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AND GOVERNMENT REFORM

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ONE HUNDRED ELEVENTH CONGRESS

FIRST SESSION

JULY 8, 2009

Serial No. 111–87

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TRACKING THE MONEY: PREVENTING WASTE,

FRAUD, AND ABUSE OF RECOVERY ACT FUNDING

HEARING

BEFORE THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

FIRST SESSION

JULY 8, 2009

Serial No. 111–87

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

EDOLPHUS TOWNS, New York, Chairman

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

MARCY KAPTUR, Ohio

ELEANOR HOLMES NORTON, District of

Columbia

PATRICK J. KENNEDY, Rhode Island

DANNY K. DAVIS, Illinois

CHRIS VAN HOLLEN, Maryland

HENRY CUELLAR, Texas

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

PETER WELCH, Vermont

BILL FOSTER, Illinois

JACKIE SPEIER, California

STEVE DRIEHAUS, Ohio

——— ———

DARRELL E. ISSA, California

DAN BURTON, Indiana

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

BRIAN P. BILBRAY, California

JIM JORDAN, Ohio

JEFF FLAKE, Arizona

JEFF FORTENBERRY, Nebraska

JASON CHAFFETZ, Utah

AARON SCHOCK, Illinois

——— ———

RON STROMAN, Staff Director

MICHAEL MCCARTHY, Deputy Staff Director

CARLA HULTBERG, Chief Clerk

LARRY BRADY, Minority Staff Director

(III)

C O N T E N T S

Page

Hearing held on July 8, 2009 ................................................................................. 1

Statement of:

Dodaro, Gene L., Acting Comptroller General, Government Accountability

Office; and Robert L. Nabors II, Deputy Director, Office of Management

and Budget .................................................................................................... 28

Dodaro, Gene L. ......................................................................................... 28

Nabors, Robert L., II ................................................................................. 82

Patrick, Deval, Governor, Commonwealth of Massachusetts; Martin

O’Malley, Governor, State of Maryland; and Edward Rendell, Governor,

Commonwealth of Pennsylvania .................................................................. 122

O’Malley, Martin ....................................................................................... 141

Patrick, Deval ............................................................................................ 122

Rendell, Edward ........................................................................................ 152

Letters, statements, etc., submitted for the record by:

Connolly, Hon. Gerald E., a Representative in Congress from the State

of Virginia, prepared statement of .............................................................. 169

Dodaro, Gene L., Acting Comptroller General, Government Accountability

Office, prepared statement of ....................................................................... 31

Issa, Hon. Darrell E., a Representative in Congress from the State of

California, prepared statement of ................................................................ 12

Nabors, Robert L., II, Deputy Director, Office of Management and Budget, prepared statement of ............................................................................. 85

O’Malley, Martin, Governor, State of Maryland, prepared statement of ..... 145

Patrick, Deval, Governor, Commonwealth of Massachusetts, prepared

statement of ................................................................................................... 126

Rendell, Edward, Governor, Commonwealth of Pennsylvania, prepared

statement of ................................................................................................... 156

Towns, Chairman Edolphus, a Representative in Congress from the State

of New York:

Prepared statement of ............................................................................... 4

Prepared statement of the National Governors Association and the

National Association of State Auditors, Comptrollers, and Treasurers ........................................................................................................... 15

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TRACKING THE MONEY: PREVENTING WASTE,

FRAUD, AND ABUSE OF RECOVERY ACT

FUNDING

WEDNESDAY, JULY 8, 2009

HOUSE OF REPRESENTATIVES,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The committee met, pursuant to notice, at 10:05 a.m., in room

2154, Rayburn House Office Building, Hon. Edolphus Towns (chairman of the committee) presiding.

Present: Representatives Towns, Maloney, Cummings, Tierney,

Lynch, Quigley, Kennedy, Van Hollen, Cuellar, Hodes, Foster,

Speier, Issa, Burton, Souder, Turner, Bilbray, Jordan, Flake,

Chaffetz, and Schock.

Also present: Representatives Brady and Dent.

Staff present: Aaron Ellias, staff assistant; Linda Good, deputy

chief clerk; Jean Gosa, clerk; Adam Hodge, deputy press secretary;

Carla Hultberg, chief clerk; Marc Johnson, assistant clerk; Phyllis

Love and Christopher Sanders, professional staff members; Mike

McCarthy, deputy staff director; Jesse McCollum, senior advisor;

Leah Perry, senior counsel; Jason Powell, counsel and special policy

advisor; Jenny Rosenberg, director of communications; Leneal

Scott, IT specialist; Mark Stephenson, senior policy advisor; Ron

Stroman, staff director; Lawrence Brady, minority staff director;

John Cuaderes, minority deputy staff director; Jennifer Safavian,

minority chief counsel for oversight and investigations; Frederick

Hill, minority director of communications; Dan Blankenburg, minority director of outreach and senior advisor; Adam Fromm, minority chief clerk and Member liaison; Kurt Bardella, minority

press secretary; Howard Denis and Christopher Hixon, minority

senior counsels; Brien Beattie, Alex Cooper, and Mark Marin, minority professional staff members; and Sharon Casey, minority executive assistant.

Chairman TOWNS. The committee will come to order. Good morning and thank you all for being here.

This is the third in a series of hearings this committee has held

on the implementation of the American Recovery and Reinvestment

Act of 2009. The purpose of this hearing is to examine the unique

challenges faced by States, localities, and agencies in using and

tracking Recovery Act funds. This hearing will also examine the

paramount question: Is the Recovery Act working?

Five months ago, Congress committed nearly $790 billion of taxpayers’ money in an effort to stave off and reverse a tidal wave of

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State deficits, rampant layoffs, and sinking personal income. With

billions of taxpayer money on the line, it is vital that we keep a

watchful eye on the money being spent, the programs being executed, and the methods by which we measure progress toward revitalizing our economy.

Today, GAO is releasing its second bimonthly report on State

and local use of Recovery Act funds. Frankly, there is good news

and bad news.

The good news is that money is flowing from the Federal Government to the States at a faster rate than the Congressional Budget

Office predicted at the beginning of this year.

I am also pleased that the Recovery Act has helped States and

localities reduce the severity of budget cuts to the programs that

unemployed people need most. In New York, for example, GAO

found that the New York City School District anticipates saving

14,000 jobs as a result of the Recovery Act funding.

But there is also bad news. GAO found significant shortcomings

in the targeting and tracking of Recovery Act spending.

The Recovery Act places a priority on directing funds toward

projects in economically distressed areas. However, there are substantial variations among States as to what constitutes an economically distressed area. For this reason, it is unclear as to

whether Recovery Act funds are going where they are needed most.

This is particularly important with respect to transportation-related spending in distressed areas. Therefore, today, I am requesting a personal meeting with the Secretary of Transportation to discuss the importance of ensuring that Recovery Act spending on

highway and other transportation infrastructure projects is focused

on these economically distressed areas. I believe this is one of the

key ways in which we can help create real jobs and do it quickly.

I want to note, however, that without appropriate guidance from

the Office of Management and Budget and other Federal agencies

on spending and accounting for Recovery Act funds, it will be difficult to measure our true progress in creating jobs and in minimizing waste, fraud, and abuse of Recovery Act funds. GAO found this

to be a critical issue for New York and for other States as well.

OMB’s failure to provide timely and necessary guidance begs the

question, are we asking the States to do the impossible? Can they

really provide accurate and reliable data on Recovery Act spending

and job creation by the October 10th reporting deadline? I look forward to hearing how OMB intends to resolve this problem.

I also remain concerned that the States are being asked to administer a funding program of unprecedented size without being

given the necessary resources. They have been asked to fix the car

but not given the mechanic or the tools to do so, or even the spare

parts that are needed. And I see that GAO agrees with us that this

is a serious problem.

In fact, that is why I introduced H.R. 2182, of course with the

ranking member, Congressman Issa of California. Our bill increases the percentage of Recovery Act funds that may be used by

States and localities to conduct administrative and oversight functions.

The House has passed H.R. 2182, but it has yet to be taken up

in the Senate. I hope that one result of today’s hearing and the reVerDate 11-MAY-2000 14:47 Dec 10, 2010 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 U:\DOCS\62119.TXT KATIE PsN: KATIE
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lease of the GAO’s report is that it will reinforce the message to

the Senate that this bill needs to be enacted as soon as possible.

I would hope we can find ourselves in conference with the Senate

prior to the August recess, at which time I also intend to address

the Single Audit issues highlighted by GAO in its report.

Both this Congress and the administration have instituted an

unprecedented level of oversight designed to ensure transparency

and accountability of Recovery Act spending. In doing so, we have

committed to an enormous undertaking to deal with the toughest

economic times this country has faced since the 1930’s.

I hope that our distinguished witnesses can help us identify what

needs to be done, what lessons have been learned so far, and what

best practices have been identified so that we can ensure that taxpayers’ money is being used effectively and responsibly.

Again, I want to thank our witnesses for appearing today, and

I look forward to your testimony.

At this time, I yield time to the ranking member from California,

Congressman Issa, for his opening statement.

[The prepared statement of Chairman Edolphus Towns follows:]

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Mr. ISSA. Thank you, Mr. Chairman. And thank you for holding

this important hearing today.

Mr. Chairman, just today, the USA Today’s headline read,

‘‘States Aren’t Using Stimulus Funds as Intended.’’ Mr. Chairman,

thanks to your work on this issue, we were already well aware that

ultimately a great deal of the money delivered to the States has,

in fact, been cost-shifted to projects not originally intended and

that our funds have gone toward maintenance of many jobs, including, as we will hear today I’m sure, the retention of teachers or

even retention bonuses to hold on to teachers. I will be interested

today to hear from the GAO and others how we score a job saved

or created when, in fact, it goes to a retention bonus. Mr. Chairman, when the government spends $787 billion in this

make-work stimulus effort, in selling the stimulus package the administration promised the American people that the legislation

would create or save 3.5 million jobs and prevent the U.S. unemployment rate from rising above 8 percent.

Mr. Chairman, I opposed the stimulus. And I might remind you,

it was the second stimulus, having already tried handing out dollars under the previous administration. I voted for that stimulus.

One might say, fool me once, shame on you; fool me twice, shame

on me. In fact, I believe that the discredited Keynesian economic

theory behind the effort is misguided, and I am convinced that it

won’t work.

Unfortunately, recent economic data has validated my opposition.

The U.S. economy lost 433,000 net jobs in June, bringing the unemployment rate to 9.5 percent. These job losses come on the heels

of other declining economic indicators that bring total American

jobs lost since President Obama took office to 2.6 million.

Mr. Chairman, I might remind you, all those jobs lost are in the

private sector. In fact, the public sector, and particularly the Federal Government, has increased employment. We are, in fact, a job

factory.

As the committee Democrats rightfully noted in their briefing

memorandum, the purpose of the stimulus was putting the unemployed back to work. Mr. Chairman, these troubling job numbers

have shown beyond a doubt that so far the stimulus has failed to

do that.

When Vice President Biden was asked to justify the administration’s stimulus job promises in the face of economic reality, he admitted the administration, ‘‘misread the economy.’’ The misreading,

however, didn’t stop the administration from touring the country,

hyping the success of stimulus efforts creating 150,000 jobs.

These job claims are based on the same flawed macroeconomic

models that the Vice President now admits were mistaken. These

macroeconomic models also reflected the unaccountable measures

of jobs saved. Since no one can possibly dispute or disprove the

jobs-saved claims of the administration, in fact, we are by definition forced to say, ‘‘The jobs must be saved, but others were lost.’’

Mr. Chairman, I’m not going to dispute that the money was

spent by the administration in good faith in order to help the economy. Many of the, ‘‘down payments’’ made on programs are, in fact,

programs which the administration believes in the long run will do

a great deal of good. Even the dollars sent in checks that ultiVerDate 11-MAY-2000 14:47 Dec 10, 2010 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 U:\DOCS\62119.TXT KATIE PsN: KATIE
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mately ended up being deposited, rather than spent, were intended

to be spent to help stimulate the economy.

The OMB guidance fails to include today a requirement for receipt of reports to be accessible to the public in raw data feed. That

is one of the areas I’m most concerned at and will be asking. Aren’t

the American people, in this day and age in which we can Google

and find out what the neighbor’s house next-door is worth, when

it last sold, what it’s appraised at, and when in fact it goes into

escrow, why are we not in fact able to see when money was spent,

no matter how spent, by the Federal, State, or local governments?

I look forward to discussing these issues today with OMB Deputy

Director Rob Nabors, and I thank him for appearing before this

committee. I also look forward to hearing from Mike Pickett, CEO

of Onvia, the private-sector provider of Recovery.org.

And I know my time is expiring. I just want to ask unanimous

consent to put the rest of it in the record and take just one moment

to note that we’re going to see today in written testimony that Recovery.org, in fact, outperforms and is out used by the Federal Government’s own Recovery.gov.

And I think that’s very telling of what we’re going to ask our

first panel today, which is: Why is it government, at greater expense, cannot equal the private sector? And if we cannot equal the

private sector in providing information, then should we, in fact,

simply dump our raw data and allow private-sector companies to

monetize it or pay them to make it available rather than to continue to invest countless tens of billions of dollars into IT infrastructure that always seems to look pretty and seldom delivers its

promise?

And, Mr. Chairman, I’ll put the rest in for the record, and thank

you for your indulgence. I yield back.

[The prepared statement of Hon. Darrell E. Issa follows:]

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Chairman TOWNS. Thank you very much, Congressman Issa.

In addition to receiving the testimony of the witnesses before us

today, the committee has received statements for the record from

the National Governors Association and the National Association of

State Auditors, Comptrollers, and Treasurers. These organizations

provide the financial support that the States need to create and

preserve jobs. Of course, without objection, I enter these written

statements into the record.

[The information referred to follows:]

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Chairman TOWNS. We will now turn to our panel of witnesses.

It is committee policy that all witnesses be sworn in, so if you will

raise your right hands and repeat after me.

[Witnesses sworn.]

Chairman TOWNS. Let the record reflect that the witnesses have

answered in the affirmative.

You may be seated.

Our witnesses today: Mr. Gene Dodaro is the Acting Comptroller

General of the United States and leads the Government Accountability Office. Under the Recovery Act, GAO was charged with

tracking stimulus dollars to promote efficiency and track waste and

fraud. And today, GAO is issuing its second bimonthly report.

Welcome, Mr. Dodaro.

Mr. Rob Nabors is the Deputy Director of the Office of Management and Budget. Previously, Mr. Nabors served the House as

clerk and staff director of the Appropriations Committee. OMB is

also monitoring stimulus spending and is responsible for implementing the transparency requirement of the Recovery Act, including providing guidance to States.

At this time, I ask that each witness deliver their testimony

within 5 minutes. And I’m sure you’ve been here before, but I just

want to sort of re-emphasize, because every now and then we have

to re-emphasize this. Starts out with a green light, then it goes to

a yellow light, and then 1 minute later there’s a red light. Now, red

light everywhere means stop.

So with that in mind, Mr. Dodaro, why don’t you start.

STATEMENTS OF GENE L. DODARO, ACTING COMPTROLLER

GENERAL, GOVERNMENT ACCOUNTABILITY OFFICE; AND

ROBERT L. NABORS II, DEPUTY DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET

STATEMENT OF GENE L. DODARO

Mr. DODARO. Thank you very much, Mr. Chairman, Ranking

Member Issa, members of the committee. I’m very pleased to be

here today to discuss GAO’s second bimonthly review of the use of

Recovery Act funds by selected States and localities.

In order to carry out our statutory responsibilities, we’ve selected

16 States and the District of Columbia to review over the next 2

to 3 years to do a longitudinal study of the use of the money by

those localities, how they’re safeguarding the money, and reporting

on the impact. Now, these 17 jurisdictions will receive approximately two-thirds of the Recovery Act funds that will be flowing to

these States and localities.

