue sources
to meet its MOE requirement. The major revenues sources include Ohio's
general revenue fund and motor fuel tax revenue, both of which have
declined. ODOT officials reported that components of the general
revenue funds--aviation and transit categories--have declined by about
20 percent and the motor fuel tax revenue has declined by more than 2
percent as of October 2009. In addition, ODOT officials expect further
decreases in state revenues. States that are unable to meet MOE
obligation will be prohibited from benefiting from the redistribution
of obligation authority that will occur after August 1 for fiscal year
2011.[Footnote 15]
Housing Agencies in Ohio Met the Recovery Act Deadline for Obligating
Funds but Faced Some Challenges:
In Ohio, 52 public housing agencies received about $128 million in
Public Housing Capital Fund formula grants provided by the Recovery
Act (see Figure 3 below) to improve the physical condition of their
properties; for the development, financing, and modernization of
public housing developments; and for management improvements.[Footnote
16] As required by the Recovery Act, public housing agencies had to
obligate this funding within 1 year of the date it was made available
to them by HUD, which was March 17, 2010. An official from HUD told us
that all public housing agencies in Ohio met this obligation deadline,
but seven agencies in Ohio had less than 50 percent of the funding
obligated with less than 3 weeks to go before the obligation deadline.
We met with two of these public housing agencies, Trumbull
Metropolitan Housing Authority (MHA) and Chillicothe MHA, which had
obligation rates of approximately 5 and 28 percent, respectively at
the time of our visits. We held discussions with another two agencies--
Columbus MHA and London MHA--that had obligated 100 percent of their
Recovery Act formula grant funding before our talks with them. We also
visited a fifth agency--Dayton MHA--to discuss the recipient reporting
they completed during the reporting period that ended on March 31,
2010. In addition, we talked with HUD officials in the Cleveland field
office who provide oversight of the housing agencies in Ohio which
received Recovery Act funding to determine how they are monitoring
these agencies and helping them meet the obligation deadline and other
Recovery Act requirements.
Figure 2: Percentage of Public Housing Capital Funds Allocated by HUD
That Have Been Obligated and Drawn Down in Ohio:
[Refer PDF for image: 3 pie-charts and 1 horizontal bar graph]
Funds obligated by HUD: 100% ($128,325,949);
Funds obligated by public housing agencies: 100% ($128,325,949);
Funds drawn down by public housing agencies: 30.4% ($39,045,790).
Number of public housing agencies:
Were allocated funds: 52;
Obligated 100% of funds: 52;
Have drawn down funds: 50.
Source: GAO analysis of data from HUD's Electronic Line of Credit
Control System.
[End of figure]
Housing Agencies Overcame Different Challenges to Meet the Obligation
Deadline:
Both Chillicothe MHA and Trumbull MHA, which received a total of
$735,798 and $2,805,043 in Recovery Act formula grant awards,
respectively, met the 100 percent obligation requirement. However, the
two agencies reported the following challenges in obligating the funds.
* Delays in design work and bid specifications. Both PHAs reported
they faced delays in getting the design work and bid specifications
from architecture and engineering (A/E) firms. Officials from one PHA
said the A/E firm was doing a large amount of work for other housing
agencies and could not complete the work on their project more quickly
because of these other commitments.
* Buy American provisions. Chillicothe MHA officials said that finding
bathroom and plumbing fixtures made in the United States for the
agency wide bathroom remodeling project to satisfy the Buy American
provisions was more difficult than expected.
* Troubled PHAs.[Footnote 17] Chillicothe MHA officials told us that
their status as a "troubled PHA" resulted in additional oversight such
as HUD field office reviews of the agency's solicitations for bids,
bid openings and winning bidder selections caused some administrative
delays. These delays impacted their ability to solicit bids for
Recovery Act projects and award the contracts.
* New state environmental requirements. Trumbull MHA officials said
Ohio EPA recently changed several standards for asbestos removal which
required more testing and changes to the removal methods in the bid
specifications. The final bid package was more than 800 pages long as
a result of the required asbestos removal and remediation.
* Construction bonding. Trumbull MHA told us that, per their existing
procurement policy, the contract for a Recovery Act-funded project was
awarded to the lowest cost and responsive bidder, which was a minority-
owned business that has done work in the past for the agency. However,
the Recovery Act-funded project is bigger than anything the winning
bidder has worked on before for Trumbull MHA. As a result, the surety
company that underwrote its performance bond and payment bond[Footnote
18] performed additional due diligence before issuing the bonds,
which, according to Trumbull MHA officials, resulted in a delay after
the winning bidder was chosen. Once this additional due diligence work
was completed, Trumbull MHA notified us that they awarded the contract
a few days after we met with them in March, successfully meeting the
obligation deadline.
Officials from both housing agencies were confident that they would
meet the 100 percent obligation requirement when we met with them
before the deadline and HUD field office staff subsequently confirmed
that both agencies obligated all their remaining Recovery Act funding
before the March 17, 2010 deadline.[Footnote 19]
HUD Field Office Staff Provide Oversight of Recovery Act Funding:
The HUD field office in Cleveland, Ohio is responsible for the
oversight of the 52 public housing agencies that received about $128
million in Public Housing Capital Fund formula grants provided by the
Recovery Act. HUD officials stated that they conducted both remote and
on-site reviews of these public housing agencies during the months
before the March 17, 2010 obligation deadline. HUD officials told us
that field office staff conducted remote reviews on all 52 PHAs to
ensure compliance with grant requirements and a more rigorous on-site
review of 32 of these PHAs that included an examination of procurement
files and compliance with specific Recovery Act requirements. The PHAs
selected for on-site reviews included all 5 "troubled" housing
agencies in Ohio and 27 other agencies in Ohio that received the
largest Recovery Act Capital Fund formula grant allocations. HUD
officials told us these additional Recovery Act oversight
responsibilities have resulted in the temporary assignment of HUD
field office staff. HUD assigned field office staff with little
experience with the Capital Fund program to conduct the remote reviews
while regular Capital Fund staff have been completing the required on-
site reviews. HUD officials stated that all remote and on-site reviews
were completed by the required deadlines in January and February 2010,
respectively.
As a result of these remote and on-site reviews, HUD officials
informed us they found several instances of possible noncompliance
with Recovery Act and other federal requirements at housing agencies
that they corrected without an adverse affect on these agencies'
ability to obligate their Recovery Act funding. For example, HUD
officials stated that they found one smaller housing agency which had
little experience using capital funding for construction, that did not
believe it had to comply with Davis-Bacon requirements--but it was
brought back into compliance by HUD. They also found one housing
agency that was trying to move expenses from a regular capital fund
grant to the Recovery Act formula grant which HUD staff corrected and
kept them in compliance with the supplement-not-supplant requirement.
[Footnote 20] HUD officials also stated that they identified
compliance issues with housing agency procurement polices through
their reviews. For example, they found problems with the contract file
retention requirements at one housing agency that were corrected
during a follow-up review.
Recipient Reporting by One Housing Agency Found to Be Consistent with
OMB and HUD Guidance:
We met with Dayton MHA during April 2010 to discuss how they
calculated and documented the jobs estimate they reported to
FederalReporting.gov for the reporting period that ended March 31,
2010. Agency officials told us that they reported a full-time
equivalent (FTE) jobs estimate of 20.87 for this reporting period. We
reviewed the methodology and documentation from contractors that they
used to calculate the jobs number and found it to be consistent with
the existing OMB and HUD guidance for estimating jobs.
However during the course of our review we made note of apparent
limitations in OMB and HUD guidance that may have influenced the FTE
estimate that Dayton MHA reported. Dayton MHA officials stated they
only require contractors that they have awarded Recovery Act project
contracts to report hours worked for individuals they directly employ
and who are working on Recovery Act projects. Dayton MHA officials
said these reporting requirements do not require reporting of any
hours worked by employees of subcontractors who are performing work on
Recovery Act funded projects. In the absence of specific requirements
for reports from subcontractors showing the hours worked on Recovery
Act projects, the reporting on Recovery Act employment impact is
limited.
Recovery Act Investments in Affordable Housing in Ohio:
The Recovery Act established two funding programs that provide capital
investments in low income housing tax credit (LIHTC) projects: (1) the
Tax Credit Assistance Program (TCAP) administered by HUD and (2) the
Section 1602 Tax Credit Exchange Program (Section 1602 Program)
[Footnote 21] administered by the U.S. Department of the Treasury.
Both programs were designed to fill financing gaps in planned low-
income housing tax credit projects and jumpstart stalled projects.
Ohio was allocated approximately $201.6 million for these two programs
with the Ohio Housing Finance Agency (OHFA) responsible for
administering the funding. We met with OHFA officials in March 2010 to
discuss the design of their TCAP and Section 1602 Programs,
implementation challenges, program status, and expected results.
Almost All TCAP and Section 1602 Program Funding in Ohio Has Been
Committed to Projects:
An OHFA official stated that they received a total of 92 applications
totaling more than $236 million in requested TCAP and Section 1602
Program assistance, approximately $34.5 million more than the funding
available for award. As of April 30, 2010, OHFA has pledged to support
72 projects, committed approximately 85 percent of the funds
available--or about $171 million, and disbursed approximately 12% of
these funds--or about $25 million. OHFA met the February 2010
requirement of committing 75 percent of its TCAP funding and has 8
more projects that it plans to commit funding to by July 2010. Once
all its Recovery Act funds are committed, OHFA estimates it will
support the construction of 3,966 affordable housing units though 80
projects.
OHFA officials primarily used Section 1602 Program funds to fill
financing gaps for projects that were able to maintain some level of
investor commitment, but OHFA officials said they still plan to award
Section 1602 Program funds to six projects with no private investor
involvement. OHFA provided large bridge loans with TCAP funds to
projects that were already using other federal financing because these
projects were prepared to comply with federal requirements such as
environmental reviews and Davis-Bacon prevailing wages. Compliance
with these requirements is not required by the standard LIHTC program
or the Section 1602 Program. In addition, OHFA's Recovery Act plan is
supplemented by a $75 million proprietary investment fund with the
Ohio Capital Corporation for Housing and Nationwide Insurance. OHFA
officials explained that this fund has been particularly helpful in
financing stalled projects, especially those in rural areas and other
tougher to serve markets and will facilitate the development of 16
projects awarded 2007 and 2008 LIHTCs by purchasing the tax credits at
an average purchase price of 70 cents on the dollar.
OHFA Overcomes Declining Investor Interest and TCAP and Section 1602
Program Implementation Challenges:
The TCAP and Section 1602 Program were designed to address the gap in
financing created by the decline of private investor demand for LIHTCs
and the resulting low tax credit prices. First, there was a large
decline in private investor interest in LIHTCs with average purchase
prices at closing for tax credits decreasing from $0.91 per dollar tax
credit in 2007 to $0.68 per dollar tax credit in 2009. This decline in
prices resulted in major gaps in LIHTC project financing.
Specifically, OHFA reported that construction for 35 LIHTC financed
projects in the state had been put on hold because investors were no
longer interested in financing these projects.
In designing its program, OHFA officials said they faced a number of
challenges. Two significant challenges resulting from provisions
unique to the Recovery Act that they have had to overcome are:
* OHFA estimated the TCAP and Section 1602 Programs resulted in a 5
percent increase in administrative costs for the environmental reviews
and additional project underwriting work and necessitating OHFA
operate the two programs at a loss in the current budget year.
* Environmental impact studies were required for all TCAP projects
funded under the Recovery Act provisions.[Footnote 22] OHFA worked
with a vendor and Ohio Department of Development to process these
studies and reduce the review period to 3 months from the
approximately 6 months to complete that were scheduled.
Recovery Act Funds Continue to Provide Some Needed Support to Local
Governments in Ohio:
In Ohio, the state and some localities continue to feel the effects of
the economic downturn and reduced revenues. As we have previously
reported, the state's 2010-2011 biennial budget assumes a significant
reduction in revenues. Although the state's monthly financial reports
indicate that revenue collections are lower than forecast, senior
budget officials told us that the economy is showing signs of
stability and that revenue collections are meeting expectations. State
budget officials do not expect to have to make revisions to the budget
for the remainder of the biennium.
As we have previously reported, Ohio's 2010 - 2011 biennial budget,
passed in July 2009, appropriated $7.6 billion in Recovery Act funds
for use by state agencies. Some state agencies will need to seek
approval from the state's Controlling Board to transfer unspent and
unencumbered funds into fiscal year 2011 (July 1, 2010 to June 30,
2011).[Footnote 23] In addition, according to a senior budget official
new grants awarded to the state must be approved through the
Controlling Board as well. The state was recently awarded a $400
million grant funded by the Recovery Act for Intercity Passenger Rail.
The Controlling Board has appropriated $25 million for final
environmental and detailed design but has not considered an
appropriation for the rest of the funds. We revisited two of the
communities we reported on previously--the city of Toledo and Putnam
County--and found they continue to face fiscal challenges. Table 4
highlights the change in unemployment rate in those communities, while
table 5 shows the amount of Recovery Act funding each community has
received.
Figure 3: Map of Ohio:
[Refer to PDF for image: map]
Map indicates the location of Toledo and Putnam County.
Source: Art Explosion.
[End of figure]
Table 4: Unemployment Rates in Ohio and for Selected Localities in the
State:
Locality: Statewide;
Unemployment rate, March 2009: 10.0%;
Unemployment rate, March 2010: 11.5%;
Percentage change: +1.5%.
Locality: City of Toledo;
Unemployment rate, March 2009: 12.2%;
Unemployment rate, March 2010: 13.3%;
Percentage change: +1.1%.
Locality: Putnam County;
Unemployment rate, March 2009: 12.2%;
Unemployment rate, March 2010: 11.7%;
Percentage change: -0.5%.
Source: GAO Analysis of U.S. Department of Labor, Bureau of Labor
Statistics data.
Notes: Unemployment rates are preliminary estimates for March 2010 and
have not been seasonally adjusted. Rates are a percentage of the labor
force. Estimates are subject to revisions.
[End of table]
Table 5: Amount of Funding Received by Selected Localities in Ohio:
Locality: City of Toledo;
Recovery Act funds received: $48,799,726;
General fund budget: $218,543,175.
Locality: Putnam County;
Recovery Act funds received: $1,592,902;
General fund budget: $8,777,548.
Source: City of Toledo and Putnam County government officials and Area
7 Workforce Investment Board.
[End of table]
Localities Use Recovery Act Funds to Finance Specific Projects and
Provide Some Fiscal Relief:
At the localities we visited, recent Recovery Act awards went to
specific projects that were not funded from the general fund. In
December 2009, for example, we found that these communities were using
Recovery Act funds to address shortfalls in their public safety
budgets. Putnam County used Recovery Act funds to enable law
enforcement personnel to return to an 80-hour biweekly pay period;
officials told us that budget concerns had forced the Sheriff's
Department to adopt a reduced 72-hour pay period. Likewise, in Toledo,
officials told us budget distress affected the city's public safety
personnel, requiring lay-offs and proposed lay-offs. Recovery Act
funding allowed the city to recall those workers affected and to
prevent additional job losses.[Footnote 24]
In addition, Toledo is using Recovery Act funds to start or expand
projects that are not funded through its general fund budget. For
example, Toledo will use a Department of Homeland Security Recovery
Act grant to build a new fire station; fire department officials said
that the department has recognized the need for a new station for more
than 20 years. City officials added that the Recovery Act grant is
making it possible to build this new station to meet the needs of the
community, in particular the station will house equipment used by an
18-county area in northwest Ohio. Since December 2009, Toledo has
received additional awards for nongeneral fund projects. Table 6
provides the sources of Recovery Act funds provided since December 1,
2009 and not included in our December 2009 report. Toledo officials
told us that they will use funds from the Neighborhood Stabilization
Program 2 to remove 127 housing units and replace them with a mix of
affordable housing and market-rate housing. Additionally, funds will
be used to convert a vacant commercial building into housing. In
Putnam County, additional Recovery Act Workforce Investment Act of
1998 (WIA) funds were provided to the county to provide for further
worker assistance. The county was part of a regional coalition that
applied to the state for an Edward Byrne Memorial Justice Assistance
Grant (JAG) pass-through grant to fund an offender re-entry program
designed to help former inmates successfully transition back into
society following completion of their sentence. That application,
however, was not approved and the program will not be launched.
Table 6: Recovery Act Funds Received by Putnam County and Toledo Since
December 2009:
Locality: Toledo;
Program: Neighborhood Stabilization Program 2;
Amount approved: $10,150,840;
Services the funding supports: Housing assistance.
Locality: Toledo;
Program: Clean Water State Revolving Fund;
Amount approved: $1,622,771;
Services the funding supports: Infrastructure.
Locality: Putnam County;
Program: Workforce Investment Act of 1998;
Amount approved: $171,767;
Services the funding supports: Worker assistance.
Locality: Putnam County;
Program: Impact on Child Support Incentives Program;
Amount approved: $21,388;
Services the funding supports: Child support enforcement.
Source: City of Toledo and Putnam County government officials and Area
7 Workforce Investment Board.
[End of table]
In addition to the grants, Toledo issued $12.2 million in Build
America Bonds[Footnote 25] for the purchase of solid waste trucks. A
city official told us that through the issuance of these bonds, the
city expects to save approximately $600,000 over the life of the bonds
using Build America Bonds instead of traditional municipal bonds.
Although the city has the ability to issue additional Build America
Bonds, a city official told us that the city has no plans to do so in
order to avoid taking on additional debt.
We recently reported on ways in which the Build America Bond program
could be made more transparent and that currently available bond data
do not show with specificity how bond proceeds are used.[Footnote 26]
We recommended that the Commissioner of Internal Revenue take action
to require governmental issuers to submit additional information on
Build America Bond-financed projects, including information on project
purpose, beginning and ending dates, and costs, and if Congress
granted the Internal Revenue Service the authority, publish the
information. Toledo officials said this information is collected when
the bonds are issued and would not represent a reporting burden if the
issuers were required to report this on the uses of these bond
proceeds.
Local Governments Continue to Face Fiscal Challenges:
Both the city of Toledo and Putnam County continue to face economic
and budget challenges. Along with an increase in unemployment,
officials in both communities told us that the fiscal condition in
those communities has not improved. Putnam County officials told us
that further budget cuts in 2010 may be necessary in order to balance
the budget. The county has kept in place the wage freeze and hiring
freeze enacted in 2009, along with other cost savings measures taken
last year. In Toledo, officials told us that an estimated budget
deficit of $20 million in October 2009 had grown to almost $50 million
by January 2010. Officials blamed the deficit, in part, on revenue
shortfalls, especially personal income tax revenue. On March 30, 2010,
the Toledo City Council approved a budget for 2010 that is
approximately 9 percent smaller than last year's.
Continued economic challenges may create difficulties for Toledo and
Putnam County to continue programs and sustain personnel funded with
Recovery Act dollars. Officials in Putnam County told us that they are
seeking additional sources of funding in order to prevent possible lay-
offs within the Sheriff's Department; in 2009 the county received
$1,054,697 million in Recovery Act funds and is using those funds to
pay the salaries and benefits of Sheriff's deputies and corrections
officers. Likewise, in Toledo, city officials said the recently
enacted budget does not provide general funds to support two
prosecutors that are currently being funded with Recovery Act funds.
City officials in Toledo also noted that the general fund budget could
not sustain the types of projects currently being funded by the
Recovery Act. For example, the size and scope of home demolition and
rebuild funded by the Neighborhood Stabilization Program Recovery Act
funds would have to be reduced under the current budget constraints if
additional federal funding were not available.
On the other hand, Toledo city officials said they were planning to
retain 31 police officer positions currently being funded with
Recovery Act funds. The city anticipates 36 retirements from the
approximately 580 member police force in 2011 providing the city with
enough flexibility to retain the Recovery Act-funded positions and
start a new cadet class in the fall of 2010.
Ohio's Audit Community Collaborates to Monitor Recovery Act-Funded
Programs:
There are a number of oversight entities in Ohio with responsibility
for monitoring Recovery Act-funded projects, namely the (1) State
Audit Committee, (2) Office of Budget and Management (OBM), Office of
Internal Audit (OIA), (3) Auditor of State (AOS), and (4) state-
appointed Deputy Inspector General for Recovery Act funds. These
entities work in conjunction with one another to monitor Recovery Act-
funded projects. For example, OIA assists the State Audit Committee
with its responsibilities by furnishing it with analyses, appraisals,
recommendations, counsel, and information concerning the activities
reviewed, and by promoting effective control at a reasonable cost. We
contacted officials from these entities to discuss their most recent,
ongoing, and planned audit results. The State Audit Committee meets
quarterly and released on March 9, 2010, the results of six recently
audited programs. Currently, the OIA is planning the fiscal year 2011
audits to be presented to the State Audit Committee in June. The state
of Ohio participated in OMB's Single Audit pilot program, and the AOS
audited 2 programs, in which an interim internal control report was to
be presented to management 3 months sooner than the 9-month time frame
required by the Single Audit Act and OMB Circular No. A-133 for Single
Audits.[Footnote 27]
Extensive Work Being Conducted by State Accountability Entities in
Ohio:
The Ohio Auditor of State is planning to issue its fiscal year 2009
Single Audit for Ohio at the end of June 2010.[Footnote 28] An
official from the Auditor of State's office said they were not able to
meet the original reporting date of March 31, 2010, due to not
receiving fiscal year 2009 financial statements from management until
February 1, 2010, as well as the fiscal year 2008 audit finishing up
late due to a similar delay the previous year. In addition to the
Single Audit work, AOS is conducting interim audit work over controls
and compliance at various state agencies and local governments. For
example, during fiscal year 2010, AOS plans to test various Recovery
Act programs in eight cities.[Footnote 29] AOS has completed 10 of
these audits and another 142 are ongoing with several of them expected
to be completed by June 2010.
According to an agency official, Ohio's Office of Inspector General
(OIG) does not conduct audits; however, it does conduct investigations
of potential criminal activity. During the past several months, the
OIG completed two investigations involving Recovery Act funds and an
OIG official said a third investigation is still ongoing. One of the
completed investigations involved the application of Buy American
provisions to a Clean Water SRF construction project financed with
Recovery Act funding. The OIG concluded that Buy American requirements
may not have been met and recommended that Ohio EPA consult with the
U.S. EPA to review and make a compliance determination.[Footnote 30]
As of May 5, 2010, the agencies have not responded to the OIG's
report. The second completed investigation involved Recovery Act
funding provided by ODOT to a local government for a highway
construction project. It was alleged that ODOT's policies and actions
in this case caused the local government managing the construction
project to incur additional costs but the OIG found that no wrongful
act or omission was made by ODOT.[Footnote 31] Recently, on March 16,
2010, the OIG initiated an investigation against ODOT regarding a
potential misuse of public funds for a road construction project, but
determined that no wrongful act or omission had occurred.
Ohio's OBM Office of Internal Audit (OIA) recently completed six
Recovery Act audits which were released on March 9, 2010. Audit
findings in several areas were reported, including program
administration and monitoring, the review of expenditures,
subrecipient monitoring, and the validation of Recovery Act reporting
data for the programs that were included in these reviews. OIA plans
to complete another three audits of Recovery Act funded programs by
June 2010 and continue to follow up on 12 comments from previous
completed audits that affected agencies are expected to address by
June 2010. OIA is compiling a list of planned audits for fiscal year
2011 and other internal audit plans, which will be presented in June
2010 to their governing body, the State Audit Committee, for review
and comment.
Ohio Begins Work under the Recovery Act Single Audit Internal Control
Project:
OMB implemented a Single Audit Internal Control Project (project) in
October 2009. One of the goals of the project is to help achieve more
timely communication of internal control deficiencies for higher-risk
Recovery Act programs so that corrective action can be taken. The
project is a collaborative effort between the states receiving
Recovery Act funds that volunteered to participate, their auditors,
and the federal government. Under the project's guidelines, audit
reports were to be presented to management 3 months sooner than the 9-
month time frame required by the Single Audit Act and OMB Circular No.
A-133 for Single Audits. Sixteen states[Footnote 32] volunteered for
the project, including Ohio, whose auditors issued their interim
reports on internal control for selected major Recovery Act programs
by December 31, 2009, and the corrective action plans to the
appropriate federal agency by January 31, 2010.
As part of this project, Ohio's Auditor of State (AOS) examined two
Recovery Act funded programs: (1) unemployment insurance funding
disbursed by the Ohio Department of Job and Family Services (ODJFS),
and (2) highway planning and construction funding disbursed by the
Ohio Department of Transportation (ODOT). AOS' review of the
unemployment insurance funding showed that ODJFS did not accurately
identify the expenditure of more than $350 million in Recovery Act
funding for benefit payments. Instead ODJFS incorrectly combined $313
million in Recovery Act funded benefit payments with non-Recovery Act
funded benefits payments resulting in reporting errors in the draft
financial statements for the program. As a result of this AOS audit
finding, ODJFS has taken several corrective actions to increase
assurance that Recovery Act funds for unemployment benefits will be
reported correctly through the duration of the program.
The second AOS audit found that ODOT did not have procedures in place
to identify, at the time of payment, the amount of Recovery Act
funding disbursed to local governments who are locally administering
transportation projects funded by the Recovery Act.[Footnote 33]
Without such procedures, adequate transparency into the use of
Recovery Act funding at local levels may be impaired. In response to
this audit finding, ODOT enhanced the department's Web-based
construction project management system to identify the portion of
Recovery Act funds for each disbursement when applicable. In addition
ODOT has provided guidance to each local participating agency on how
to access the applicable data within the Web-based system and the
importance and requirements to do so to obtain correct expenditure
data for each Recovery Act project under its control.
State Comments on This Summary:
We provided the Governor of Ohio with a draft of this appendix on May
6, 2010. Representatives of the Governor's office responded with a
number of technical comments that we have incorporated as appropriate.
In addition, the Governor's office provided more detailed comments on
our analysis of the Clean Water and Drinking Water State Revolving
Funds and the state's plan for monitoring the State Fiscal
Stabilization Fund (SFSF). We summarized the state's comments in the
section of this appendix for those programs.
GAO Contacts:
George A. Scott, (202) 512-7215 or scottg@gao.gov:
David C. Trimble, (202) 512-9338 or trimbled@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Bill J. Keller, Assistant
Director; Tranchau Nguyen, Assistant Director; Matthew Drerup, analyst-
in-charge; Debra Cottrell, Brian Egger, Sanford Reigle, Brian Smith,
Myra Watts-Butler, and Lindsay Welter made major contributions to this
report.
[End of section]
Footnotes:
[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009).
[2] The State Fiscal Stabilization Fund (SFSF); Title I, Part A of the
Elementary and Secondary Education Act of 1965 (ESEA), as amended; and
Part B of the Individuals with Disabilities Education Act (IDEA), as
amended.
[3] Principal forgiveness was how Ohio EPA chose to meet the Recovery
Act requirement that 50 percent of SRF funds be a form of additional
subsidization.
[4] See GAO, Recovery Act: Funds Continue to Provide Fiscal Relief to
States and Localities, While Accountability and Reporting Challenges
Need to Be Fully Addressed, [hyperlink,
http://www.gao.gov/products/GAO-09-1017SP], (Washington, D.C.: Sept.
23, 2009).
[5] This percentage is calculated using the number of total projects
(229), rather than the number of projects under construction, because
inspection information provided by Ohio EPA had incomplete
construction status information. Ohio EPA is responsible for
inspections at 229 Clean Water projects; 45 additional awards were
given to local governments for home sewage upgrades and replacements.
The local governments inspect those projects.
[6] One of projects will bring sewer service to 168 city residences.
Another of the projects will rehabilitate sewers in three areas of a
county. The final project will improve the pump station and increase
the efficiency at a regional wastewater treatment plant.
[7] OMB Memorandum M-10-08: Updated Guidance on the American Recovery
and Reinvestment Act - Data Quality, Non-Reporting Recipients, and
Reporting of Job Estimates, memorandum from Peter R. Orszag to the
heads of executive departments and agencies (December 18, 2009) at pp.