Now, one of the reasons we’re doing a longitudinal study, as you

can see from this chart here, while about $49 billion was estimated

by CBO to flow to the States and localities in 2009, the peak period

for Recovery Act funds to be outlaid will be 2010. And 2011 will

continue the funds distributed to the State and localities in outlay.

So the money will be distributed. Approximately $280 billion will

be going to the State and localities. So far, of the $49 billion that

was estimated to go to the States nationally, about $29 billion has

been distributed there as well.

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Now, the character of the spending is shown for this fiscal year,

2009, in this following chart. The predominant amount of money

that will be outlaid to the States and localities is in the Medicaid

program, where the Federal Government’s matching share has

been increased. Every State received an increase of 6.2 percent and

then additional increases based upon unemployment rates in those

States and localities. Among the 17 jurisdictions, ours range from

an increased Federal share of 6.2 percent in Iowa up to 12.24 percent in Florida.

So far, the 17 jurisdictions that we looked at had drawn down

$15 billion in the Medicaid spending area, about 86 percent of the

approximately $17.5 billion that had been allocated to them

through the third quarter of this fiscal year. They’re using the

money to maintain Medicaid benefit levels and provide services.

Most of the States that we visited also had increased caseloads in

the Medicaid area, and this has enabled them to be able to do that.

The increased Federal share also freed up State moneys potentially

that could be used in other areas and to help them with their fiscal

stresses.

The second area is the State Stabilization Fund. About 82 percent of that money is to be used for education purposes and distributed to local education agencies or institutions of higher learning;

18 percent can be used to stabilize public services, particularly public safety, and could be—they have more discretion on using the

money.

The 17 jurisdictions we visited had been allocated by the Department of Education almost $17 billion. So far, they’ve drawn down

$4.3 billion or about 25 percent of the money that’s been allocated.

And the highway area is the next largest area. The 17 jurisdictions we had received had been allocated about $15.5 billion.

They’ve obligated about $9.2 billion or slightly over that. So about

59 percent of the money’s been obligated.

Now, obligated here means that the Federal Department of

Transportation and the State have agreed on the nature of the

projects. The projects in the localities we visited, there were about

2,600 projects that had been approved already, most of them for

paving roads or widening roads since that could be allocated more

quickly, in the State’s opinion.

So far, the way that program works is that States are reimbursed as they’re making payments. So, of those 17 localities, so far

they’ve been reimbursed $96 million. So that money is beginning

to go through the system, but a lot more is obligated than has been

outlaid at this point in time.

And, as you mentioned, Mr. Chairman, we believe that the Secretary of Transportation, in consultation with the Secretary of

Commerce, needs to clarify the ‘‘economically distressed area’’ issue

now before a lot of the money is spent, the remainder of the money.

Now, the Recovery Act funds have clearly helped States deal

with fiscal stresses, but they’ve also increased the accountability

requirements for the States. And we’re concerned that, under fiscal

stress, the States have been cutting back on some of their management and audit function areas, thereby reducing some of the safeguards.

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So, Mr. Chairman, Ranking Member Issa, and the committee, we

support passage of H.R. 2182. We think it’s very much needed and

in line with the recommendations in our report, which is to really

increase the utility of the Single Audit area. And I can talk more

about that in the Q&A session.

Also, while OMB has taken important steps to clarify the guidance, additional clarification is needed and better communication

with the States is needed as well. And I’d be happy to elaborate

on all these areas in the Q&A session.

Thank you very much. And we look forward to continuing to support the Congress in their important oversight over the Recovery

Act spending.

[The prepared statement of Mr. Dodaro follows:]

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Chairman TOWNS. Thank you very much for your testimony.

Mr. Nabors.

STATEMENT OF ROBERT L. NABORS II

Mr. NABORS. Chairman Towns, Ranking Member Issa, members

of the committee, I appreciate the opportunity to speak with you

today about the status of our economic recovery and, more particularly, the Recovery Act’s role in restoring sustainable economic

growth to our country.

To understand where we are, it’s important to recognize just how

dangerous a path our economy was on just a few months ago. We

are working on coming out of the worst economic crisis since the

Great Depression. For the fourth quarter of 2008, the United

States experienced a negative growth rate of 6.3 percent, the worst

since the recession of 1982. Employment fell every month in 2008.

The economy has lost a record 5.7 million jobs over the past year

and 6.5 million since the recession began in December 2007.

After a long and unprecedented boom, housing prices have fallen

11 percent since their peak in April 2007. And over that same period, residential investment has fallen by more than 40 percent. $9.8 trillion of wealth has been lost in the market. The financial

crisis has choked off lending, contributing to further economic decline. And some of our most prominent businesses have closed,

merged, or been forced to take drastic steps to stay afloat.

In January and February, when Congress and the President

worked in concert to approve the Recovery Act, all of us knew the

economic situation was bad. None of us anticipated just how weak

the economy truly was, though.

The financial meltdown contributed mightily to this situation,

but so did deficiencies in the foundation of our economic growth: infrastructure, health care, education, and clean energy. When we

have failing drinking water systems, crumbling roads and highways, substandard or nonexistent broadband service, bridges that

are graded as dangerous for travel, wastewater treatment plants in

poor condition, schools that are overcrowded and falling apart,

thousands of dams labeled as high-hazard or unsafe, the picture is

clear.

While these deficiencies are not the only cause of the economic

problems we face, it is a significant contributing factor. It places

substantial strain on State and local governments and inhibits the

ability of businesses to compete.

From the moment he was elected, the President has put the

economy front and center. Working with Congress, the administration has stabilized the financial market and started to see stabilization on housing. We are slowing the economic freefall.

As a Nation, we are moving from a long period of economic slowdown to a time of new industry, opportunity, and innovation. The

Recovery Act is an important part of that effort. The Recovery Act

is designed to help millions of families weather this downturn, create new jobs, and spark the engines of long-term growth.

It’s a work in progress, but it’s steady progress. Just this month,

8 days into July, the Department of Education is helping States

with their increasing budgetary pressures by accelerating more

than $2.7 billion in Recovery Act funds well ahead of schedule. The

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administration opened competition on more than $15 billion in

high-speed rail, smart grid, and broadband programs. All 50 States

obligated at least half of their highway funds before the July 1st

deadline, and, as a result, right now there are more than 1,900

highway projects under way across the country.

Also this month, the Department of Energy moved forward with more than $460 million for cutting-edge emission reduction projects

that will be central to the Nation’s innovative clean energy future;

the Interior Department pressed forward with another $134 million

for critical water reclamation projects in the West; the Department

of Veterans Affairs completed $500 million in recovery payments to

approximately 1.9 million veterans and beneficiaries to help them

keep pace with their bills.

Overall, more than 20,000 Recovery Act projects have been ap- proved. Almost $201 billion of all Recovery Act funding has been

obligated or distributed.

These are many of the things on which the Recovery Act focuses,

but more importantly, the Recovery Act invested in people. Within

a few weeks of the act becoming law, we implemented the broadest

tax cut in history. The Recovery Act provided $288 billion in tax

cuts and incentives to families and businesses.

We extended and expanded unemployment benefits and medical

coverage for people who are still looking for work. We have modified the First-Time Homebuyers Tax Credit so it can be used for

a down payment or for closing costs, helping to stabilize the housing market. And, to date, nearly 1.1 million new homeowners have

claimed the $8,000 credit.

And the Recovery Act does more, focusing on improving the skills

and abilities of the American people so we can build better products more efficiently and effectively. That means improved schools

and teachers, specialized training for cutting-edge industries, and

financial help for those men and women ready to start their own

businesses.

The American people know that getting out of the economic hole

will not be easy or quick. They also have every right to know that

these investments are making a difference. To that end, the administration has put forward an unprecedented transparency effort

that is reliable, accurate, and open. This has never been done before at the Federal level. Beginning in October, as Congress mandated, the American people will be able to see how dollars are

being spent in their local community, who is getting the funds, for

what projects, and when will the project be finished, and what is

the benefit to their community.

The Recovery Accountability and Transparency Board, led by

Earl Devaney, has the responsibility to track how dollars are being

spent. OMB is working in full partnership with the board to make

sure that the dollars are invested smartly and to stop waste, fraud,

and abuse.

Our mission is simple: Fund projects that can make a difference

today with new jobs and opportunities while building strength for

the economy for many years to come.

Is this easy? No. Is our work complete? Not even close. But we

are on the right path. Last month, the economy lost 467,000 jobs.

And let’s be very clear about this: 467,000 jobs lost in a month is

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467,000 jobs too many, but is much slower than the pace that we

saw in the first quarter, when the average monthly job loss was

691,000 jobs.

We are making progress, but we still have a long way to go. A

9.5 percent unemployment rate is not acceptable. Neither are the

daily——

Chairman TOWNS. Mr. Nabors, could you summarize? Your time

is up.

Mr. NABORS. I thank you again for the opportunity to testify before you, and I look forward to answering any questions that you

have.

[The prepared statement of Mr. Nabors follows:]

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Chairman TOWNS. Thank you very much.

We will now move to the question period. Each Member will have

5 minutes, and, of course, I will begin.

Mr. Dodaro, has the act helped to lessen the financial burden on

States, or are we currently in a wait-and-see mode?

Mr. DODARO. In terms of the current financial crisis in the

States? I’m sorry, Mr. Chairman, I——

Chairman TOWNS. Yes. Has the act helped to lessen the financial

burden on States, or is it too early to tell?

Mr. DODARO. No, I think it’s clear that the Recovery Act has

helped in accomplishing one of its objectives, which was to help stabilize State and local government budgets. I mean, the States are

under fiscal stress.

If I might, Mr. Chairman, there’s a chart that I brought here in

anticipation of this question. If you look at the solid line, this is

the estimated path of the Federal Government’s annual deficit. You

can see it’s on a downward trajectory under current expectations.

And this chart hasn’t been fully updated yet because we’re using

State data.

If you look at the trajectory for State governments in the aggregate in terms of their fiscal condition to the Federal Government,

you get the dotted line on the bottom, which means that the States

and localities are on the same unfortunate trajectory that the Federal Government is with regard to a protracted period of time of

deficit situations.

So I think—and you can see the drop in 2009 there in the beginning. And we report in our latest update that the State revenue

projections are falling short in virtually every State due to the economic recovery. But this is not a short-term phenomenon, we believe, with the States and local governments, and there’s a longterm structural problem with the Federal Government’s financing,

as well.

But, in the short term, the Recovery Act is helping the States

deal with their fiscal stresses. But we haven’t seen the full story

here that will unfold over the next few years.

Chairman TOWNS. Now, in the 16 different States measuring the

progress of the implementation of the Recovery Act, in your opinion, what is the greatest difficulty that may prevent States from

being ready to report on October 10th? What do you see as a problem?

Mr. DODARO. I think the States face the same challenges that the

Federal Government faces in that the time objectives here, the

timeliness of the reporting and the accuracy and the completeness

of the reporting will be a stretch goal for the States, as well as it

will be for the Federal departments and agencies.

Now, I think OMB, in their latest guidance, has made a good

step to clarify a number of areas regarding the reporting area.

They’ve given some guidelines on data that’s required and what

formats. So I think that’s a good step in the right direction. We’ve

made some recommendations for OMB to continue to work with the

States to clarify some of the reporting guidance, give some examples of how it’s to be implemented.

But I think underlying it all is the timeliness of the reporting

and the accuracy and completeness of the reporting. I see that as

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the biggest challenge. And that’s why we recommended increased

support on the part of the Federal Government to help with the

oversight structures in the States.

Chairman TOWNS. Right.

Let me ask you this, Mr. Nabors. How great is the risk of inaccurate job creation and preservation numbers?

Mr. NABORS. Could you repeat that question, sir?

Chairman TOWNS. Well, let me ask another one first. June guidance, the definition of a full-time job is basically left up to the

States and other entities receiving Recovery Act dollars. How great

is the risk of inaccurate job creation and preservation numbers?

Mr. NABORS. I think with all of our data collection efforts we’re

very concerned——

Chairman TOWNS. Is your mic on?

Mr. NABORS. Yes.

I think with all of our data collection efforts we are very sensitive about the possibility of incorrect or inaccurate data.

One of the things that we are planning on doing in order to followup with State and local governments, in part based on recommendations from GAO and in part based on comments and concerns that we’ve heard from the Hill and from the States, is we are

planning on doing a series of Web-based seminars so that we can

walk through with the States exactly what we are looking for in

terms of the various reporting requirements that we have, to help

clarify exactly what we intend to do and what we expect them to

report with regard to all of the data elements due in October.

Chairman TOWNS. Could you be specific? When exactly do you

expect to have that?

Mr. NABORS. We are actually planning, I believe, to announce

today the specific dates on the Web-based seminars. And that will

be occurring in the next few weeks.

Chairman TOWNS. My time is up. I have to respect the red light,

too, my staff just said.

Thank you very much.

I now yield to the ranking member, Mr. Issa.

Mr. ISSA. Mr. Chairman, you know, now that the gentleman, the

Capitol Hill policeman who used to occupy C Street has retired,

you could, in fact, be known as the Red Light King, replacing him.

But I thank you for your holding us all to that high standard.

That’s an inside thing for those of us who tried to cross at that

street over the years.

Mr. Nabors, a quick question. If the Governors we’re going to

speak to later, if they issue a retention bonus—in other words, new

dollars, additional dollars—to retain State employees, is that a job

retained, those dollars, in your opinion?

Mr. NABORS. I would have to look at explicitly what they are

doing, but I would not necessarily include it as a job retained.

Mr. ISSA. OK, so you will come back to us with a written answer,

whether you’re discounting that?

Mr. NABORS. Absolutely, sir.

Mr. ISSA. Now, the American people are not enjoying cost-of-living increases, for the most part. As a matter of fact, in many cases,

their pay is going down.

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If a State uses stimulus money to support a cost-of-living increase across the board for State employees, would you discount

that, because if they didn’t receive it and chose to do a freeze on

cost-of-living increases, wouldn’t they, in fact, have retained every

job while not spending our money?

Mr. NABORS. Well, it’s not clear that Recovery Act dollars can be

used specifically for that purpose.

Mr. ISSA. All money is fungible, Mr. Nabors. The question very

specifically, because I need to know your standard if I’m going to

appreciate the numbers that you say are so hard to get: If, in fact,

the assumption is that States are not using money for cost-of-living

increases but they do cost-of-living increases, isn’t that reasonable

to discount off the jobs saved, since not doing cost-of-living increase

is likely not to lead to mass losses and a 10, 11, 12 percent unemployment, depending upon the State?

Mr. NABORS. I think that is a fair——

Mr. ISSA. OK. Well, I would appreciate, when your numbers come

back, if you’d address those two issues, of whether they were calculated in or out.

Mr. Dodaro, your chart there—like most people who got business

degrees, we were required to take stats, and we hated it. But the

one thing I learned about statistics and a curve like that is that,

if you begin the start date at a particular time, any curve can look

like almost anything. That curve begins when, since it’s so far

away?

Mr. DODARO. I think it’s 2008. It’s 2008.

Mr. ISSA. It’s 2009, isn’t it?

Mr. DODARO. 2009 is the second data point where you see the

drop-off—oh, I’m sorry, excuse me. It starts at 2005, and then the

next data point is 2009. I’m sorry.

Mr. ISSA. OK. So the big dip, what is that big dip year?

Mr. DODARO. The big dip is the effect of the recession on revenues, both at the Federal Government level and at the State government level, and, in addition, the additional Federal expenditures for both the stability for the banking system as well as the

economic stimulus.

So it’s the net effect. This is the net deficit figures.

Mr. ISSA. OK. I wanted to understand that because it is an unusual chart to see.

Mr. Nabors, I was very interested in your testimony and particularly a statement which I’ll read quickly that says, ‘‘Since almost

all States have to balance their fiscal budgets even in the face of

recessions, 40 have cut benefits and services’’—which is why I

prompted the first question—‘‘28 have raised taxes, and more are

considering both measures. These actions deepen the impact of the

downturn, but the cuts and tax increases would have been much

larger without the Recovery Act.’’

Now, it seems like you’re saying tax increases are bad there. Is

that true?

Mr. NABORS. I think in a time of an economic recession we believe that we should try to avoid additional tax increases.

Mr. ISSA. OK. So you would join me in saying that the tax increases with cap-and-trade last week were probably a bad idea in

Congress at a time of deep recession?

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Mr. NABORS. I don’t necessarily agree with that.

Mr. ISSA. Oh, so you’re out of step with the administration in this

statement.

OK. Well, I’ll take it as appropriate that, in fact, tax increases

should be avoided, but I do have a question. When you say 40 have

cut benefits and services and more are considering both measures,

just taking the benefits and services as my final question, at a time

when there’s 10 percent unemployment, at a time when the burden

and the deficits—is it your opinion and the administration’s opinion that these cuts are inappropriate? Or is it your opinion that

States should look for opportunities to cut any program that is not

essential in their services?

Mr. NABORS. I think the President has been very clear at the

Federal level, and we would look at this at the State and local level

as well, is that inefficient programs should always be reduced or

cut.

I think that the concern that we have right now is that the chief

problem facing the economy is a demand problem. We need to ensure that there’s appropriate amounts of goods spending going on

in the economy to make sure that the demand is increased so that

economic growth can actually occur.

What we are concerned about is that, because of the balanced

budget amendments in various States, that States are making unwise choices right now simply to balance their budget, not based

on the relative success or failures of particular programs.

Mr. ISSA. Thank you.

And thank you for your indulgence, Mr. Chairman.

Chairman TOWNS. Thank you very much.

I now yield 5 minutes to the gentleman from Maryland, Mr.

Cummings.

Mr. CUMMINGS. Thank you very much, Mr. Chairman.

Mr. Dodaro, let me ask you this. You were talking a little bit earlier about—you showed the chart, you were pointing to the chart

and showing how the Federal economic situation is and then comparing it to the States.

Mr. Nabors just mentioned something that’s so significant.

States, many of them—I guess all of them, most of them, have

some kind of requirement that they have a balanced budget. That’s

a real problem, isn’t it?

Mr. DODARO. Well, it’s——

Mr. CUMMINGS. The reason why I’m trying to make this comparison is, when they are trying to balance a budget, and they’ve got

to have one, that is kind of an unfair comparison, isn’t it?

Mr. DODARO. Well, we’re not trying to compare it from the standpoint of saying that it’s not a difficult challenge. In fact, most of

the States in the discussions we’ve had with them—and I have a

lot of contact with State auditors, as well. What we’re trying to illustrate is that the States are going to be under fiscal stress.

So the challenge for them to balance their budget right now is

difficult, and it will be difficult for the foreseeable future based on

these trends. So we’re trying to just illustrate it that they have a

significant challenge ahead of them that’s similar to the Federal

Government’s challenge in dealing with its deficits.

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Mr. CUMMINGS. And so, Governors play a very significant role in

this process, is that right?

Mr. DODARO. That’s definitely true.

Mr. CUMMINGS. And on that note—I know our Governor from

Maryland will be testifying shortly, Governor O’Malley, who has

done an outstanding job with regard to this stimulus program.

But, speaking of Governors, Mr. Nabors, in Governor Rendell’s

written testimony—I don’t know if you’ve seen it, but he comments

on behalf of the National Governors Association. Governor Rendell

expressed concern that Governors are not informed when Recovery

Act funds are sent from a Federal agency directly to recipients located within their State. For instance, the Department of Housing

and Urban Development approves and sends funding directly to

local public housing authorities.

GAO recommended in its April 2009 report and again in their report today that OMB take steps to notify States of such funds flowing into a State. Mr. Dodaro just said that Governors play a significant role. We’ll have three of them here in just a few minutes.

The question becomes, why has not GAO taken on those recommendations and done that?

Mr. NABORS. Well, I think as we continue to work on developing

our relationships with our State and local partners and with our

Governors, we are looking at the mechanisms by which we can do

that. We take GAO’s recommendation very seriously. And I think,

going into the future, you will see us do a better job of informing

the Governors when those types of allocations are made.

Mr. CUMMINGS. Is that a—I take it that now that you have made

that twice, GAO, I guess that’s something very significant? Is that

right?

Mr. DODARO. Yes, Congressman Cummings. The reason it’s important is that the States are going to be in a position to make decisions themselves on how to fund money at the local level, and, if

they don’t know what Federal money is going directly to the localities, there could be some duplication, there could be gaps. And,

also, I think they feel some level of responsibility for understanding

the full impact of the program.

So we think it’s very important. We’re going to continue to keep

making the recommendation until it gets implemented.

Mr. CUMMINGS. Well, no, no, no, no, no. You can’t keep making

recommendations and they not be followed.

I would suggest, Mr. Nabors, that you adopt the President’s

words, the ‘‘urgency of now.’’ Because we are holding these Governors responsible, and if they don’t even know what’s going on

with regard to money coming into their States, I think that’s very

unfair to them, very unfair. And I think we want to be most effective and efficient with these funds, and we don’t want folks saying

that they’re not being used properly. So basically what happens is

that if they don’t know where the money is going, they can say,

well, we don’t know. We don’t want that position.

And I guess the reason why I’m spending so much time on this

is that the recommendation’s already been made twice, and we’re

still talking about, ‘‘We’re thinking about it,’’ ‘‘We are trying to figure it out.’’ No, no, no, time out. We’ve got to do it.

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Mr. NABORS. Well, Mr. Cummings, let me be clear on this, then.

I have heard what you have said, and we will go back and we will

find a way to implement that recommendation.

Mr. CUMMINGS. So do we have a deadline then? Can we set a

deadline? Because around here you could be next year doing it.

Mr. NABORS. It’s not going to be next year. I need to go back and

talk to our technical folks and figure out. But you will receive a

phone call from me, and I will tell you specifically how we are

doing it and when we are doing it.

Mr. CUMMINGS. Would you give it in writing to the chairman,

please?

Mr. NABORS. I would be happy to do that.

Mr. CUMMINGS. Thank you.

Mr. Dodaro or Mr. Nabors, there have been reports that the Department of Transportation, specifically Federal highway infrastructure investment programs, are running much smoother and

quicker than many of the other programs under the Recovery Act.

Can you comment on this observation? What exactly has DOT

done differently from other Federal agencies, and how can DOT’s

best practices be implemented across other agencies that may have

greater challenges?

Mr. Dodaro.

Mr. DODARO. First, I would say—I mean, the Department of

Transportation has a set program that’s been in existence for a

number of years, and so they’re following that same basic Federal

program. So they really have not had to make that many adjustments for the Recovery Act purposes.

Mr. CUMMINGS. So they basically were already set to go.

Mr. DODARO. Right, right.

Mr. CUMMINGS. OK. And so these other programs, they’ve had to,

sort of, create to use the money; is that what you’re saying?

Mr. DODARO. Yes. I mean, some of the programs, like the State

Stabilization Fund, is brand-new. I mean, that’s a brand-new effort. The Medicaid matching has gone smoothly, as well. So I

wouldn’t want to say that the highway program is the only program that’s operated effectively. Where there have been existing

programs in place, they’ve carried out their normal processes, and

that’s helped to distribute the money quicker.

Mr. CUMMINGS. Thank you, Mr. Chairman.

Chairman TOWNS. Thank you very much.

I now yield 5 minutes to Mr. Turner of Ohio.

Mr. TURNER. Thank you, Mr. Chairman. I thank you for holding

this important hearing and the important issue that we have facing

us today.

And, Mr. Nabors, Mr. Dodaro, I want to thank you for being here

and the tough work that you have, for both of you.

I know that everyone wants this money to be spent wisely. They

want this money to be spent in a way that moves the economy forward and in a way that creates jobs. Now, personally, I voted

against the stimulus dollars, and I voted against them because I

thought that the purpose was not well-defined, that it would create

a lot of waste, and that there would be spiraling deficits.

So, in knowing what the framework was of the original bill and

the authorization of these dollars, I personally believe that your job

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is that much more difficult to try to fashion out of the stimulus

package funding and approval for projects that will actually

achieve its goal. And we want you to be successful in that goal.

Mr. Nabors, I was looking at your written testimony, and you

have told us that ‘‘the role of the Office of Management and Budget

is to coordinate the nuts and bolts of the Recovery Act implementation within the executive branch and make sure that these implementation efforts are consistent with the act’s mission and the

President’s priorities.’’

So, today, my question to you is going to be pretty important and

goes directly to what your responsibilities are even in your testimony.

I represent the Third District of Ohio, and in that district, a company that had been located in our district, with its corporate headquarters for over 100 years, NCR, recently made an announcement

that it would be relocating to Georgia, to some suburbs around Atlanta, Georgia, and communities around Atlanta.

News reports indicate that Columbus, GA, plans to use stimulus

dollars as part of the implementation package for the relocation

dollars that were offered to NCR to move these jobs from Ohio to

Georgia.

Now, as you know, Ohio’s economy has been significantly impacted. Hundreds and thousands of jobs are being lost throughout

Ohio, and this corporate headquarters has 1,200 jobs that will be

moving from my community to Georgia.

Obviously, my community is very upset about the prospects of

stimulus dollars—dollars that, in fact, they will have to pay for—

being used to fund the relocation of jobs from their community to

another.

Now, I believe this is a nonpartisan issue. The Governor of Georgia is a Republican, the Governor of Ohio is a Democrat. The Governor of Ohio thinks this is the wrong thing to do; I’m assuming

the Governor of Georgia thinks this is the right thing to do. I’m a

Republican; our President is a Democrat. I believe that three out

of four of those ought to believe that this is the wrong use of stimulus dollars.

So my question to you, Mr. Nabors, the individual who fashions

the guidance and implementation, is, is this an appropriate and allowable expense under the stimulus guidelines? And once the administration knows that a State or community intends to use stimulus dollars to, in effect, buy or steal jobs from one community to

another, how do you stop it? How, Mr. Nabors, can you assure the

people of Ohio that their stimulus dollars, their tax dollars that

they’re going to have to pay back with interest, are not being used

to merely move jobs from one State to another?

Mr. NABORS. Well, let me answer your first question first.

I don’t have the specifics on this example, but it is disturbing.

Based on what you have just said, that does not sound like an appropriate use of recovery dollars. As the ranking member has

pointed out, dollars are fungible, and I would like to get smarter

about exactly what dollars were used to do what.

With regard to your second question—but before I leave, let me

say that I will followup on this specific example. I will talk to our

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general counsel and I will talk to people at OMB to find out specifically what happened in this case.

With regard to what tools OMB and the administration has with

regard to the way specific dollars are spent, there have been various instances that have come up through the last 4 months where

we have expressed concern about the way certain States or certain

local communities have proposed to use their funds.

In certain instances, we believe that we actually had the authority to stop the use of those funds, and we’ve exercised that use. In

other instances, based on the existing statutes and the existing

legal authorities, we’ve had less of an ability to stop the funds, but

we’ve tried to make it very clear that we do not think that is an

appropriate use of Recovery Act dollars and goes against the spirit

of the dollars. And I think the Vice President has been very clear

in those types of instances.

I’d like to go back and look at this example more specifically and

be able to get back to you on that.

Mr. TURNER. I would appreciate that.

I’ll give you a copy as you leave, also a copy of a June 3rd letter

that myself and the minority leader, John Boehner, sent to the

President detailing this issue when it came to light, when the announcement was made in the news media by officials in Georgia of

their intent to use these dollars. We’ve not received a response to

this yet, and I’d appreciate your attention to it.

Mr. NABORS. Will do.

Chairman TOWNS. The gentleman’s time has expired.

I now yield 5 minutes to the gentleman from Massachusetts, Mr.

Tierney.

Mr. TIERNEY. Thank you, Mr. Chairman.

The Government Accountability Office, Mr. Dodaro, indicated

that in Massachusetts and the Boston school officials noted a difference between the guidance that the Department of Education

was giving and the goal that was in the Recovery Act. The goal in

the Recovery Act on education funding is job creation, and the

guidance that the Department of Education was giving was that

districts should invest those one-time funds thoughtfully to minimize the funding cliff that would occur once the funds are no

longer available.

So I want to ask each of you a question on that, especially since

the Title I funds are said by the Education Department to be only

for limited purposes. So, Mr. Nabors, what’s your impression of

that, sort of, seemingly contradiction on that?

Mr. NABORS. Well, I think that the bridge between the contradiction is that we always view the Recovery Act as being a short-term

effort. The President has been very clear that we need to get the

economy jump-started. We need to expend resources now to actually get that started. But, over the long term, the funding levels

that are contained within the Recovery Act should not be thought

of as permanent.

And what we are asking States to do is to do the things necessary to maintain the employment that they have currently, but,

at the end of the day, they can’t count on these funds being here

in 2011, 2012, 2013. This is a short-term stimulus program in

order to jump-start the economy.

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Mr. TIERNEY. All right. I’m not certain I see the bridge.

Let me ask you, Mr. Dodaro. I mean, what do you propose States

do in order to meet those two criteria, one of job creation and the

other of making sure that they spend the money so that they aren’t

falling off of a cliff, so to speak, when the money is no longer available?

Mr. DODARO. Yeah, I think the act gives great flexibility to the

States in order to do that. In a number of areas, there are multiple

objectives—often, as you’re pointing out and we’re pointing out,

some of the officials, conflicting objectives and some tensions between what to do. And I think it depends on the specific circumstances of those State and local levels in order to understand

what would be the best use of the money, from their perspective.

And, if they have questions, what we’ve urged is greater communication between the Federal departments and agencies and the

State and local governments.

So, you know, I think some States are having a lot of fiscal stress

right now. They would have to lay off teachers, whatever. I think

they’re in a different situation than other States that aren’t in that

situation. But they have to balance these objectives.

Mr. TIERNEY. I think what they’re doing is having trouble balancing the objectives.

Mr. DODARO. I agree.

Mr. TIERNEY. What I’m looking for in the question was a little

guidance here. What they’re finding is that there’s one intent,

where the money was to be used to retain jobs, and the other intent is that just means that in the next year twice as many jobs

are going to have to go by the by because the money is gone. Then

they haven’t really used the money for a long-term purpose.

Neither one of you seem to be able to meet that crossover there,

probably deal with both of those issues. But if you think about it

a little bit and want to share something, I would be happy to share

with my districts who are in that dilemma and appreciate that.

Mr. Nabors, on the reporting and transparency aspect of it, we

have had some communication with your office on the idea that you

do require in your guidelines that when the money goes to the Federal, to the State government, that is all reportable; when it goes

from the Federal Government to a city or town, that is reportable.

But your requirement guidelines that if the city or town puts it out

to a contractor or subcontractor, that information is reported as

well. The statute allows for that.

When do you think your guidelines will push a little further

down to make that mandatory?

Mr. NABORS. We have done two things. The first thing our guidance did in response to some of the concerns that you raised was

we did push the system as much as we thought we could do right

now, and we are collecting vendor information from the subrecipients at the point. So to the extent that cities are hiring vendors,

for example, in weatherization types of activities, we will be capturing that type of information.

We are also designing our systems such that in the future, as we

get better information from State and local governments, we will

have the capacity to grow our system to collect that subcontract information.

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Mr. TIERNEY. Right now, you only require the identity of the vendor.

Mr. NABORS. Correct.

Mr. TIERNEY. Wouldn’t it be useful to have not only the identity

of the vendor but also the amount of money that they received and

the location of where that vendor is?

Mr. NABORS. Those are all things that we are looking at possibly

expanding. We thought that in talking to the Recovery Board, the

things that they emphasized to us the most was, ‘‘please don’t let

the audit trail go cold,’’ we at least need the identity. And we

thought that from what we have heard from a number of smaller

communities in particular, this information is very hard to track

normally, so even maintaining just the vendor names was going to

be difficult.

But in terms of ensuring that the Federal Government, GAO, the

Recovery Board, the IGs have the ability to follow the money chain,

that getting the vendors’ name was absolutely critical. We are

starting with that, but that won’t be the end.