1-2.
[8] The checklist is a tool to help states evaluate subrecipient
compliance with the Recovery Act requirements. U.S. EPA does not
require states to use the checklist. Ohio EPA officials noted that
their checklist has been reviewed by U.S. EPA regional officials.
[9] OMB's June 22, 2009 guidance states that recipients and
subrecipients should establish internal controls as appropriate to
ensure accurate and complete information reported in recipient
reports. OMB Memorandum M-09-21: Implementing Guidance for the Reports
on Use of Funds Pursuant to the American Recovery and Reinvestment Act
of 2009, memorandum from Peter R. Orszag to the heads of departments
and agencies (June 22, 2009) at p. 29.
[10] By Dec. 31, 2009, Ohio made awards to 189 Clean Water projects
and 60 Drinking Water projects. We spoke with staff at the largest six
Drinking Water projects, which represent about 44 percent of Ohio's
Recovery Act Drinking Water funds, and we spoke with staff the largest
nineteen Clean Water projects, which represent about 34 percent of
Ohio's Recovery Act Clean Water funds.
[11] The Recovery Act created the SFSF in part to help state and local
governments stabilize their budgets by minimizing budgetary cuts in
education and other essential government services, such as public
safety. Stabilization funds for education distributed under the
Recovery Act must first be used to alleviate shortfalls in state
support for education to school districts and public institutions of
higher education (IHE). States must allocate 81.8 percent of their
SFSF formula grant funds to support education (these funds are
referred to as education stabilization funds) and must use the
remaining 18.2 percent for public safety and other government
services, which may include education (these funds are referred to as
government services funds).
[12] In the case of LEAs, financial distress designations are rated as
fiscal caution, fiscal watch or fiscal emergency. As of April 21,
2010, 32 LEAs have received financial distress designations.
[13] [hyperlink, http://www.gao.gov/products/GAO-09-1017SP].
[14] 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.
[15] As part of the federal-aid highway programs, FHWA assesses the
ability of each state to obligate its apportioned funds by the end of
the federal fiscal year (September 30) and adjusts the states'
limitations on obligations for federal-aid highway and highway safety
construction programs.
[16] Public housing agencies receive money directly from the federal
government (HUD). Funds awarded to the public housing agencies do not
pass through the state budget.
[17] HUD developed PHAS to evaluate the overall condition of housing
agencies and to measure performance in major operational areas of the
public housing program. These include financial condition, management
operations, and physical condition of the housing agencies' public
housing programs. Housing agencies that are deficient in one or more
of these areas are designated as troubled performers by HUD and are
statutorily subject to increased monitoring.
[18] In sealed bid construction contracts, three types of bonds or
guarantees are required by HUD: a bid bond or guarantee, a performance
bond, and a payment bond. The purpose of these bonds is to ensure
bidders will honor their bids, complete work as contracted, and pay
their subcontractors and suppliers.
[19] Chillicothe MHA met the obligation deadline by awarding a
contract on March 10, 2010, and Trumbull MHA met the obligation
deadline by awarding a contract on March 5, 2010.
[20] Supplement-not-supplant Recovery Act provisions are designed to
prevent recipients, such as public housing agencies, from substituting
planned spending for a given program with Recovery Act funds--that is,
the provisions ensure that the increased federal spending will
supplement rather than replace state, local, or private spending. HUD
must institute measures to ensure Recovery Act funds will supplement,
not supplant, expenditures from other sources. To meet this
requirement, HUD is requiring public housing agencies to sign an
amendment to their annual contributions contracts.
[21] Pursuant to the Recovery Act, GAO is to review the use of funds
of programs included under the act's Division A. TCAP is a Division A
program while the Section 1602 Program is included under Division B of
the Recovery Act. GAO chose to include the Section 1602 Program in its
review because both TCAP and Section 1602 Programs supplement the Low
Income Housing Tax Credit Program and are being implemented
simultaneously by state housing finance agencies.
[22] TCAP projects are required to comply with the National
Environmental Policy Act (NEPA). Project owners must conduct
environmental assessments, which are not required by projects funded
under the regular LIHTC program.
[23] According to the Ohio Office of Budget and Management, the
Controlling Board provides legislative oversight over certain capital
and operating expenditures by state agencies and has approval
authority over various other state fiscal activities including, among
other things, appropriation releases for capital construction projects
and the transfer of appropriation authority between line items within
a fund in an agency and increases in appropriation authority in some
funds.
[24] Toledo was able to recall 31 police officers who had been laid
off in May 2009, as well as 6 civilian 911 emergency call center staff
previously laid off in 2009. For further information, see GAO,
Recovery Act: Status of States' and Localities' Use of Funds and
Efforts to Ensure Accountability (Ohio), [hyperlink,
http://www.gao.gov/products/GAO-10-232SP] (Washington, D.C.: December
2009).
[25] Build America Bonds (BABs) are taxable government bonds that can
be issued with federal subsidies for a portion of the borrowing costs
delivered either through nonrefundable tax credits provided to holders
of the bonds (tax credit BAB) or as refundable tax credits paid to
state and local governmental issuers of the bonds (direct payment
BAB). Direct payment BABs are a new type of bond that provides state
and local government issuers with a direct subsidy payment equal to 35
percent of the bond interest they pay.
[26] GAO, Recovery Act: IRS Quickly Implemented Tax Provisions, but
Reporting and Enforcement Improvements Are Needed, [hyperlink,
http://www.gao.gov/products/GAO-10-349] (Washington, D.C.: February
10, 2010).
[27] Single Audits are prepared to meet the requirements of the Single
Audit Act, as amended, and provide a source of information on internal
control and compliance findings and the underlying causes and risks.
The Single Audit Act requires states, local governments, and nonprofit
organizations expending $500,000 or more in federal awards in a year
to obtain an audit in accordance with the requirements set forth in
the act. A Single Audit consists of (1) an audit and opinions on the
fair presentation of the financial statements and the Schedule of
Expenditures of Federal Awards; (2) gaining an understanding of and
testing internal control over financial reporting and the entity's
compliance with laws, regulations, and contract or grant provisions
that have a direct and material effect on certain federal programs
(i.e., the program requirements); and (3) an audit and an opinion on
compliance with applicable program requirements for certain federal
programs.
[28] The State of Ohio's fiscal year runs from July 1 to June 30 of
the next calendar year.
[29] Audits for fiscal year 2010 include the City of Athens, Canton,
Cincinnati, Cleveland, Columbus, Dayton, Toledo, and Youngstown.
[30] On November 30, 2009, the Ohio Inspector General's Office (OIG)
received a complaint alleging that Ohio EPA failed to fulfill its
oversight and monitoring responsibilities with respect to ARRA's "Buy
American" requirements.
[31] On October 13, 2009 the OIG received a complaint alleging that 1)
ODOT caused the City of Bucyrus to incur additional charges by
wrongfully revoking its prior decision to permit the city to use its
design engineer as the construction project engineer, 2) ODOT's
policies caused the City of Bucyrus to incur $102,000.00 In change
orders submitted by the project contractor, Anderzack-Pitzen Company,
Inc.
[32] The following 16 states volunteered to participate in the
project: Alaska, California, Colorado, Florida, Georgia, Louisiana,
Maine, Missouri, Nevada, North Carolina, Ohio, Oklahoma, South Dakota,
Tennessee, Texas, and Virginia.
[33] As permitted by the Federal Highway Administration (FHWA), ODOT
may let a Local Public Agency (LPA) perform work on a Federal-aid
project as long as certain conditions are met which include: 1) All
Federal requirements must be met; 2) the LPA must be adequately
staffed and suitably equipped to undertake and satisfactorily complete
the work; and 3) the LPA must provide a full-time employee to be in
responsible charge of the project. See 23 CFR 635.105.
[End of Appendix XV]
Appendix XVI: Pennsylvania:
Overview:
This appendix summarizes GAO's work on the sixth of its bimonthly
reviews of the American Recovery and Reinvestment Act of 2009
(Recovery Act)[Footnote 1] spending in Pennsylvania. The full report
covering all of GAO's work in 16 states and the District of Columbia
may be found at [hyperlink, http://www.gao.gov/recovery].
What We Did:
Our work in Pennsylvania focused on specific programs funded under the
Recovery Act, as shown in table 1. These programs were selected
primarily because they received significant amounts of Recovery Act
funds. For most programs, we collected relevant documentation and
interviewed program officials to review the status of the program's
funding, how funds are being used, and issues specific to each
program. For the public housing and education programs, we provide
updated funding information. For descriptions and requirements of the
programs covered in our review, see appendix XVIII of HGAO-10-605SPH.
Table 1: Programs Reviewed:
Program: Weatherization Assistance Program;
Rationale for selection: Recovery Act provided a significant increase
in funding, and local agencies received cash advances in November 2009
to begin weatherization work. This program is identified by the state
Bureau of Audits as a high-risk recipient of Recovery Act funds;
a 2007 state Auditor General audit identified oversight problems in
the program.
Program: Transportation programs;
Rationale for selection: The Highway Infrastructure Investment,
Transit Capital Assistance, and Fixed Guideway Infrastructure
Investment programs faced 1-year obligation of funds deadlines in
March 2010.
Program: Clean Water and Drinking Water State Revolving Funds;
Rationale for selection: These programs faced 1-year deadline for
awarding all contracts by February 2010. These programs are identified
by state Bureau of Audits as high-risk recipients of Recovery Act
funds.
Program: Low-Income Housing Tax Credit assistance programs;
Rationale for selection: Begin monitoring Tax Credit Assistance
Program (TCAP) and Section 1602 Exchange Program. (Section 1602
Program). Pursuant to the Recovery Act, GAO is to review the use of
funds of programs included under the Act's Division A. TCAP is a
Division A program while the Section 1602 Program is included under
Division B of the Recovery Act. GAO chose to include the Section 1602
Program in its review because both TCAP and Section 1602 Program
supplement the Low Income Housing Credit Program and are being
implemented simultaneously by state housing finance agencies.
Program: Public Housing Capital Fund;
Rationale for selection: Provide updated information on Public Housing
Capital Fund formula grants which had a 1-year deadline for obligating
all funds by March 2010.
Program: Education programs;
Rationale for selection: Provide updated information on progress in
spending for three Recovery Act programs allocated by the U.S.
Department of Education (Education): State Fiscal Stabilization Fund
(SFSF); Title I, Part A of the Elementary and Secondary Education Act
of 1965, as amended (ESEA); and Part B of the Individuals with
Disabilities Education Act, as amended (IDEA). Pennsylvania began
disbursing SFSF funds to local educational agencies in March 2010.
Program: Justice programs;
Rationale for selection: Review Edward Byrne Memorial Justice
Assistance Grants (JAG) and COPS Hiring Recovery Program (CHRP).
Pennsylvania has begun awarding JAG funding.
Source: GAO.
[End of table]
We continued to track the state's fiscal condition and also visited
four local governments--the cities of Allentown and Philadelphia as
well as the counties of Dauphin and York--to discuss the amount of
Recovery Act funds each expects to receive and how those funds will be
used. We also contacted state and local auditors about oversight and
auditing of Recovery Act spending in Pennsylvania.
What We Found:
Weatherization assistance program. Pennsylvania received $252.8
million in Recovery Act weatherization funds to be spent by March 31,
2012. As of May 7, 2010, $56.5 million has been spent to weatherize
5,446 homes--about 38 percent of the state's target to weatherize
14,355 homes by September 30, 2010, and about 18 percent of its
overall target to weatherize 29,700 homes by March 31, 2012.
Pennsylvania has begun to address key weaknesses in its monitoring of
weatherization agencies by revising its monitoring procedures and
hiring additional monitors. Pennsylvania chose to set a deadline to
train and certify all weatherization workers by July 1, 2010, but does
not have a process for enforcing the deadline.
Transportation programs. Pennsylvania met the 1-year Recovery Act
deadline for obligating highway funds by having the federal government
obligate all of its $1.026 billion apportionment. According to the
Federal Highway Administration, as of May 3, 2010, Pennsylvania has
awarded 329 contracts. Of those, 254 are under construction and 96
contracts are substantially complete, representing $124.1 million.
State officials told us that the Recovery Act has provided funding for
projects, including construction of transit facilities--such as an
intermodal transit center in Butler, Pennsylvania--and repairing
structurally deficient bridges, that otherwise would not have been
completed at this time. Because of lower-than-expected revenues
supporting transportation, Pennsylvania may face challenges in meeting
its Recovery Act maintenance-of-effort requirement.
Clean and Drinking Water State Revolving Funds. Pennsylvania used its
approximately $220.9 million in Recovery Act funds together with about
$272.0 million in base program and other state funds to help pay for
87 Clean Water projects, such as building a new wastewater treatment
plant in Mount Carmel, Pennsylvania, and 26 Drinking Water projects,
such as replacing aging water mains in Hazleton, Pennsylvania.
Combining funding sources allowed Pennsylvania to fund more projects
while meeting a February 17, 2010, deadline. However, that has
increased the number of subrecipients that must comply with Recovery
Act reporting as well as Davis-Bacon and other requirements.
Low-Income Housing Tax Credit Assistance Programs. Pennsylvania
received $95.1 million in Tax Credit Assistance Program (TCAP) funds
and $229.9 million in Section 1602 Tax Credit Exchange Program funds
(Section 1602 Program). As of April 27, 2010, Pennsylvania awarded $81
million in TCAP funds and $209.8 million in Section 1602 funds for 52
projects, including building 96 units for the elderly in Stewartstown,
Pennsylvania, and rehabilitating 24 units of family housing in
Allentown, Pennsylvania. As of May 5, 2010, Pennsylvania had spent
about $19.7 million in TCAP funds and about $77.3 million in Section
1602 Program funds.
Public Housing Capital Fund. The U.S. Department of Housing and Urban
Development (HUD) has allocated about $212 million in Recovery Act
funding to 82 public housing agencies in Pennsylvania. All met the
Recovery Act requirement to obligate their funds within 1 year of the
date they were made available. Based on information available as of
May 1, 2010, about $83.7 million (39 percent) had been drawn down by
80 agencies.
Education programs. In March 2010, Pennsylvania began to distribute
the $655 million in State Fiscal Stabilization Fund (SFSF) funds it
awarded to local educational agencies (LEA) and by March 31, 2010,
almost all LEA subrecipients received their disbursements for state
fiscal year 2009-10. According to the U.S. Department of Education, as
of April 16, 2010, Pennsylvania has drawn down $156.5 million of
$400.6 million in Recovery Act funds awarded for Title I, Part A of
the Elementary and Secondary Education Act of 1965 as amended (ESEA),
$151.8 million of $441.7 million in Recovery Act funds awarded for
Part B of the Individuals with Disabilities Education Act, as amended
(IDEA) and $453.6 million of $1.0 billion awarded of SFSF education
stabilization funds. For example, the SFSF funds were used to support
salaries and benefits for the School District of the City of York and
Kutztown University of Pennsylvania and to make debt payments for the
Reading School District.
Justice programs. The Department of Justice (DOJ) provided
Pennsylvania with more than $72 million in Recovery Act Edward Byrne
Memorial Justice Assistance Grant program (JAG) grants. DOJ awarded
$45 million directly to the state, part of which was passed on to
localities, and $27 million directly to localities across
Pennsylvania. Localities are using JAG funds for a range of public
safety purposes, including the purchase of law enforcement equipment
and information technology, as well as the hiring of court and victim
services personnel. DOJ also awarded about $20.2 million in COPS
Hiring Recovery Program funds to 19 Pennsylvania localities, including
$10.9 million to Philadelphia to hire 50 officers, $1.7 million to
Harrisburg to hire 8 officers, and $7.6 million to 17 other localities
to hire 35 officers.
State fiscal condition. Despite receiving over $2.7 billion of
Recovery Act funds for budget stabilization for state fiscal year 2009-
10 and exhausting its Rainy Day Fund, Pennsylvania has a general fund
revenue shortfall of $1.1 billion as of May 1, 2010. The proposed
budget for state fiscal year 2010-11 assumes lower revenues and
continues to use Recovery Act funds for budget stabilization. The
Governor has proposed creating a stimulus transition reserve fund with
new tax measures to address future budget deficits when the Recovery
Act funds end.
Localities' use of Recovery Act funds. The City of Allentown and York
County had been awarded $3.7 million and $11.4 million, respectively.
Dauphin County expected to receive $7.5 million. As of March 31, 2010,
Philadelphia has received $216 million. These four localities are
using Recovery Act funds for onetime projects, such as installing
energy efficiency improvements in public facilities and providing
temporary rent and utility assistance to prevent homelessness.
Accountability and oversight. Pennsylvania's Accountability Office
oversees and reports on Recovery Act activities for state agencies and
has issued performance measures tracking Recovery Act spending and
projects. The state's Bureau of Audits has evaluated programs
receiving Recovery Act funds to determine those at high risk and has
initiated selected reviews on high-risk programs, including the
state's Recovery Act weatherization program. The state Auditor
General's office is auditing select Recovery Act spending, including
highway and bridge projects, as part of the ongoing 2009 Single Audit.
[Footnote 2]
Pennsylvania Is Making Progress on Its Spending and Production
Targets, but Challenges to Effectively Monitoring Local Weatherization
Agencies Remain:
Under the Recovery Act, the Pennsylvania Department of Community and
Economic Development (DCED)--the agency that administers the state's
Weatherization Assistance Program--will receive $252.8 million in
funds to be spent by March 31, 2012. DCED will retain up to $8.3
million for program management and oversight and will spend up to $20
million for worker training. DCED awarded contracts--for a total award
value of $224.5 million--to 43 weatherization agencies, including
community action agencies, nonprofit agencies, and local governments.
We visited three local weatherization agencies--ACTION-Housing, Inc.
(ACTION) in Pittsburgh; York County Planning Commission (York) in York
County; and the Energy Coordinating Agency (ECA) in Philadelphia.
[Footnote 3]F Weatherization agencies use their funds to make homes
more energy efficient by repairing or replacing furnaces, caulking
windows and sealing leaks in walls, insulating attics, replacing
inefficient refrigerators and light bulbs, and educating clients about
energy-saving measures.
Status of Pennsylvania's Recovery Act Weatherization:
As of May 7, 2010, 5,446 homes had been weatherized, representing
about 38 percent of DCED's latest target to weatherize 14,355 homes by
September 30, 2010.[Footnote 4] Overall, DCED expects to weatherize
about 29,700 homes by March 31, 2012. Since work began in November
2009, Pennsylvania's 43 weatherization agencies have spent $57.9
million (about 52 percent) of their $111.0 million first year budget.
Progress made by local weatherization agencies varied. As of May 7, 12
agencies had weatherized 50 percent or more of their September 30,
2010, production targets, but two agencies had not completed any
weatherization work. The Pennsylvania Housing Finance Agency received
its award in February 2010, and had 2,477 homes in progress as of May
7, 2010. One agency could not meet production targets and was
replaced; the new agency was awaiting the award of its contract. Two
other agencies were not meeting their production targets and were
asked to voluntarily return a portion of their Recovery Act allocation
to DCED to be redistributed among neighboring agencies.[Footnote 5]
Table 2 shows the percentage of funds spent and homes weatherized by
the three agencies we visited, as of May 7, 2010.
Table 2: Percentage of Funds Expended and Homes Weatherized for Three
Agencies Visited, as of May 7, 2010:
Weatherization agency: ACTION-Housing Inc.;
Award amount (millions): $15.3;
Percentage drawn down: 25;
Homes weatherized: 421;
Homes to be weatherized: 9/30/2010 target: 1,014;
Homes to be weatherized: 3/31/2012 target: 2,200;
Percentage of progress toward targets: 9/30/2010 target: 42;
Percentage of progress toward targets: 3/31/2012 target: 19.
Weatherization agency: Energy Coordinating Agency;
Award amount (millions): $13.9;
Percentage drawn down: 25;
Homes weatherized: 335;
Homes to be weatherized: 9/30/2010 target: 745;
Homes to be weatherized: 3/31/2012 target: 1,650;
Percentage of progress toward targets: 9/30/2010 target: 45;
Percentage of progress toward targets: 3/31/2012 target: 20.
Weatherization agency: York County Planning Commission;
Award amount (millions): $4.3;
Percentage drawn down: 23;
Homes weatherized: 73;
Homes to be weatherized: 9/30/2010 target: 235;
Homes to be weatherized: 3/31/2012 target: 606;
Percentage of progress toward targets: 9/30/2010 target: 31;
Percentage of progress toward targets: 3/31/2012 target: 12.
Weatherization agency: Pennsylvania weatherization agencies' total;
Award amount (millions): $224.5;
Percentage drawn down: 25;
Homes weatherized: 5,446;
Homes to be weatherized: 9/30/2010 target: 14,355;
Homes to be weatherized: 3/31/2012 target: 29,700;
Percentage of progress toward targets: 9/30/2010 target: 38;
Percentage of progress toward targets: 3/31/2012 target: 18.
Source: GAO analysis of DCED data.
[End of table]
Although initial production was slower than expected, DCED expects to
reach its March 2012 production goals. According to Pennsylvania's
state weatherization plan, agencies that do not meet their production
targets, or that do not expend at least 50 percent of their total
Recovery Act allocation by September 30, 2010, may be replaced or have
their funding adjusted by DCED, in a manner consistent with applicable
U.S. Department of Energy (DOE) regulations. DCED requires agencies to
enter weekly production data into the Hancock Energy Software, a Web-
based reporting system, so that DCED can track agency production. DCED
has temporarily blocked funding to agencies that have not entered
production information into the system until they comply with weekly
production reporting requirements.
In its weatherization plan, Pennsylvania committed to reduce energy
usage by the equivalent of what it might take to power about 7,000
homes per year. In November 2009, DCED commissioned Pennsylvania State
University to develop a system for data reporting and annual program
evaluation, including analyses of the energy savings for each
weatherization agency and the cost-effectiveness of individual
weatherization measures. The data reporting system is expected to
produce evaluation results for each year of Recovery Act funding from
fiscal years 2009-10 through 2011-12.
Pennsylvania Has Begun to Address Key Weaknesses in Its Monitoring of
Weatherization Agencies:
Given that DCED intends for weatherization agencies to spend at least
half of their total Recovery Act allocations by September 30, 2010, we
reviewed DCED's existing monitoring program to see what DCED knew
about the quality and effectiveness of the work being performed by its
weatherization agencies. In 2007, Pennsylvania's Auditor General
reported that the weatherization program had, among other things, weak
internal controls, weaknesses in contracting, and inconsistent
verification and inspection of subcontractor work.[Footnote 6] We
reviewed DCED's Monitoring Guidelines and Procedures and associated
inspection forms, met with the three existing monitors, and reviewed
DCED's monitoring reports for fiscal years 2006-07 through 2008-09 for
ACTION, York, ECA, and two other agencies.
We found that DCED did not consistently follow DOE guidance for state
weatherization programs or Pennsylvania's monitoring guidelines. For
example, DCED did not monitor every weatherization agency at least
once each year, and some monitoring reports did not contain evidence
that all of the required areas were monitored. Furthermore, not all
monitoring findings identified in the monitoring reports were
transmitted to local agencies. Some agencies did not respond to DCED
with corrective actions, and DCED did not always follow up to assess
the corrective action by those agencies that responded.[Footnote 7]
Table 3 provides details and examples of weaknesses in DCED's
monitoring of five agencies we reviewed.
Table 3: DCED's Monitoring Weaknesses regarding Adherence to DCED and
DOE Policies:
DOE requirement for state weatherization program monitors: Annually
monitor and assess the performance of local weatherization agencies;
DCED monitoring guidelines for meeting DOE requirement: Routine
program monitoring be conducted a minimum of twice during the program
year;
Examples of weaknesses in the monitoring reports for five agencies:
* None of the five agencies had been monitored more than once per year;
* Four of the agencies did not receive an annual monitoring visit
during 1 of the past 3 program years.
DOE requirement for state weatherization program monitors: Have a
guide for monitoring local agency performance that includes all areas
found in the local agency's contract with the state;
DCED monitoring guidelines for meeting DOE requirement: Monitoring
guidelines describe the major components of the monitoring process,
which include a review of client eligibility and documentation;
inspection of completed units; and a review of inventory control and
property maintenance, administrative and fiscal procedures, and local
agency quality control procedures;
Examples of weaknesses in the monitoring reports for five agencies:
* Two agency monitoring reports for program year 2007-08 had no
evidence that the monitor had looked at fiscal and budget management
procedures;
* One monitoring report from program year 2008-09 stated that the
local agency did not have adequate quality control procedures but did
not specify the types of quality control problems found;
* One monitoring report summary for program year 2008-09 stated that
client files were prepared in accordance with the DCED guidelines;
however, in the body of the report the monitor made numerous findings
of missing or incomplete items during the client file review.
DOE requirement for state weatherization program monitors: Raise and
resolve all perceived and potential issues with the local agency;
DCED monitoring guidelines for meeting DOE requirement: Monitoring
guidelines require that a final monitoring report be issued to the
agency within 30 days of the monitoring visit. The letter transmitting
the report contains the monitor's findings and recommendations, and
requires the local agency to submit a response identifying the
corrective actions taken to address the findings within 30 working
days from the receipt of the report;
Examples of weaknesses in the monitoring reports for five agencies:
* In one agency's monitoring report for program year 2004-05, the
monitor found problems with the quality of the agency's furnace work
and recommended that the agency's installers complete relevant
training. This recommendation was not included in the transmittal
letter to the agency and, consequently, was not addressed in the
agency response;
* In another agency's monitoring report for program year 2007-08, the
monitor found that the agency had not consistently performed furnace
testing; however, DCED's transmittal letter did not require an agency
response;
* DCED had no documentation showing that an agency had provided a
corrective action plan for findings identified in the 2007-08 and 2008-
09 program year monitoring reports; DCED's transmittal letter noted
that some of its 2008-09 findings were repeat findings. We could find
no evidence that DCED followed up with the agencies to request
corrective action plans;
* DCED replied to one agency that it was satisfied with the agency's
response, but DCED files did not show that the monitors had conducted
a follow-up visit to inspect what the agency had done.
DOE requirement for state weatherization program monitors: Inspect 5
percent of the weatherized units each year;
DCED monitoring guidelines for meeting DOE requirement: Monitoring
guidelines required monitors to conduct routine site inspections twice
per year for an unspecified selection of weatherized units;
Examples of weaknesses in the monitoring reports for five agencies:
* The monitoring report for one agency in program year 2008-09 shows
one inspection of 78 units weatherized under the DOE program; at least
4 units should have been inspected. The two other units inspected were
funded under the Low Income Home Energy Assistance Program--a program
funded by the Department of Health and Human Services.
Source: GAO analysis, based on review of DCED's Monitoring Guidelines
and Procedures and monitoring reports of five weatherization agencies
for the past 3 years and interviews with DCED monitors.
[End of table]
When we reviewed these issues with DCED officials, they acknowledged
that past monitoring efforts were deficient and that goals, including
biannual monitoring visits and inspections of 10 percent of both in-
progress and completed homes, were too ambitious given DCED's level of
staffing. To increase monitoring capacity, DCED hired 8 new monitors
(for a total of 10) and one new monitoring supervisor (for a total of
3). DCED also retained two consultants to evaluate DCED's monitoring
capacity and recommend improvements, including ways to collect and
analyze data to identify trends and effectively deploy monitoring
resources. On April 30, 2010, DCED issued new monitoring guidelines
and inspection tools. In its Recovery Act weatherization state plan
submitted to DOE, DCED had set a goal to annually inspect 10 percent
of units in progress and 10 percent of weatherized units completed,
but DCED reduced those goals in its new monitoring guidelines to
inspecting 3 percent of units in progress and 7 percent of units
completed. As of April 23, 2010, DCED monitors have inspected 412
units funded by the Recovery Act, or about 4 percent of the total
Recovery Act units in progress or completed.