Chairman TOWNS. I yield to Mr. Chaffetz from Utah.

Mr. CHAFFETZ. Thank you, Mr. Chairman. I appreciate it.

Thank you both for being here. I know you want to do what is

best for the United States of America, and we appreciate that. But

I do have some questions, particularly for Mr. Nabors, if I could.

How many jobs have been created?

Mr. NABORS. Based on the last estimate that we have done, the

Recovery Act created 150,000 jobs.

Mr. CHAFFETZ. And how do you come up with that number?

Mr. NABORS. At this point what we are doing is we are using an

economic model created by the CEA. The specifications behind that

model are similar to the specifications that we developed in terms

of describing the impact that the Recovery Act would have when

we were first pushing for the——

Mr. CHAFFETZ. In the essence of time, that formula—if you could

share with us in writing what that formula is and how you could

achieve that, I would be fascinated to see that.

Mr. NABORS. I believe that the CEA report is on line, but we will

share it with your committee.

Mr. CHAFFETZ. How many jobs have been saved?

Mr. NABORS. We do not make a distinction between the jobs created and jobs saved.

Mr. CHAFFETZ. Why not?

Mr. NABORS. I think it becomes increasingly difficult from a

macrolevel to make that determination. What we are able to say

is, based on looking at what we believe the trends of the economy

are, we can say—we can compare what the Recovery Act is doing

and how many jobs currently exist versus what we were

predicting——

Mr. NABORS. Yes.

Mr. CHAFFETZ. If you look over at this chart here, right, the goal

was jobs, jobs, jobs. And you look at that unemployment number,

and you claim that we are slowing the free fall; how can you justify

that number?

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Mr. NABORS. I think—let me start with two points. We are not

happy with the unemployment number. The unemployment

number——

Mr. CHAFFETZ. I understand that. My question is how do you justify saying that you are slowing the free fall?

Mr. NABORS. I think what we would do is we would look back

at the job loss that we saw in the first quarter, which was approaching 700,000 jobs a month, and look at where we are right

now. We are not happy with the job——

Mr. CHAFFETZ. I know you are not happy. We are not happy either. But the projections that the administration put forward and

what would happen or not happen if we did or didn’t do the stimulus are dramatic. They are unacceptable.

Mr. NABORS. We believe that the job loss is unacceptable as well.

Mr. CHAFFETZ. The President is quoted as saying that the stimulus ‘‘has done its job.’’ Is that true or not true?

Mr. NABORS. We believe this stimulus has had the impact which

we had predicted, which is job creation.

Mr. CHAFFETZ. The Vice President said—I think it was just yesterday—that it hasn’t had the impact.

Mr. NABORS. I think what the President said is accurate. The

President has made it clear that——

Mr. CHAFFETZ. That it has or has not done its job?

Mr. NABORS. The President has said two things: One, he has said

that we did not have full information at the time concerning the

growth of the economy; and two, that the Recovery Act has had an

impact in putting people back to work.

Mr. CHAFFETZ. I still do not understand how you justify that it

is ‘‘slowing the free fall.’’

On page 3 of your written testimony, you said the Recovery Act

extends or expands programs like unemployment insurance. Does

unemployment insurance create or save a job?

Mr. NABORS. Unemployment insurance ensures that people have

money to——

Mr. CHAFFETZ. I recognize there are benefits to it, but the question is: Does it create or save a job?

Mr. NABORS. We believe that any dollar spent in the Federal system will create or save a job, because what is going on is we are

putting dollars into people’s pockets to spur demand.

Mr. CHAFFETZ. What about Social Security income and FMAP?

Because the rest of your quote is, ‘‘These programs account for

about 29 percent of total Recovery Act funds.’’

If 29 percent of the Recovery Act funds are being used for these

three things that you cite, do they directly create or save a job?

Mr. NABORS. They directly put money into the economy so that

demand can be increased. Absolutely.

Mr. CHAFFETZ. But they do not, dollar for dollar, save or create

a job.

Mr. NABORS. I don’t see how you can say that, because every dollar spent—when you go to a store and spend a dollar, that is a dollar more that the business will have in terms of profits in order to

either ensure that a business doesn’t shut down or to hire new

staff.

Mr. CHAFFETZ. My time is short here.

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Going to the very end of your testimony on page 11, second to

last paragraph. ‘‘Mr. Chairman, we know that, in times of economic

crisis the government did not make the solutions. Rather, government gave the American people the tools to fix what was broken.’’

What tools have you given the American people to fix what is

broken?

Mr. NABORS. I think that what we are doing is the following:

One, we are ensuring that in the short term, that people who are

out of work or who are facing difficult economic situations have the

resources in order to sustain their current existence.

The second thing we are doing is we are putting—we are creating job opportunities through infrastructure projects and the like,

to make sure there are jobs for people.

Mr. CHAFFETZ. But what tools are we giving the American people

to fix what is broken?

Mr. NABORS. And third, we are providing tax relief in the short

term, the broadest tax cut in American history through the Making

Work Pay.

Mr. CHAFFETZ. I would happen to agree with you that tax relief

is probably the No. 1 thing we can do to stimulate the economy and

get people back to work.

Thank you, Mr. Chairman.

Chairman TOWNS. I now recognize the gentleman from Illinois,

Mr. Quigley, for 5 minutes.

Mr. QUIGLEY. I wasn’t here for this vote, for this package. So it

is easier to second guess or use hindsight; I just don’t think it’s appropriate.

Watching from afar, it was easy to understand the exigency of

what was taking place, the extraordinary circumstances that

haven’t been seen in 80 years in this country, probably, from a financial point of view.

So I also think it is important to recognize the obvious, that beyond the attempt at laser-point precision of how many jobs were

created or retained, what is being said here today is that it had

more than one purpose. And it is also important to recognize that

previous administrations have attempted, often, to calculate the

number of jobs created, retained with their programs. It has been

borne out that this is extraordinarily difficult to do.

So gentlemen, I recognize that having said all of that and recognizing that this program needs to move forward, I do have concerns, to a large extent at the State level, we are flying blind. You

yourselves have talked about their cutbacks from auditors and people who would be, I guess, called fiscal watchdogs, given the vast

amounts of dollars and the speed at which it had to go out.

What is your best guess on timeframe to do things you started

talking about: clarification on rules, Internet access—which was

talked about in the GAO report—improved communication, and a

specific understanding of what the States can and can’t do?

Both of you would be great.

Mr. DODARO. I will start with our recommendations.

There is a process in place called the Single Audit Act. It was

passed in 1984. And it is a primary accountability vehicle for overseeing State use of Federal funds that have been provided along

with States’ use of money. The Single Audit legislation could be

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modified here and guidance put out to make it a more effective,

timely tool for Recovery Act purposes. From our perspective at

GAO, this is a potential huge missed opportunity unless the guidance is changed to require earlier reporting.

If I might put up the chart on the distribution of funds, please.

What this chart shows, Congressman, that a lot of the money at

the State and local level—not that one. The one by year. Shows

that most of the outlays to the States and localities will occur in

2010 and 2011. So there is an opportunity to look at what controls

are going to be in place over those moneys, up front, through the

Single Audit Act. But guidance needs to be modified and the auditors need to be funded to do the work. This is a very important investment, could pay big dividends down the road.

Second, there is a need for continual dialog between OMB and

the States, to communicate with the States and provide them information, particularly on the amount of money going directly to the

localities in their State, not going through the State entities.

And third, there needs to be some flexibility given to States to

make sure they have the proper systems and the proper people and

the safeguards on the management side on the programs that are

being funded, to have adequate management oversight.

Some strengthening of those things is important.

Mr. QUIGLEY. Are you talking about dictating that?

Mr. DODARO. I am talking about, in part, giving requirements for

early internal control reporting, and funding it. But unless that is

done, OMB has certain flexibilities administratively. Some of this

could be done legislatively. H.R. 2182, it is important that gets

passed as well.

Mr. QUIGLEY. It would appear that there are almost no ramifications for not following the rules a, because the rules seem loose or

not tight enough; and b, because there are no actual restrictions on

what will happen if you don’t use the money in the way we described.

Mr. DODARO. There are some areas where if money is not obligated, it can be redirected; for example, in the highway area. But

most States have met those requirements. And there are some

maintenance-of-effort requirements that the States maintain their

spending both for highways and education. We are following those

requirements to make sure that they are met going forward.

But by and large, your point is right. And that is why it is important to have these safeguards in place.

Mr. NABORS. We are very sensitive about the concerns that GAO

has raised, and for the most part we agree. We are supportive of

the chairman and ranking member’s bill to increase the funding

that would be available for administrative types of activities, and

we are looking to what extent we can relieve some of that pressure

administratively.

I think we want to continue to explore options with regard to single audits. We believe that the single audit is a key component of

appropriate oversight. We do have some concerns about how quickly and effectively we can shrink the reporting deadline, but it is

something we want to work very closely with GAO and State auditors.

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With regards to communications, we couldn’t agree more with

the comments that GAO has made or the committee has made. The

State and local governments are our partners. Every day we are

trying to improve our communications. It is not something where

traditional mechanisms have worked.

So we are exploring new options, such as doing more work

through the Internet and making ourselves more available to conferences; the NCSL, the NGA, wherever we can find opportunities

to communicate directly with our State and local partners, we are

going to take advantage of those efforts.

Chairman TOWNS. The gentleman’s time has expired.

Mr. QUIGLEY. Thank you, Mr. Chairman. If someone could followup and talk about the Internet a little bit more.

Chairman TOWNS. I now yield 5 minutes to the gentleman from

California, Mr. Bilbray.

Mr. BILBRAY. Mr. Nabors, Patrick and I are sailors. If you look

at the course that—basically the graph off over here to your left—

and look at it as being a course that is projected by a navigator,

as opposed to the course that is actually steered, according to that

course our navigator was 80 degrees off course. From what was

projected by the administration to what really happened was 80 degrees off.

Now, I don’t know about you, but I am not so sure I would get

on a ship or a boat with a navigator with that kind of navigation

skills. So the projected course of our economy, our job market, and

the actual course were 80 degrees off.

Now, do you really think that is an example for the future, that

the same navigator ought to be used in the future? Or do we have

to go back and take a look at who predicted the course that we

were setting, because it definitely wasn’t anywhere close to the

course that we have taken?

Mr. NABORS. Well, sir, I am not a sailor so I wouldn’t get on any

boat with me.

But with regards specifically to the economic projections, what I

would say is that the projections that the administration made at

the time were fully consistent with the Federal Reserve Board, outside economic analysts, people like Mark Zandie, and private sector

analysts.

What happened was something that was unpredicted by any of

the observers at the time.

Mr. BILBRAY. In other words, the experts were all wrong and had

no idea what they were talking about at the time because, obviously, we are talking a right-hand turn being made, or a lack of

a right-hand turn, when you are predicting we were going to take

a hard to starboard. And we kept full bore, basically, the pattern

we were going otherwise, and did not see any change in the course

set by the job market after we committed a trillion dollars in stimulus.

Mr. NABORS. I think the general economic consensus was that

the economy was going to be bad. I don’t think anybody predicted

it was going to be as bad as it was.

Mr. BILBRAY. So we accept that. The experts didn’t know what

the hell they were talking about at the time they predicted this.

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Mr. NABORS. I think predicting economic performance is always

difficult.

Mr. BILBRAY. One hundred fifty thousand jobs created or saved;

how much money have we spent?

Mr. NABORS. Based on the most recent information that we have,

we have obligated $57 billion.

Mr. BILBRAY. How much of that per job?

Mr. NABORS. I can do the math real quick, but I haven’t done the

big calculation completely.

Mr. BILBRAY. I think that is least—if we are going to claim—it

is kind of interesting the way we work this thing, because the

credibility of this administration is going to be threatened if we do

not come up with the facts and justifications for the people.

We already saw what happened before with the previous administration, when you didn’t have people that were willing to call

down the previous administration for making statements they

couldn’t verify. We want to make sure the new administration

doesn’t fall into that same trap, because credibility means a lot

during this crisis. And frankly, with this navigation course, this

promise that was made 5 months ago or 3 months ago or 6 months

ago, and then seeing what reality is, you see why the average citizen doesn’t believe the so-called experts in Washington, including

the new administration, if that is the kind of result we are going

to have.

I think that we need to justify how much money we are spending

and where are the jobs saved and where have they been preserved.

And I think we have a major credibility crisis here, and I think we

just can’t continue to say that—just because you keep saying it

doesn’t make it right and doesn’t make it the truth. And the American people are sophisticated enough to know that Washington is

not going to be able to sell its bill of goods when you end up with

a failure rate of over 50 percent when you are going to hard to port

when you are saying you are going to hard to starboard. No man

in the world would get on a ship or a ship of State and follow this

navigation for the future. So I think we need to straighten this out.

Mr. ISSA. Would the gentleman yield? Mr. Nabors, I just have

one followup question on the gentleman. And I, too, am not a sailor

so I won’t go that way.

How many jobs are created when you obligate money?

Mr. NABORS. The CEA estimates that roughly $92,000 of government spending equals one job.

Mr. ISSA. OK. But let me go through that. I understand if I start

handing out $92,000, I can get a lot of people to work for me for

a year each. But when you obligate, don’t you create no jobs? And

when you spend, you create a job. I mean, obligating is an interesting term because it is the amount that, in fact, is disbursed that

creates a job, at least for that day. Isn’t that right, that obligating

alone creates no jobs?

Mr. NABORS. That is correct. We have obligated $158 billion, and we have outlaid, actually spent, about $57 billion.

Chairman TOWNS. The gentleman’s time has expired.

I now yield 5 minutes to the gentleman from Illinois, Mr. Foster.

Mr. FOSTER. I have a specific question regarding the weatherization formula. And it is my understanding there is a formula that

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allocates funds among different States. Have you been able to develop whether—an opinion whether that formula is actually all

right in the sense of you are actually putting weatherization funds

where you are going to save BTUs?

And as a follow-on to that, is there a system in place for actually

tracking the energy savings that are occurring as a result of this

program?

Mr. DODARO. I will yield to Mr. Nabors on the details of the program. We at GAO have, just in this last 2-month assessment, started looking at how States were using weatherization. So far only

about 10 percent of the money had been allocated to the States to

begin planning activities there. More money is going to be coming

down the road. We have not yet looked at the allocation formula

yet. We will be happy to do so, and also look at the measures of

performance.

Now the agencies—OMB has allowed the individual agencies to

identify performance measures beyond jobs created or saved, and

so we will be looking at that going forward. But since that program

is just getting started, so is our work.

Mr. FOSTER. In a similar vein, in The Economist about a month

ago, I believe they were reporting work from the Peterson Institute

that indicated that the technologies that we were subsidizing as

part of the AARA had costs of between, I believe, $60 and $140 per

ton of carbon averted, which makes them not very promising in

terms of—I was wondering, are we putting in place a mechanism

to track how effective we will be at actually avoiding greenhouse

gases in programs where that is a goal?

Mr. DODARO. I will defer to Mr. Nabors on that.

Mr. NABORS. That is one of the things that we are looking at as

far as developing performance metrics for all of our programs.

Mr. FOSTER. So they will extend to the environmental goal as

well as to the job creations?

Mr. NABORS. Correct.

Mr. FOSTER. A little more on this economic modeling. I would

like to say I am at least one Member of Congress who understands

that the predictive power of these models in a differential sense is

much better; that they are more accurate at predicting the difference between turning a policy option on and off rather than just

the absolute predictive power, which was missed in terms of the big

downturn we had.

And the CEA model that you reported, is it similar to the Zandie

model?

Mr. NABORS. It is.

Mr. FOSTER. I have looked in some detail at the formulas behind

the Zandie model, and it was not entirely satisfactory, frankly, on

things like the interest rate models going out and stuff like this.

Are the CEA reports or the details of that model, are they published?

Mr. NABORS. They are available on our Web site, and I will provide it to the committee for the record.