A state's monitoring program is a critical line of defense against
waste of Recovery Act funds and poor quality weatherization work.
While Pennsylvania has hired additional monitors and recently revised
its monitoring procedures, DCED acknowledged that it is still
experiencing delays in issuing monitoring reports to weatherization
agencies within 30 days. As of May 13, 2010, DCED had completed
monitoring reports for 26 agencies and had sent 9 of these reports to
agencies within the required 30-day time frame. It is too soon to tell
if the new monitoring process will detect and resolve weaknesses, such
as those we observed at three local weatherization agencies.
File Reviews Identified Some Local Agency Weaknesses:
During our three local agency visits, we reviewed weatherization
policies and procedures, interviewed agency officials, and reviewed
client files for weatherized homes. We also visited four homes
undergoing energy audits, three homes being weatherized, as well as
six homes that had their final inspections. While visiting homes, we
observed energy auditors testing furnace efficiencies and educating
clients about energy saving practices. We also observed weatherization
workers caulking around windows and installing insulation.
We observed weaknesses in local agency controls over documenting
materials and labor costs for each house weatherized, overseeing
subcontractors, and documenting final home inspections. Table 4 shows
DCED's requirements for local agency controls over weatherization and
examples of internal control weaknesses observed in our client file
reviews and home inspections.
Table 4: Internal Control Weaknesses Observed during Visits to
Weatherization Agencies:
DCED's requirements for local agencies' internal controls over the
weatherization process: Document in the client file the estimated and
actual costs for materials and labor employed to weatherize the home;
Examples of control weaknesses at three agencies visited:
* One agency did not include certain expenses--including furnace
repairs, refrigerator replacements, or chimney repairs--in its client
files.
DCED's requirements for local agencies' internal controls over the
weatherization process: If using subcontractors to perform
weatherization work, ensure that the subcontractors comply with
standards spelled out in DCED's program guidelines;
Examples of control weaknesses at three agencies visited:
* According to officials, one agency we visited did not always follow
its procedures for managing change control orders made by its
subcontractors--that changes to the work done by its subcontractors
should be specified in writing with detailed explanations of the
changes and their costs. According to local agency officials, most
changes are handled verbally, especially if they are minor--that is,
below $100. However, 8 of the 13 client files we reviewed at this
agency did not contain any evidence that changes to the work order
were authorized. Two of these changes were significant: a total of
about $6,000 in one case and about $3,000 in another.
DCED's requirements for local agencies' internal controls over the
weatherization process: Inspect 100 percent of completed units to
determine compliance with the program's quality standards and
appropriateness of the measures selected, and to ensure that all
reported materials are actually installed. In addition, the client
files should include a quality control inspection sheet signed and
dated by the inspector and the client;
Examples of control weaknesses at three agencies visited:
* Of the three agencies we visited, only one agency uses a quality
control inspection sheet to document its final inspection. The other
two agencies require the client and inspector to sign a form
stipulating that the home has been inspected;
* At one agency, we inspected the two homes the agency had completed
weatherizing at the time of our visit. Several lines on the final
inspection form were checked off to verify that work was completed,
but we did not find any evidence on the work order that this work was
required. These lines concerned the hot water heater and its access
panels as well exposed water pipes. During our inspection, the
homeowner told us that they had not observed work being done on the
water heater, and based on our inspection, there was no evidence that
the water heater closet had been open or inspected;
* At another agency, work, such as caulking, had not been completed at
two of the three completed and previously inspected homes we visited.
In addition, we found some weatherization work, such as venting dryers
to the outside had either not been performed or was poorly done.
Source: GAO analysis, based on DCED's Weatherization Assistance
Program Monitoring Guidelines and Procedures, a review of client files
and home visits, and interviews with weatherization agency officials.
[End of table]
The local weatherization agencies that we visited generally agreed
with our observations and planned to address weaknesses we identified.
For example, one agency has considered modifying its work order form
to include final inspection check-off that each work item was done.
The agency also has considered unannounced site inspections of ongoing
weatherization work to ensure the quality of the work being done.
Another agency agreed that written guidelines for approving changes to
work orders would be helpful. The third agency planned to include a
summary of material and labor costs at the front of each client file
and develop a checklist to review each client file for completeness
prior to closing a job. DCED officials agreed that the control
environment across local agencies had been inconsistent in the past,
with 43 agencies working independently rather than as a statewide
system. DCED is now collecting production and cost information from
local agencies for use in trend analysis. DCED plans to identify
outliers in terms of average cost per home or weatherization measures
installed, such as high numbers of window replacements. DCED is
developing a red-yellow-green stoplight grading system to track
control weaknesses and best practices among agencies. DCED plans to
standardize weatherization practices across the local agencies through
directives based on lessons learned about control weaknesses and best
practices.
DCED Has Taken Actions to Correct Noncompliance with Davis-Bacon
Requirements of the Recovery Act:
In March 2010, DOE found DCED to be noncompliant with the Davis-Bacon
requirements of the Recovery Act. Since weatherization work began in
November 2009, not all weatherization agencies had submitted certified
payrolls to DCED. Also, DCED had not reviewed weekly certified
payrolls for weatherization agencies that had submitted them. DOE
prohibited Pennsylvania from drawing down its remaining Recovery Act
funds until the state had taken corrective action to resolve the issue
and demonstrate compliance with the Davis-Bacon requirements. DCED
addressed the noncompliance issue by developing procedures that
include a weekly compliance payroll report template. DCED also
assigned three part-time staff to review weekly wage reports on an
ongoing basis. On April 22, 2010, DOE accepted these corrective
actions and released the hold on Pennsylvania's Recovery Act
weatherization funds.
Pennsylvania Aims to Train and Certify All Weatherization Workers but
Does Not Have a Process for Enforcing Its July 2010 Deadline:
Whereas other states may not require certification, Pennsylvania has
decided to use part of its Recovery Act funds to train and certify all
weatherization installers, crew chiefs, and auditors to perform
weatherization work. According to state officials, the certification
is intended to provide weatherization workers with an industry-
recognized credential that demonstrates requisite knowledge and
skills. Pennsylvania's Department of Labor & Industry (L&I) will
receive up to $20 million in Recovery Act weatherization funds to
develop a statewide training and certification program for new and
incumbent weatherization workers.[Footnote 8] L&I estimated that the
state needed about 1,500 weatherization workers to meet DCED's
production goals. We visited the Weatherization Training Center at
Penn College, as well as three new training centers in Lancaster,
Philadelphia, and Pittsburgh.
L&I delayed its target date to train and certify all weatherization
workers, and currently allows workers to weatherize homes if they are
certified--or are on a path to certification--by July 1, 2010.
[Footnote 9] The delay resulted from challenges in setting up training
centers, reviewing certification applications, and balancing training
and production goals.
* Although L&I hoped to have the new centers operational by the end of
2009, the six new centers were not fully operational and offering
classes until February 9, 2010. According to L&I officials, staffing
the training centers with qualified instructors took longer than
expected. One training provider we visited said it was a challenge to
enroll new students and student retention was a concern. The provider
also said that there were some unanswered questions, such as who would
be responsible for the physical assessment that all potential students
must pass prior to enrolling in training. According to L&I officials,
staffing the training centers with qualified instructors also took
longer than expected.
* L&I created an accelerated certification process that requires each
existing worker to submit an application to a special review
committee. As of April 28, 2010, 943 existing workers have requested
to be certified based on their training, experience, or both. Because
individual workers may request multiple levels of certification
(installer, crew chief, or auditor), the 943 applicants requested
1,175 certifications. The committee had reviewed the applications and
certified 254 requests; applicants for 276 requests will be required
to pass a proficiency test or complete an accelerated training
program; and applicants for 645 requests were recommended to complete
the full training. Officials at one of the three training facilities
that offer the proficiency test said that applicants approved for the
proficiency test were not well prepared and often failed the test;
they suggested that the proficiency test option should not be offered
and instead those applicants should be required to complete the
accelerated training.
* To minimize disruptions to production schedules, some providers have
considered offering alternative class schedules, including night or
weekend classes, but scheduling instructors and new students outside
of normal business hours has been challenging.
Weatherization agencies we visited suggested a brief apprenticeship or
"trial period" to help ensure that a prospective worker is interested
in weatherization work before the state invests in training.
It is unclear how Pennsylvania will ensure that all new and incumbent
weatherization workers are certified or on a path to certification by
July 1, 2010. According to the subgrant agreement between L&I and
DCED, L&I is responsible for establishing a database to document those
who have completed training and obtained employment within 9 months of
receiving certification. L&I and DCED officials have said that DCED
monitors will review workers' status during their annual monitoring
visits; however, DCED is in the process of revising its monitoring
guidelines and has not yet included tasks to review workers'
qualifications in its guidelines. Furthermore, DCED may not complete
monitoring visits to all 43 weatherization agencies prior to July 1,
2010. In lieu of on-site visits, other options may be available to
check compliance, such as spot-checking the list of names on certified
payrolls submitted to DCED against L&I's training and certification
database or requiring weatherization agencies to periodically report
on the training and certification status of their workers.
Weatherization agencies are under pressure to meet their production
targets, but face few consequences if they fail to use trained and
certified workers. Without a method of ensuring compliance with the
certification requirement, Pennsylvania's training goals may not be
achieved.
Pennsylvania Met the 1-Year Obligation Deadlines for Transportation
Funds, but May Face Challenges in Meeting Maintenance-of-Effort
Requirement:
In Pennsylvania, highway funds have been obligated, and many projects--
particularly for bridges and roadways--have begun. As we previously
reported, FHWA apportioned $1.026 billion in Recovery Act funds to
Pennsylvania for highway infrastructure and other eligible projects.
FHWA obligated the state's full apportionment by the deadline of March
2, 2010. Primarily due to contracts being awarded at a cost lower than
the state's estimate, from March 2 through April 26, 2010, FHWA
deobligated $7.4 million of the highway funds for Pennsylvania, which
has until September 30, 2010 to have FHWA obligate these funds to
other projects. According to FHWA,[Footnote 10] as of May 3, 2010,
Pennsylvania has awarded 329 contracts. Of those, 254 are under
construction and 96 contracts are substantially complete, representing
$124.1 million. Specifically, PennDOT has chosen to focus much of this
work on repairing structurally deficient bridges and repaving
roadways. As of April 5, 2010, PennDOT had been reimbursed $267
million (26 percent) by FHWA.
In addition to funds received directly by three urban transit
agencies, Pennsylvania received an apportionment of $39.6 million for
15 nonurban transit agencies' projects, intercity bus, and intercity
rail projects.[Footnote 11]
The Recovery Act Helped Pennsylvania Accelerate Needed Transportation
Projects:
Pennsylvania is using Recovery Act funding for bridge and roadway
projects that state officials said may not have otherwise occurred at
the time and is taking steps to track this work. Pennsylvania is
tracking how much square footage of structurally deficient bridge deck
area has been rehabilitated, as well as the miles of roadway with a
"poor" or "fair" roughness measure that have been improved. Recovery
Act funding will allow Pennsylvania to repair 133 structurally
deficient bridges totaling almost 760,000 square feet of deck area.
While these bridges represent about 2.4 percent of the 5,600
structurally deficient bridges statewide, PennDOT officials stressed
that the Recovery Act is helping Pennsylvania reduce the total number
of structurally deficient bridges in the state for the first time in
over a decade. Recovery Act funds will also be used to repave 872 road
miles of roadway currently with a poor or fair roughness index, out of
a current total of 15,483 miles of such roadway statewide. PennDOT
officials stressed that the state would not be repairing these 872
miles now without Recovery Act funding.
Similarly, Pennsylvania is tracking outcomes of the Recovery Act--such
as the number of new transit vehicles purchased--that nonurban transit
systems and PennDOT will achieve with Recovery Act funds. For example,
replacing old buses reduces the maintenance costs for transit
agencies. In addition, if PennDOT's maintenance costs decrease,
PennDOT officials told us that they will have additional funds to
support PennDOT's capital budget. As a result, officials expect the
budget will be in better financial shape in coming years. At this
time, PennDOT is not tracking measures such as reduced maintenance
costs. Furthermore, according to PennDOT staff, many transit projects
being funded by the Recovery Act, such as the new intermodal transit
facility in Butler, Pennsylvania, would not have been conducted at
this time otherwise. The Port Authority of Allegheny County is using
Recovery Act funds to finish a long-planned light-rail tunnel in
Pittsburgh to provide transit service to parts of the city that
currently do not have such service.
Facing Lower-Than-Expected Transportation Revenues, Pennsylvania May
Face Challenges in Meeting Maintenance-of-Effort Requirement:
Under the Recovery Act, a state must certify that it will maintain the
level of spending for the types of transportation projects funded by
the Recovery Act that it had planned to spend the day the Recovery Act
was enacted. As part of this certification, the governor of each state
is required to identify the amount of funds the state plans to expend
from state sources from February 17, 2009 through September 30, 2010.
[Footnote 12] Pennsylvania submitted its third maintenance-of-effort
(MOE) certification on March 8, 2010,[Footnote 13] and, in accordance
with FHWA guidance, the certification included PennDOT's payments to
localities for highway and roadway projects. As a result,
Pennsylvania's certified amount increased from about $2.2 billion,
identified in its certification on March 17, 2009, to about $2.9
billion.
Due to lower than expected revenues, however, Pennsylvania may not
have enough revenues to support the expenditures it expected to make
for highways in its MOE certification.[Footnote 14] According to state
officials, the motor license fund--derived primarily from liquid fuels
taxes and motor license fees--is dedicated to transportation
expenditures, and has an annual budget of about $2.6 billion per year.
This fund faces a revenue shortfall for the current and previous state
fiscal years of as much as $150 million compared with what the state
projected in February 2009 when the Recovery Act was passed.
PennDOT officials said that the state might better be able to meet its
MOE requirement if the state accelerates its spending. For example, a
project only counts toward the MOE requirement if funds are expended
by September 30, 2010, which falls at the end of Pennsylvania's first
quarter of its fiscal year. If Pennsylvania could initiate projects
earlier than planned and begin expenditures for these projects before
September 30, 2010, it would be able to count these expenditures
toward its MOE requirement. In addition, since the spring construction
season has started, PennDOT officials expect spending to ramp up over
their levels during this past winter.
Currently, PennDOT cannot forecast its expenditure level for September
30, 2010, and is unsure how far that Pennsylvania may fall short of
its MOE requirement. PennDOT is developing a cash flow model to better
determine expenditures by providing an information link between the
department's budget, expenditures, and the state's transportation
revenues. Due to delays with the model, PennDOT officials said that
they will not know where Pennsylvania stands on its MOE-required
expenditures until at least June 10, 2010, leaving limited time to
explore options to accelerate expenditures as needed by September 30,
2010.
Pennsylvania Met Recovery Act Requirements for Spending Its Clean
Water and Drinking Water State Revolving Funds but May Face Challenges
Monitoring Subrecipients:
Pennsylvania received approximately $156.8 million for its Recovery
Act Clean Water State Revolving Fund (SRF) and almost $65.7 million
for its Recovery Act Drinking Water SRF.[Footnote 15] The Pennsylvania
Infrastructure Investment Authority (PENNVEST) is the financing agency
responsible for administering both SRFs. The Pennsylvania Department
of Environmental Protection (DEP) develops the state's intended use
plans for the SRFs, provides technical assistance to municipalities
applying for PENNVEST funds, and performs interim and final
inspections of projects funded by SRF loans.
In addition to providing increased funds, the Recovery Act included
specific requirements for states beyond those that are part of base
SRF program. For example, the Recovery Act required each state to
prioritize funds for projects that are ready to proceed to
construction within 12 months of its enactment (by February 17, 2010)
and directed EPA to reallocate any funds that were not under contract
by this date. The Recovery Act also required each state to use at
least 50 percent of its Recovery Act allocation to provide additional
subsidization to eligible recipients in the form of principal
forgiveness, negative interest loans, or grants. Furthermore, states
were required to reserve at least 20 percent of their Recovery Act
allocations to fund "green" projects--green infrastructure, water or
energy efficiency improvements, or other environmentally innovative
activities--to the extent there were sufficient and eligible project
applications of this type.
PENNVEST Met the Contracting Deadline and Exceeded the Green Reserve
and Additional Subsidization Requirements of the Recovery Act:
Pennsylvania successfully awarded its Recovery Act funds to projects
by the February 17, 2010, deadline.[Footnote 16] The state used its
approximately $220.9 million in Recovery Act funds[Footnote 17]
together with about $272.0 million in base program funds to provide
assistance for 53 wastewater management projects, 34 storm water
management projects, and 26 drinking water projects. PENNVEST
reallocated 33 percent, or about $21.7 million, of its Recovery Act
Drinking Water SRF funds to its Recovery Act Clean Water SRF funds.
PENNVEST officials told us that shifting funds to the Clean Water SRF
made it easier for PENNVEST to provide additional subsidization for a
larger number of disadvantaged communities[Footnote 18] because Clean
Water projects are generally less affordable to communities than
Drinking Water projects, therefore they more frequently exceed the
affordability limit PENNVEST uses to determine whether communities
qualify for principal forgiveness loans. Officials also told us that
combining base program funds with Recovery Act funds allowed PENNVEST
to fund a larger number of projects and to use freed up Recovery Act
funds, if eligible applicants declined funding offers, for other
projects in lieu of base funds.
Pennsylvania also exceeded the Recovery Act's green reserve and
additional subsidization requirements, using 87 percent of Recovery
Act funds for additional subsidization and 26 percent of Recovery Act
funds for green projects (see table 5).
Table 5: Clean Water and Drinking Water State Revolving Fund Projects:
Type of state revolving fund: Clean Water State Revolving Fund;
Total number of projects and total costs: 87 projects; $176,905,304;
Additional subsidization amount: 62 projects; $162,566,845 (92
percent);
Green reserve amount: 43 projects: $39,795,689 (22 percent).
Type of state revolving fund: Drinking Water State Revolving Fund;
Total number of projects and total costs: 26 projects; $44,006,270;
Additional subsidization amount: 10 projects; $30,464,781 (69 percent);
Green reserve amount: 11 projects: $16,707,139 (38 percent).
Type of state revolving fund: Total;
Total number of projects and total costs: 113 projects; $220,911,574;
Additional subsidization amount: 72 projects; $193,031,626 (87
percent);
Green reserve amount: 54 projects: $56,502,828 (26 percent).
Source: GAO analysis of PENNVEST data.
[End of table]
We visited two Clean Water projects and one Drinking Water project
(see table 6). These projects were selected to include a green
project, a disadvantaged community, and a new subrecipient.
Table 6: Water Projects Visited:
Clean Water SRF: The Mount Carmel Municipal Authority received a $13.6
million principal forgiveness loan to construct a new wastewater
treatment plant to handle peak flows and comply with the Chesapeake
Bay limitations for nitrogen and phosphorus. In the absence of
Recovery Act funds, the project would not have had sufficient funding
because user rates would have been insufficient to cover the costs of
the infrastructure upgrade.
Clean Water SRF: The Chesapeake Bay Foundation (CBF) received a $14.2
million principal forgiveness loan to reduce nutrient pollution and
excess agricultural sediment in streams by integrating forested stream
buffers with other agricultural best management practices. About $4.4
million of these funds will go towards green infrastructure. CBF would
not have been able to fund this project without Recovery Act funds
because there is no user rate or revenue stream for this type of
project.
Drinking Water SRF: Hazleton City Authority Water Department received
two principal forgiveness loans totaling about $14.7 million to
upgrade its drinking water storage and delivery services through
better leak detection, replacement of water mains, increases in
storage and other upgrades. About $6.7 million, or 45 percent, of
these funds will go toward green infrastructure. The loans funded by
the Recovery Act allowed Hazleton to accelerate replacing 8,000 feet
of aging water mains without raising user rates.
Source: GAO analysis based on information from local water projects
and PENNVEST.
[End of table]
PENNVEST Is Responsible for Monitoring a Large Number of Subrecipients:
Although spreading Recovery Act funding across a larger set of
projects helped PENNVEST exceed the additional subsidization and green
reserve spending requirements while meeting the contracting deadline,
PENNVEST will be required to monitor a greater number of subrecipients
for compliance with Recovery Act requirements. These requirements
include quarterly recipient reporting, compliance with Buy American
provisions, and maintaining wage rates and weekly payroll
administration compliant with the Davis-Bacon requirements. PENNVEST
monitors subrecipient compliance and reporting through its online
funds disbursement process. To receive monthly disbursements, the
subrecipients must certify that the engineers, project supervisors,
and contractors who work on project sites comply with requirements of
the funding agreement. According to PENNVEST, 14 eligible
subrecipients declined funding, in part, because they thought the
requirements under the Recovery Act would be too burdensome given the
relatively low amounts of the Recovery Act funds offered.[Footnote 19]
Pennsylvania Awarded the Majority of Its Tax Credit Assistance Program
and Section 1602 Tax Credit Exchange Program Funds:
Recovery Act established two funding programs that provide capital
investments in low-income housing projects: (1) the Tax Credit
Assistance Program (TCAP) administered by the U.S. Department of
Housing and Urban Development (HUD) and (2) the Section 1602 Tax
Credit Exchange Program (Section 1602 Program) administered by the
U.S. Department of the Treasury (Treasury).[Footnote 20] TCAP and the
Section 1602 Program were designed to fill financing gaps in planned
tax credit projects and jump-start stalled projects. According to
Pennsylvania officials, such funding was needed because of a decline
in pricing and a lack of investors in the tax credit market. Officials
reported that the average price investors paid per dollar of tax
credit declined from $0.85 in 2007, to $0.79 in 2008, and to $0.68 in
2009. Officials said that approximately 40 low-income housing projects
were stalled because of decreased equity investment and lack of
investor interest in rural areas.
Pennsylvania received about $95.1 million in TCAP funds and $229.9
million in Section 1602 Program funds. As of April 27, 2010, the
Pennsylvania Housing Finance Agency (PHFA)--which administers the low-
income housing tax credit program--had awarded $81 million in TCAP
funds (about 85 percent) and $209.8 million in Section 1602 Program
funds (about 91 percent) for 52 projects containing about 2,800 units
(including 2,740 tax credit units).[Footnote 21] As of May 5, 2010,
Pennsylvania had spent about $19.7 million (20.7 percent) in TCAP
funds and $77.3 million (33.6 percent) in Section 1602 Program funds.
PHFA officials expect to finish awarding TCAP and Section 1602 Program
funds by mid-July 2010.
In selecting TCAP projects, PHFA officials prioritized projects that
were "shovel ready" and had obtained building permits. PHFA also
considered, among other things, the level of funding from other
sources. In choosing Section 1602 Program projects, PHFA focused on
funding projects that had received 2007 and 2008 tax credits but did
not have adequate financing to continue.
We visited two TCAP projects that received their awards by December
31, 2009 (see table 7). According to PHFA officials, Recovery Act
funds helped both projects move forward, and construction is under
way. The developer for Hopewell Courtyard is converting an old factory
and adding two buildings to create new housing for people aged 55 and
older (see figure 1). Greystone Apartments is undergoing renovations
to modernize kitchens and bathrooms as well as to improve safety and
energy efficiency of the late 1800s-era buildings (see figure 1).
Table 7: Selected TCAP Projects in Pennsylvania:
Project: Hopewell Courtyard, Stewartstown[A];
TCAP award: $5,594,162;
Percentage of total project cost: 34;
Type of construction: New construction;
Type of housing: Elderly;
Type of location: Rural;
Number of tax credit units: 96;
Total number of units: 96.
Project: Greystone Apartments, City of Allentown;
TCAP award: $1,332,138;
Percentage of total project cost: 23;
Type of construction: Rehabilitation;
Type of housing: Family, disabled;
Type of location: Urban;
Number of tax credit units: 24;
Total number of units: 24.
Source: PHFA.
[A] We used the original project name shown on PHFA documentation; the
project is now known as Westminster Place at Stewartstown.
[End of table]
Figure 1: Greystone Apartments in Allentown, Pennsylvania, to Be
Renovated and Factory Conversion with Two New Buildings at Hopewell
Courtyard in Stewartstown, Pennsylvania:
[Refer to PDF for image: 4 photographs]
* Side view of Greystone Apartments exterior.
* A fire escape at Greystone Apartments that the project will replace
as part of safety improvements.
* Hopewell Courtyard (renamed Westminster Place at Stewartstown)
factory building being converted to living space.
* The concrete slab for two new buildings at Hopewell Courtyard.
Source: GAO.
[End of figure]
PHFA officials reported some delays and challenges in implementing the
Recovery Act TCAP program. For example, TCAP required PHFA to comply
with HUD's environmental review process for certain projects that had
previously completed reviews as a requirement for other HUD
funding.[Footnote 22] PHFA officials said about 10 projects that were
otherwise ready to close on their awards were delayed up to 60 days
while PHFA had to redo environmental reviews. Also, the Recovery Act
required compliance with Davis-Bacon prevailing wages for every TCAP
project whereas other HUD programs have a threshold exempting projects
under a defined number of units. PHFA officials said Davis Bacon
prevailing wages can drive up project costs by up to 10 percent.
Although TCAP and the Section 1602 Program helped provide gap
financing for low-income housing projects, PHFA officials raised
concerns about PHFA's liability under both TCAP and Section 1602
Program recapture provisions. Housing finance agencies are responsible
for returning funds to HUD and Treasury if a project is not placed in
service or fails to comply with low-income housing tax credit
requirements. To help mitigate risks, PHFA decided to require
developers to provide financial guarantees to PHFA that can be called
on in the event PHFA needs to recapture funds from the developer. PHFA
officials also expressed concern that Treasury's requirement that
Section 1602 Program funds be awarded as a grant or nonrepayable loan
left them with little leverage to enforce low-income housing tax
credit requirements over the life of a project.
Officials also said that the Recovery Act workload has increased their
workload and reporting requirements, but PHFA must bear the
administrative costs associated with TCAP and Section 1602 Fund. They
suggested allowing an administrative cost portion similar to the 10
percent allocation allowed for HUD's HOME Investment program. PHFA
officials stated concerns with reporting jobs on the quarterly
recipient reports for TCAP projects. They said that prorating job
measures based on the percentage of Recovery Act funding, as required
by the federal Office of Management and Budget, understated job
creation in part because the projects would not be under way without
the gap financing.
Local Housing Authorities Met the 1-Year Obligation Deadline for
Public Housing Capital Funds:
Pennsylvania has 82 public housing agencies that have received a total
of $212.2 million in Recovery Act Public Housing Capital Fund formula
grants (see figure 2). The Recovery Act requires public housing
agencies to obligate their funds within 1 year of the date they were
made available, or by March 17, 2010. In Pennsylvania, all public
housing agencies obligated their funds by that date. As of May 1,
2010, 80 public agencies had drawn down $83.7 million (39 percent),
and 11 of those agencies had drawn down their full award.[Footnote 23]
Figure 2: Percentage of Public Housing Capital Fund Formula Grants
Allocated by HUD That Had Been Obligated and Drawn Down in
Pennsylvania, as of May 1, 2010:
[Refer PDF for image: 3 pie-charts and 1 horizontal bar graph]
Funds obligated by HUD: 100% ($212,155,156);
Funds obligated by public housing agencies: 100% ($212,155,156);
Funds drawn down by public housing agencies: 39.5% ($83,714,528).
Number of public housing agencies:
Were allocated funds: 82;
Obligated 100% of funds: 82;
Have drawn down funds: 80.
Source: GAO analysis of data from HUD's Electronic Line of Credit
Control System.
[End of figure]
Pennsylvania Has Begun Disbursing Recovery Act State Fiscal
Stabilization Fund Monies to Subrecipients:
As we previously reported, Pennsylvania was approved by the U.S.
Department of Education (Education) to receive the initial $1.4
billion of its total $1.9 billion SFSF allocation.[Footnote 24] In
line with a Recovery Act requirement, of the total $1.9 billion,
approximately $1.6 billion (81.8 percent) are education stabilization
funds, and approximately $347 million (18.2 percent) are government
services funds. SFSF government services funds, which do not need to
be used for education purposes, are largely being used to support
corrections officers. Education stabilization funds are being used to
restore and provide funding to local education agencies (LEA) and
institutions of higher education (IHE). Pennsylvania's use of SFSF
funds in state fiscal years 2008-09, 2009-10, and 2010-11 is shown in
table 8. As of March 31, 2010, the School District of the City of York
had used $2.7 million out of a total $5.4 million awarded in Recovery
Act SFSF funds to cover a budget shortfall and fund about 102 full-
time equivalent positions. The Reading school district has used $5.7
million of its total $13.7 million in Recovery Act SFSF funds awarded
to make debt payments.[Footnote 25] Kutztown University of
Pennsylvania used all of its $5.7 million of Recovery Act SFSF funds
awarded to cover a budget shortfall and fund about 58 full-time
equivalent positions.[Footnote 26]
Table 8: Use of SFSF Funds in Pennsylvania:
SFSF type: SFSF education stabilization funds;
Fiscal year 2008-09: $63 million to restore funding to 14 IHEs in the
Pennsylvania State System of Higher Education (PASSHE);
Fiscal year 2009-10:
* $355 million to restore basic education funding to fiscal 2008-09
level;
* $300 million additional basic education funding over fiscal 2008-09
level;
* $93 million to 14 PASSHE IHEs, community colleges, a technology
college, and four state-related IHEs[B] to restore IHE funding to the
fiscal year 2007-08 level of $1.4 billion;
Fiscal year 2010-11[A]: $748 million.
SFSF type: SFSF government services funds;
Fiscal year 2008-09: [Empty];
Fiscal year 2009-10: $173 million for corrections and support to help
cover oversight and reporting costs of Pennsylvania's Accountability
Office;
Fiscal year 2010-11[A]: $173 million for corrections and
Pennsylvania's Accountability Office.
Source: Pennsylvania.
[A] Governor's proposed fiscal year 2010-11 budget.
[B] The state-related IHEs are Pennsylvania State University,
University of Pittsburgh, Temple University, and Lincoln University.
[End of table]
As we previously reported, the state budget process slowed the release
of funds and the ability of PDE and the LEAs to finalize their plans
for using Recovery Act education funds. PDE officials said by March
31, 2010 that 499 out of 500 LEAs submitted the required rider stating
they will comply with Recovery Act terms and received an SFSF
disbursement. Although PDE typically disburses funds in monthly
allotments over the award period, PDE disbursed initial payments to
LEAs equal to a 3-to-4 month allotment. According to the U.S.
Department of Education, as of April 16, 2010, Pennsylvania has drawn
down $156.5 million of $400.6 million awarded for Elementary and
Secondary Education Act of 1965 Title I, Part A, $151.8 million of
$441.7 million awarded for Individuals with Disabilities Education
Act, Part B, and $453.6 million of $1.0 billion awarded of SFSF funds.
As of April 16, 2010, Pennsylvania had drawn down 39.1 percent of
funds awarded for ESEA Title I Part A, 34.4 percent of funds awarded
for IDEA Part B as amended, and 43.4 percent of SFSF funds (see figure
3).
Figure 3: Pennsylvania Education Funds Drawn Down as of April 16, 2010:
[Refer to PDF for image: stacked vertical bar graph]
Funding: SFSF Education Stabilization Funds;
Drawn down: $453.6 million;
Not drawn down: $590.8 million.
Funding: IDEA Part B;
Drawn down: $151.8 million;
Not drawn down: $289.9 million.
Funding: ESEA Title I;
Drawn down: $156.5 million;
Not drawn down: $244.1 million.
Source: U.S. Department of Education.
[End of figure]
In March 2010, the U.S. Department of Education Office of the
Inspector General (OIG) recommended that PDE strengthen its ESEA Title
I and IDEA monitoring of LEAs' fiscal controls and use of funds and
develop a monitoring plan for SFSF funds.[Footnote 27] On March 12,
2010, PDE submitted its draft monitoring plan for SFSF funds and is
waiting for comments from Education. In April 2010, the OIG
recommended that the Philadelphia School District be named a high-risk
grantee of the Department of Education due to internal control and
oversight problems identified in the OIG's 2010 audit.
Recovery Act JAG Funds Ensure Continuity of Criminal Justice Programs:
The total Recovery Act JAG allocation for Pennsylvania and its local
governments is about $72 million. The Pennsylvania Commission on Crime
and Delinquency (PCCD)--the state administering agency for JAG--was
awarded $45 million in JAG funds.[Footnote 28] In addition, localities
received about $27 million in JAG awards directly from DOJ, including
grant funds passed through to localities in the same county.
Although the State Budget Impasse Initially Slowed Awards,
Pennsylvania Has Awarded More Than Half of JAG Funds:
PCCD plans to distribute 25 percent of JAG funds to state agencies and
75 percent to localities throughout the state.[Footnote 29] PCCD
developed its initial state and local spending plans in June 2009, but
in October 2009 after the state budget was enacted, PCCD amended the
plan to better target Recovery Act funding to areas affected by budget
cuts. In response to a $6 million cut from juvenile services programs,
PCCD amended its Recovery Act spending plan to add more resources for
juvenile services. As of March 31, 2010, PCCD has awarded over $25
million (56 percent) of its award to state agencies and localities
(see table 9).
Table 9: PCCD JAG Awards and Planned Allocations to State Agencies and
Localities as of March 31, 2010:
Area of focus: Technology initiatives;
Awards as of March 31, 2010: $2,000,000;
Planned or pending: $2,050,000;
Total: $4,050,000.
Area of focus: Violence prevention;
Awards as of March 31, 2010: $3,499,004;
Planned or pending: [Empty];
Total: $3,499,004.
Area of focus: Victims of juvenile offenders;
Awards as of March 31, 2010: $3,260,000;
Planned or pending: [Empty];
Total: $3,260,000.
Area of focus: Law enforcement;
Awards as of March 31, 2010: $1,000,000;
Planned or pending: $500,000;
Total: $1,500,000.
Area of focus: Justice job creation and retention;
Awards as of March 31, 2010: $5,993,529;
Planned or pending: [Empty];
Total: $5,993,529.
Area of focus: Criminal justice and victim services;
Awards as of March 31, 2010: $5,826,981;
Planned or pending: $800,000;
Total: $6,626,981.
Area of focus: Pennsylvania Weed and Seed program;
Awards as of March 31, 2010: $1,723,159;
Planned or pending: $1,276,841;
Total: $3,000,000.
Area of focus: State agencies;
Awards as of March 31, 2010: $1,888,496;
Planned or pending: $7,451,683;
Total: $9,340,179.
Area of focus: Localities' grants under $10,000;
Awards as of March 31, 2010: [Empty];
Planned or pending: $1,827,262;
Total: $1,827,262.
Area of focus: Research and evaluation;
Awards as of March 31, 2010: [Empty];
Planned or pending: $750,000;
Total: $750,000.
Area of focus: Training;
Awards as of March 31, 2010: [Empty];
Planned or pending: $250,000;
Total: $250,000.
Area of focus: Unawarded and unallocated balance;
Awards as of March 31, 2010: [Empty];
Planned or pending: $811,643;
Total: $811,643.
Area of focus: Administrative fees;
Awards as of March 31, 2010: [Empty];
Planned or pending: [Empty];
Total: $4,545,399.
Area of focus: Total;
Awards as of March 31, 2010: $25,191,169;
Planned or pending: $15,717,429;
Total: $45,453,997.
Source: PCCD.
[End of table]
State agencies have received nearly $2 million largely for technology
enhancements, such as buying 372 laptop computers for field parole
agents. Local awards include nearly $6 million for justice related
jobs, such as juvenile court and parole positions. PCCD also awarded
$1.7 million for the state's Weed and Seed program, which supports
community collaborations to (1) "weed" neighborhoods of drugs, guns,
problematic bars and violent offenders and (2) "seed" communities with
economic and social programs, such as literacy and job training
activities. As of March 31, 2010, PCCD has expended about $2.9 million
in Recovery Act JAG funds. According to PCCD officials, PCCD plans to
award most of the remaining $15.7 million by September 2010.
Localities Use Recovery Act JAG Funds for Onetime Projects and
Equipment, and Some Programs May Face Challenges Once the Recovery Act
Funds End:
We visited seven localities in Pennsylvania that, in total, were
awarded about $16.6 million in Recovery Act JAG grants by DOJ and $4.6
million from PCCD (see table 10). Allentown, Bethlehem, Dauphin
County, and York County received grants from DOJ which they passed on
to designated localities. Harrisburg and York City were subrecipients
of these pass through grants.[Footnote 30]
Table 10: Selected Recipients and Subrecipients of Recovery Act JAG
Funding as of March 31, 2010:
Locality: Allentown;
Grant source: DOJ;
Planned use of Recovery Act JAG funds: Supported new police substation
and purchased six new police vehicles to replace high mileage
vehicles, computers, and police equipment, including security cameras;
Award: $580,171.
Locality: Allentown;
Grant source: DOJ;
Planned use of Recovery Act JAG funds: Passing subgrants on to four
localities;
Award: $91,986.
Locality: Allentown;
Grant source: PCCD;
Planned use of Recovery Act JAG funds: Funded Pennsylvania Weed & Seed
Program coordinator positions;
Award: $80,000.
Locality: Bethlehem;
Grant source: DOJ;
Planned use of Recovery Act JAG funds: Purchased computers and records
management system; purchased two horses and the necessary equipment,
as well as training for the horses and officers to establish a mounted
patrol unit;
Award: $172,216.
Locality: Bethlehem;
Grant source: DOJ;
Planned use of Recovery Act JAG funds: Passing subgrants on to six
localities;
Award: $182,322.
Locality: Dauphin;
Grant source: DOJ;
Planned use of Recovery Act JAG funds: Passing subgrants on to nine
localities;
Award: $745,169.
Locality: Dauphin;
Grant source: PCCD;
Planned use of Recovery Act JAG funds: Funded district attorney and
public defender positions, the Victim Witness Assistance Program, and
the Prison Reentry Program;
Award: $749,468.
Locality: Harrisburg;
Grant source: Dauphin County pass through;
Planned use of Recovery Act JAG funds: Purchased computers, scanners,
and electronic evidence storage to replace costly storage of more than
5 million paper records;
Award: $483,441.
Locality: Harrisburg;
Grant source: PCCD;
Planned use of Recovery Act JAG funds: Funded Pennsylvania Weed and
Seed initiative program coordinator and community police liaison
positions;
Award: $150,000.
Locality: Philadelphia;
Grant source: DOJ;
Planned use of Recovery Act JAG funds: Purchased tasers and batons,
funded training courses and the Real Time Crime Center to improve
incident response. Funded mural restoration work for at risk youths
and reentry programs for ex offenders in the areas of, cleaning and
sealing of vacant properties, and training and certification for
"green jobs" such as weatherization and pest control services. Funded
52 municipal court positions;
Award: $13,544,604.
Locality: Philadelphia;
Grant source: PCCD;
Planned use of Recovery Act JAG funds: Developed a database to track
performance measures, funded victims' services, job retention in
courts, and parole officers for adults and juveniles;
Award: $2,957,166.
Locality: York County;
Grant source: DOJ;
Planned use of Recovery Act JAG funds: Supplemented salaries of
officers to expand the Nuisance Abatement program;
Award: $54,862.
Locality: York County;
Grant source: DOJ;
Planned use of Recovery Act JAG funds: Passing subgrants on to 12
localities;
Award: $524,690.
Locality: York County;
Grant source: PCCD;
Planned use of Recovery Act JAG funds: Funded adult probation
officers, a drug/alcohol case manager, and victim services programs;
Award: $574,657.
Locality: York City;
Grant source: York County pass through;
Planned use of Recovery Act JAG funds: Purchased three police vehicles
and equipment, including tasers, radios, and computers;
Award: $273,276.
Locality: York City;
Grant source: PCCD;
Planned use of Recovery Act JAG funds: Funded Pennsylvania Weed and
Seed program;
Award: $80,000.
Source: GAO analysis of data from PCCD, cities of Allentown,
Bethlehem, Harrisburg, Philadelphia, and York and Counties of Dauphin
and York.
[End of table]
In some cases, localities are using JAG funds for programs and may
face challenges in sustaining funding once the Recovery Act support
ends. For example, some localities, such as Allentown, Harrisburg, and
York City, are using Recovery Act JAG funds for their ongoing
Pennsylvania Weed and Seed programs. Philadelphia used JAG funds to
avoid disbanding the city community court, and the court may again
face possible elimination once the Recovery Act funding ends unless
the City reinstates funding in its fiscal year 2012 budget. Bethlehem
used $45,000 in JAG funds to purchase two horses and related
equipment, supplies, and training services to fund a Mounted Patrol
Unit, and police officials said that they are soliciting private
donations to help cover the estimated $10,000 in annual operating
costs.
Monitoring and Oversight of Recovery Act JAG Funds:
PCCD plans to monitor Recovery Act grant subrecipients through report
reviews, telephone interviews, and on-site visits. PCCD grants
managers contact recipients within the first three months after
awarding the grant to review reporting requirements, project status,
and any areas of concern. In late March 2010, PCCD grants managers
completed their first two subrecipient visits to review timesheets and
verify equipment purchases, among other tasks. In the event of any
noncompliance, PCCD plans to withhold reimbursement until requirements
are met. To help with monitoring and oversight, PCCD plans to hire two
temporary staff using Recovery Act funds. Local recipients of direct
JAG grants we visited said they generally focus on activities such as
compiling applications, submitting invoices for reimbursement,
submitting quarterly recipient reports, and providing assistance to
subrecipients. Two of the four recipients of direct DOJ grants said
they did not plan any additional monitoring and oversight of the
subrecipients. Philadelphia plans to monitor its mural arts and green
jobs training programs. York County plans to monitor subrecipient
inventory systems and use of equipment.
Philadelphia and Harrisburg Used CHRP Funds to Hire New Police
Officers:
Nineteen localities in Pennsylvania received CHRP grants totaling
about $20.2 million to hire or retain police officers. Philadelphia
received $10.9 million to hire 50 officers--an increase of 0.7 percent
of 6,672 sworn officers currently, and Harrisburg received $1.7
million to hire 8 officers--4.79 percent of 167 sworn officers
currently. In addition, $7.6 million was provided to 17 other
localities to hire 35 officers. In Philadelphia, the officers will be
responsible for responding to service calls and preventing crime in
designated community policing areas. In Harrisburg, the officers will
be assigned to high-crime areas. Philadelphia officials said that they
expect the department's general operating fund will be able to meet
the CHRP grant's fourth year retention requirement. Harrisburg
officials acknowledged that financial difficulties may affect the
city's ability to fund the positions in the fourth year as the city
may need to leave vacant officer positions unfilled to cover salaries
for the CHRP positions.[Footnote 31]
Pennsylvania Fiscal Challenges Continue:
For fiscal year 2009-10, Pennsylvania is using $921 million in SFSF
funds (discussed above) as well as state funds freed up as a result of
the almost $1.78 billion in increased Federal Medical Assistance
Percentage (FMAP) funds to help stabilize the $27.8 billion state
general fund budget.[Footnote 32] The state also drew $755 million
from and exhausted its Rainy Day Fund in this fiscal year. Despite
using these funds, as of December 2009, Pennsylvania had laid off 721
state employees during the fiscal year. Pennsylvania's general fund
revenues for fiscal year 2009-10 remain lower than expected; as of May
1, 2010, its revenues have been about $1.1 billion, or 4.6 percent,
below expected.
The Governor's proposed fiscal year 2010-11 general fund budget is $29
billion, including about $2.8 billion in Recovery Act funds--$921
million in SFSF funds and $1.835 billion in funds freed up by the
increased FMAP.[Footnote 33] General fund revenue estimates are 2.8
percent lower in fiscal year 2010-11 than for fiscal year 2009-10.
Furthermore, the 2010-11 budget included an estimated $472 million in
Interstate 80 tolling revenue for the state's motor license fund, but
Pennsylvania's application to implement tolling on Interstate 80 was
rejected by the U.S. Department of Transportation on April 6, 2010.
The Governor convened a special session of the General Assembly to
explore other means to raise revenues for transportation funding.
According to the latest state budget, Recovery Act funds helped
Pennsylvania mitigate the need for drastic service cuts or broad-based
taxes to balance the budget in fiscal year 2010-11. However,
Pennsylvania faces the end of Recovery Act funds in fiscal year 2011-
12 and a sharp increase in pension costs beginning in fiscal year 2012-
13.[Footnote 34] To help minimize the effect of the drop off in
Recovery Act funds, Pennsylvania required state agencies to use
limited-term positions when hiring using Recovery Act funds.[Footnote
35] To address future budget deficits, the Governor has proposed
creating a stimulus transition reserve fund to help the next
administration and legislature deal with fiscal challenges that remain
as the economy recovers. The new fund would be financed through a
package of tax measures with revenues, reserved for use after June 30,
2011.[Footnote 36]
As we previously reported, Pennsylvania enacted its fiscal year 2009-
10 budget on October 9, 2009, 100 days after the fiscal year began,
and this budget impasse delayed the release of some Recovery Act
funds, including the SFSF disbursements discussed above. Under
Pennsylvania law, federal funds generally are appropriated by the
General Assembly.[Footnote 37] Various state agencies could not move
forward with Recovery Act contracts and subgrant agreements until
after October 9, 2010. Continued use of Recovery Act funds in fiscal
year 2010-11 will hinge on Pennsylvania enacting its fiscal year 2010-
11 state budget.
Local Governments Are Using Recovery Act Funds for Onetime Expenses as
Well as to Fund Ongoing Programs:
To learn more about the effect of Recovery Act funds on local
governments, we visited the cities of Allentown and Philadelphia as
well as the counties of York and Dauphin. Figure 4 provides recent
demographic information for these localities.[Footnote 38] Dauphin
County is located in a medium-sized urban area encompassing the state
capitol with a county unemployment rate below the state's average of
9.0 percent. York County has an unemployment rate above the state
average. Philadelphia is the largest city in Pennsylvania, and
Allentown is located in the third largest urban area in Pennsylvania;
both have unemployment rates higher than the state's average. The four
local governments we visited generally plan to use the Recovery Act
funds for a variety of projects and service expansions that would
otherwise have remained unfunded.
Figure 8: Demographics for Four Local Governments Visited in
Pennsylvania:
[Refer to PDF for image: illustrated table]
Locality: Philadelphia;
Estimated population (2008)[A]: 1,447,395;
Unemployment rate (March 2010): 11.3%;
2010 General Fund Budget: $3,97 billion;
Locality type: City.
Locality: Allentown;
Estimated population (2008)[A]: 107,250;
Unemployment rate (March 2010): 13.2%;
2010 General Fund Budget: $81.2 million;
Locality type: City.
Locality: York County;
Estimated population (2008)[A]: 428,937;
Unemployment rate (March 2010): 9.6%;
2010 General Fund Budget: $164.7 million;
Locality type: County.
Locality: Dauphin County;
Estimated population (2008)[A]: 258,934;
Unemployment rate (March 2010): 8.7%;
2010 General Fund Budget: $199.0 million;
Locality type: County.
Source: GAO analysis of U.S. Census Bureau, U.S. Department of Labor,
Bureau of Labor Statistics (BLS), Local Area Unemployment Statistics
(LAUS) data, cities of Allentown and Philadelphia and counties of
Dauphin and York.
Notes: City population data are from the latest available estimate,
July 1, 2008. County population data are from the latest available
estimate, July 1, 2009. Unemployment rates are preliminary estimates
for March 2010 and have not been seasonally adjusted. Rates are a
percentage of the labor force. Estimates are subject to revisions.
[End of figure]
City of Allentown. Allentown officials said that the city has received
about $3.7 million in Recovery Act funds. To help prevent
homelessness, Allentown is working with surrounding counties of Lehigh
and Northampton and the city of Bethlehem to provide rent and utility
assistance to low-income families to prevent homelessness. According
to city officials, the local nonprofit service providers are concerned
about Recovery Act administrative and reporting requirements and have
faced difficulties in paying for assistance services before seeking
reimbursement under the grant. City officials said they have completed
the environmental reviews needed to start construction on the
Community Development Block Grant projects, and plan to issue the
request for proposals in spring of 2010. Allentown officials said that
Recovery Act funds will allow the city to provide services or
enhancements that would not have been available otherwise and that
these services will likely be scaled back or discontinued when the
Recovery Act funding ends. The city's controller conducts audits of
expenditures in Allentown.
Dauphin County. Dauphin County officials said that the county expects
to receive about $7.5 million in Recovery Act funds. Dauphin County
will use Recovery Act funds to provide additional services, such as
weatherizing homes and preventing homelessness. Dauphin County has
also used Recovery Act funds to fund onetime projects, such as water
line replacement and repaving. Dauphin County has also applied for but
not yet received a $5 million Energy Efficiency and Conservation Block
Grant. In December 2009, we reported that Dauphin County officials
said that Recovery Act funding would have minimal effect on future
budgets. However, Dauphin County is a co-guarantor of $140 million in
debt for an incinerator owned by the Harrisburg Authority.[Footnote
39] If Dauphin County is held responsible for the debt, officials said
that the budgetary effect in 2011 would be significant, and existing
programs, including those funded by the Recovery Act would be reduced
or eliminated. The county Controller's Office conducts financial
audits, including the county's Single Audit report which it lists on
the office's Web site.
County of York. County of York officials said that the county has
received about $11.4 million in Recovery Act funds. Officials said
that a significant portion of the county's revenue comes from real
estate property taxes, which have not grown during the housing market
downturn. Officials said the county took steps to avoid further
raising property taxes in the 2010 budget, including implementing a
workforce reduction of 59 positions. York County will use Recovery Act
funds to provide additional services to county residents, such as
weatherization and housing assistance. York County officials said that
the Homelessness Prevention and Rapid Rehousing funds are helping keep
families together in their homes, which is important because most
county shelters serve mostly single men. York County is also using
Recovery Act funds for onetime projects, such as improvements for
county streetscapes to comply with the Americans with Disabilities Act
of 1990, and improvements in energy efficiency in county buildings.
The county Controller's Office conducts financial audits and conducts
monitoring and validation of county expenditures. The office issues
the county's annual Single Audit review, but according to an official
with the office, is not conducting any audits specifically focused on
Recovery Act spending in the county.
City of Philadelphia. Philadelphia officials said that as of March 31,
2010, the city had been awarded about $216 million in Recovery Act
grants.[Footnote 40] Philadelphia received about $179.4 million in
grants directly from the federal government to support anticrime
programs, community development projects, energy-efficiency projects
and other improvements. The city reported that it had been awarded
$36.4 million in grants passed through the state. Some of these funds
were for programs that help residents at risk of becoming homeless
stay in housing and resurfacing city streets. In addition to $84.4
million in formula grants, Philadelphia was awarded $130.2 million in
competitive grants, including $44 million for a Neighborhood Program 2
grant from HUD to help redevelop or stabilize neighborhoods affected
by foreclosure or blight. Philadelphia has used Recovery Act funds not
only to expand services for a limited time and fund onetime projects
but also to create new programs that will end when the Recovery Act
funding ends unless additional funding can be found. Philadelphia
officials said that they face the pressure of developing a balanced
budget, with an estimated 4 percent decline in the city's budget
between 2009 and 2011.[Footnote 41] They voiced concerns that the
Recovery Act does not directly alleviate the city's fiscal pressures
because Recovery Act funds are generally targeted for specific
federally designated purposes. Although the Recovery Act funds
provided funds for street paving in Philadelphia, the city
nevertheless had to cut some city social programs. In addition, city
officials said that Recovery Act funds passed through the state were
delayed during Pennsylvania's 2009 budget impasse. For the Community
Services Block Grant (CSBG), Philadelphia did not receive its contract
from the state until January 26, 2010. As of March 2010, the city was
working to award funds to service providers and spend $8.3 million
before the award period ends September 30, 2010.
To provide transparency, and help manage the city's grant
applications, awards, and federal reporting requirements, Philadelphia
created a centralized Recovery Office in the fall of 2009. The
Philadelphia City Council approves spending of any Recovery Act funds
the city receives, and the initial approval process in late 2009
delayed the city in spending its awards. The city Inspector General
and the Chief Integrity Officer set up a Recovery Act compliance and
control program to focus on fraud and compliance. In addition to pre-
audit reviews of Recovery Act transactions, the City Controller will
conduct the city's Single Audit.[Footnote 42] Controller Office
officials said that their office not receive any additional funds for
Recovery Act audits.
Pennsylvania's Accountability Office Has Issued Performance Measures
for State Recovery Act Activities, and Some State Recovery Act Audits
Are Under Way:
The Pennsylvania Accountability Office, headed by the Chief
Accountability Officer appointed by the Governor, is responsible for
oversight and reporting on the use Recovery Act funds and ensuring
compliance with federal reporting requirements. In April 2010,
Pennsylvania's Accountability Office submitted to the federal
government 376 recipient reports on behalf of 19 state agencies with
information on 1,246 subrecipients and over 2,200 vendors and
subrecipient vendors. As we previously reported, Pennsylvania's
Accountability Office worked with state agencies to compile both
program-specific output measures as well as longer-term outcome
measures for each Recovery Act program. In February 2010, the
Accountability Office issued its first annual report that provided
information on Recovery Act projects and programs funded across the
state and, in conjunction with Pennsylvania's quarterly Recovery Act
reporting to the federal government, the office publishes a Citizens'
Update report on the Recovery Act in Pennsylvania.[Footnote 43] The
office also published performance measures for many Recovery Act-
funded programs.[Footnote 44] For example, the office is planning to
develop long-term measures of the pounds of nutrients and sediments in
surface or ground water eliminated through wastewater projects. The
office also plans to report on the numbers of new housing units and
preserved low-income housing units supported by the Recovery Act as
well as the longer-term percentage increase in the number of low-
income housing rental units. Since March 2009, the Pennsylvania
Stimulus Oversight Commission has held public monthly meetings to
monitor Recovery Act spending in the state.[Footnote 45] Further, the
Governor's Working Group for Stimulus Accountability, a cabinet-level
group, meets on a quarterly basis to help coordinate state agencies'
Recovery Act activities.
As of May 2010, the Pennsylvania Bureau of Audits (BOA), an internal
agency within the Office of Budget, has reevaluated its June 2009 risk
assessments of more than 90 programs expected to receive Recovery Act
funds to ensure adequate audit coverage of the highest risks. As of
April 2010, BOA has completed one audit of Recovery Act highway and
bridge projects and has about 28 more audits under way examining
PennDOT compliance with Davis-Bacon, Buy American, and recipient
reporting requirements of the Recovery Act. BOA completed one of these
audits in January 2010 and had no adverse findings.[Footnote 46] BOA
also began its review of Pennsylvania's Recovery Act weatherization
program and plans to have results by September 2010 so that DCED can
implement any needed corrective action before local agencies spend the
second half of their Recovery Act funds. In March 2010, BOA initiated
reviews of eight Recovery Act Clean Water and Drinking Water projects.
BOA also recently began a review of the State Energy Program focusing
on procurement and adherence to federal requirements on expenditures
and reporting as well as a review of U.S. Department of Education
Elementary and Secondary Education Act of 1965 Title I funding for
cyber charter schools. This will review charter school compliance with
federal and state laws and regulations, including reporting
requirements. BOA Recovery Act audit costs will be billed to state
agencies through the statewide cost allocation plan. BOA officials
said that limited staff availability affects their audit pace.