Mr. FOSTER. Another thing that we ought to be tracking is the

fraction of jobs that are created offshore in this. So, for example,

when we put a lot of money into health IT, obviously we are going

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to buy a bunch of Chinese-made computers. If we put a lot into

Smart Meter on grids, most of those are produced offshore.

And so I was wondering, are we actually separately tracking the

jobs created onshore versus offshore for the different programs?

Mr. NABORS. We are not currently. Currently we are only attempting to estimate the number of jobs created within the United

States.

Mr. FOSTER. I guess those are my questions.

I yield back.

Chairman TOWNS. I now recognize the gentleman from Indiana,

Mr. Burton.

Mr. BURTON. Thank you, Mr. Chairman.

Mr. Nabors, I served with Ronald Reagan during his administration, and when he came into office we had 12 percent unemployment and 14 percent inflation. And he decided against some of his

economists’ recommendations to cut taxes instead of just throwing

money at everything. And as a result, we created millions of jobs

in one of the longest economic expansions in U.S. history. And the

economy at that time was as bad or worse than it is right now.

Now you said, and Mr. Issa quoted you, you said since almost all

States have to balance their fiscal budgets, even in the face of recession, 40 have cut benefits and services and 28 have raised taxes

and more are considering both measures. These actions deepen the

impact of the downturn.

It sounds a little bit like you may have agreed with what President Reagan did, because instead of raising taxes which would

have precipitated a bigger downturn when we had 12 percent unemployment and 14 percent inflation, he chose to cut taxes. And he

believed that if you did that, you would get more disposable income

to individual citizens, their families, and to businesses so that they

could make more investment in their businesses, in plant equipment, and it would create more jobs. People would have more

money to buy more products; therefore, you create more jobs because they had to be produced.

So what I can’t understand is why we’re are doing what we are

doing. The President has proposed raising taxes on health care. It

is going to hit everybody. I mean, I think everybody in the place

knows that. He’s talking about a carbon tax for cap-and-trade that

is going to cost the average family about $3,100, $3,200, maybe

$4,000 a year. We have already appropriated—authorized and appropriated $787 billion for the stimulus package, $350 billion for

the omnibus, $54 billion so far for the auto bailout. And, of course,

the stimulus is $787 billion, and now you’re talking about another

stimulus.

How can you square blowing all of this money when it is not creating jobs? Vice President Biden said the stimulus created 150,000

jobs, and President Obama asserted on June 8th that the stimulus

would create 600,000 jobs over a hundred days. And they said it

wouldn’t go above 8 percent when you started throwing all of this

money at it, and now it is 91⁄2 percent.

It seems like the approach that Reagan took was the more realistic approach because it let people make the decisions and let companies make the decisions on how to get themselves out of that

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mess instead of having the government trying to do everything.

And I just want to quote a couple things real quick.

Here’s where some of this money is going. Did you know the Florida Department of Transportation is planning to spend $3.4

million recovery funding on the road-crossing for turtles and other

animals on U.S. 127; that in Minneapolis they are going to spend

$2 million for the theater for dance and music events; that in Kansas the Tall Grass Prairie National Preserve’s new visitor center

and pedestrian bike project over the highway is going to be—they

are going to spend how much on that—a couple million. A million

dollars in Michigan for decorative sidewalks and crosswalk planters, landscaping, and so on and so on.

It just seems to me that a more realistic approach to solving the

problems—and I hope you will carry this back to the administration—would be instead of throwing money at it and talk about another stimulus package, we should be cutting taxes, stimulating

economic growth by letting people have more of their own money

to spend, and letting businesses have their money to invest in

things they need to be invested in, instead of this sort of stuff, so

they can expand their business and sell their products.

You can respond.

Mr. NABORS. I will take your comments back to the administration. I do feel the need to clarify a few points.

No. 1, no one in the administration is talking about a second

stimulus at this point. What we are focused on right now is implementing the Recovery Act that Congress has already passed, and

doing the best that we can with the dollars you’ve entrusted us

with. So that’s where our focus is right now.

Second, with regard to the way the package is actually structured. I think it’s important to note that over one-third of the package is actually focused on dedicated targeted tax relief, which we

believe is a part of a very balanced package to——

Mr. BURTON. Pardon me for interrupting, but Laura Tyson yesterday did mention a second stimulus. I just thought I would clarify that.

Mr. NABORS. Laura Tyson is not an administration official.

Mr. BURTON. She’s an economic adviser.

Mr. NABORS. She’s an outside economic adviser. She does not

work for the administration.

But to clarify, the package that was signed into law actually does

include what we believe is effective tax relief for the middle class,

and we think it will have benefits. But in addition, because of the

output deficiencies that the economy is currently facing, spending

has to be part of the equation. And what the President has said

is that over the long term, this spending—we need to bring the entire Federal budget back under control.

So I recognize the point that you were saying that there has been

a lot of spending that has been done, and it’s something that the

President is very sensitive to and very focused on. It’s one of the

reasons why he is pushing so hard to make sure that comprehensive health care reform is completed.

Over the long term, the key to long-term deficit reduction is

going to be bringing our health care costs under control. In addition, we made it very clear that the Recovery Act spending is someVerDate 11-MAY-2000 14:47 Dec 10, 2010 Jkt 000000 PO 00000 Frm 00121 Fmt 6633 Sfmt 6633 U:\DOCS\62119.TXT KATIE PsN: KATIE
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thing that we are looking at as a short-term stimulative impact

into the economy. It is not something that we believe is sustainable

over the long term, or even visible over the long term.

Chairman TOWNS. The gentleman’s time has expired.

I now yield 5 minutes to Mr. Hodes from New Hampshire.

Mr. HODES. Gentlemen, thank you for being here.

The Recovery Act was put in at a time of global financial collapse

and severe economic distress in this country, and we are still facing

a stubborn recession.

I am a sailor, and I know that sometimes when you set course

from point A to point B, sometimes the wind changes and you need

to adjust. And that happens, and sometimes the predicted course

isn’t the course that you end up sailing.

The good news for me from New Hampshire is that I was able

to go out on the highway with Secretary LaHood and know that

New Hampshire was the first State to put highway funds to use.

So the transportation dollars seem to be flowing OK.

What I am hearing from home is that other agencies are having

a hard time implementing and reporting the funds that are coming

in. The States are implementing billions of dollars of funds, but the

concern is that the Federal Government, we aren’t providing the

clear, coherent guidance that we really need to put Americans back

to work faster and to provide taxpayers with a comprehensive,

transparent accounting of those funds that everybody understands.

And the chart that, Mr. Dodaro, you have put up, shows that it

looks like the projections for when the full impact of the stimulus

dollars is going to hit is a little bit later than what we had originally projected. Is that so?

Mr. DODARO. Actually that chart, the white bars are the estimates that CBO made during the time the bill was in conference.

So that was always the estimated outlays contemplated under the

act. I think Mr. Nabors can corroborate that.

The gray bar, in terms of what has been actually outlaid already,

we think is, you know, potentially slightly ahead of the pace that

was estimated; and I think it is because the unemployment rates

have been higher, so that means more Medicaid and Federal

matching assistance is there. And given the fact that the States are

under fiscal stress, I think they are moving as expeditiously as

they can.

The other factor, I would say, is most of the States, as you know,

end the fiscal years on June 30th. So they were waiting for a lot

of approval from those State legislatures. Now that’s occurred, I

think the funds will flow according to pace.

Mr. HODES. So it’s fair to say that while there are some—including some in this room—who are complaining about job creation,

that as we see more of the stimulus dollars flowing to the States—

and the quicker the better we can get them flowing—the more job

creation, preservation we are going to see. Is that true, Mr.

Nabors?

Mr. NABORS. That is absolutely correct.

Mr. HODES. Now, in New Hampshire and around the country,

the growth of small businesses is very critical to creating jobs.

OMB has stated that in its implementing guidelines that one of the

goals of the Recovery Act is to provide opportunities for small busiVerDate 11-MAY-2000 14:47 Dec 10, 2010 Jkt 000000 PO 00000 Frm 00122 Fmt 6633 Sfmt 6633 U:\DOCS\62119.TXT KATIE PsN: KATIE
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ness, and the SBA has estimated that 60 to 80 percent of new jobs

annually over the last decade are small business jobs.

Have you at OMB set targets for the amount of Recovery Act

funds directed to small businesses?

Mr. NABORS. We have not set targets, but there are targets in

the statutes that we are trying very hard to meet. And we believe

that we have been able to increase the initial amount of small business funding dramatically. Originally, we were looking at spending

at about 4 percent. We went back and talked to the agencies and

made it clear that it was a priority of the administration that small

business be an engine for the Recovery Act, and that amount of

spending through small business has gone up dramatically.

Mr. HODES. Are you providing any education or outreach to small

businesses to ensure that they know how they can access the opportunities for them in the Recovery Act?

Mr. NABORS. Absolutely. Both through OMB, but specifically

through the individual agencies that have existing relationships

with small businesses and small business consortiums, we are trying to get the word out what type of Recovery Act money is available.

Mr. HODES. Mr. Dodaro, do you think that the reporting requirements to which recipients of Recovery Act dollars must adhere are

discouraging small businesses from pursuing or accessing Recovery

Act funds?

Mr. DODARO. I think that the reporting requirements—first of

all, I don’t have an empirical basis to that answer that question.

We have not consulted any small businesses or talked with them.

I do think we made a recommendation, apart from the one here,

about making sure that small businesses and others knew of the

availability of the funding opportunities and made recommendations to OMB because the Web site grants.gov was unable to handle the volume and there would be other avenues explored to make

people aware of how to apply for the funding. So that is the extent

of our recommendations there so far.

Mr. HODES. Thank you.

Mr. Nabors, I encourage you to continue your efforts to make

sure that small businesses have access to easily getting these funds

to help create jobs in America.

And with that, I yield back.

Chairman TOWNS. Mr. Schock of Illinois.

Mr. SCHOCK. Thank you both for your testimony.

I have two quick questions. Mr. Dodaro, I come from the State

of Illinois, a State that has roughly a $9 billion deficit. Our Governor has proposed a 60 percent increase in the income tax, and

we are struggling with the programs and services that our State

currently has. A part of the stimulus plan—and part of your testimony speaks to the maintenance effort and the commitment by

States that they have to make in order to get the requisite stimulus dollars.

My question is specifically, what are we doing as a Federal Government, and what—to ensure that when a State says yes, we will

continue to maintain these programs to get X funding now, what

are we doing to ensure that actually happens, No. 1.

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And then No. 2, what happens in 2 years from now in a State

like mine in Illinois where we don’t have the money for the services

we have today, and now we have additional services we don’t have

today that we will have to support on into the future, and what

true force can we take or what measures are you suggesting that

we have that can force them to basically come up with the money

at the State level?

Mr. DODARO. First of all, there are a number of maintenance-ofefforts requirements in the Medicaid program. For example, that

eligibility standards remain the same as they were through June

2008. In the Medicaid program, there are maintenance-of-effort requirements in the Medicaid program, in the highway program, and

the education programs. Those are the big three so far.

We are carefully looking at how the Federal agencies are monitoring those maintenance-of-effort requirements. In Medicaid, it

hinges on eligibility requirements, highways, they have to provide—Governors have to provide certifications. Transportation is

reviewing those certifications right now. And there are waiver provisions, however, in there that the agency heads have in order to

entertain waivers from the States.

Mr. SCHOCK. That is for today. What happens in 2 years when

the agreement that was signed by Governor A, who is no longer in

office, and Governor B is now having to deal with the reality of

whatever commitments were made by that State to maintain those

Medicaid reimbursement levels or income levels to qualify for Medicaid? What happens in 3 years from now when the legislature—

who is duly elected and has a fiduciary responsibility to balance

their budget—decides, you know what, we can’t afford these new

rates that were specified in the Recovery Act 3 years ago that a

former Governor, and maybe a former legislator, agreed to?

Mr. DODARO. Well, first of all in the Medicaid area, that money

ends December 2010. So it is only for a 27-month period in any

event. I do think there is a responsibility on the part of the Federal

agencies to make sure that they monitor as it’s going along. They

shouldn’t wait——

Mr. SCHOCK. What specific action can we take to force them to

honor their word? Because I guess what I am confused about is we

have some Governors saying, ‘‘thanks for the money, we will take

it;’’ and we have other Governors saying in 3 years, ‘‘we can’t afford

the commitment that you are all asking us to take in exchange for

taking the money today.’’

And yet I am having difficulty seeing where our power in the

Congress or the President or your office has in 3 years to ensure

that a new Governor and a new legislature has to honor that commitment.

Mr. DODARO. You are raising a good point. I think that is something that needs to be monitored all along and——

Mr. SCHOCK. I know I am cutting you off. I have a question for

Mr. Nabors.

My question is, why shouldn’t every Governor take the money,

tell you whatever you want to hear? Because up until now, I

haven’t heard a good explanation from you as to how we are going

to force them to honor the commitment that we are expecting them

to take in exchange for the money.

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Mr. DODARO. For example, in the Medicaid area, if they don’t

honor commitments then they don’t get the matching share of——

Mr. SCHOCK. For the first 2 years.

Mr. DODARO. That is the only amount of funding that is available. I will go back and provide you with a specific answer for the

record for each of these programs of what mechanisms are in place

to make sure that those commitments are honored.

Mr. SCHOCK. I am specifically interested in not how we are going

to monitor and tell them they didn’t do it, but what specifically, in

years 3 and 4 which, from talking to the Governors who haven’t

taken the funding, is their concern in keeping those higher income

levels and places and so on, what our force will be to go after them

if they don’t; because I guess my suggestion to those Governors

who haven’t taken the money, it sounds like you take the money,

tell them whatever you want to hear, because there’s not a whole

lot we can do in year 3 and 4 and into the future.

Mr. Nabors, real quick. Reviewing what I have heard in the testimony, I couldn’t agree with your final several paragraphs in your

testimony which basically said it’s not government that creates

jobs, it’s not government spending that will stimulate the economy,

it’s private investment, private entrepreneurs and risk taking. And

I truly believe that to be the case.

Chairman TOWNS. The gentleman’s time has expired.

Mr. SCHOCK. Can I have 30 seconds?

Chairman TOWNS. Thirty seconds.

Mr. SCHOCK. I guess what we know, and it’s been said by my

companions up here, you know, the President said unemployment

would peak at 8 percent. It is at 91⁄2 percent. He is conceded that

it’s going to reach double digits by the end of the summer.

Your testimony here today, $75 billion has been spent to create

150,000 jobs. That comes out to half a million dollars a job. Your

comment earlier was roughly $92,000 in government spending

should create a job.

So my question specifically is in the jobs number, if we are not

going to say we failed in terms of being off course on what the unemployment rate would actually be, we are not even near what the

expectation is in terms of job cost of government spending to create

a job. We are usually operating under a $92,000 per job creation

number and we have spent 75 billion to create.

Chairman TOWNS. The gentleman’s time has long expired.

I now yield 5 minutes to Congresswoman Speier of California.

Ms. SPEIER. Mr. Chairman, thank you.

As we look at the chart that the GAO has provided us, we are

going to be outlaying twice as much money next year as we have

this year, which would suggest that if there’s going to be waste and

abuse, it is going to be twice as bad next year as it is this year,

unless we take steps to make sure that it doesn’t happen.

So I would like to understand what happens when an outlay has

been made to a particular entity. Let’s say it is $10 million. And

when the first reporting period occurs, they’ve spent half that

money, and we now are aware of the fact that they didn’t really

generate new jobs, or the program that was anticipated to be constructed is not followed up with.

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How do we, one, rescind the rest of that money; and, two, do you

have enough resources to go out there and determine whether the

money is being spent appropriately or not?

Mr. DODARO. The answer to your first question is there are sanctions for withholding some of the future funding for certain programs, but it differs by programs. So there are some options if

there’s disclosures that requirements aren’t being met for action to

be taken by the Federal agencies; but they have to be aware of it

and they have to make sure that they promptly address it.