In the ongoing 2009 Single Audit, Pennsylvania's elected Auditor
General is auditing Recovery Act spending as of June 30, 2009,
including FMAP, extended unemployment benefits, and highway and bridge
projects.[Footnote 47] Although the deadline was March 2010, officials
in the Auditor General's office said that the 2009 Single Audit report
will be issued in June, as it has been in recent years.[Footnote 48]
They added that the 2009 single audit report will be late because the
state budget impasse delayed the year-end closeout. Pennsylvania's
Office of the Budget did not request an extension to the March
deadline on behalf of Pennsylvania because officials were told that
the federal government would not grant an extension. The Auditor
General has one Recovery Act audit of PennDOT procurement on Recovery
Act highway projects ongoing and results will be available in the
spring of 2010. The Auditor General did not receive additional funding
to undertake other Recovery Act audit work outside of the Single Audit
work.
State Comments on This Summary:
We provided the Governor of Pennsylvania with a draft of this appendix
on May 10, 2010. The Chief Implementation Officer responded for the
Governor on May 11, 2010, and agreed with the draft and provided
technical comments that we incorporated where appropriate.
GAO Contacts:
Phillip Herr, (202) 512-2834 or herrp@gao.gov:
Mark Gaffigan, (202) 512-3168 or gaffiganm@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, MaryLynn Sergent, Assistant
Director; Eleanor Cambridge; John Healey; Richard Jorgenson; Richard
Mayfield; James Noel; Jodi M. Prosser; Matthew Rosenberg; and Stephen
Ulrich made major contributions to this report.
[End of section]
Footnotes:
[1] Pub L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009).
[2] Single Audits are prepared to meet the requirements of the Single
Audit Act, as amended, and provide a source of information on internal
control and compliance findings and the underlying causes and risks.
The Single Audit Act requires states, local governments, and nonprofit
organizations expending $500,000 or more in federal awards in a year
to obtain an audit in accordance with the requirements set forth in
the act. A Single Audit consists of (1) an audit and opinions on the
fair presentation of the financial statements and the Schedule of
Expenditures of Federal Awards; (2) gaining an understanding of and
testing internal control over financial reporting and the entity's
compliance with laws, regulations, and contract or grant provisions
that have a direct and material effect on certain federal programs
(i.e., the program requirements); and (3) an audit and an opinion on
compliance with applicable program requirements for certain federal
programs.
[3] We selected these three local agencies based on their location,
size of the agency's Recovery Act weatherization funding and
production targets, whether the agency is a local government or
community action agency, and whether the agency used in-house staff or
contractors for weatherization work.
[4] Based on production to date, DCED has lowered its September 30,
2010 production targets by nearly 2,500 homes.
[5] A DCED official said that the neighboring agencies will use the
funds to weatherize homes that were planned for the original agencies'
service areas.
[6] Pennsylvania Department of the Auditor General, A Special
Performance Audit of the Department of Community and Economic
Development's Weatherization Assistance Program, August 2007.
[7] The 2007 Pennsylvania Auditor General report found that DCED did
not always verify if local agencies had remedied findings DCED had
identified.
[8] DCED released $10 million to L&I in November 2009. As of April 20,
2010, L&I committed $7.1 million for training, including grants to set
up the training centers, technical assistance to training providers,
training vouchers for workers, and a new training and certification
database.
[9] Pennsylvania's weatherization training plan had set a goal of
November 1, 2009, and that goal was initially amended to allow workers
to weatherize homes if they are certified--or are on a path to
certification--within 90 days from the start of a weatherization
contract.
[10] Contract information is from FHWA's Recovery Act Data System, as
reported by state officials.
[11] We previously reported on the Southeastern Pennsylvania
Transportation Authority ($190.9 million), the Port Authority of
Allegheny County ($62.5 million), and the Lehigh and Northampton
Transportation Authority ($9.4 million.) See GAO, Recovery Act: Status
of States' and Localities' Use of Funds and Efforts to Ensure
Accountability (Appendixes), [hyperlink,
http://www.gao.gov/products/GAO-10-232SP] (Washington, D.C.: Dec. 10,
2009).
[12] Recovery Act, div. A, title XII, § 1201(a).
[13] As we previously reported, Pennsylvania first submitted its
certification on March 17, 2009, and submitted an amended
certification on May 20, 2009.
[14] A state that does not meet its MOE certification would be
excluded from FHWA's August 2011 redistribution of obligation
authority. The authority that Pennsylvania has received in these
redistributions has averaged about $55 million a year.
[15] The Clean Water SRF program funds wastewater treatment, watershed
management, and nonpoint source pollution control projects, and the
Drinking Water SRF program funds improvements to drinking water
systems.
[16] The Recovery Act requires that all SRF funds appropriated under
the Recovery Act be under contract or construction by February 17,
2010, and directed EPA to reallocate any funds that were not under
contract or construction by this date.
[17] The Clean Water SRF received almost $1.6 million in funds for
604(b) Water Quality Management Planning.
[18] Pennsylvania identified disadvantaged communities by evaluating
their financial capability to pay for water service, based on an
assumption that the amount that residential customers should be able
to pay for water services will range from one to two percent of the
community's adjusted median household income (MHI). If the estimated
used rate is higher than this amount, PENNVEST considers the water
systems in the community to be "disadvantaged" and targets loan term
extensions or additional subsidization in the form of principal
forgiveness.
[19] The range of loans offered the 14 eligible subrecipients was
between $5,945 and $721,868.
[20] State housing finance agencies allocate low-income housing tax
credits to owners of qualified rental properties who reserve all or a
portion of their units for occupancy for low-income tenants. Once
awarded tax credits, owners attempt to sell them to investors to
obtain funding for their projects. Investors can then claim tax
credits for 10 years if the property continues to comply with program
requirements.
[21] Because tax credit projects have multiple sources of financing,
they sometimes include market rate units as well as tax credit units.
[22] If the entity responsible for the previously completed
environmental assessment had not changed and neither the project nor
the environmental conditions had changed since the completion of the
previous environmental review, then no new environmental review was
required. However, if the entity responsible for the previous
environmental assessment had changed, then a new environmental review
was required.
[23] We previously visited two public housing agencies in
Pennsylvania: the Philadelphia Housing Authority and the Harrisburg
Housing Authority. We will provide updated information on these
housing agencies in a future report.
[24] As we previously reported, Pennsylvania submitted its first SFSF
application in April 2009 and resubmitted its application on June 26,
2009, to remove four institutions of higher education (IHE) from
receiving SFSF money. Education directed the state to resubmit its
application again to include these IHEs as recipients of SFSF money.
The final application was submitted on October 20, 2009, after the
state passed its budget for fiscal year 2009 and included these four
IHEs and was approved November 2, 2009.
[25] We selected the Reading School District because it was the third
largest LEA SFSF subrecipient in Pennsylvania. We also visited the
City of York School District because it used both SFSF and Title I
funds to support salaries and benefits.
[26] Kutztown University was the third largest subrecipient of SFSF
funds among Pennsylvania's state-owned universities.
[27] U.S. Department of Education Office of Inspector General,
American Recovery and Reinvestment Act of 2009: Commonwealth of
Pennsylvania Recovery Act Audit of Internal Controls over Selected
Funds, Control Number ED-OIG/A03J0010, March 15, 2010.
[28] PCCD is the state administering agency for JAG in Pennsylvania.
The Commission consists of representatives from all aspects of
criminal justice, including Pennsylvania's Attorney General, the State
Police Commissioner, the Welfare Department Secretary, Department of
Corrections Secretary, members of the General Assembly, the Governor's
Victim Advocate, law enforcement representatives, victims' services
practitioners, a judge, a prosecutor, a prison warden, a county
government official, other local criminal justice policy makers and
knowledgeable private citizens.
[29] Up to 10 percent of a formula grant award to a state may be used
by the state to pay for costs incurred in administering the formula
grant program.
[30] We selected locations to review localities that received both
direct DOJ and PCCD pass through grants, as well as subrecipients of
direct DOJ grants.
[31] Harrisburg is facing debt service payments due this year on debt
guaranteed for the city's incinerator plant.
[32] The use of Recovery Act funds must comply with specific program
requirements but also, in some cases, enables states to free up state
funds to address their projected budget shortfalls. The increased FMAP
available under the Recovery Act is for state expenditures for
Medicaid services. However, the receipt of this increased FMAP may
reduce the funds that a state would otherwise have to use for its
Medicaid programs. As we previously reported, Pennsylvania plans to
use the funds made available as a result of the increased FMAP to
cover the state's increased Medicaid caseload, ensure that prompt
payment requirements are met, maintain current populations and
benefits, and help stabilize the state budget.
[33] Pennsylvania's estimate of the funds freed up by an increased
FMAP includes $850 million based on the assumption that pending
federal legislation will be enacted to extend the increased FMAP by
two quarters through June 30, 2011.
[34] Under current law and using the state pension systems' annual
earnings assumptions, Pennsylvania projects its employer contributions
will increase from $1.3 billion in fiscal year 2011-12 to $3.7 billion
in 2013-14. For fiscal year 2009-10, Pennsylvania's contribution is
$561 million.
[35] As of May 11, 2010, Pennsylvania had filled 349 positions
specifically for Recovery Act programs, including 207 staff for food
stamp eligibility and processing and 120 for workforce investment and
unemployment compensation. Another 36 positions are approved.
[36] Measures include lowering the state sales tax from 6 percent to 4
percent and eliminating 74 exemptions, enacting a natural gas
extraction tax, as well as other revenue raisers.
[37] 72 Pa. Cons. Stat. § 4615.
[38] Our examination of Recovery Act funds included only funds that
have or will be received by the specific entities we visited. In the
four areas we visited, local school districts, transit agencies, and
public housing authorities also have or will be receiving Recovery Act
funds.
[39] The Harrisburg Authority, a municipal authority, owns and manages
the incinerator. When the authority issued debt in 2003, the debt was
guaranteed by the City of Harrisburg, with Dauphin County acting as a
secondary guarantor. The authority is facing default on its debt and,
according to County officials, the county will be required to make a
$35 million debt service payment in December 2010 if the authority and
the City of Harrisburg are unable to make the payment.
[40] According to city officials, an additional $42.2 million has been
announced by the federal government for Philadelphia, but the City is
awaiting the formal award letters.
[41] As of May 7, 2010, the City Council had not passed the city's
2011 budget.
[42] Philadelphia's 2008 Single Audit report was issued in October
2009.
[43] Commonwealth of Pennsylvania, The Recovery Act in Pennsylvania:
2009 Annual Report (Harrisburg, Pa.: Feb. 17, 2010).
[44] Published on the Pennsylvania's Recovery Act Web site,
[hyperlink, http://www.recovery.pa.gov].
[45] In addition to the Chief Accountability Officer, the commission
is composed of the Governor, the Recovery Act Chief Implementation
Officer, four representatives selected by Pennsylvania's congressional
delegation, members of each of the four caucuses in Pennsylvania's
General Assembly, and representatives from the Pennsylvania Chamber of
Business and Industry, United Way of Pennsylvania, and Pennsylvania
AFL-CIO.
[46] In addition, BOA completed an audit in March 2010 on the use of
Recovery Act Workforce Investment Act of 1998 (WIA) funds by the
Philadelphia Workforce Development Corporation. This audit did not
contain any findings.
[47] According to Pennsylvania's Comprehensive Annual Financial Report
for the fiscal year ending June 30, 2009, the Recovery Act provided
$1.2 billion of funding to Pennsylvania by June 30, 2009.
[48] Many nonfederal entities, particularly states, will submit their
annual Single Audit reports by March 30, 2010 (for entities with
fiscal year-end June 30, 2009).
[End of Appendix XVI]
Appendix XVII: Texas:
Overview:
The following summarizes GAO's work on the sixth of its bimonthly
reviews of American Recovery and Reinvestment Act of 2009 (Recovery
Act)[Footnote 1] spending in Texas. The full report covering all of
our work encompassing 16 states and the District of Columbia is
available at [hyperlink, http://www.gao.gov/recovery].
What We Did:
We reviewed the use of Recovery Act funds in Texas for weatherization,
clean water and drinking water, and public housing projects. For
descriptions and requirements of the programs we covered, see appendix
XVIII of GAO-10-605SP. For these programs, we focused on how funds
were being used, how safeguards were being implemented, and how
results were being assessed:
* The Weatherization Assistance Program (WAP), administered by the
Texas Department of Housing and Community Affairs (TDHCA), was
selected because Recovery Act funding ($327 million) constitutes a
manifold expansion of the program in Texas. Before receiving Recovery
Act funding, TDHCA averaged approximately $5 million annually in WAP
funding from the U.S. Department of Energy (DOE). Among other
objectives, we examined (1) how TDHCA is managing the significant
increase in WAP funding, (2) the extent to which the weatherization
measures being installed in homes result in energy cost savings, and
(3) internal controls TDHCA has in place to ensure that Recovery Act
funds are spent appropriately. At TDHCA, we reviewed WAP
implementation plans and interviewed program officials. To make on-
site observations, we visited weatherization projects in Houston and
San Antonio, areas where significant levels of Recovery Act
weatherization funding had been allocated and where varying
weatherization approaches were being used.
* We selected the Clean Water State Revolving Fund (SRF) and the
Drinking Water SRF programs because they are now getting underway in
Texas and have not been addressed in our previous bimonthly reports.
We reviewed project eligibility criteria and related documentation
obtained from the Texas Water Development Board (TWDB), which
administers the programs, and interviewed TWDB officials. Also, we
made on-site observations and conducted interviews at a clean water
project in Austin (the Hornsby Bend Biosolids Management Plant) and a
drinking water project in Laredo (the Jefferson Water Treatment
Plant). We selected Austin because according to TWDB, at an estimated
cost of $31.8 million, the project nearly meets the full 20 percent
green reserve requirement for Clean Water SRF projects in Texas.
[Footnote 2] We selected Laredo because the $48 million drinking water
project is receiving the largest amount of funding of all Recovery Act
SRF projects in Texas.
* The public housing program was selected because of the funding
obligation deadline that was scheduled during this bimonthly reporting
period. That is, by March 17, 2010, housing agencies were required to
obligate 100 percent of the Capital Fund formula grants allocated
under the Recovery Act. At two offices of the U.S. Department of
Housing and Urban Development (HUD) in Texas--the Fort Worth Regional
Office and the San Antonio Field Office--we reviewed funding
obligation data and interviewed officials to discuss the types and
extent of assistance and guidance that HUD provided to public housing
authorities for obligating and expending Recovery Act funds. We made
on-site observations regarding use of these funds by public housing
agencies in four cities. Specifically, we selected a large city (El
Paso) and a small city (McKinney) that had obligated (as of Jan. 30,
2010) less than 50 percent of their Capital Fund formula grants
allocated under the Recovery Act; also, we selected a large city (San
Antonio) and a small city (Ferris) that had obligated 50 percent or
more of their funds.
Further, in Texas, we obtained state and local government perspectives
on overall use and impact of Recovery Act funds. Specifically, at the
state level, we obtained perspectives from the Office of the Governor,
staff of the Legislative Budget Board,[Footnote 3] and the State
Comptroller's Office; and, at the local level, we contacted city
management officials in Austin, Dallas, and Houston. Also, we reviewed
efforts by state and local government to promote accountability for
use of Recovery Act funds. We focused in particular on efforts by the
Office of the Governor, the State Auditor's Office, and city audit
offices in Austin, Dallas, and Houston.[Footnote 4]
What We Found:
* Weatherization Assistance Program. For various reasons, TDHCA
experienced delays in beginning work on the almost 34,000 homes
projected to be weatherized using Recovery Act funds. According to
Texas officials, the delay in weatherizing homes in Texas is due
primarily to DOE actions, such as denying the state's request to
expand the network of weatherization providers (subgrantees). In
contrast, DOE contended that Texas has not undertaken sufficient
actions to implement the program in spite of several meetings DOE held
with Texas to accelerate the program. Regardless of the reasons, the
delay in weatherizing homes has delayed realization of the potential
economic benefits of the Recovery Act funds allocated to WAP and
energy savings for many low-income Texans eligible for weatherization
assistance. TDHCA is accelerating its progress in weatherizing homes,
but several challenges remain. As of April 7, 2010--almost a year into
the program--11 of the 44 subgrantees had not completed weatherizing
any homes. To enhance the pace of weatherization activity, TDHCA
recognizes that it will need to increase attention to weatherizing
multifamily units--an approach with risks in that TDHCA and
subgrantees have limited experience and training on weatherizing
multifamily units. TDHCA has internal controls for WAP to help ensure
that Recovery Act funds are spent according to program objectives and
the state's 44 subgrantees are adequately monitored. However, several
potential refinements for enhancing internal controls and monitoring
have been identified in reviews conducted by TDHCA's Internal Audit
Division and us.
* Clean Water and Drinking Water. The state of Texas received $180.9
million in Recovery Act funding for the state's Clean Water SRF
[Footnote 5] and $160.7 million in Recovery Act funding for the
Drinking Water SRF. According to officials, TWDB established a
solicitation and ranking process and met the requirement to have
Recovery Act-funded SRF projects under contract by February 17, 2010.
In total, TWDB selected 46 projects to receive Recovery Act funding--
21 Clean Water SRF projects and 25 Drinking Water SRF projects. TWDB
officials stated that because of lower-than-expected construction
bids, and lower-than-anticipated contract awards, the 46 projects
include 10 more than initially anticipated--that is, 2 additional
Clean Water SRF projects and 8 additional Drinking Water SRF projects.
According to TWDB officials, the state encountered a challenge in
awarding Recovery Act funding because the federal Environmental
Protection Agency (EPA) has not established clear criteria for green
reserve projects. According to EPA and TWDB, multiple oversight and
monitoring efforts, both within TWDB and by EPA auditors and program
staff, are underway or planned to ensure accountability for use of
Recovery Act funds by subrecipients.
* Public housing. Of the 415 public housing agencies in Texas, 351
collectively received $119.8 million in Public Housing Capital Fund
formula grants from HUD under the Recovery Act. Collaborative efforts
by HUD and the recipient agencies resulted in the obligation of all of
the funds by the 1-year deadline established by the Recovery Act, or
March 17, 2010. Upcoming deadlines are for expenditures--that is, the
Recovery Act states that 60 percent of the Public Housing Capital Fund
formula grant funds must be expended within 2 years of HUD obligating
the funds to PHAs, and 100 percent of the funding must be expended
within 3 years. To provide accountability for use of the funds, the
HUD offices we contacted in Texas have ongoing and planned reviews to
monitor whether public housing agencies are complying with Recovery
Act procurement policy and related requirements and are disbursing and
expending funds for approved activities.
* Use and impact of funds. Recovery Act funds continue to support a
range of programs in Texas. As of March 28, 2010, Texas state entities
had spent about $8.3 billion of the approximately $17.5 billion in
Recovery Act funds awarded to the state, according to the State
Comptroller's Office. The share of Recovery Act funds that have been
spent varies among programs, depending on program-specific
characteristics. Program officials also described their plans or exit
strategies regarding the end of Recovery Act funding. At the local
government level, city officials we contacted in Austin, Dallas, and
Houston cited various positive effects that Recovery Act funds have
had on their communities. However, the officials noted the amounts of
Recovery Act funds awarded are relatively small compared to the
respective city's overall budget and, thus, have had limited overall
budgetary impact.
* Promoting accountability. State entities and the local governments
we reviewed in Texas are taking actions to help ensure Recovery Act
funds are used appropriately. The state of Texas has used its Single
Audit to provide more timely feedback, such as early written
communication of internal control deficiencies on Recovery Act
programs. Moreover, the Texas State Auditor and other state officials
are continuing to review and monitor Recovery Act funds. The city
auditors we contacted in Austin, Dallas, and Houston are also taking
actions to monitor Recovery Act funding, including early
identification of risks related to the Recovery Act.
Weatherization Activity Is Dramatically Expanding, but Program
Improvements Are Possible:
The Department of Energy (DOE) allocated about $327 million to Texas
for the Recovery Act Weatherization Assistance Program (WAP) to be
spent over the 3-year period from April 2009 through March 2012. As of
July 10, 2009, the Texas Department of Housing and Community Affairs
(TDHCA), which administers WAP at the state level, had access to 50
percent of these funds, or $163.5 million. TDHCA plans to retain about
$30 million of the total allocation to support training, technical
assistance, and administrative expenses and use the remaining
approximately $297 million to weatherize about 34,000 homes of low-
income Texas residents. The $297 million is to be distributed, at the
local level, by 44 subgrantees through a total of 78 contracts that
cover the state's 254 counties.[Footnote 6] The WAP has long been an
active program in Texas, but Recovery Act funding constitutes a
manifold expansion of the program in the state. Prior to receiving
Recovery Act funding, TDHCA averaged approximately $5 million annually
in DOE WAP funding and typically completed weatherization measures on
1,740 homes a year. Our review of the WAP focused on determining the
following:
* The status of the program and how TDHCA is managing the significant
increase in program funding.
* The types of weatherization measures being installed in homes in
Texas and the extent to which these measures result in energy cost
savings.
* The internal controls TDHCA has in place to ensure that Recovery Act
funds are spent in accordance with program objectives.
* The status of training additional weatherization workers to
accommodate the significant increase in households anticipated to
receive assistance from the Recovery Act-funded WAP.
After a Delayed Start, TDHCA Has Made Progress in Implementing WAP but
Will Need to Overcome Several Vulnerabilities to Sustain Progress:
TDHCA plans to weatherize almost 34,000 homes with the significant
increase in WAP funding that came with the Recovery Act. As of March
31, 2010, TDHCA reported in its latest status update to DOE that 1,834
homes had been weatherized.[Footnote 7] DOE guidance stipulates that
TDHCA cannot access the second half of its Recovery Act funding
($163.5 million) until it demonstrates to DOE that 30 percent of the
total number of homes targeted for weatherization (more than 10,170
homes) have in fact been completed. According to DOE, each state is
expected to reach the 30 percent goal before September 30, 2010.
Several factors--including issues associated with establishing wage
rates for weatherization workers and with settling on a network of
subgrantees--delayed the start up of the program in Texas.[Footnote 8]
Regardless of the causes, delayed weatherization activity delays
realization of the full potential economic benefits of the Recovery
Act funds allocated to WAP as well as energy savings for many low-
income Texans eligible for weatherization assistance.
With respect to the issues associated with establishing wage rates, we
reported in March 2010 that complying with Davis-Bacon requirements
for wage-setting had caused delays in implementing the Recovery Act
WAP.[Footnote 9] Specifically, a number of states that received
increased WAP funding under the Recovery Act, including Texas, decided
to not begin weatherizing homes until the U.S. Department of Labor
determined prevailing wages for weatherization workers, as required by
the Recovery Act's Davis-Bacon provision.[Footnote 10] Texas, as well
as the other states, was authorized to begin weatherizing homes in
July 2009 using Recovery Act funds--so long as the state agreed to pay
back wages to any weatherization workers who were paid less than the
prevailing wages ultimately set by Labor. TDHCA officials explained
that they and the WAP subgrantees wanted to avoid having to pay back
wages and were unwilling to assume what they perceived as potentially
large legal and accounting risks; so, they decided to delay
weatherizing homes. After the prevailing wages were published in final
form in December 2009, the subgrantees began weatherizing homes. TDHCA
reported that 47 units statewide had been weatherized using Recovery
Act funds by the end of December 2009.
Difficulties experienced by TDHCA in assembling a DOE-approved network
of subgrantees to implement the greatly expanded level of
weatherization activity also contributed to delays. To enable the
dramatic expansion in weatherization activity anticipated by the
Recovery Act, TDHCA identified the need to significantly expand its
network of subgrantees from the 34 it was using to conduct WAP
activities before the Recovery Act. TDHCA initially anticipated using
81 subgrantees to distribute WAP assistance. The 81 entities consisted
of 34 existing nonprofit entities, 32 municipalities (including some
with no previous WAP experience), and 15 nonprofit entities to be
selected on a competitive basis. Some of the municipalities chose not
to accept program funding before TDHCA submitted its draft Recovery
Act WAP plan to DOE; so in April 2009, TDHCA submitted its WAP plan to
DOE, requesting permission to fund 69 subgrantees.
According to TDHCA officials, DOE approved the plan in July 2009 but
later directed TDHCA to revise the plan to use the existing network of
nonprofit entities and a few large cities to distribute WAP
assistance. According to DOE officials, the Texas WAP plan was not
approved until TDHCA agreed to restructure the plan so that a larger
portion of the funding was provided to the existing network of
subgrantees, thereby giving these subgrantees preference, as required
by WAP regulations. DOE officials also contend that they never advised
TDHCA to use a few large cities as subgrantees to distribute WAP
assistance; rather, DOE officials indicated that the decision was made
by TDHCA. Acting on DOE's recommendation, TDHCA made several
additional changes to the plan and to the number of subgrantees it
planned to use to implement WAP at the local level throughout the
state. In March 2010--8 months after weatherization activity was
authorized to begin--TDHCA submitted its revised plan to DOE. The
revised plan proposed a network of 45 subgrantees--33 existing
nonprofit entities and 12 large cities. According to TDHCA officials,
as of May 11, 2010, DOE had not approved the revised plan. Texas has
continued to weatherize homes based on the previously approved plan.
TDHCA has taken steps that it expects will lead to an increase in the
number of homes weatherized with Recovery Act funding in the coming
months. In particular, TDHCA says it has now completed all
negotiations with subgrantees, and the department reported that it is
holding weekly meetings with all subgrantees. Thus, during our exit
conference in May 2010, TDHCA officials expressed confidence that the
department is on track to meet DOE's 30 percent goal by the end of
August 2010, or about 1 month earlier than the expected date of
September 30, 2010, that DOE set for all states. The TDHCA officials
also expressed confidence that the department will successfully
weatherize the 33,908 homes projected to be completed with Recovery
Act funding by the end of March 2012.
Regarding the number of jobs funded with Recovery Act WAP dollars, in
April 2010, TDHCA reported 297.27 full-time equivalents into
FederalReporting.gov.[Footnote 11] According to TDHCA officials, to
help ensure accuracy of job reporting by subgrantees, the agency
conducted webinars, provided written guidance and job-reporting
templates, established a centralized reporting Web site, and performed
quality checks on submitted data.
TDHCA is accelerating the pace of weatherization activity. For
example, as mentioned previously, TDHCA reported to DOE that a total
of 1,834 units had been weatherized as of March 31, 2010--a
substantial increase from the 47 completed as of December 31, 2009.
However, several challenges remain. Some subgrantees are continuing at
a very slow pace. As of April 7, 2010--almost a year into the program--
11 of the 44 subgrantees had not completed weatherization of any
homes. TDHCA officials also voiced concerns about other subgrantees'
capacity to meet production goals for WAP; therefore, the officials
said that TDHCA has adopted a rule allowing funds to be reallocated to
successful or new subgrantees. DOE officials recently voiced concern
with the progress TDHCA is making in implementing the Recovery Act-
funded WAP as well. For instance, in April 2010, DOE reported that it
had not been pleased with the state's progress in implementing the
Recovery Act WAP and had constant communication and several meetings
with TDHCA staff in efforts to provide additional assistance and
accelerate progress.
Maintaining the accelerating pace it has recently been able to achieve
will require TDHCA to address several important potential
vulnerabilities if the department is to avoid implementation problems
down the road. In particular, given the accelerated pace of spending,
TDHCA is significantly expanding the number of program officers
responsible for monitoring subgrantees' compliance with WAP
requirements. In April 2010, TDHCA reported that 5 additional monitors
had been hired, bringing the on-board total to 11. Further, TDHCA
recognized a need to hire 8 more. An experienced program officer and a
subgrantee representative with considerable weatherization experience
told us, however, that it can take about a year for new staff to
become fully capable of effectively monitoring all aspects of WAP.
Thus, until the new program officers gain field experience, there is
heightened risk that program oversight may be weakened. Inexperienced
program officers may not detect mistakes made by the 44 subgrantees
(many of which are new to WAP) and their contractors--all of whom are
under pressure to increase production. However, in commenting on a
draft of this appendix, Texas officials said they believe a full year
is not needed to gain the necessary experience. Further, the officials
said that they manage the process by assigning new monitors to work
with more seasoned staff and by providing comprehensive training.
To complete weatherization work on the target number of homes
statewide, TDHCA plans to increase its attention on weatherizing
multifamily units. This approach may, however, introduce another risk
factor for successful implementation of the Recovery Act WAP. That is,
TDHCA and the subgrantees have limited experience and training on
weatherizing multifamily units. TDHCA staff also said some subgrantees
are hesitant to weatherize multifamily units because they do not have
experience with such work. The potential adverse affects of
inexperienced subgrantees weatherizing large numbers of multifamily
units is demonstrated by TDHCA's findings based on a February 2010
monitoring visit to a subgrantee in Houston (Sheltering Arms Senior
Services, Inc.). TDHCA's on-site inspections of 27 multifamily units
weatherized by the subgrantee found that the work completed on 13
units was not acceptable and, thus, return visits would be required to
correct various workmanship deficiencies, including window caulking as
well as duct work. We accompanied TDHCA's program officers during
their inspections of 16 of the 27 multifamily units and observed
several examples of these deficiencies. According to TDHCA documents,
officials recognized the need for multifamily weatherization training
some months ago but did not require such training when TDHCA
established a Weatherization Training Academy shortly after receiving
Recovery Act funding. TDHCA did request DOE to provide training on
multifamily units. According to TDHCA officials, after numerous
requests over several months by the state, DOE agreed to sponsor a
workshop on multifamily weatherization this spring. The officials said
that the training is scheduled for late May 2010 in Austin.
Cost Effectiveness of WAP Activities Could Be Enhanced by Focusing on
Measures with Higher Returns on Investment:
A primary objective of WAP is to reduce energy consumption and the
utility bills of low-income households so that these households will
spend a lower percentage of their income on energy costs. To this end,
program criteria require that all homes be assessed before they are
weatherized to determine what weatherization measures are appropriate
for installation. According to TDHCA, DOE authorizes TDHCA's
subgrantees to use two primary energy assessment methodologies to
determine what weatherization measures will be installed on a
dwelling. The first assessment methodology--a DOE-approved Priority
List--identifies cost-effective recurring measures that can be
performed on any eligible home. The approved measures are grouped by
12 major categories and include measures aimed at reducing air
infiltration; sealing ducts; installing attic, sidewall, and floor
insulation; replacing refrigerators and water heaters; and installing
sun screens on windows. The Priority List does not include replacing
windows or doors but does state that a maximum of $400 can be expended
on miscellaneous repairs, such as repairing windows. The Priority List
also specifies two instances when a site-specific energy audit is
warranted--when the home has ducting in the crawlspace or when the
home is heated by a fuel other than natural gas, propane, or
electricity.
The second assessment methodology involves using an energy audit tool--
particularly the DOE-approved National Energy Audit Tool (NEAT)--to
calculate a savings-to-investment ratio (SIR) that can, in turn, be
used to measure the cost-effectiveness of weatherization measures.
After physically inspecting the home, the energy auditor enters
proposed weatherization measures into the computer-based audit, which
then ranks the measures by SIR. The installation of weatherization
measures is supposed to follow the SIR ranking, and if so, the most
cost-effective measure is assumed to have been installed on the
dwelling before moving to the next most cost-effective step as
determined by the model. DOE WAP regulations allow any approved
measure with a SIR of 1.0 or higher to be installed on a dwelling.
[Footnote 12] In calculating this ratio, the model estimates energy
cost savings over the life of the installed measure. For example, if
the cost of an installed window is $300--with an assumed useful life
of 20 years and discounted energy cost savings estimated at $330 over
the useful life--then the calculated SIR would be 1.1 ($330 divided by
$300). The Recovery Act WAP generally requires that the cost of
installing measures cannot exceed an average of $6,500 per dwelling.
At the time of our review, rather than using NEAT, 18 of the 44
subgrantees were using another energy audit tool, Texas EZ, that TDHCA
says had been previously approved by DOE. According to TDHCA
officials, Texas EZ and NEAT work alike in calculating SIRs, and
either audit tool can be used to assess single-family dwellings,
manufactured homes, and multifamily buildings containing 24 or fewer
units. The officials noted, however, that Texas EZ is being phased out
after all subgrantees are trained to use NEAT.
We found that the weatherization measures chosen for installation by
subgrantees can vary significantly depending on whether the Priority
List is followed or an energy audit is used to determine what measure
will be installed on a dwelling. For example, we determined that by
using the NEAT audit one subgrantee justified spending a significant
amount of Recovery Act funding installing new windows and doors, even
though these measures produce a relatively marginal payback in terms
of reducing the energy costs of low-income recipients and are not
included in the Priority List. Conversely, another subgrantee relied
on the Priority List to support installing basic weatherization
measures, such as measures to reduce air infiltration and increase
attic and wall insulation that offered much greater energy savings for
the money invested compared to the replacement of windows and doors
allowed by NEAT. According to TDHCA officials, under DOE rules, TDHCA
is authorized to use either the Priority List or the NEAT model to
determine what weatherization measures to install. However, based on a
comparison of these two approaches, it appears that if TDHCA
emphasized the use of the Priority List whenever possible, more cost-
effective savings would be provided to low-income WAP recipients.
Simply stated, funds spent on costly weatherization measures that
offer relatively marginal energy cost reductions decrease the amount
of assistance that is available for other, less-costly measures, and
reduce the number of low-income people who can be served with Recovery
Act funds.
We reviewed the energy assessments and weatherization measures
installed by a large WAP subgrantee--Sheltering Arms Senior Services,
Inc., located in Houston, Texas. According to Sheltering Arms
officials, they customarily complete a NEAT audit on all dwellings as
part of the assessment of a dwelling and the results of the audit are
used to determine what measures will be installed on a dwelling. We
inspected 16 apartments weatherized by the subgrantee and found that a
NEAT audit was completed on each apartment. We also found that the
exterior windows and doors were replaced on all apartments. These
measures were selected based on the results of the NEAT audits. The
SIRs for the replacement of windows varied from a low of 1.3 to a high
of 1.7. Specific SIRs were not calculated for the doors. However, the
doors were replaced even though TDHCA's Texas Weatherization Field
Guide[Footnote 13] indicates that the cost of new doors rarely can be
justified unless they are in extremely poor condition. In the case
files, we found no documentation of the doors' condition. A few
additional weatherization measures were also installed on these
apartments, but the installation of the windows and doors accounted
for 70 percent of the $37,000 spent weatherizing the 16 apartments.
The average cost to weatherize the relatively small apartments
(ranging from about 360 to just over 1,000 square feet) was slightly
more than $2,300; of this amount, the cost for new windows and doors
averaged almost $1,600 per unit. The results of air infiltration tests
conducted on several of these units during our visit also raise doubts
about the cost effectiveness of these weatherization measures. These
tests indicated that more air was leaking from 2 of the 16 apartments
after the windows and doors were installed than before the
weatherization work was done. In two other cases, air infiltration was
essentially unchanged. Achieving sufficient energy-cost savings to
recoup the investment in these cases is questionable.
In contrast, officials at a second WAP subgrantee--the City of
Houston--told us they follow the DOE-approved Priority List because it
directs the installation of cost-effective weatherization measures
that immediately result in lower energy costs for the people receiving
assistance. An energy audit tool is not used because, in the opinion
of the Houston officials, using such an audit requires more time and
cost than simply following the Priority List. And, city officials said
using the Priority List allows the installation of basic
weatherization measures, such as weather stripping, caulking, and
adding attic and wall insulation, which are more cost effective in
reducing energy costs than replacing windows and doors. We reviewed
the client files for 11 single-family homes weatherized by this
subgrantee and found that no windows or doors were installed; instead,
many of the basic weatherization measures contained on the Priority
List were installed. Because neither NEAT nor another energy audit
tool was used in completing the assessments on these 11 homes, there
were no corresponding SIRs for the weatherization measures that were
installed. We did, however, corroborate the Houston officials' opinion
that the measures installed on these homes are more cost effective
than the windows and doors installed by Sheltering Arms. That is, we
reviewed the results of energy audits completed by another subgrantee
that installed several of the weatherization measures that were
installed on the 11 homes in Houston. Examples of these measures and
the corresponding SIRs show that miscellaneous air infiltration
measures as simple as caulking and sealing around windows, doors, and
cracks provided SIRs that ranged from 6.0 to 14.9; installing
additional attic insulation provided SIRs ranging from 4.6 to 17.8;
and making minor repairs and installing door sweeps provided SIRs that
ranged from 2.6 to 3.5.
We also found that the Houston officials' opinion on not replacing
windows and doors is supported by the Texas Weatherization Field
Guide. The field guide states that with the exception of broken glass
or missing window panes (we observed no documentation to this effect
in the case files at Sheltering Arms) windows are rarely a major
source of air leakage. Consequently, the field guide calls for
replacing windows only when the window is missing or damaged beyond
repair. Similarly, the field guide states that door replacement is
rarely a cost-effective energy conservation measure and that a door
should be replaced as an emergency repair only when the door is
damaged beyond repair. We discussed this apparent conflict between the
NEAT audit and the field guide with TDHCA officials, who told us that
an energy audit is used to determine which weatherization measures can
be installed based on the calculated SIR, and the field guide provides
best practices in conducting weatherization services.
TDHCA has no empirical data for assessing whether energy savings are
being achieved as a result of the installed weatherization measures.
For each unit being weatherized, energy consumption data are obtained
for 12 months before the measures are installed, but there is no
requirement for collecting energy consumption data after installation.
According to TDHCA officials, such collection is not required by DOE.
One subgrantee we visited, the City of Houston, is collecting actual
energy consumption data to measure the level of savings being achieved
after the weatherization measures were installed. Houston staff told
us that the city's partnership with the local utility made the process
for collecting and analyzing the data relatively simple and that
information on real world savings was very useful. Measuring the
actual savings being achieved by a program aimed at reducing energy
consumption seems sensible. TDHCA said it is not required by DOE to
collect such data. However, by comparing energy consumption data for
the different approaches, we believe that TDHCA could better determine
what weatherization measures provide the highest cost savings for the
low-income individuals served and the highest return on program funds
invested. Studies performed by the Oak Ridge National Laboratory
[Footnote 14] and others[Footnote 15] confirm the need for collecting
energy consumption data before and after the installation of
weatherization measures in order to facilitate analyses of program
effectiveness. Also, according to the April 2008 Oak Ridge National
Laboratory study, energy audit models can often over-predict energy
savings from individual measures, which can sometimes lead to
recommending measures that are not cost effective. This study also
noted that if installation of non-cost-effective measures was avoided,
less money would be spent on each house weatherized, more houses would
be weatherized, and WAP's cost effectiveness would increase. Based on
these collective considerations and in the interest of maximizing the
impact of WAP funds, we think it may be useful for TDHCA to consider
issuing guidance to its subgrantees that highlights the merits of the
approach used by the City of Houston for determining what
weatherization measures are to be installed through the program.
TDHCA Generally Has Internal Controls in Place, but Some Refinements
Could Be Considered:
TDHCA has internal controls for WAP to help ensure that Recovery Act
funds are spent according to program objectives and the state's 44
subgrantees are adequately monitored. Specifically, TDHCA has
procedures and controls aimed at ensuring that (1) weatherization
assistance is limited to eligible households, (2) only appropriate
work is undertaken at eligible homes, and (3) all work is completed
and inspected before payments are made. Further, TDHCA plans to
monitor internal control implementation by subgrantees. Nonetheless,
several potential refinements for enhancing internal controls and
monitoring have been identified in reviews conducted by TDHCA's
Internal Audit Division and us.
TDHCA's System of Internal Controls and Monitoring:
TDHCA--in its accountability guidance for the WAP's use of Recovery
Act funds--has specified various internal controls that subgrantees
are required to implement. The internal controls are based on DOE
requirements and include the following:
* Before any weatherization work is undertaken, the subgrantee is to
determine the applicant's eligibility by verifying the applicant's
income and assessing the applicant's energy bills. Each client file is
to include documentation, such as an earnings statement or a letter
from the Social Security Administration, establishing that the
applicant's annual income does not exceed the eligibility requirement
(200 percent of the poverty level). Regarding income verification,
under current guidance, an applicant may report income for a single 30-
day period--which the subgrantee can project to determine whether the
applicant meets annual income limits.[Footnote 16]
* After eligibility is established, the applicant's dwelling is to be
assessed to identify appropriate weatherization measures. The
assessment is to be based on either DOE's Priority List of pre-
approved measures or an energy audit tool (DOE's NEAT or Texas EZ). If
an energy audit tool is used, each of the prospective weatherization
measures for the dwelling is to be ranked based on SIRs, and the
higher-scoring improvements are to be initiated first.[Footnote 17]
Documentation supporting the basis for the weatherization measures
undertaken must be included in the client's file and available for
independent review by TDHCA.
* After the weatherization work is completed on the dwelling and
before the contractor is paid, the subgrantee is responsible for
inspecting the dwelling to ensure that all agreed-upon work was
completed appropriately. The subgrantee is to maintain a record of the
inspection--a certification form signed by the inspector.
Regarding statewide monitoring of WAP-related Recovery Act funds, DOE
requires that every subgrantee be visited by the respective state's
oversight agency at least once annually. Also, in conjunction with the
annual visits, DOE requires the state oversight agency to review
subgrantee records and client files, as well as inspect at least 5
percent of the completed units or units in the process of being
weatherized.
TDHCA has reported that it intends to exceed the minimum monitoring
requirements established by DOE. In April 2009, TDHCA submitted its
initial WAP plan to DOE. The plan stated that TDHCA would visit each
subgrantee at least annually and review a minimum of 10 percent of the
units weatherized and 10 percent of the client files. More recently,
in March 2010, TDHCA submitted a revised plan, which expands the goal
of monitoring visits to at least four times annually but reduces the
percentage of file review and unit inspections to align with the DOE
requirement of at least 5 percent inspection coverage.
TDHCA Internal Audit and Our Reviews Identify Possible Enhancements:
In December 2009, in light of the large infusion of Recovery Act funds
for WAP, TDHCA's Internal Audit Division initiated a review of the
agency's monitoring process. Among other objectives, the review
focused on determining whether TDHCA's monitors have sufficient
resources, support, and training to effectively monitor WAP. On April
27, 2010, the Internal Audit Division issued its report to the
Governing Board and Audit Committee members of TDHCA. The report
concluded that the monitoring process is well-designed and
comprehensive, but enhancements can be made to increase efficiency and
communicate results more timely.
Program officers in TDHCA's Community Affairs Division are responsible
for monitoring subgrantees' compliance with WAP requirements. In
February 2010, we accompanied a team of program officers during a
monitoring visit to a subgrantee in Houston--Sheltering Arms Senior
Services, Inc., a nonprofit entity providing services for residents of
Harris County.[Footnote 18] The Community Affairs Division's resulting
report, dated April 12, 2010, listed various deficiencies. For
example, the report noted that 33 of the 53 units inspected by the
division's program officers had workmanship deficiencies. Also,
regarding required documentation, the report noted that the
subgrantee's client files for 18 of the units did not have a
certification of final inspection signature page. To correct the
various deficiencies, the division's report specified actions to be
implemented by the subgrantee.
Our on-site work also included visiting (in March 2010) two additional
subgrantees. One of these, the Alamo Area Council of Governments
(AACOG), has many years of WAP-related experience in the City of San
Antonio, Bexar County, and 11 other counties--experience that long
predates the Recovery Act. The other subgrantee, the City of Houston,
is new to the program. Our review found that AACOG's client files
contained all relevant documentation. In contrast, the City of
Houston's client files had deficiencies. Specifically, our review of
11 randomly selected client files found that 9 files had no post-work
certification form signed by an inspector.[Footnote 19] Also, although
the other 2 files did contain a certification form, we found that the
form was signed by the contractor that performed the weatherization
work rather than by the subgrantee's inspector. In response to our
findings, the subgrantee stated that corrective actions would be
taken. Subsequently, for example, the subgrantee told us that
communication problems between contractors and post-work inspectors
have been addressed and the case file management process has been
streamlined. More broadly, although not projectable to other
locations, our findings suggest that TDHCA may wish to consider
adjusting the department's monitoring plan to provide comparatively
more focus on the WAP's 11 new subgrantees relative to the 33
experienced subgrantees.
Finally, during our on-site reviews of the two subgrantees, we noted
that TDHCA allows an applicant to report income for only a 30-day
period, which then can be projected by the subgrantee to determine
whether the applicant meets annual income limits. We did not test the
potential implications of this approach. However, in March 2010, New
Jersey's state auditor reported that a similar approach used in that
state--projecting annual income from as little as a 30-day period--led
to ineligible individuals being approved.[Footnote 20] The audit
report noted, for example, 12 instances where applicants with
household incomes over $100,000 in 2008 were approved because they did
not provide their annual income. Given the findings in New Jersey,
TDHCA may wish to consider whether eligibility controls in Texas
should be tightened to reduce the risk of similar problems.
TDHCA Has Not Set Certification or Minimal Training Standards for
Weatherization Workers but Has Established a Training Academy to
Standardize Training:
According to TDHCA officials--other than professionally required
licensing typically applicable to heating, ventilating, and air
conditioning or other work--TDHCA does not require that its program
officers (nor subgrantees or their weatherization contractors) have a
state certification or meet minimal training requirements to work on
WAP projects. Under DOE regulations, TDHCA is not obligated to
establish such requirements, but some states have done so.[Footnote
21] DOE officials told us that the department is working to develop a
nationwide certification program but do not anticipate it being ready
for implementation this year. Because of the significant increase in
WAP funding and the number of homes to be weatherized, TDHCA decided
to use about $5.5 million in Recovery Act funding to develop a
training curriculum for weatherization work and establish a Training
and Technical Assistance Academy (Training Academy). Certification of
workers was not included as part of the Training Academy, largely
because Recovery Act funds represent a one-time expansion of the
existing program, and TDHCA officials considered it imprudent to
establish certification requirements without certainty of an ongoing
funding source. If sufficient funds are available from DOE in the
future, TDHCA officials indicated that the agency may consider
pursuing a certification requirement for weatherization workers.
In October 2009, TDHCA contracted with ACS State & Local Solutions,
Inc., to establish a Training Academy offering a range of
weatherization/energy-efficiency and administrative instruction
through a combination of classroom teaching, online instruction, and
field work. Regarding design curriculum for the Training Academy,
officials explained that the contract required development (in
cooperation with TDHCA) of coursework that includes classes on basic
weatherization and advanced weatherization. For example, the basic
course is to include instructions on the principles of energy,
building science, inspection and diagnostics, and energy audit; and
the advanced weatherization course is to include instruction on the
flow of building heat, air leakage and sealing, insulation, hazardous
materials, health and safety, consumer energy education, weatherizing
manufactured housing, and follow-up and maintenance of installed
weatherization measures. According to TDHCA, the Training Academy also
teaches a lead safety course. As of May 3, 2010, TDHCA reported that
the Training Academy had provided WAP-related training to 909
students--which includes employees of TDHCA, subgrantees, and
subcontractors. TDHCA officials said that, while not mandatory, the
department also sponsors other training courses and conferences
throughout the year directly related to WAP.
The Training Academy does not teach a course on the new Davis-Bacon
requirements placed on WAP by the Recovery Act. However, according to
TDHCA officials, Davis-Bacon training was intentionally kept separate
from the Training Academy. The officials explained that TDHCA and the
U.S. Department of Labor jointly conducted four training sessions on
Davis-Bacon requirements in November 2009. We reviewed TDHCA
documentation confirming that the four training sessions were held in
Dallas, El Paso, Houston, and San Antonio. Also, TDHCA officials said
that each subgrantee was required by TDHCA to attend a one-on-one
preconstruction conference with TDHCA Davis-Bacon staff.
Finally, TDHCA has not required the Training Academy to develop or
teach a course on weatherizing multifamily units. The need for such
training is likely to increase since TDHCA's accelerated pace for WAP
will be reliant on increased subgrantee attention to weatherizing
multifamily units. TDHCA and subgrantees have little experience
weatherizing these types of dwellings and, according to TDHCA, many
subgrantees are reluctant to take on multifamily projects because the
subgrantees are fearful of the complications that could be associated
with doing so. In recognition of the need for training, TDHCA says it
has requested that DOE provide comprehensive multifamily units
weatherization training for Texas. According to TDHCA officials, DOE
agreed to sponsor a workshop this spring. The officials said that the
training is scheduled for late May 2010 in Austin and they will
include such training in the Training Academy's course offerings.
Clean Water and Drinking Water Programs: Texas Met the Deadline for
Having Recovery Act Funds under Contract and Has a System in Place to
Help Ensure Accountability:
The state of Texas received $180.9 million in Recovery Act funding for
the state's Clean Water State Revolving Fund[Footnote 22] and $160.7
million in Recovery Act funding for the Drinking Water State Revolving
Fund. The base Clean Water and Drinking Water SRF programs,
established in 1987 and 1996 respectively, provide states and local
communities independent and permanent sources of subsidized financial
assistance, such as low or no-interest loans for projects that protect
or improve water quality and that are needed to comply with federal
drinking water regulations. According to officials, TWDB established a
solicitation and ranking process and met the Recovery Act requirement
to have Recovery Act-funded SRF projects under contract by February
17, 2010. In total, TWDB selected 46 projects to receive Recovery Act
funding--21 Clean Water SRF projects and 25 Drinking Water SRF
projects. State officials said that they encountered a challenge
awarding the funds because the Environmental Protection Agency (EPA)
did not provide clear and timely guidance on qualifying "green
reserve" projects--that is, green infrastructure,[Footnote 23] water
or energy efficiency, or other environmentally innovative activities.
According to EPA and TWDB, multiple oversight and monitoring efforts,
both within TWDB and by EPA auditors and program staff, are underway
or planned to ensure accountability for use of Recovery Act funds by
subrecipients.
Texas Water Development Board Established a Solicitation and Ranking
Process for Recovery Act Projects and Met the Deadline to Have Funds
under Contract:
As part of its routine annual process, TWDB began the solicitation
process for potential Recovery Act projects in October 2008, before
the act passed. TWDB sent a solicitation to eligible entities across
Texas, such as wastewater and water systems. In response, TWDB
reported that it received funding requests that totaled $3.3 billion
for Clean Water SRF projects and $3.4 billion for Drinking Water SRF
projects. To give priority to shovel-ready projects, TWDB first
grouped the applications by construction start dates by month and,
within each month, TWDB ranked the projects by water quality score.
[Footnote 24] Then, TWDB ranked the projects by the Recovery Act
requirement that at least 50 percent of the act's funding for SRF
projects be awarded in the form of additional subsidization[Footnote
25] and 20 percent of the funding be awarded to support green reserve
projects. In some instances, the additional subsidization and the
green reserve requirements resulted in projects with otherwise higher
priority (based on construction start dates and water quality scores)
not receiving Recovery Act funding.
According to TWDB officials, the construction bids received for both
the Clean Water SRF projects and the Drinking Water SRF projects were
lower than the anticipated project costs. Specifically, the officials
reported that the average construction bid for Clean Water SRF
projects was 89 percent of the applicant's engineering cost estimate
within the original commitment amounts, and the average construction
bid for Drinking Water SRF projects was 79 percent of the applicant's
engineering cost estimate. TWDB officials explained that--to mitigate
the risk of not meeting the February 17, 2010, deadline and having to
return funding to EPA--the state invited additional applicants (termed
"provisional applicants") to apply.[Footnote 26] As a result of the
lower-than-expected construction bids, contracts were awarded below
applicant cost estimates and TWDB reported that $22 million was made
available for additional Clean Water SRF projects and $42 million for
additional Drinking Water SRF projects. With these freed-up funds,
TWDB awarded funding to two provisional applicants for Clean Water SRF
projects and eight provisional applicants for Drinking Water SRF
projects.
TWDB successfully met the Recovery Act's deadline (February 17, 2010)
to get projects under contract. In total, TWDB selected 46 projects to
receive Recovery Act funding--21 Clean Water SRF projects and 25
Drinking Water SRF projects.
Texas Expects Several Benefits from Funded Projects:
State and local officials cited various benefits from projects funded
by the Recovery Act, such as decreased water loss and improved water
quality. Clean Water SRF projects and Drinking Water SRF projects will
benefit multiple entities because Recovery Act funding is dispersed
across Texas. The amounts of Recovery Act funding awarded to projects
range from $305,000 for a solar-powered machine to reduce taste and
odor problems in a Greenville drinking water green project to $48
million for upgrading a water treatment plant and replacing waterline
pipes in Laredo. According to Laredo Utilities Department officials,
the upgrade of the Jefferson Water Treatment Plant and the replacement
of waterline pipes will improve water quality, decrease water loss and
energy costs, and enable the plant to function during power outages.
In addition, officials from the Texas Commission on Environmental
Quality (TCEQ) stated that the Recovery Act-funded improvements will
help to address repeated problems with one of the city's water
treatment plants operating beyond its capacity.[Footnote 27] According
to TCEQ, the City of Laredo was subject to state enforcement actions
in 2009 due to noncompliance associated with these operational
problems.[Footnote 28]
A $31.8 million Clean Water SRF project in Austin is also expected to
have environmental and financial benefits. Austin Water Utility
received funding from TWDB in the form of a zero-interest loan for
improvements to the Hornsby Bend Biosolids Management Plant, which
treats and converts sludge produced by the city's wastewater treatment
plants into a reusable resource known as "Dillo Dirt," a nutrient-rich
soil conditioner used across the city on lawns, gardens, parks, golf
courses, and other areas. The Recovery Act-funded improvements to the
Hornsby Bend Biosolids Management Plant constitute the largest green
project in Texas. Austin Water Utility officials commented that the
plant improvements will generate multiple environmental benefits,
including a reduction in diesel fuel use by 30,000 gallons per year, a
decrease in off-site land application, and a reduction in greenhouse
gases. In addition, the officials cited the financial benefits of the
Clean Water SRF interest-free loan, which generates cost savings for
the City of Austin. Furthermore, the Austin Water Utility officials
commented that--in the absence of Recovery Act funding--any
improvements to the Hornsby Bend Biosolids Management Plant likely
would have been made in a piecemeal fashion and would have cost the
city more.
Green Reserve Project Requirement Presented Challenges, Particularly
for Drinking Water Projects:
TWDB officials stated that meeting the 20 percent green reserve
requirement for use of Recovery Act funds was particularly difficult
for the Drinking Water SRF program. At the time of TWDB's solicitation
in October 2008, the Recovery Act was yet to be enacted. Thus, the
specific provisions of the prospective act were unknown, and according
to officials, TWDB's solicitation did not include a call for green
Drinking Water SRF projects. Subsequently, TWDB coordinated with EPA
Region 6 and concluded that a specific solicitation for green reserve
Drinking Water projects was necessary.[Footnote 29] TWDB officials
explained that, following the May 2009 resolicitation, they worked
with EPA Region 6, EPA contractors, and potential subrecipients to
identify drinking water projects that could potentially qualify as
green and, then, to develop business cases for those projects.
According to TWDB's Recovery Act Director, the initial guidance from
EPA lacked clear criteria as to which projects could qualify as green.
For instance, the guidance was unclear regarding whether the
replacement of leaking waterline pipes would qualify. Also, both TWDB
and EPA Region 6 officials commented that differences existed across
EPA regions in implementing the green reserve criteria. For example,
EPA Region 6 officials said that their regional office reviewed all
business cases for green reserve projects to determine whether they
qualified as green or not, but other EPA regions allowed states to
make these determinations. In February 2010, EPA's Office of Inspector
General issued a report that recognized the need for more definitive
guidance.[Footnote 30]
Despite the various challenges, TWDB reported that it met the 20
percent green reserve project requirement, with 16 of the state's 25
Drinking Water SRF projects containing a green component.[Footnote 31]
Various Oversight and Monitoring Efforts to Ensure Accountability Are
Under Way or Planned:
The EPA Office of Inspector General (OIG) is inspecting Recovery Act-
funded Clean Water and Drinking Water SRF projects. The purpose of
these visits is to determine compliance with selected requirements of
the Recovery Act, such as the Buy American provision, and the Davis-
Bacon wage-setting requirements. According to the EPA OIG, as of May
1, 2010, site reviews have been initiated in 5 of the 10 EPA Regions.