On the second question is, no, we do not have at the GAO

enough resources to go out and monitor all of the activity across

the country, and that is why we are suggesting that the single

audit process where the State auditors are already in place and

they audit this money annually, that they be required to do earlier

internal control reporting now, before a lot of the money is spent

in 2010, and that they are provided some funding to make sure

that they can carry out their normal activities.

If changes aren’t made, the single audits for the fiscal year 2009

won’t be issued until 6 to 9 months after the end of the fiscal year.

So you will already be into the next fiscal year.

There is a network in place through the single audit that can be

exercised, with modifications, to provide greater assurance that the

money is being spent properly. But OMB and the Congress need

to act on the recommendations in order to effectuate those changes.

Ms. SPEIER. Mr. Nabors, what is your position on that?

Mr. NABORS. We concur that the single audit is an important

component of ensuring that there is appropriate oversight. We

want to make sure there is appropriate money to the State and

local governments to make sure that they don’t have to reduce the

administrative staff and the oversight staff that we have, and we

are dedicated to making sure of that. We are working with the

chairman and the ranking member to—in support of their bill to

make sure that even more funding could be available to State and

local governments to conduct those audits.

A second piece that we are doing, which I don’t want to get lost,

is that working with Earl Devaney, who is the head of the Recovery Oversight Board—he has made it very clear that he sees one

of his primary responsibilities is getting in on the front end of

projects to make sure that as much as possible we can make smart

decisions and we can help the agencies make smart decisions so

that we have the mechanisms in place so that money isn’t wasted.

Once the money is wasted, it’s a shame for all of us. If we can get

in and shape the programs ahead of time so that we can minimize

the amount of waste that comes out the other side, that would be

best for the American taxpayers and for the Congress. So we are

working very hard with Earl and with the various IGs to try to set

up those mechanisms ahead of time as well.

So I think between the State auditors, the local auditors, and the

IGs and the Recovery Oversight Board, we are trying as much as

possible to create a network of oversight that will try to minimize

the amount of waste that could occur from Recovery Act spending.

Ms. SPEIER. Final question. If there is fraud, there should be a

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ernment. Have you put that in place? Have you thought about it?

What are you going to do about fraud?

Mr. DODARO. That’s the basic responsibility of the Federal Government agency. If we find fraud or potential fraud, we will refer

the matter to the Justice Department for further investigation. We

don’t have law enforcement authorities, but we do make referrals

to inspectors general and the IGs. We have made available to the

public a hot line where people can submit allegations of fraud. The

Recovery Act also requires the inspectors general to do the same.

Ms. SPEIER. How do you advertise that hotline?

Mr. DODARO. It’s on our Web site. We have put out press notices

regarding it.

Ms. SPEIER. How many calls have you received?

Mr. DODARO. We have received about 61 allegations so far. We

have referred some things to the inspectors general. There are

about 25 or so that we are looking into more deeply to assess the

merits of it. We will be following that up.

Ms. SPEIER. Could you report back to the committee on what you

find from those hotline inquiries?

Mr. DODARO. I would be happy to.

Chairman TOWNS. I now yield 5 minutes to the gentleman from

Arizona, Congressman Flake.

Mr. FLAKE. I thank the chairman, and I thank the witnesses. I’ll

ask a series of questions and if I could get a quick answer, I’ll get

to more.

The Vice President has said that he is kind of the sheriff on this,

that his role is to provide oversight. What specific role does he

play? Does he go to meetings? What does he do?

Mr. NABORS. The Vice President holds regular meetings with the

Cabinet agencies and with the implementation officials with the

agencies, and he is also very involved in terms of reviewing agency

plans with regard to broad goals of Federal spending.

Mr. FLAKE. When we see programs that we are told are getting

funding, it kind of makes us wonder when you say no—if you say

no. For example, we are told that $800,000 of this recovery funding

will be used for a runway at an airport in Pennsylvania that has

around 20 passengers a day that fly to Washington. Why wasn’t

that money turned down? And if it’s not, can you give me any specific examples where you’ve said no?

Mr. NABORS. There are a number of examples where we have

gone back to the agencies and asked a series of very hard questions, and projects were removed. With this specific project, I would

have to go back to the Department of Transportation and find out

more about the criteria that were used to make this award.

Mr. FLAKE. But you don’t know of any examples where you just

said no? Just hard questions?

Mr. NABORS. Most of this work is done at the agencies. I would

want to go back to the specific agencies and get the examples of

them.

Mr. FLAKE. The Vice President has said that some people have

been scammed already. That is his quote. Can you give any examples of that?

Mr. NABORS. I am not sure what the Vice President was referring to there.

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Mr. FLAKE. Should we ever take anything serious said by the

Vice President or somebody assigned to go and retract what is

said?

Mr. NABORS. I take what the Vice President said very seriously.

Mr. FLAKE. It would be good to know what he’s referring to.

Mr. NABORS. I’m just not familiar with that quote.

Mr. FLAKE. CNN Money just put something out saying that $75 billion had been allocated already, paid out. You say $57 billion.

Which is correct?

Mr. NABORS. The most recent information I have is $57 billion.

Mr. FLAKE. And you say 150,000 jobs have been created. That is some $380,000 per job where the goal is $92,000 per job.

Mr. NABORS. I think there is a discrepancy. I’m giving you the

most recent information that we have with regard to obligations.

It’s $57 billion to date. I would have to go back and look at when

the job creation number was actually calculated. It’s not the exact

same time period.

Mr. FLAKE. But it’s safe to say that we are considerably north of the figure of $92,000. That’s the goal.

Mr. NABORS. I would have to go back and take a look at that,

but I will provide that information for the record.

Mr. FLAKE. So with projects—and we were told initially that they

needed to be shovel-ready. I have to tell you, I grew up on a farm

and my dad always had projects that were shovel-ready. They usually involved rubber boots and a corral.

I’m just wondering if there is any other criteria, again going back

to this thing. I still have not heard of examples coming from any

agencies. And, again, going back to this one—and Mr. Burton

named some others—these projects where you would have to say,

you know, unless you just concede that throwing money out is

going to create jobs somehow or improves the economy, that perhaps it would be better to give it in the form of tax relief and allow

individuals to spend it.

But I still would love for you to come back to the committee and

give us information on at least one instance sometime where an

agency has said no. Just because it’s shovel-ready doesn’t mean it’s

worthy.

Mr. NABORS. I’ll be happy to provide that information for the

record.

Mr. FLAKE. I yield to Mr. Issa.

Mr. ISSA. If they could put the ‘‘Federal Deficit Will Reach Levels

Never Seen Before’’ up on the board.

Mr. Dodaro, earlier you showed us your declining one. This one

appears to be your chart, but referred to in positive deficit. And I

want to make sure, because again I told you I had to take stats

and I hated it. Your downward one appears to be the equivalent

of that one; same thing, but everything in reverse, that obviously

states a little different. And if I read it correctly, we have increasing deficits as far as the eye can see projected. When you express

it positive—because we are in deficit and your chart was a negative

deficit because you have these minus numbers.

Can you explain the difference between those two charts?

Mr. DODARO. It’s basically just the reverse explanation. I mean,

there are different ways to explain this and to display it.

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One, the chart I am showing is the annual deficit, what it is expected to be as a percent of gross domestic product. There are also

measures that you could show where there is a percent of debt held

by the——

Mr. ISSA. My time is expiring.

Isn’t it more standard when you talk about deficit to have it as

a positive deficit? In other words, a growth in deficit normally is

an upward number. In your case, the downward might have people

think that things are getting better, when in fact, down in your

case or up in the other case, both are growing deficits.

Mr. DODARO. Right. ‘‘Down’’ in our case means you are going bad.

You are heading in the very wrong direction.

Mr. ISSA. I wanted to make everybody understand that downward chart is really bad and that’s where we are headed right now.

Mr. DODARO. Correct.

Chairman TOWNS. The committee will adjourn, and we will reconvene 5 minutes after the last vote.

[Recess.]

Chairman TOWNS. Let me just reconvene the committee and to

say to Mr. Nabors and, of course, Mr. Dodaro that we really appreciate your being here; and, as you know, that, based on the comments made by Members, there’s a lot of things that we need to

sort of get clarification on, you know. And one in particular, that

if jobs are retained, how is that in terms of job creation, you know,

and that a lot of areas, you know, they would have had to lay a

lot of people off, but as a result of the money, they were able to

retain them. And I think in many instances it just made so much

sense to do that. Because when you look at education where you’re

able to have teachers, you know, that would have been laid off and

would have these huge class sizes that now are able to have their

jobs, I think it makes sense.

And, of course, I want to thank you and want you to look into

these issues, because we’re going to always have these until we

come up with some clarification.

So, OMB, you really have to have some guidelines to make certain that people understand, you know, what job creation means.

Is it a part-time job, half-time job, whatever. I mean, these things

need to be sort of made clear so we know where we’re going so we

can answer questions when they come up.

And I now yield to the ranking member, and then after the ranking member we’re going to dismiss this panel.

Mr. ISSA. I would like to echo the chairman’s accolades of your

being here today and your willingness to respond both here today

and some of the followup that you’ve promised.

This committee is dedicated to have you back essentially every

time there’s a new report, which is every 2 months; and I hope you

will indulge us in something close to that schedule. Based on what

the chairman may want, we may do it informally or formally, but

it’s very clear we feel it’s one of the core responsibilities of this

committee and one that we want to work on on a bipartisan basis.

And with that, Mr. Chairman, I agree we should go to the next

panel; and I thank you for your service.

Chairman TOWNS. Thank you very much.

And now we will move to panel two.

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Our next panel, the Honorable Deval Patrick is Governor of the

Commonwealth of Massachusetts. Governor Patrick’s career includes leadership experience at the top of levels of business and

nonprofits and government, including as Assistant Attorney General for Civil Rights at the Justice Department.

Governor Patrick recently signed into law legislation to maximize

the Commonwealth’s eligibility to receive Recovery Act funding.

The new law builds on the work and ideas of hundreds of people

who have participated in a task force to establish a plan for the

best use of Federal stimulus dollars.

Governor, will you stand and let me swear you in.

[Witness sworn.]

Chairman TOWNS. Let the record reflect that he answered in the

affirmative. You may be seated.

Governor, we would allow you 10 minutes. You know, after all

you’re a Governor. You get 10 minutes. So if you can proceed.

STATEMENTS OF DEVAL PATRICK, GOVERNOR, COMMONWEALTH OF MASSACHUSETTS; MARTIN O’MALLEY, GOVERNOR, STATE OF MARYLAND; AND EDWARD RENDELL,

GOVERNOR, COMMONWEALTH OF PENNSYLVANIA

STATEMENT OF DEVAL PATRICK

Governor PATRICK. Well, Mr. Chairman, thank you, I think, for

the 10 minutes.

I’m going to be brief, and I want to apologize in advance that I

have to leave early for an appointment elsewhere in the city, but

my staff and I will be happy to followup with you and Congressman Issa and members of the committee, our own members of the

Massachusetts delegation and others and their staff on any specific

questions you might have.

Chairman TOWNS. We respect your time constraints.

Governor PATRICK. Thank you very much, Mr. Chairman; and

thank you for the opportunity to testify today about the American

Recovery and Reinvestment Act and its impact on the Commonwealth of Massachusetts.

I want to ask that you accept my written statement for the

record and permit me to just summarize it.

Chairman TOWNS. Without objection.

Governor PATRICK. Thank you.

First, I want to acknowledge and thank the Congress and the

President for providing these much-needed resources. These are the

tools that we need to help us weather these unprecedented economic times and to begin to transition our economy over time to

the next chapter of sustained growth.

So far, Massachusetts has received close to $2.6 billion in Federal

recovery funds. Most, I think like most States, has come for Medicaid and education; some as the first installment on transportation

projects.

While we’ve not been able to avoid all layoffs and cuts in State

services, without our funds these cuts would have been much more

drastic and disruptive. With them, Massachusetts has been able to

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cation and health care, and I just want to get into that a little bit

more.

In education, Recovery Act funds enabled us to maintain our investments in education reform, a 15-year commitment that has

placed our students first in the Nation on the NAIPs scores and in

the top six in the world on the TIMSS measure of science and

math.

The recovery funds have also enabled us to continue our pioneering experiment in health care reform where over 97 percent of our

residents are insured today, the highest level in the Nation.

In fiscal year 2010, the increased FMAP will allow us to maintain eligibility and benefits for hundreds of thousands of low-income residents who rely on State-subsidized health insurance.

We estimate that the Recovery Act’s education and FMAP funding have helped us retain thousands of teachers, social workers,

health care workers and others.

Our initial highway funds are putting people back to work today

and laying the foundation for future growth. We’re using highway

stimulus funds in Fall River, an area especially hard hit by the recession, for a new interchange opening up 300 acres of property for

commercial and industrial development. Investments are also being

made in the western part of the State for an intermodal facility to

allow for the more efficient interaction of different transportation

methods.

We are ready to put forthcoming Recovery Act funding and our

people to work especially in the innovation economy. The clean energy field is the fastest growing sector in the State, with 20 percent

growth in 2007. Today, we have more than 500 firms and 14,000

people working in those—in that field. With a program I announced just last week to use Recovery Act funds to install solar

panels on State buildings, including all four terminals at Logan

Airport, those numbers will grow. Town halls, libraries, and other

municipal buildings are also set to receive funds for solar installations and homeowners for weatherization, and small businesses are

likely to undertake the majority of this work, which I think is very

good news for that important sector of our economy.

Our plans are ready to implement for investments in transportation projects, labor, and work force development programs and

new technology, including broadband expansion to unserved and

underserved communities. These Federal investments, coupled with

State bonding resources we have committed, will create jobs today

and improve our infrastructure for tomorrow.

I just want to point out, 4,900 jobs were created in the Massachusetts economy in May, the first new jobs created in a year in

the Commonwealth. And while not all of those can necessarily be

attributed to the Recovery Act, I can tell you that certainly they

helped. It’s way too soon, in my view, to unfurl the mission accomplished banner, but we’re on the right track.

The Recovery Act has provided an opportunity to make fundamental changes to the way we do business. For instance, the useit-or-lose-it requirements helped motivate us to examine and improve the process for contract awards. As a result, the time from

bid opening to notice to proceed has been cut from 120 days to less

than 60 days without any loss of oversight, and the members of the

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Massachusetts delegation will know that this has been a particular

challenge of ours in Massachusetts over the years and a real focus

of our administration.

In the same vein, I commend the Congress for insisting that we

deliver on the goal of maximum transparency and accountability.

In Massachusetts, we have been focused on creating a transparent,

accessible way for both professional watchdogs and average citizens

to track recovery spending; and we have taken a number of steps

to protect against waste, fraud, and abuse.

First, even before the Recovery Act’s enactment, we identified the

State agencies and programs through which recovery funds were

likely to flow and directed those agencies to review, update, and

amend their existing internal controls to satisfy the most rigorous

compliance oversight requirements. We then vetted those control

plans with the State Auditor, Inspector General and Attorney General, all independent officials in Massachusetts, to see if they saw

any gaps that we had missed.

Second, we established a centralized Recovery Act project management office. We call it the Office of Infrastructure Investment.

This office coordinates projects between State agencies and municipalities, helping to streamline the process of obtaining regulatory

approvals and ensuring compliance with Federal and State regulations. The office will include a compliance and monitoring manager

who will oversee internal control processes, assess compliance

risks, and conduct periodic compliance reviews across all State

agencies receiving these funds.

And, third, we’ve developed a State Web site, a recovery Web

site, mass.gov/recovery, on which we publish recovery expending by

type and by region for money that flows through the State. The site

will contain all the information required by the act, including a detailed description of each Recovery Act funded project and activity.

Finally, I want to mention two items that need I believe the continuing attention and partnership of the Congress, the administration, and the States.

No. 1, we are still waiting for the bulk of the money. I understand that much of the funds will be released this summer, and

that’s very good, but I would be remiss if I didn’t make the point

that we, as Governors, are ready to go and want to work with our

Federal partners to ensure projects start quickly. We can do this,

I believe, without sacrificing the important goals of transparency

and effective oversight. Both goals are possible, and both must be

achieved simultaneously. But no funds, no projects; and no projects,

no jobs. So, with due respect, passing the bill, as important as that

was, creates no jobs. Spending the money creates the jobs.

No. 2, although I commend Congress for authorizing States to

utilize a small portion of Recovery Act funds for central reporting

and accountability systems, the process that States have to go

through to obtain authorization to begin spending these funds

needs to be simplified. States have been instructed that in order to

access Recovery Act funds to pay for centralized systems, including

that transparency and accountability that I referred to, States

must follow longstanding cost allocation procedures set forth in

OMB administrative circular No. 87 and then submit proposed

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amendments to their existing State-wide cost allocation plans to

Health and Human Services for review and approval.

Now, we are currently in negotiations with HHS over the details

of our proposed plan, because we have concerns about whether

those procedures adequately account for the Recovery Act’s unique

issues and requirements. In the meantime, however, we can’t access the funds until we finish those negotiations, and it’s unclear

when those negotiations will conclude. And, to the best of my

knowledge, there is no other State that’s in a different position. Everybody is stuck on this particular point right now.

Now, our comptroller has shared these concerns with OMB. The

issues are complicated. We have a very productive working relationship and discussion with OMB, but we need to conclude this as

promptly as possible in order to allow the time to build those accountability and transparency systems to track Recovery Act

spending.

So, again, I just want to thank you for inviting me today. I thank

you for the initial investment in the long-term effort to help America recover from this economic crisis, and I am happy to take any

questions that you may have.

[The prepared statement of Governor Patrick follows:]

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Chairman TOWNS. Thank you very much, Governor.

Let me just inform the Members that we have two other Governors that will be joining us, and we’ll just swear them in at that

time.

I would like to yield 5 minutes to the gentleman from Massachusetts, Mr. Lynch, and the reason for it is that he yielded his time.

Mr. Lynch.

Mr. LYNCH. Thank you, Mr. Chairman.

Governor, I appreciate you coming here and helping the committee with its work. I do have a copy of Gene Dodaro’s—well, the report on the Recovery Act funding and the results that his periodic

review has done in Massachusetts; and I would say that, at least

according to this report, you got pretty strong marks. There are

some questions, but, for that which he could determine, Mr. Dodaro

has I think expressed some confidence in the way that you’re handling in Massachusetts, and I appreciate that.

Governor PATRICK. Thank you.

Mr. LYNCH. I do want to say that, originally, the Recovery Act

was all about creating jobs, and that’s how it was announced to the

public, and that’s how its success or lack of success is being measured, and I think that’s fair. When you think about the difficulties

we’re having, the focus on job creation was the simplest way I

think to address that crisis.

But through the legislative process, it became more than a jobs

creation bill. It became a massive health care supplemental and

education supplemental, which were desperately needed in Massachusetts and around the country but not necessarily job creation

measures, desperately needed, but the money that we spent on

education, the money we spent on health care wasn’t necessarily

resulting in the creation of jobs, and I think some people forget

that fact.

The other piece that I think has confounded us all is the fact

that it has taken so long for some of this money to get out on the

street, get out on the job sites, create those transportation jobs that

we were hoping for. And I want to ask you, it seems to me, in reading the report by Mr. Dodaro and the Government Accountability

Office, that there was a pipeline for the health care money to get

out there that was all set up. There’s a pipeline for the education

money to get out there. There are systems in place to spend that

money.

But—and one-of-a-kind projects, transportation projects, infrastructure projects, there was not a—these were one-of-a-kind

projects. They were basically established by the Governors, and

so—in terms of priorities. So there’s been a delay in getting—look,

I’m a former iron worker. Nothing makes me happier than when

I see the iron workers and the building trades people go to work.

Governor PATRICK. Right.

Mr. LYNCH. And I just want to ask you about the difficulty that

we’re seeing that you expressed in your own comments about getting that money out on the job sites and creating these jobs. What

do you think is—where do you think is the holdup? What is the key

component here that we’re missing in seeing this very long delay

in getting that money out to create the jobs?

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Governor PATRICK. Congressman, thank you for your comments

and questions, and let me respond to both of them.

First, the job creation versus job retention, both are important

because if the—and to your point, I agree with you. The bill is trying to accomplish more than one thing, and that those different or

added goals were developed in the course of the legislative process,

and we not only respect but we appreciate that. Because, frankly,

if we are unable to maintain services, particularly those where the

demand goes up because the economy is in stress, then that compounds some of the economic stresses that we are dealing with in

my State and in others. So I think the job retention counts and

being able to maintain our investments in education and health

care are enormously important.

In terms of the length of time of moving the money out, again

I make the point—and I have made it privately to agencies as

well—no—no—no funds, no projects; no projects, no jobs. That’s

where the job creation comes from.

I think that everyone is trying to balance another objective of the

act and of good policymaking, which is utterly thorough oversight

and to make sure that we—because I think there is a sensitivity

that a misstep could, rightly or wrongly, discredit the whole program.

And so in many—in the cases you talked about, we’re having—

the agencies are having to create new guidelines, new frameworks

for moving the money out. They have been very open to consultation from Governors and others about what those guidelines ought

to be, but until those are in place we are told the money won’t flow.

Most of them are in place at this point, and so I think this summer

is when we will see a lot of those funds coming our way.

Governor RENDELL. Could I jump in on that?

Mr. LYNCH. Please do, Governor.

Chairman TOWNS. Governor, we didn’t swear you in yet. So

you’re going to have to hold it for a second.

Governor RENDELL. I promise I’ll tell the truth.

Chairman TOWNS. You’re going to have to hold it a second. I tell

you, let me swear you in. If you’ll stand now, we’ll swear both of

you in.

[Witnesses sworn.]

Chairman TOWNS. You may be seated. Now you can participate.

Governor RENDELL. I think the point that Governor Patrick made

is a very good one; and I think the administration worries about

it and we do, too. I mean, I have personally said that I am going

to oversee every dime of the stimulus money for my last 18 months

in office because I want it to go well.

And I see—and I don’t mean yourself because you’re certainly not

alone. But I read in the newspapers, Politico today, stimulus money

getting out too slow, etc. If this money had been thrown out the

door without proper planning, if this money had been rushed out

in the streets, a compacted RFP process so that really the Governors could pick who the contractors were, etc., well, there would

be hell to pay. Because there were two things that all of us worried

about; and I think the administration did, too: getting it done fast

but getting it done right. And I think the administration has struck

the proper balance, and I think we have.

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I saw Mr. Dodaro’s answer—I don’t know if it was Congressman

Issa’s question—but he said, look, where there are existing streams

like the transportation money, transportation money we just handled like any Federal money funds. The money flowed to the regional planning organizations by formula. They made the decisions

on projects, gave them back to PennDOT.

Where that was the case we’re out—we’re in the ground on more

than a half of our 242 transportation projects. We have a billion

plus in transportation dollars. That’s incredible to do it in less than

4 months. The transportation plan was approved March 12th. It’s

less than 4 months. That’s an incredible record of success.

But for other things like the energy program or things like that,

the Federal Government’s developing their own guidelines, and

they shouldn’t rush. In fact, if you looked at my testimony as chairman of the NGA, one of the things the NGA asked for is a little

bit more time, not to be quite so rushed so we can have a little bit

more time in the planning process. Because it’s our rear ends on

the line. If something in Pennsylvania or Maryland or Massachusetts gets screwed up, there’s waste or fraud or the money goes to

projects that aren’t worthwhile, we’re going to get it before the administration.

I think they’ve struck the proper balance. If you’re frustrated, so

am I. I believe that this program will, in fact, have a significant

effect in not only job retention but in job creation. But, remember,

it’s just barely July. July, August, September, October, you will see

unbelievable amounts of people coming back to work on the infrastructure portions of this and orders going into factories all over

the country. So I think we tried, and the administration did, to do

the two things: do it fast but do it right.

Chairman TOWNS. The gentleman’s time has expired.

Mr. LYNCH. Thank you. I yield back.

Governor RENDELL. Sorry.

Chairman TOWNS. Mr. Issa.

Mr. ISSA. Governor Patrick, I appreciate you being here; and I

understand you have to leave shortly. I’ll be brief. This may not

come as a surprise to you at all, but I have a concern specifically

in your State, and correct me if anything in the Boston Globe is

wrong.

Governor PATRICK. There isn’t time.

Mr. ISSA. I do it with the LA Times whenever I can, too.

But the Federal prevailing wage is $37.45. It was reported in a

couple sources here. But I have the prevailing wage, if you will, the

actual market wage in your area in the Boston area is $27.09. So

Federal prevailing wage is higher than the actual prevailing wage

of sort of everybody, and that’s not uncommon. But Massachusetts

has chosen a prevailing wage of $58.84, and it’s been reported by

the Boston Globe and others that this represents, depending upon

which figure you look at, $141 million to—I have figures up in the

$174 million range, but just using the Globe $141 million of wasted

money.

Now, can you explain to us why you would pay higher than the

Federal prevailing page if the money was delivered to you by the

Federal Government in order to maximize the, if you will, gain in

jobs or minimize the loss of jobs?

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At the earlier testimony, the $141 million would be at least 1,500

jobs that would have been saved had you used the Federal prevailing wage and, of course, even more had market forces allowed for,

if you will, in a tough time the lowest wage, the highest return to

Massachusetts and, of course, the greatest amount of people not

laid off.

Governor PATRICK. Congressman, thank you for the question. If

you give me the cite of whatever article it is you were referring to,

I’d be happy to check on and followup.

I think you know that we have different prevailing wages for different—for different trades——

Mr. ISSA. Right.

Governor PATRICK [continuing]. And different jobs. And, as you

said, the average prevailing wage in Massachusetts is lower than

the Federal average on prevailing wage, but I’d be happy to check

on those facts.

Mr. ISSA. Right, and the actual $141 million total was from the

Beacon Hill Institute; and, as I say, I will give you a copy of this.

But this goes to, you know, this—the Congress passed this with

a Davis-Bacon provision. So there’s no question that you were required to use a Federal prevailing wage. You were not allowed to

use, if you will, what I might have considered, which was get the

maximum amount of people working.

My grandfather worked in WPA; and, trust me, that was not a

Federal prevailing wage as we understand it today. They were paid

very little, but they were paid every day, and it really made a difference in knocking down unemployment.

And to a certain extent this is fashioned after WPA. We’re asking

you to find projects, in this case shovel ready, but find projects, get

them out, get the maximum amount of people. You’ve been, to a

certain extent, incentivized to do it based on number of jobs, not

necessarily dollars spent. So wouldn’t it be—as Governors, chief executive, wouldn’t it be reasonable for you to have tried to maximize

the number of jobs it created rather than the maximum dollars to

those who were fortunate enough to get those jobs?

Governor PATRICK. Well, Congressman, I appreciate the question,

but in my original line of work as a lawyer that would be called

a question that presumes a fact not in evidence. You’ve told me

what you have read in the newspaper. I don’t know. I haven’t seen

this article. I would not—it’s——

Mr. ISSA. I understand the Boston Globe is not as widely read.

Governor PATRICK. It’s not a dig at the Globe. It’s just that I

don’t know what you’re referring to. I do know that we have, in the

view of our own oversight and the Inspector General’s oversight,

complied fully with the—with the expectation of that.

Mr. ISSA. There’s no prohibition to you paying more than DavisBacon. I understand you have that right. But as chief executive,

would you say—and this is not based on facts not in evidence—but

would you say that your obligation is to get the maximum work

done, the maximum number of employment and, therefore, the

least expensive cost of each production? Meaning, if you will, if you

can pay less or mandate a lower figure than you currently might

mandate for a particular job, wouldn’t it be consistent with the inVerDate 11-MAY-2000 14:47 Dec 10, 2010 Jkt 000000 PO 00000 Frm 00148 Fmt 6633 Sfmt 6633 U:\DOCS\62119.TXT KATIE PsN: KATIE
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tent of Congress and with the best interests of the people of your

State that you in fact do that?

Governor PATRICK. Well, not only would it be consistent but I

think it’s what we do. We have our own State laws that require an

open and transparent bidding process and that—and that decisions

be made based on the most effective and least—least expensive.

Mr. ISSA. OK. I thank you, and we’ll provide you a copy of this,

and perhaps you can give me your response to that.

Governor PATRICK. Great. Thank you.

Chairman TOWNS. Governor Patrick, thank you very much for

your participation. According to the agreement, it’s now 1:02, and

I’m 2 minutes behind my schedule with you. Thank you so much

for coming. Thank you.

At this time, I would like to yield to Congressman Van Hollen

to introduce the Governor of Maryland.

Mr. VAN HOLLEN. Thank you, Mr. Chairman.

I want to thank all the Governors here but a special greeting to

our Governor from the great State of Maryland, Governor Martin

O’Malley.

We have two other Marylanders on this committee. This has

been—as you know, schedules got moved around, but on behalf of

Elijah Cummings and John Sarbanes as well, we welcome you, and

just, Mr. Chairman, to say that we are very proud of the fact that

our Governor was ready to go as soon as the economic recovery

money hit the street.

I know a number of States have vied for this position, but I think

we—the record will show that we, when it came to transportation

money, had the first project to hit the street shovel ready; and he’s

combined that with an accountability system that he’s carried over

from his days as Mayor of Baltimore and now as Governor, that

this money is being well-spent in our State of Maryland.

So I want to thank you for having this hearing and thank Governor O’Malley for being here.

STATEMENT OF MARTIN O’MALLEY

Governor O’MALLEY. Congressman, thank you very much for

your introduction.

Chairman Towns, thank you. Ranking Member Issa, members of

the committee, it’s an honor to be here with all of you today.

Mr. Chairman, I’m encouraged and congratulate you on the passage, in the House, anyway, of your legislation on enhanced oversight of State and local economic Recovery Act which provides some

additional guidance and some greater flexibility and clarity for us

at the State.

And, again, I want to thank Congressman Chris Van Hollen for

his leadership on these issues—we were together when we were

breaking ground on some of these recovery projects in Montgomery

County—and also Congressman Elijah Cummings, who was here

earlier, and Congressman John Sarbanes.

For those of us working for our citizens in State government, the

American Recovery and Reinvestment Act has really been a lifeline. It is helping us to create and save jobs in Maryland. It is allowing us to position our State’s economy to bounce from this recession; and in these tough times it’s helping us to protect some of our

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most important priorities, namely, the health of our people and the

education of our children.

In Maryland, we share President Obama’s commitment to investing our American Recovery and Reinvestment Act funds with maximum efficiency, maximum openness, maximum transparency; and

to guide us in this process, we’re using an initiative and a system

of management that we call StateStat. StateStat is born out of

CitiStat, which in turn was born out of ComStat, the system that

the NYPD used to dramatically reduce crime in New York City.

Its first tenet of all of those stats is timely, accurate information

shared by all. Timely, accurate information shared by all. We took

CitiStat with us to State government in 2007, so that when the recovery and reinvestment dollars were appropriated and passed, we

already had a tracking system in place; and we used StateStat and

our first-in-the-Nation IMAP—which, by the way, was developed in

cooperation with ESRI, I believe a San Diego-based company that’s

terrific on GIS—to strategically target our Recovery and Reinvestment Act investments.

We routinely and relentlessly meet with key agency officials. We

collect and analyze benchmark data in order to change tactics and

strategies where necessary to achieve our goals. We use GIS technology to map and track our progress, connecting these important

dollars not only to the programs from which they’re coming but to

the places, the towns, the municipalities, the counties, the neighborhoods to which they’re going, making real differences in the

lives of real people. And, again, we’ve made the data available on

our Web site for all of our citizens to see.

I’m going to run through a brief slides here as I wrap up.

This is our StateStat Web site. If we click here on this recovery

tab, we call up a special page dedicated to the Recovery and Reinvestment Act. We tried to make sure that stylistically, design-wise

this flowed from the Federal site. If you look on the left, we have

tabs which lead to two GIS maps which are part of our IMAP. One

is an overview; the other is more detailed.