In addition, the EPA OIG plans to conduct a performance audit of
states' oversight of Clean Water SRF Recovery Act-funded projects. The
OIG selected Texas and two other states to include in this review.
According to the OIG, the scope of the work in Texas, planned for
spring 2010, will include a review of applicable contracts and related
files as well as on-site visits by engineers.
EPA Region 6, which oversees Texas's SRF programs, reported that it is
conducting performance reviews as part of its programmatic oversight.
EPA Region 6 plans to conduct two Recovery Act performance reviews in
federal fiscal year 2010, one midyear review and one end-of-year
review. As part of each performance review, EPA Region 6 plans to
conduct four project file reviews. According to EPA Region 6
officials, they visited Texas in March 2010, which satisfied the
federal fiscal midyear review.
Also, TWDB officials told us that the agency has various oversight and
monitoring efforts underway or planned for Recovery Act projects in
Texas. The officials reported that, among other efforts, inspection
and field support staff are to visit subrecipients at every site once
every month, at a minimum. For example, the officials said TWDB staff
conducted a site visit in March 2010 to the Drinking Water SRF
Recovery Act project in the City of Mission. According to TWDB, the
inspection showed that the progress of construction was reasonable;
however, the inspection also found that labor wage determination
signage was not displayed at the site. Further, the TWDB officials
stated that engineers are to make on-site visits to each Recovery Act
project within an upcoming 6-month period. Also, the officials said
that TWDB was in the process of hiring a contractor to inspect all
Recovery Act-funded projects to detect and prevent fraud, waste, and
abuse.
Moreover, TWDB reported that it conducted training sessions for
subrecipients of Recovery Act funding and also developed a handbook to
help ensure compliance with requirements.[Footnote 32] The training
sessions and handbook offer guidance on subrecipient responsibilities
and related topics such as Buy American and Davis-Bacon requirements,
accounting system, and monthly reporting requirements. For example,
TWDB officials described the recipient reporting process as
centralized at the state level, with subrecipients being responsible
for providing updates monthly to TWDB. Based on construction schedules
for SRF projects in Texas, TWDB officials anticipate that the reported
number of jobs funded with Recovery Act dollars will peak during
September to December 2010.
Housing Agencies in Texas Met the Deadline for Obligating Recovery Act
Funds; Oversight Efforts to Monitor Expenditures Are Ongoing:
Of the 415 public housing agencies in Texas, 351 collectively received
$119.8 million in Public Housing Capital Fund formula grants under the
Recovery Act. These grant funds were provided to the agencies to
improve the physical condition of their properties. As of March 17,
2010, the recipient public housing agencies had obligated all of the
$119.8 million. Also, 308 of the recipient agencies had drawn down a
cumulative total of $55.0 million from the obligated funds, as of May
1, 2010.
Meeting the Deadline for Obligating Funds Was Achieved through
Collaborative Efforts:
HUD and the recipient public housing agencies collaborated to achieve
100 percent obligation of the Recovery Act funds in Texas by the March
17 deadline. The two HUD program offices that we contacted in Texas
(the Fort Worth Regional Office and the San Antonio Field Office)
reported that they hosted training sessions for the public housing
agencies under their respective jurisdictions that received Recovery
Act funding--training that covered procurement policy and other
Recovery Act requirements.[Footnote 33] Also, as another broadly
applicable type of assistance or outreach to help public housing
agencies meet the March 17 deadline, the HUD offices used standardized
checklists to conduct reviews of all public housing agencies within
their respective jurisdictions.[Footnote 34] According to HUD, all
public housing agencies received a remote review, and some of the
agencies also received an on-site review.[Footnote 35] For example,
the San Antonio Field Office reported completing:
* both a remote review and an on-site review for each of the six
troubled housing agencies within its jurisdiction by July 2009;
[Footnote 36] and:
* a remote review of all nontroubled housing agencies within its
jurisdiction by December 2009, and an on-site review of 15 of these
agencies by February 2010.
Further, officials at the two HUD program offices reported that--as
the March 17 deadline approached--their staffs conducted weekly
conference calls with housing agencies to discuss Recovery Act-related
questions and obtain updates on the obligation status of funds.
Moreover, the officials noted that continuing outreach was made by
telephone and e-mail or in person, with one-on-one technical
assistance provided to housing agencies, as needed.
We visited four public housing agencies in Texas. Table 1 lists the
agencies, the amount of funds awarded, and the planned use of the
funds.
Table 1: Recovery Act Public Housing Capital Fund Formula Grants in
Texas--Planned Use of Funds by Four Public Housing Agencies:
Public housing agency and total funds awarded: San Antonio Housing
Authority (SAHA) $14,557,802;
Planned use of funds:
* Comprehensive modernization improvements to Lewis Chatham Apartments
(119 units), an elderly and disabled community;
* Upgrades to elevator, fire alarm, and security systems at 5 elderly
communities;
* Safety and sustainability repairs and improvements to playgrounds in
public housing family communities;
* Various site and system repairs and replacements, including sliding
glass doors; roofing; fencing; cabinets; and heating, ventilation, and
air-conditioning (HVAC) systems.
Public housing agency and total funds awarded: Housing Authority of
the City of El Paso (HACEP) $12,715,540;
Planned use of funds:
* Roofing and HVAC systems replacements in 15 communities;
* Water and wastewater line replacements in 2 communities;
* Windows replacements in 2 communities.
Public housing agency and total funds awarded: McKinney Housing
Authority $343,674;
Planned use of funds:
* Windows and roofing replacements at various sites.
Public housing agency and total funds awarded: Ferris Housing
Authority $57,868[A];
Planned use of funds:
* Windows and sewer lines replacements, bathroom renovations, and
drainage work.
Source: GAO summary of HUD and public housing agencies' data.
[A] Ferris Housing Authority had expended its funds as of June 2009
for the planned improvements, as we noted in our July 2009 report (GAO-
09-580).
[End of table]
The four agencies acknowledged the variety and extent of the
assistance and outreach efforts provided by HUD. One of the housing
agencies--the San Antonio Housing Authority (SAHA)[Footnote 37] --
asked for assistance from HUD's San Antonio Field Office in preparing
a request for a Buy American waiver.[Footnote 38] Specifically, SAHA
wanted permission to purchase a specialized heating, ventilating, and
air conditioning system manufactured in Japan. The request was based
on an engineering consultant's recommendation that cited energy-
efficiency and maintenance considerations as well as market research
that found no domestic manufacturer of the specialized system. In
November 2009, SAHA submitted the request to HUD's San Antonio Field
Office. HUD's Assistant Secretary for Public and Indian Housing
responded in December that the request was "well supported by the
appropriate documentation" and granted SAHA a waiver.[Footnote 39]
In early March 2010--before the impending March 17 obligation deadline
for Recovery Act funds--the Housing Authority of the City of El Paso
(HACEP)[Footnote 40] had obligated 27 percent of the $12.7 million
received. HACEP officials explained that they had postponed awarding
contracts and decided to resolicit proposals for roofing work after
receiving bids that HACEP considered to be inflated. The officials
added that in arriving at this decision, HACEP and HUD Fort Worth
Regional Office officials had frequent discussions about the need to
meet the obligation deadline. The HACEP officials further explained
that the resolicitation was issued with an outreach beyond the
immediate El Paso area. This management effort, according to the
officials, resulted in substantial cost savings that allowed HACEP to
fund additional improvements to properties--while still meeting the
March 17th obligation date.
Officials at the HUD offices and the public housing agencies we
contacted commented that staff priorities and workloads were adjusted
as needed to accommodate handling both Recovery Act and regular public
housing capital grant funds. HUD officials cited forming new teams
with existing resources to handle Recovery Act demands and continue
regular capital fund grant management activities. Similarly, housing
agency officials cited adjusting their resources to ensure meeting the
Recovery Act's obligation date while continuing to obligate regular
capital grant funds. For example, by shifting priorities and
increasing their workloads, two of the four housing agencies reported
that they met the Recovery Act's deadline (March 17, 2010)--and also
had obligated over 50 percent of their fiscal year 2009 regular
capital grant funds as of February 28, 2010, or about 19 months before
the funds must be obligated.[Footnote 41] As of March 31, 2010--about
6 months into the 2-year time frame for obligating fiscal year 2009
regular capital grant funds--the other two housing agencies reported
that they had obligated no regular funds but had met the Recovery
Act's obligation deadline.
None of the four public housing agencies that we contacted expressed
difficulty meeting HUD's requirements for the use of capital grant
funds, such as the requirement for priority consideration to low-and
very low-income persons and the businesses that employ them when
creating opportunities using the funds.[Footnote 42] However, a
McKinney Housing Authority official stated that the agency has few
staff, which--coupled with the shortened time frames for obligating
and expending Recovery Act funds--presented concerns in deciding
whether to start projects. Also, a Ferris Housing Authority official--
one member of the agency's two-person staff--said that reporting
requirements have been burdensome. The official stated that although
his agency obligated its Recovery Act funds early on, the agency has
had to submit several reports on matters such as the number of jobs
created and/or retained. Another agency, SAHA, commented that
complying with the Recovery Act's Buy American provision presented
some challenges. However, as previously discussed, SAHA requested a
waiver for one renovation project; and, with assistance from HUD's San
Antonio Field Office, the waiver was granted.
Various Entities Are Responsible for Monitoring Expenditures:
Oversight responsibilities for monitoring expenditures of Public
Housing Capital Fund formula grants awarded under the Recovery Act
involve various entities--particularly HUD's Office of Inspector
General and HUD's program office for public housing. In 2009, HUD's
Office of Inspector General (Region VI) conducted Recovery Act-related
capacity audits of two public housing agencies in Texas--the Dallas
Housing Authority and the Travis County Housing Authority.[Footnote
43] The Office of Inspector General reported that the Dallas Housing
Authority demonstrated the capacity to administer its grant in
accordance with requirements.[Footnote 44] In contrast, the Office of
Inspector General reported that the Travis County Housing Authority
lacked the capacity to administer Recovery Act funds.[Footnote 45]
Among other considerations, the Office of Inspector General
recommended that HUD's San Antonio Field Office increase monitoring
and oversight of the Travis County Housing Authority's financial and
program activities.
As of March 31, 2010, the Office of Inspector General reported that it
had no other ongoing or planned capacity audits in Texas regarding
Public Housing Capital Fund grants awarded under the Recovery Act.
However, public housing program officials in HUD's Fort Worth Regional
Office and San Antonio Field Office plan to continue monitoring public
housing agencies' use of Recovery Act funds by, among other means,
conducting remote and on-site reviews. As noted previously, these
reviews are to include use of standardized checklists, modified as
applicable to focus on the appropriateness of expenditures. The
officials explained that the reviews are to determine if the public
housing agencies are complying with Recovery Act procurement policy
and related requirements and are disbursing and expending funds for
approved activities. More specifically, according to HUD's monitoring
and oversight guidance, the local program offices are to review
disbursements and expenditures for a minimum of 25 percent of the
total Recovery Act grant for each non-troubled public housing agency,
including at least one construction/modernization contract.[Footnote
46] Also, for public housing agencies categorized as "troubled," the
guidance provides for additional monitoring and oversight by HUD field
offices as deemed necessary to ensure proper use of Recovery Act funds.
The public housing agencies that receive Recovery Act funds are to
ensure that the funds are used appropriately, particularly when
negotiating contracts and monitoring the performance of contractors.
Through their procurement processes and procedures, these agencies are
to directly oversee the commitment and disbursement of Recovery Act
funds. SAHA, which received the largest amount ($14.6 million) of
Public Housing Capital Fund formula grants awarded in Texas under the
Recovery Act, plans to use more than $6 million of the funds to
modernize a 119-unit apartment complex (Lewis Chatham Apartments) for
elderly and disabled residents. In March 2010, we visited San Antonio
to observe the status of ongoing renovations at the Lewis Chatham
project; and, at SAHA, we reviewed contracts and related documents.
According to SAHA officials, the renovation work at the Lewis Chatham
project was being procured through competitive bidding processes. We
previously visited the Lewis Chatham modernization project in May and
October 2009, as discussed in our December 2009 report.[Footnote 47]
The report noted that--in the wake of federal bribery-related
indictments in June 2009 against several employees[Footnote 48]--SAHA
had taken measures to strengthen internal controls. Among other
actions taken, officials explained that SAHA revised its Procurement
Policy and Procedures manual in August 2009 to assign specific
responsibilities to department directors.[Footnote 49] According to
officials, the revised manual stipulates that each department director
is responsible for establishing quality control mechanisms for
procurement activities within the respective department.
Officials further explained that the manual also specifies that the
Chief Financial Officer is responsible for the oversight of all
procurement activity within SAHA. At our request, the Chief Financial
Officer provided us documentation of control activities conducted by
SAHA's Facilities and Construction Services Department, which manages
projects funded by the Recovery Act. For construction contracts, the
documented control activities include a series of check-and-balance
steps before payments are made to contractors. During our March 2010
visit to SAHA, department staff walked us through a demonstration of
how the various steps operate.
Regarding the number of jobs funded with Recovery Act Capital Fund
formula grant dollars, in April 2010, SAHA reported 29.05 full-time
equivalents into FederalReporting.gov. To help ensure accuracy in job
reporting, SAHA officials said that the agency requires its
contractors to use a standardized instrument for submitting hours
worked on Recovery Act projects each quarter.
HACEP, which received the second highest amount ($12.7 million) of
Public Housing Capital Fund formula grants awarded in Texas under the
Recovery Act, is using most of its funds ($11.4 million or 90 percent)
for modernization efforts that include replacing roofs, windows, HVAC
systems, and water and sewer lines. In early March 2010, we visited
HACEP. During our visit, we noted that a contract entered into by
HACEP in November 2009--a roofing contract for $702,800--did not
include a Buy American provision. However, in response to our inquiry,
HACEP officials obtained confirmation from the manufacturer that the
shingles being used in the project are American made. Further, the
officials stated that all other contracts do contain a Buy American
provision. Our review of current contracts at the time of our March
2010 visit confirmed that the provision was included. Furthermore,
according to HACEP officials, all of these contracts were awarded
competitively.
Use and Impact of Recovery Act Funds by State of Texas and Local
Governments:
As of March 28, 2010, Texas state entities had spent about $8.3
billion of the approximately $17.5 billion in Recovery Act funds
awarded to the state, according to the State Comptroller's Office.
[Footnote 50] The amount of Recovery Act funding that has been spent
varies among programs, and Texas state agencies continue to prepare
for the end of Recovery Act funding. At the local government level,
city officials in Austin, Dallas, and Houston reported they plan to
use Recovery Act funds to expand existing programs and support new
programs. However, while finding the federal funds useful in advancing
specific priorities, the city officials anticipated the funds would
have a limited overall impact on their ability to address growing
budgetary challenges.
State of Texas Continues to Use Recovery Act Funds:
The State Comptroller's Office reports that approximately $17.5
billion in Recovery Act funds have been awarded to Texas state
entities, as of March 28, 2010.[Footnote 51] The State Comptroller's
Office classifies Recovery Act funding awarded to state entities into
10 categories. Each category includes multiple Recovery Act programs;
for example, the housing and community development category includes
the Weatherization Assistance Program as well as four other programs.
As shown in figure 1, four categories--Health and Human Services,
Education, Transportation, and Labor--account for about 86 percent or
$15 billion of the $17.5 billion awarded to Texas state entities.
Figure 1: Recovery Act Funding Awarded to Texas State Agencies and
Public Institutions of Higher Education by Category (as of March 28,
2010):
[Refer to PDF for image: pie-chart]
Education: $5.0 billion (29%);
Health and Human Services: $4.0 billion (23%);
Labor: $3.7 billion (21%);
Transportation: $2.3 billion (13%);
other: $2.5 billion (14%):
- Research: $255 million (1%);
- Public Safety: $327 million (2%);
- Energy: $316 million (2%);
- Environment: $387 million (2%);
- Housing and Community Development: $544 million (3%);
- Other: $671 million (4%);
Total: $17.5 billion.
Source: State Comptroller‘s Office.
Notes: As reported by the State Comptroller's Office, the funding
categories are based on the Catalogue of Federal Domestic Assistance,
a governmentwide compendium of federal programs, projects, services,
and activities that provide assistance or benefits to the American
public. According to the State Comptroller's Office, the funding
information summarized in the figure does not reflect Recovery Act
funding for local Texas governments and other non-state entities. For
example, public housing agencies receive funds directly from the U.S.
Department of Housing and Urban Development.
[End of figure]
Of the $17.5 billion in Recovery Act funds, the State Comptroller's
Office reported that approximately $8.3 billion (or 48 percent) have
been spent, as of March 28, 2010. The Governor's office told us the
state is neither accelerating nor decelerating the use of Recovery Act
funds; rather, state entities determine how to utilize Recovery Act
funds.
Figure 2 shows funds awarded and funds spent in nine programs that
account for nearly $13 billion (or about 74 percent) of the total
amount of Recovery Act funding ($17.5 billion) awarded to Texas state
entities. As of March 28, 2010, the percentage of funds spent in these
nine programs varied significantly.
Figure 2: Recovery Act Funding Available and Spent in Nine Selected
Programs in Texas (as of March 28, 2010):
[Refer to PDF for image: series of 9 diminishing pie-charts]
3,440,612,201
Medicaid:
Total funds awarded: $3,514,733,676;
Total spent: $3,440,612,201 (98%).
Unemployment Insurance:
Total funds awarded $3,495,964,988;
Total spent: $2,696,055,721 (77%).
Highway Infrastructure Investment Program:
Total funds awarded: $2,240,215,146;
Total spent: $444,936,366 (44%).
Education Stabilization Funds:
Total funds awarded: $2,177,682,329;
Total spent: $663,945,817 (31%).
Housing Tax Credit Exchange Program:
Total funds awarded: $594,091,929;
Total spent: $8,389,887 (1.4%).
Clean Water and Drinking Water SRFs:
Total funds awarded: $339,777,900;
Total spent: $2,214,623 (0.7%).
Weatherization Assistance Program:
Total funds awarded: $326,975,732;
Total spent $14,628,402 (4.5%).
State Energy Program:
Total funds awarded: $218,782,000;
Total spent: $415,727 (0.2%).
Edward Byrne Memorial Justice Assistance grants (JAG):
Total funds awarded: $90,295,773;
Total spent: $5,889,754 (6.5%).
Source: State Comptroller‘s Office.
[End of figure]
Officials characterized the two programs with the highest spend-out
rates of Recovery Act funding as entitlement programs. For example,
the Texas Health and Human Services Commission explained that Medicaid
pays for health care services provided to eligible clients. The Texas
Workforce Commission provided a similar explanation for unemployment
insurance payments, characterizing these as entitlement payments to
eligible claimants.[Footnote 52] The Governor's staff explained
program specific characteristics make spend out rates appear much
higher for the two entitlement programs shown on figure 2 than the
other programs shown on the figure. They indicated the amount of
funding awarded to Texas for these programs could increase in the
future, depending on demand for these programs. The Governor's staff
as well as agency officials reiterated that Texas will continue to
fund such programs as Medicaid.[Footnote 53] For infrastructure-
related programs, spend-out rates are determined partly by the work
and timelines of contractors. Regarding the Highway Infrastructure
Investment program, for example, the Texas Department of
Transportation explained that contractors are paid based on the
progress of projects.
We also asked the nine state agencies to describe their plans or exit
strategies regarding the end of Recovery Act funding. As noted in our
previous bimonthly reports, the Texas governor and legislature have
advised state agencies that Recovery Act funding is temporary. In his
proclamation concerning the state's budget for the 2010-2011 biennium,
the governor stressed that "state agencies and organizations receiving
these funds should not expect them to be renewed by the state in the
next biennium." The biennium will end on August 31, 2011. The state
agencies we examined responded that they are taking various actions.
For example, the Texas Education Agency, which is responsible for
education stabilization funds, reported that it has advised local
educational agencies that Recovery Act funds should be "invested in
ways that do not result in unsustainable continuing commitments after
the funding expires."[Footnote 54] In another case, the Office of the
Governor's Criminal Justice Division reported to us that each
recipient of Justice Assistance grants must acknowledge that "awards
under the Recovery Act are one-time awards and that its proposed
projects and deliverables are to be accomplished without additional
funds." Other agencies expect to continue programs and activities. The
Health and Human Services Commission reported that Texas will continue
to fund the Medicaid program. Also, as part of its normal program, the
Texas Department of Transportation noted that it planned to continue
working on transportation projects that have been supported by the
infusion of Recovery Act funds. The Governor's staff noted these two
programs existed before the Recovery Act and received supplemental
funding through the Recovery Act.
Texas Local Governments' Use of Recovery Act Funds:
We assessed the use of Recovery Act funding for three local
governments in Texas--the cities of Austin, Dallas, and Houston. Table
1 provides information about the three localities and identifies their
largest Recovery Act awards. Officials in the three cities we visited
cited various positive effects that Recovery Act funds are expected to
have on their communities. Austin officials noted that Recovery Act
funds will help reduce the city's energy demand and greenhouse gas
emissions, which supports the city's commitment to being a leader in
sustainability and green infrastructure. They said the Recovery Act
funding enabled them to move projects forward, such as the Hornsby
Bend Biosolids Management Plant clean water project. The city of
Austin is also receiving a grant, Communities Putting Prevention to
Work, from the Department of Health and Human Services that focuses on
decreasing tobacco use.
As table 2 shows, the largest Recovery Act award to the city of Dallas
is a $23 million Transportation Investment Generating Economic
Recovery (TIGER) competitive grant from the Department of
Transportation. The TIGER grant is to be used to start work on a
project for a proposed streetcar line in downtown Dallas to improve
connectivity between jobs and residents. Dallas officials also
commented that public safety is the city's top priority and Recovery
Act Community Oriented Policing Hiring Recovery Program (CHRP) funds
helped the city hire 50 additional police officers. Houston officials
noted Recovery Act grants would help expand curbside recycling and
expand the city's existing weatherization assistance program.
Table 2: Use of Recovery Act Funds by Three City Governments in Texas:
Locality information: Austin;
Type of local government: City;
Population: 757,193;
Unemployment rate: 7.0%;
Operating budget: $614.9 million;
Total Recovery Act funds[A]: $71.9 million;
Programs providing the largest amounts of Recovery Act funding[A]:
* Clean Water State Revolving Fund (SRF)--($31.8 million);
* Communities Putting Prevention to Work--($7.5 million);
* Energy Efficiency and Conservation Block Grant--($7.5 million);
* Highway Infrastructure Investment--($6.4 million);
* Weatherization Assistance Program--($5.8 million).
Locality information: Dallas;
Type of local government: City;
Population: 1,279,910;
Unemployment rate: 9.2%;
Operating budget: $2 billion;
Total Recovery Act funds[A]: $82.0 million;
Programs providing the largest amounts of Recovery Act funding[A]:
* Transportation Investment Generating Economic Recovery--($23
million);
* Weatherization Assistance Program--($13.2 million);
* Energy Efficiency and Conservation Block Grant--($12.8 million);
* Community Oriented Policing Hiring Recovery Program (CHRP)--($8.9
million);
* Edward Byrne Memorial Justice Assistance Grant--($7.1 million).
Locality information: Houston;
Type of local government: City;
Population: 2,242,193;
Unemployment rate: 8.4%;
Operating budget: $1.67 billion (before debt service);
Total Recovery Act funds[A]: $104.6 million;
Programs providing the largest amounts of Recovery Act funding[A]:
* Weatherization Assistance Program--($23.4 million);
* Energy Efficiency and Conservation Block Grant--($22.8 million);
* Highway Infrastructure Investment--($14.5 million);
* Homeless Prevention and Rapid Re-Housing Program--($12.4 million);
* Community Development Block Grant--($8.1 million).
Source: GAO analysis of data obtained from City of Austin; City of
Dallas; City of Houston; U.S. Census Bureau; and U.S. Department of
Labor, Bureau of Labor Statistics (local area unemployment statistics).
Note: City population data are from the latest available estimate,
July 1, 2008. Unemployment rates are preliminary estimates for March
2010 and have not been seasonally adjusted. Rates are a percentage of
the labor force. Estimates are subject to revisions.
[A] Officials in each city (Austin, Dallas, and Houston) said that
they are awaiting decisions on applications for additional Recovery
Act funds.
[End of table]
The three local governments said they are facing growing budgetary
challenges as they are awarded Recovery Act funding. In 2009, the
Federal Reserve Bank of Dallas reported that the recession affected
Texas later than other areas of the nation.[Footnote 55] The report
noted that "the Texas economy continued to expand while the nation
fell into a recession." However, in the latter part of 2008, the
state's economic conditions deteriorated, and the Federal Reserve Bank
determined that Texas began 2009 in recession. In 2010, the Federal
Reserve Bank reported the state's economy is improving but also noted
that "consumer spending--which makes up the lion's share of Texas'
economy--remains flat and may continue to constrain growth."[Footnote
56] The local officials we spoke with confirmed their governments are
experiencing the effects of the recession, pointing to figures showing
declines in sales tax revenue. For example, according to Houston's
estimate for the city's 2010 budget, sales tax revenue is expected to
decrease more than 8 percent. Furthermore, officials in all three
cities said that budget reductions continue to be made in response to
declining revenues, such as implementing hiring freezes, eliminating
raises, and reducing library hours.
City government officials commented that while helpful to furthering
specific efforts, Recovery Act funds had a limited overall budgetary
impact. The officials attributed the limited impact of Recovery Act
funding to several factors. Specifically, the officials noted that
Recovery Act funding is directed to programs outside a city's general
fund and is going toward projects with one-time expenses. Further, the
officials commented that the amounts of Recovery Act funds awarded are
relatively small compared to the respective city's overall budget. For
example, as shown in table 2, Houston was awarded approximately $104.6
million in Recovery Act funding but has an operating budget of
approximately $1.67 billion. City government officials in Austin,
Dallas, and Houston also noted instances in which their respective
city did not receive Recovery Act funding that the city had sought.
For example, Houston officials discussed several grant applications
that were not selected, such as the CHRP, TIGER, and the Clean Water
and Drinking Water SRFs. In summary, while identifying factors that
limit the overall impact of Recovery Act funds on local budgets,
officials from all three cities clearly indicated that the federal
funds would have positive effects for their communities.
State and Local Government Efforts in Accountability for Recovery Act
Funds in Texas:
Texas state entities and the local governments we reviewed in Texas
are taking actions to help ensure Recovery Act funds are used
appropriately. The Texas State Auditor's Office (SAO) continues to
review jobs and expenditure reporting under the Recovery Act. Also,
SAO recently completed the Single Audit in a timelier manner than is
required by federal law, thereby providing early written communication
of internal control deficiencies. As described previously, state
agencies continue oversight and monitoring efforts to ensure
accountability for use of Recovery Act funds. The local governments we
reviewed in Texas are also taking actions to monitor Recovery Act
funding, including early identification of risks related to the
Recovery Act.
State Auditor's Office Has a Significant Accountability Role:
In reference to Texas's use of Recovery Act funds, SAO has completed
one performance audit and has another performance audit ongoing. In
March 2010, SAO released an audit reviewing jobs and expenditure
reporting in two programs overseen by the Texas Education Agency
(TEA), ESEA Title I and Individuals with Disabilities Education Act
(IDEA).[Footnote 57] The audit found TEA established an adequate
process to ensure program expenditures and job creation information
self-reported by local educational agencies was collected and included
in the recipient reports required in September 2009.[Footnote 58]
However, audit findings point to the importance of continuing
monitoring activities. The two local educational agencies the auditors
visited incorrectly reported the number of jobs by 45 percent and 6
percent, respectively.[Footnote 59] The auditors explained that one
local educational agency did not follow TEA guidance and another used
an informal process of emails and verbal exchanges.[Footnote 60] SAO
also recommended TEA monitor and follow up with local educational
agencies to facilitate the regular and timely draw down of Recovery
Act funds to ensure all Recovery Act funds are obligated by September
30, 2011, as required by state and federal law. TEA agreed with the
recommendation and reported taking a number of actions, including
monitoring of local educational agencies' draw down of funds, reaching
out to districts with low or no draw downs, and publicizing draw down
information on the agency's Web site. The Governor's staff told us TEA
does not have legal authority to require local educational agencies to
spend Recovery Act funding more quickly.
Going forward, a senior official in SAO reported the office is now
reviewing jobs and expenditure reporting for the Workforce Investment
Act of 1998 (WIA) Programs, including Youth, Adult, and Dislocated
Worker. The official said that SAO expects to release a report in
summer 2010.
Recently, the auditor for the state of Texas issued the Single Audit
report significantly earlier than required by federal law and, also
provided earlier written communication of internal control
deficiencies over compliance for state entities.[Footnote 61] SAO, on
February 22, 2010, issued the federal portion of the Statewide Single
Audit Report for Texas's 2009 fiscal year.[Footnote 62] SAO issued the
report less than 6 months after Texas's fiscal year ended on August
31, 2009.[Footnote 63] Texas's efforts are noteworthy in demonstrating
that the Single Audit can be completed in less time than the requisite
9 months and can provide early warnings of deficiencies in internal
control over compliance as state entities expend Recovery Act funds.
In regards to timing, we recommended starting in April 2009 in our
bimonthly reports that the federal Office of Management and Budget
(OMB) adjust the current audit process to, among other things, provide
for review of internal controls before significant Recovery Act
expenditures occurred.[Footnote 64] We noted that the statutory
deadline to complete the Single Audit and submit a state's financial
reporting package to the federal audit clearinghouse--specifically 9
months after an entity's fiscal year ends--is too late to allow the
audited entity to take corrective action on internal control
deficiencies before significant expenditures of Recovery Act funds.
Moreover, the timing problem had been exacerbated by extensions to the
9-month deadline--extensions that have been routinely granted in past
years. For example, seven states in our review of Recovery Act funds
completed their fiscal year on July 1, 2008, but requested and
received extensions to submit their Single Audit financial reporting
packages after March 31, 2009. While OMB has recently issued guidance
on March 22, 2010, which states that extensions should no longer be
granted, Texas demonstrated that the Single Audit can be completed in
less time than the requisite 9 months. A senior SAO official told us
that Texas had been issuing its Single Audit report within 6 months of
the end of its fiscal year even before the Recovery Act.[Footnote 65]
The official explained that the Single Audit work is done concurrently
with completing the state's financial statements.[Footnote 66]
We asked the SAO senior official to identify key factors that, in her
view, facilitated Texas's completion of the Single Audit work as well
as work on the financial statements. The senior official identified
two important factors:
* The State of Texas is investing significant audit resources. For the
fiscal year 2009 audit, 114 members of SAO's approximately 180 audit
staff worked on the audit. Moreover, SAO billed state agencies and
institutions of higher education approximately $5.6 million for its
work on the fiscal year 2009 audit, including financial opinion work
as well as federal compliance work.[Footnote 67] In addition, SAO
anticipates using its own funds to pay some of the costs.
* The State of Texas has supplemented its efforts with assistance from
a public accounting firm, which is essential for providing the
personnel needed and a national perspective. Moreover, contracting
with the public accounting firm allows SAO to do more performance
audits while still fully participating in the Single Audit, which is
an important role of SAO.
Texas volunteered to participate in a project that OMB sponsored. One
of the goals of the project is to help achieve more timely
communication of internal control deficiencies for higher-risk
Recovery Act programs so that corrective action can be taken.[Footnote
68] In our December 2009 national summary of the Recovery Act, we
commended the states, including Texas, that elected to participate in
the project.[Footnote 69] We asked the SAO official how Texas's
participation in this project may have facilitated the state's
completion of the Single Audit report. As noted previously, the SAO
official explained the Single Audit work is done concurrently with
completing the state's financial statements, which must be completed
within 6 months of the end of the fiscal year. Texas had been issuing
its Single Audit report by this time frame, before the Recovery Act
and OMB's project. The SAO official told us, however, that Texas
wanted to participate in the project to demonstrate its interest in
accountability for federal funds as well as Recovery Act funds. On the
project, SAO would like OMB to consider allowing for additional
flexibility in the conduct of the work.
Texas's Single Audit report also provided early warning of potential
risks to state entities as Recovery Act funds are disbursed. A SAO
senior official noted the Single Audit identified a weakness in
determining eligibility for three programs--Medicaid, Temporary
Assistance for Needy Families, and Supplementary Nutrition Assistance
Program. Texas has been awarded $3.51 billion in Recovery Act funding
for Medicaid, $57.5 million for Temporary Assistance for Needy
Families, and $27.8 million for the Supplementary Nutrition Assistance
Program, according to March 28, 2010, data from the State
Comptroller's Office. The SAO official noted that challenges in
determining program eligibility existed before the Recovery Act, as
the state transitioned between computer systems. Federal Inspector
General officials--in reviewing Texas's Single Audit report--
characterized the eligibility-determination issue as a "material
weakness, a material instance of non-compliance, as well as a repeat
finding." The Texas Health and Human Services Commission reported it
intends to finalize a corrective action plan by May 31, 2010,
including evaluating methods to monitor documentation used to support
eligibility for the three programs identified above. Also, the
Governor's staff reported that the Texas Health and Human Services
Commission is taking additional actions, including modifying the
eligibility system to ensure key documents are verified and maintained
as well as developing a management plan to improve the accuracy of
eligibility determinations. The Governor's staff indicated that many
of these actions are to be completed by the end of calendar year 2010.
Further, we asked the SAO official to what extent the Single Audit had
identified new risks related to the Recovery Act. One risk SAO expects
will be addressed is the requirement that recipients, such as state
agencies and subrecipients, register with the federal government's
Central Contractor Registration (CCR), which is intended to provide
basic information relevant to procurement and financial transactions.
The Single Audit found, for example, that one state agency was unaware
of this requirement and consequently did not verify food bank
subrecipients had registered before providing Recovery Act funds.
[Footnote 70] The SAO senior official expected this risk to lessen as
state agencies become more familiar with requirements. Consequently,
Texas's timely completion of the Single Audit provides the state an
opportunity to address and mitigate potential risks. As noted
previously, Texas has not yet spent the majority of the Recovery Act
funds awarded to state entities, as of March 28, 2010.[Footnote 71]
Local Government Audit Offices Also Have a Significant Accountability
Role:
The local governments we reviewed also reported taking steps to
safeguard Recovery Act funds. We previously reported the Dallas city
auditor did a preliminary risk assessment before the city received
significant amounts of Recovery Act funding. In an October 2009
report, the auditor noted the city faces increased risks because
Recovery Act funds must be expended quickly, mandatory reports must be
completed within short time frames, and some city departments have not
previously administered grants. The auditor made a number of specific
recommendations, which city management has said will be implemented.
The city auditor has continued to monitor Recovery Act funding and is
planning to issue reports every quarter assessing the city's efforts.
[Footnote 72] On April 23, 2010, the city auditor released one such
quarterly audit report.[Footnote 73] Of particular importance, the
report noted that no "allegations of fraud, waste, and abuse" have
been received by the city auditor's office.
In March 2010, a representative from the Austin city auditor's office
told us that the office is planning a two-pronged approach to
monitoring Recovery Act funds. The approach, according to the city
auditor's office representative, focuses on (1) ensuring that
departments understand the specific requirements of the Recovery Act
and (2) conducting tests of specific Recovery Act projects for
compliance with requirements.
Also, in April 2010, the Houston acting city auditor told us that the
city is taking various actions to ensure accountability for Recovery
Act funds. These actions include, for example, conducting an
enterprise risk assessment to comprehensively identify risks the
city's various departments face. The acting city auditor noted that he
had contacted counterparts in the Dallas city auditor's office to
discuss risk-assessment approaches. Also, the Houston acting city
auditor commented that the Single Audit is expected to provide
specific coverage of Recovery Act funds. Further, to address the
Recovery Act's reporting requirements, the acting city auditor said
that the city has formed a committee with representation from city
management and the City Controller's Audit Division.
Texas's Comments on This Summary:
We provided the Governor of Texas with a draft of this appendix on May
5, 2010. A senior official (the Director of Financial Accountability)
in the Office of the Governor responded on May 10, 2010. The majority
of the senior official's comments relate to WAP. Generally, the senior
official commented that the draft appendix did not adequately reflect
Texas's view that the significant delays in the state's weatherization
efforts were principally the result of DOE actions and decisions. More
specifically, the senior official commented that DOE (1) denied the
state's request to significantly expand the network of weatherization
providers, (2) did not provide the state with required Davis-Bacon
wage information for major metropolitan areas for nearly a year after
passage of the Recovery Act, (3) changed reporting requirements
significantly and failed to timely provide written guidance, and (4)
has yet to provide multifamily weatherization training to Texas after
numerous requests. To address these comments, we incorporated more
specific information on Texas's efforts to work with DOE as well as
DOE's perspectives on the state's progress in weatherizing units. For
example, we incorporated information that according to Texas officials
DOE denied the state's request to expand the network of weatherization
providers. However, we also incorporated information that in April
2010 DOE reported that it had not been pleased with the state's
progress in implementing the Recovery Act WAP and had constant
communication and several meetings with TDHCA staff in efforts to
provide additional assistance and accelerate progress. As appropriate
in this appendix, we also incorporated the senior official's
suggestions for technical clarifications regarding WAP and other
relevant programs and activities.
In addition, we also provided a copy of applicable sections of a draft
of this appendix to the City of Austin, the City of Dallas, and the
City of Houston. Officials from the respective cities generally agreed
with the information presented and provided technical suggestions that
we incorporated where appropriate.
GAO Contacts:
Lorelei St. James, (214) 777-5719 or stjamesl@gao.gov:
Bob Robinson, (202) 512-5728 or robinsonra@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Fredrick Berry, Danny Burton,
James Cooksey, K. Eric Essig, Erinn Flanagan, Ken Howard, Michael
O'Neill, and Gloria Proa made major contributions to this report.
[End of section]
Footnotes:
[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009).
[2] That is, at least 20 percent of the funds provided under the
Recovery Act for both Clean Water and Drinking Water SRF projects are
to be used for green infrastructure, water or energy efficiency
improvements, or other environmentally innovative projects.
[3] According to state officials, the Legislative Budget Board is a
permanent joint committee of the Texas legislature that develops
budget and policy recommendations for legislative appropriations for
all agencies of state government, as well as completes fiscal analyses
for proposed legislation. The lieutenant governor and House speaker
serve as co-chairs of the board. Other members include the chairs of
the House Appropriations Committee and Senate Finance Committee. See
[hyperlink, http://www.lbb.state.tx.us].
[4] As indicated, we contacted city management and audit officials in
Austin, Dallas, and Houston to obtain local government perspectives on
overall use and impact of Recovery Act funds and efforts to promote
accountability for use of the funds. We selected these cities because
they were awarded large amounts of Recovery Act funding and are
located in different geographic areas of Texas, while collectively
accounting for approximately 17 percent of the state's total
population.
[5] Of the $180.9 million in Recovery Act funding for the Clean Water
SRF, $179.1 million went to TWDB, and $1.8 million went to the Texas
Commission on Environmental Quality.
[6] Some subgrantees entered into multiple contracts. Throughout the
course of our work, TDHCA documents reported that Texas had 45
subgrantees with 79 associated contracts. As our report was being
finalized, TDHCA said that one of the subgrantees (the City of
McAllen) had ended its involvement with the program, reducing the
number of subgrantees to 44 and the number of contracts to 78.
[7] In commenting on a draft of this appendix, a senior official
representing the Office of the Governor said that Texas had
weatherized substantially more units in April 2010 and was continuing
to make accelerated progress in May.
[8] Nationwide, the WAP experienced issues associated with
establishing wage rates for weatherization workers. See GAO, Recovery
Act: Factors Affecting the Department of Energy's Program
Implementation, [hyperlink, http://www.gao.gov/products/GAO-10-497T]
(Washington, D.C.: Mar. 4, 2010) and GAO, Recovery Act: Funds Continue
to Provide Fiscal Relief to States and Localities, While
Accountability and Reporting Challenges Need to be Fully Addressed,
[hyperlink, http://www.gao.gov/products/GAO-09-1016] (Washington,
D.C.: Sept. 23, 2009).
[9] [hyperlink, http://www.gao.gov/products/GAO-10-497T] and
[hyperlink, http://www.gao.gov/products/GAO-09-1016].
[10] The Davis-Bacon Act requires that contractors and subcontractors
pay workers the locally prevailing wages on federally funded
construction projects, and it imposes several administrative
requirements relating to the payment of workers on qualifying
projects. Prior to the Recovery Act, Davis-Bacon requirements did not
apply to DOE's WAP; therefore, Labor had to determine county-by-county
prevailing wages for weatherization workers in Texas and other states.
[11] The FederalReporting.gov system was created and managed by OMB
and the Recovery Accountability and Transparency Board for all
Recovery Act recipients to report on the nature of projects undertaken
with Recovery Act funds and on job creation estimates.
[12] 10 C.F.R. §440.21(d).
[13] Texas Department of Housing and Community Affairs, Texas
Weatherization Field Guide (Austin, Tex.: 2004). The guide outlines
the procedures covering several areas, including the energy efficiency
of existing homes. The guide also includes measures used by
weatherization assessors and crews.
[14] Oak Ridge National Laboratory, Texas Field Experiment:
Performance of the Weatherization Assistance Program in Hot-Climate,
Low-Income Homes, ORNL/CON-499, April 2008; and Estimating the
National Effects of the U.S. Department of Energy's Weatherization
Assistance Program with State-Level Data: A Metaevaluation Using
Studies from 1993 to 2005, ORNL/CON-493, September 2005.
[15] Proceedings of the Tenth Symposium on Improving Building Systems
in Hot and Humid Climates, (Fort Worth, Tex.: May 13-14, 1996), Data
Quality Requirements for Determining Energy Savings in the
Weatherization Assistance Program (WAP), paper presented by
representatives of Texas A&M University's Energy Systems Laboratory
and TDHCA's Energy Assistance Section.
[16] Applicants are also commonly referred to as being "clients" of
the subgrantee.
[17] As mentioned previously, under WAP guidelines, any prospective
weatherization improvement with a SIR score of 1.0 or higher is
eligible to be installed at a dwelling.
[18] The team also included one staff member from TDHCA's Internal
Audit Division.
[19] We randomly selected 11 files from the total of 24 files. At the
time of our visit in March 2010, the subgrantee reported that
weatherization work had been completed on 24 dwellings.
[20] New Jersey State Legislature, Office of Legislative Services,
Office of the State Auditor, Department of Community Affairs American
Recovery and Reinvestment Act Weatherization Assistance Program
Eligibility (Trenton, N.J.: March 26, 2010). The audit report covered
the period April 1, 2009, to December 4, 2009.
[21] However, DOE requires all states to include a training and
technical assistance plan in their application for weatherization
funds. 10 C.F.R. § 440.12(b)(7).
[22] Of the $180.9 million in Recovery Act funding for the Clean Water
SRF, $179.1 million went to TWDB, and $1.8 million went to the Texas
Commission on Environmental Quality.
[23] Green infrastructure clean water projects include projects such
as bioretention, green roofs, and the preservation and restoration of
natural landscape features like floodplains. Green infrastructure
drinking water projects include projects such as wet weather
management systems, green roofs, and porous pavement at drinking water
facilities.
[24] Water quality scores for clean water projects are determined by
TWDB based on criteria such as the need for improved wastewater
treatment, extension of service to unserved communities, and the need
to address judicial and agency compliance orders. Water quality scores
for drinking water projects are determined by the Texas Commission on
Environmental Quality and TWDB, and are based on criteria, such as
total health and compliance factors, total physical deficiencies, and
affordability.
[25] In March 2009, TWDB adopted a policy that the additional
subsidization would be made available to those entities that meet
existing SRF program eligibility requirements as disadvantaged
communities and that the additional subsidization would be offered in
the form of a grant. Disadvantaged community status takes into account
factors such as adjusted median household income and household costs.
[26] According to TWDB, those provisional applicants not needed to
assist in meeting Recovery Act goals were to be funded from the 2010
Clean Water or Drinking Water SRF Intended Use Plan.
[27] The Texas Commission on Environmental Quality is the
environmental agency for the state of Texas and oversees water quality.
[28] In 2009, the Jefferson Water Treatment Plant was the subject of
14 violations, such as insufficient monitoring of turbidity and filter
processes, out-of-date plans, and deficient capacity. As of February
2010, TCEQ officials told us that all violations (except those related
to deficient capacity) against the City of Laredo were addressed and
closed.
[29] EPA Region 6 serves Arkansas, Louisiana, New Mexico, Oklahoma,
and Texas, as well as the Tribal lands located within the region.
[30] U.S. Environmental Protection Agency, Office of Inspector
General, EPA Needs Definitive Guidance for Recovery Act and Future
Green Reserve Projects, Report No. 10-R-0057 (Washington, D.C.: Feb.
1, 2010).
[31] Of the 21 Clean Water SRF projects that were selected by TWDB to
receive Recovery Act funding, 7 contained either a green component or
were fully categorized as a green reserve project.
[32] Texas Water Development Board, ARRA Handbook: Guidance for
Subrecipients (Austin, Tex.: December 2009).
[33] The Fort Worth Regional Office reported that 219 public housing
agencies within its jurisdiction received Recovery Act funding, and
the San Antonio Field Office reported that 88 public housing agencies
within its jurisdiction received funding.
[34] The standardized checklists are designed specifically to
facilitate review of Recovery Act implementation by addressing grant
initiation and approval procedures, procurement policy requirements,
and other relevant topics. Further, following the March 17 obligation
date, the HUD program offices we contacted anticipate using similarly
standardized checklists (modified as applicable) for monitoring public
housing agencies' expenditures of Recovery Act funds.
[35] As the name implies, an on-site review is conducted at the
location of the public housing agency. In contrast, a remote review is
conducted at a HUD field office. In conducting a remote review, HUD
field office personnel examine information that has been provided by
the public housing agency. Such information includes, for example,
copies of newly adopted or revised policy documents, funding data and
contracting actions, and audit reports. According to HUD, remote
monitoring can identify issues, problems, or concerns and also help
determine the necessity for an on-site review.
[36] HUD developed the Public Housing Assessment System to evaluate
the overall condition of housing agencies and to measure performance
in major operational areas of the public housing program. These
include financial condition, management operations, and physical
condition of housing agencies' public housing programs. Housing
agencies that are deficient in one or more of these areas are
designated as troubled performers by HUD and are statutorily subject
to increased monitoring.
[37] Of the hundreds of public housing agencies in Texas, SAHA
received the highest amount ($14.6 million) of Public Housing Capital
Fund formula grants awarded under the Recovery Act.
[38] Section 1605(a) of the Recovery Act states that, "None of the
funds appropriated or otherwise made available by this Act may be used
for a project for the construction, alteration, maintenance, or repair
of a public building or public work unless all of the iron, steel, and
manufactured goods used in the project are produced in the United
States."
[39] According to HUD's Fort Worth Regional Office, the waiver
approved for SAHA is unique; that is, there have been no other waiver
requests from public housing agencies in the region.
[40] HACEP received the second highest amount ($12.7 million) of
Public Housing Capital Fund formula grants awarded in Texas under the
Recovery Act.
[41] Under 42 U.S.C. § 1437g(j), public housing agencies must
generally obligate 100 percent of their funds within 2 years of the
date the funds are made available.
[42] Section 3 is a provision of the Housing and Urban Development Act
of 1968 that helps foster local economic development, neighborhood
economic improvement, and individual self-sufficiency. Among other
requirements under this provision, housing agencies are to meet goals
including (1) 30 percent of the aggregate number of new hires shall be
Section 3 residents (low and very low-income persons residing in the
community in which HUD funds are spent regardless of race and gender),
(2) 10 percent of all covered construction contracts shall be awarded
to Section 3 business concerns (businesses that substantially employ
low and very low-income persons residing in the community in which HUD
funds are spent), and (3) 3 percent of all covered non-construction
contracts shall be awarded to Section 3 business concerns.
[43] A capacity audit is a limited scope review to determine whether a
grantee's administrative systems are capable of effectively
administering a large influx of Recovery Act funds--that is, to
determine whether the public housing authority has the capacity to
properly account for Recovery Act funding and the controls to ensure
those funds are expended only for eligible program activities.
[44] HUD, Office of Inspector General, Region VI, Audit Report Number
2010-FW-1001, issued December 18, 2009.
[45] HUD, Office of Inspector General, Region VI, Audit Report Number
2009-FW-1801, issued August 17, 2009.
[46] HUD defines a construction/modernization contract as one that
includes a commitment of funds for contract labor and/or materials;
and, the contract should be a non-services contract in which
activities relate to construction, modernization, and/or demolition.
[47] [hyperlink, http://www.gao.gov/products/GAO-10-232SP].
[48] U.S. Department of Justice, U.S. Attorney's Office, Western
District of Texas, press release (June 18, 2009), "Five San Antonio
Housing Authority Employees Charged in Federal Bribery-Related
Indictments." The press release noted that an indictment is a formal
accusation of criminal conduct, not evidence of guilt, and that the
defendants are presumed innocent unless and until convicted through
due process of law. As of April 2010, U.S. District Court (Western
District of Texas) records showed that one of the defendants had pled
guilty and that the other four defendants were awaiting trial.
[49] More recently, on January 5, 2010, SAHA revised the manual for
Recovery Act purposes to require a file retention time frame of 3
years; that is, records are to be retained for a period of 3 years
after final payment and all matters pertaining to the applicable
contract are closed.
[50] The term "state entities" refers to state agencies and public
institutions of higher education. According to the State Comptroller's
staff, in this context the term "spent" means monies that have been
sent to contractors and subrecipients, including "pass through"
funding sent by a state entity to another state entity. The State
Comptroller's staff also indicated the term "awarded" here means an
agreement exists between a state and a federal entity to provide
Recovery Act funds to the state entity.
[51] In addition to the $17.5 billion, Texas state entities reported
applying for approximately $1.94 billion in Recovery Act competitive
grants. As of March 28, 2010, Texas state entities had not been
awarded these grants.
[52] We have not reviewed unemployment insurance as part of our
bimonthly reports on the Recovery Act. However in July 2009, we issued
a report addressing this topic. See GAO, Unemployment Insurance
Measures Included in the American Recovery and Reinvestment Act of
2009, [hyperlink, http://www.gao.gov/products/GAO-09-942R]
(Washington, D.C.: July 27, 2009).
[53] As GAO has previously reported, Medicaid programs generally
represent an entitlement under which the federal government is
obligated to pay its share of expenditures for covered services
provided to eligible individuals under each state's federally approved
Medicaid plan.
[54] Education stabilization funds are part of the State Fiscal
Stabilization Fund, which also includes government services funds used
for public safety and other government services.
[55] Federal Reserve Bank of Dallas, "Recession Arrives in Texas: A
Rougher Ride in 2009," in Southwest Economy (First Quarter 2009), 3.
[56] Federal Reserve Bank of Texas, "Texas Economy Shakes Off Rough
Ride in 2009," in Southwest Economy (First Quarter 2010), 6.
[57] Texas State Auditor's Office, American Recovery and Reinvestment
Act Funds for Selected Programs at the Texas Education Agency, SAO
Report No. 10-024 (Austin, Tex.: March 2010).
[58] The audit report did, however, describe challenges TEA faced in
developing guidance. The auditors found that TEA--from September 25,
2009, to October 1, 2009--provided inconsistent methodology for local
educational agencies to use in reporting jobs. Specifically, one
guidance document advised local educational agencies to calculate a
baseline of the number of hours that would have been worked in the
absence of Recovery Act funds, a point not mentioned in two other
guidance documents. TEA and the auditors disagree on whether this was
a substantial shift. However, both TEA as well as the auditors pointed
to challenges resulting from federal guidance. Specifically, the audit
report notes, "the U.S. Department of Education released its guidance
on or about September 21, 2009. This left TEA staff just a few working
days to assimilate this information, disseminate it internally, and
provide it to more than 1,200 local educational agencies."
[59] The auditors visited the Pasadena Independent School District and
the Alvin Independent School District.
[60] The Pasadena Independent School District did not follow TEA
guidance that the number of jobs should be calculated as full-time
equivalents by dividing the number of funded hours into the total
number of hours in a full-time schedule.
[61] Single Audits are prepared to meet the requirements of the Single
Audit Act, as amended, and provide a source of information on internal
control and compliance findings and the underlying causes and risks.
The Single Audit Act requires, states, local governments, and
nonprofit organizations expending $500,000 or more in federal awards
in a year to obtain an audit in accordance with the requirements set
forth in the act. A Single Audit consists of (1) an audit and opinions
on the fair presentation of the financial statements and the Schedule
of Expenditures of Federal Awards; (2) gaining an understanding of and
testing internal control over financial reporting and the entity's
compliance with laws, regulations, and contract or grant provisions
that have a direct and material effect on certain federal programs
(i.e., the program requirements); and (3) an audit and an opinion on
compliance with applicable program requirements for certain federal
programs.
[62] The federal audit clearinghouse received this report on March 26,
2010. The federal audit clearinghouse operates on behalf of the Office
of Management and Budget to disseminate audit information to federal
agencies and the public. The Single Audit requires grantees to submit
a financial reporting package, including the financial statements and
the Single Audit report, to the clearinghouse no later than 9 months
after the end of the grantee's fiscal year under audit.
[63] Texas budgets on a biennial basis, which consists of 2 fiscal
years. Each fiscal year is September 1 through August 31 and is
specified by the ending calendar year. For example, fiscal year 2009
was September 2008 through August 2009. The biennium for budget
purposes runs 2 years. For example, the 2010-2011 biennium is
September 1, 2009 through August 31, 2011.
[64] GAO, Recovery Act: As Initial Implementation Unfolds in States
and Localities, Continued Attention to Accountability Issues Is
Essential, [hyperlink, http://www.gao.gov/products/GAO-09-580]
(Washington, D.C.: April 23, 2009), 53-54.
[65] For example, the Texas State Auditor issued the Statewide Single
Audit Report for fiscal year 2008 on February 20, 2009.
[66] The SAO official said a Texas statute requires the state's
financial statements to be completed within 6 months of the end of the
fiscal year.
[67] The SAO official noted that the State Auditor's Office can bill
state agencies and institutions of higher education for the cost of
the audit.
[68] OMB implemented a Single Audit Internal Control Project (project)
in October 2009. The project is a collaborative effort among the
states receiving Recovery Act funds that volunteered to participate,
their auditors, and the federal government. Under the project's
guidelines, audit reports were to be presented to management 3 months
sooner than the 9-month time frame required by the Single Audit Act
and OMB Circular No. A-133 for Single Audits. Sixteen states,
including Texas, volunteered for the project.
[69] GAO, Recovery Act: Status of States' and Localities' Use of Funds
and Efforts to Ensure Accountability, GAO-10-231 (Washington, D.C.:
December 10, 2009).
[70] According to the Single Audit report, the Texas Department of
Agriculture subsequently notified all food banks and had them register
with CCR by September 30, 2009.
[71] As noted previously, the State Comptroller's staff told us
"spent" means monies that have been sent to contractors and
subrecipients, including "pass through" funding sent by a state entity
to another state entity.
[72] The timing of the audit reports are to be based on recipient
reporting required by the Recovery Act.
[73] Dallas City Auditor, Audit of American Recovery and Reinvestment
Act of 2009: January 1, 2010 to March 31, 2010 (Dallas, Tex.: April
23, 2010).
[End of Appendix XVII]
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