Here on the overview map we display the overall State-wide

breakdown of Recovery and Reinvestment Act funding areas. We

also allow citizens to click on their own county to retrieve local information. For example, if we click on Prince Georges County, you

can see the county is receiving $319.9 million in stimulus funds;

and, again, you see the breakdown and the dollar amounts by category of education, health, transportation, and so on.

If we click on the individual slices of the investment pie, we

learn that of these investments $117.9 million are targeted toward

protecting educational achievement this year. That is the largest

piece of the recovery dollars that are going to Prince Georges County. We’re very proud in Maryland to have the No. 1 school system

in America, according to Education Week magazine. It’s a top priority. It is our economic competitive strength, and we want to make

sure that we protect the future of our kids in these troubled times.

If you want more information on how we are investing education

resources in Prince Georges, again, you can click on the map. You

can see a breakdown of what amount of this is Title I, what

amount is special education, what amount is State adequacy and

equity funding and other aid.

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Now, let’s move to the physical capital investments, those job-creating rather than job-saving investments. On the left, we can click

to access again the more detailed map. If you look toward the top

of the screen, we give citizens the option of putting their own address and ZIP code in Maryland.

For the sake of this demonstration, we haven’t inserted Congressman Van Hollen’s address but rather the Rockville Volunteer

Fire Co. at 380 Hungerford Drive, 20850. By clicking the ‘‘show individual projects’’ on the map button, you can see every Recovery

and Reinvestment Act-related project in proximity to this address

highlighted on the map.

Then we can click on, for example, this highway project; and, as

you can see from the information again posted on the map for all

to see, it’s a $1.7 million project on Maryland Route 28. We’re expecting bids on July 16th, and we aim to have a contract to begin

work in September. And, again, all of that information is on the

map.

We’re also mapping our water quality and drinking water upgrades projects. You can see this is a WWSC project in Prince

Georges County.

We can also click on the weatherization data to see how many

units each county is expected to—expects to weatherize. Prior to

the Recovery and Reinvestment Act, we were weatherizing approximately 400 houses a year. With these important investment dollars, we’ve set a goal of 3,000 houses in 18 months.

The Web site allows citizens to track our progress, again, in

Maryland county and State-wide; and, through StateStat, we are

looking at the same data to ensure that we’re meeting our goals

and to hold relevant agencies accountable for changing course, if

necessary.

Only two more slides, Mr. Chairman.

StateStat also updates the map on a weekly basis to reflect the

fast pace of the implementation of our transportation projects.

Let’s click on transportation, Beth, if you will and zoom in.

For each county, we have a level of specificity available that allows any citizen to easily view things such as who has been awarded the contract for specific transportation projects; also, the bid and

award date of these projects, the amount; also, the degree of minority business participation as part of this contract. As I mentioned,

for every awarded contract, we’re also tracking that minority business enterprise participation. Once the contract is awarded, we’re

able to show the level of minority business participation, and Congressman Cummings has been a national leader in these efforts,

and we appreciate his leadership and partnership.

In conclusion, Mr. Chairman, these are just a few examples, but

all of the information’s available. Most of these programs are already in existence. We’ve made all of this available to see on our

recovery Web site, broadly sharing information instead of hoarding

it, providing for maximum degree of openness and maximum transparency, giving our public the tools that they need to monitor the

progress of their own government.

For those who are rightfully concerned about the integrity of

these Recovery and Reinvestment Act dollars, we agree with the

words of the great Louis Brandeis who said that sunlight is the

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best of disinfectants. And by measuring performance, by promoting

openness and transparency, by using tools like mapping and the

Internet, we believe that our efforts can go a long way in conjunction with other States toward guarding against waste, fraud, or

abuse and, perhaps more importantly, strengthening the connection between citizens and their government and the results that all

of us want to see from these recovery and reinvestment dollars,

namely, an economy that’s expanding, an American economy that’s

creating more opportunity and more jobs.

Thank you very much.

[The prepared statement of Governor O’Malley follows:]

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Chairman TOWNS. Thank you very much, Governor O’Malley.

I’d like to ask unanimous consent that Congressman Dent from

Pennsylvania be allowed to sit and that Congressman Robert

Brady of Pennsylvania be allowed to sit. They’re not on the committee but be allowed to sit.

And I would like to yield at this time for Congressman Brady to

introduce the Governor of Pennsylvania, Governor Rendell.

Mr. BRADY. Thank you, Mr. Chairman, and also thank the ranking member and the members of the committee for allowing me to

participate. It’s my honor to introduce to you my Governor, our

Governor, from the State of Pennsylvania.

When we first passed the stimulus package and we heard it

wasn’t going through congressional districts, there was a little bit

of concern out there with all of us. But when I heard it was going

through the State, through our executive director or executive officeholder or Governor through the State of Pennsylvania, I was

really relieved.

Because I’ve known the Governor for 8 years as a District Attorney, 8 years as our Mayor and now 6 years as our Governor. He’s

extremely fair. He’s extremely knowledgeable. He’s doing the right

things with the money, putting them in the right places where it

needs to be. He’s venting them out transparently throughout the

whole State. And I do appreciate it, and I do appreciate what he

does. And we’re—our funding and money that we do get into the

State of Pennsylvania is going to the best use possible.

Also, and I do appreciate you letting me sit up here, because it

may help him to take another little look at the First Congressional

District in the State of Pennsylvania, to be a little more helpful

than he has, and I do appreciate his helpfulness.

Again, my honor and my pleasure to introduce to you our Governor, Governor Rendell.

Chairman TOWNS. I think you’re introducing and lobbying at the

same time.

Governor.

STATEMENT OF EDWARD G. RENDELL

Governor RENDELL. It’s an honor to be here, Chairman Towns.

Of course, Congressman Brady is, to me, my chairman. Because, as

you all know, he’s been chairman of the Philadelphia Democratic

Party for a long time, most all of the time I’ve been an elected official; and he will always be Chairman Brady to me.

Let me begin by thanking you for the opportunity to come down

here, and I know Governor O’Malley and I will welcome questions.

So I will try to be brief.

Let me also point out that the State of Pennsylvania, in this time

of fiscal challenge to all of us, is much more fiscally conservative

than the State of Maryland. I don’t have a fancy power point to

demonstrate to you what we’re doing, but I do have attached to my

testimony a one-page printout of what our Web site looks like.

This is a contract for a road resurfacing which shows you exactly

what the citizen can find out about it, and the citizen can find out

just about everything: start date, projected completion date, how

many jobs it’s creating, who are the major contractors that got the

awards, and how much money each contractor is getting, what the

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goal of the project is in terms of road resurfacing or bridge rehabilitation. And we’re committed; and I’ll talk very briefly in a minute

about our oversight, our transparency, and our fiscal responsibility.

But I do want to say one thing. Because I had a chance to listen

on TV to the prior panel. I want to say one thing about the stimulus. And I had a chance—the Congressman and I had a chance to

discuss a little bit about this idea that the stimulus isn’t moving

as fast as it could.

Governors—and Governor O’Malley and Governor Patrick will remember that—we met with President-elect Obama in Philadelphia

in very early December. And the purpose of our meeting was to ask

the President for help in three ways: one, to help our citizens who

are in need and struggling with the stimulus; two, to help States

that were just—because of the down—the downturn in revenue

were up against it; and, three, to create jobs through infrastructure.

The stimulus program I think took great steps to achieve all

three goals. Pennsylvania gets $9.9 billion of stimulus money

through formulas for Medicaid, for transportation and infrastructure, for energy, for education, 9.9. Our citizens get about $8 billion

directly from the stimulus, and our citizens—3.7 million Pennsylvanians are enjoying the tax cut that has already appeared in their

paycheck.

Almost a million Pennsylvanians are enjoying the additional

money in the SNAP program in food—what used to be referred to

as food stamps. Over a hundred thousand Pennsylvanians are getting extended and increased workmen’s unemployment compensation benefits.

So the point of giving direct aid to the citizens, that sometimes

is overlooked when we talk about stimulus. It’s not what’s written

up. It’s not a question of oversight, because that money goes directly to citizens. But Pennsylvania citizens are infinitely better off

because of the stimulus, and a lot of that money, like the $32 increase in food stamps a month, that has pumped a significant

amount of money into the economy. And food stamps get spent.

They get spent immediately, and they get spent at usually corner

grocery stores, and it goes all the way through the distribution

chain, that type of spending.

So, No. 1, I think the stimulus has achieved its goal early on in

helping individual citizens. I’m sure the same thing is true in

Maryland and Massachusetts.

No. 2, providing essential aid to the States. Thirty of our States

have raised taxes this year. Almost all of our States have made significant cuts in services. The increase in taxes, the cuts in services

would be infinitely greater were it not for the aid that the stimulus

program has given to the States. Without the money that we receive in this coming fiscal year—we’ll receive close to $2 billion in

stimulus aid that helps us defray costs in our budget. Without that,

there would be thousands of additional layoffs, not just of State

workers, State police, caseworkers in our system, but teachers,

local law enforcement officers, municipal and county workers and

employees. All across the State we would have seen thousands

upon thousands of additional layoffs.

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And when you do this computation—and I know it’s very, very

difficult to put your finger on it, how many jobs in stimulus retained or how many jobs created—well, I can tell you because of

the direct aid to States it helped retain an awful high number of

government jobs, and that not only helps job retention but it helps

keep those people out there serving the people in need at a time

when obviously need is increased because of the economic recession.

The third goal of the stimulus was to jump-start ready-to-go

projects, and I think most of us have done it right. Most of us took

the transportation money, working with our regional planning organizations, and did fix it first. Why did we do fix it first? Because

if you’re fixing a bridge, you don’t have to do an environmental assessment. You don’t have to do an environmental impact statement. You’ve got the right of way acquired, and you can get to

work on that bridge in less than 4 months and, in Maryland’s case,

even faster. So we did fix it first, and we’re spending the money.

Pennsylvania originally had 242 projects—by the way, the good

news is, because construction costs are lower than anticipated, 17

percent lower in Pennsylvania, we’ve been able to add more

projects to the ARRA list, but we have—work has begun on 131 of

our 242 bridge and road projects in less than 4 months. We had

an expedited bidding system. We gave contractors 60-day limit

when they could begin work, and things are happening.

I told a story. I was in Beaver County, a distressed county north of Pittsburgh, and we were embarking on an $11 million project to

repair a bridge that went from the city of Beaver into the city of

Rochester, 38 workers and 5 vendors. The contractor and four vendors, all Pennsylvania companies—steel, asphalt, timber, concrete—all Pennsylvania companies, all of whom bring back people

into their factories as they get new contracts.

If you look at the job loss in Pennsylvania—and we’re a little bit

better than most States. Our unemployment rate is a point and a

quarter below the national average. But if you look at the job loss

in Pennsylvania, the two big sectors, construction and manufacturing. What infrastructure stimulus does? Construction and manufacturing. It’s working. And the good news is it’s only going to get better. Most of our projects are going to roll out and kick into high

gear the rest of July, August, September, October, November.

You’re going to see a huge impact.

So I think the stimulus is going to work. I think any judgment

on it is premature, and I think we should all—not make this a partisan issue. We should all take a deep breath and let’s see how it

works.

I personally think we should have more infrastructure. So I

would like to see a second stimulus devoted solely to infrastructure.

It’s the one that produces jobs and produces orders for factories,

American factories.

But I also agree that let’s see how this rolls out. Let’s see how

this rolls out before making a decision on anything else. But I

think it is going to be successful, and I think it is working, and I

urge everyone to be patient.

Last, controls. We’re much like Governor O’Malley, and Governor

O’Malley has done a fine job in controls. Our transparency is just

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that. We even take input before we issue RFPs like on weatherization, for example. Pennsylvania spends $30 million a year on

weatherization. Most of that is Federal. We’re now in receipt of

$253 million of weatherization funds, 30,000 homes.

We don’t have—initially, we didn’t have a clue how to ramp up because most of the $30 million is done through nonprofits. So we

went online and got suggestions from people and providers and the

nonprofit community themselves, and we had discourse online. It’s

really exciting to see the discourse.

We have oversight. We hired a CEO, a retired CEO of a company, a real tough former West Pointer. He is our accountability

officer; and he has wide, sweeping powers.

We put together an oversight committee, as Congressman Brady

knows. The two senators were allowed to put one person on the

committee. The Republican House Caucus put one person on the

committee. The Democratic House Caucus put one person on the

committee. Same thing with four caucuses in Harrisburg. So we

have eight Members that came from Republican and Democratic

Members of various legislatures. Then we have the head of the

Chamber of Commerce, the head of United Way, and the head of

the AFL–CIO; and that’s our 11-member oversight panel.

In terms of fiscal controls, Pennsylvania every year, State and Federal and other fund money, we spend about $61 billion; and

we’re fortunate that we have all sorts of controls, pre-audits, post

audits by the Auditor General. We have comptrollers in every department. We’ve got a very, very good, sound system.

But we didn’t rely on just our system and just the Federal controls. We worked with the GAO, and the GAO has been tough. I

don’t know if Governor O’Malley would agree with that, but the

GAO holds us to a very tough standard. They wanted us to do risk

assessment. We have 90 different stimulus projects. We did a risk

assessment with the GAO and came up with 15 of the ones with

the highest risk, including, for example, the weatherization project;

and GAO in its report says Pennsylvania has taken steps to track

recovery funds and assess risks.

So we’ve gotten high marks. We’re going to continue to get high

marks because it’s important to us.

The Congress and the administration took a leap of faith with

stimulus. And we know, as Governors, that a lot of the implementation is on our hands; and, ladies and gentlemen of the Congress,

we don’t intend to let you down.

[The prepared statement of Governor Rendell follows:]

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Chairman TOWNS. Thank you very much, Governor.

I yield 5 minutes to the gentleman from Massachusetts, Mr.

Tierney.

Mr. TIERNEY. Thank you, Mr. Chairman.

Governors, thank you for your testimony on that.

A couple of questions. One is with the weatherization. A lot of

that money is yet to be implemented. I think, Governor Rendell,

you mentioned that the infrastructure is a bit of an issue. Could

each of you tell us what you’re doing to make sure that we have

that infrastructure ramped up? I know we have money in the

Green Jobs Act which could train people for that, as well as other

resources. And then what structures you’re going to use to actually

get it done and when do you think in your respective States that

money will start to show an impact in terms of hiring people and

getting the work done.

Governor Rendell, if I can ask you to start.

Governor RENDELL. Sure. As I said, it’s one of our biggest chal- lenges because our infrastructure spends $30 million a year. All of

a sudden, we have $253 million to spend in 18 months. Our infrastructure on the $30 million is that we go through nonprofit organizations in different regions and they pick the contractors. We’re not

certain—I mean, we are actually fairly certain that the current infrastructure cannot deal with $253 million. So we’re in the process

of—as I said, we’ve taken input from these groups. We’re in the

process of trying to build an infrastructure that can do this, and

it may mean getting some private firms involved in doing the

weatherization.

So we’ve been talking to a lot of the ESCOs, the companies that

do energy controls on buildings and whatever; and we have ESCOs

working on every public building in the Commonwealth. We’re

looking at the ESCOs and seeing if we can talk them into whether

it’s financially remunerative enough for them to do some of the

work. We’ve hired two people with experience in this to help us

flesh out our weatherization program. But it is a difficult program.

But I just want to give you a quote. In my testimony, I quoted

a weatherization leader from Lycoming County, nonprofit, who

says: In my opinion, this really is a good way to make stimulus dollars work. There will be job creation, subcontracting, and materials

purchase. The beauty of it, too, is that we will be helping a lot of

people reduce their energy costs.

So I think the weatherization program is a great program. Once

we can gear it up, I think you will see a tremendous amount of job

creation and, again, tremendous amount of subcontracting and material purchase.

Mr. TIERNEY. I agree with your last point wholly. That’s why I

asked the question.

Governor O’Malley.

Governor O’MALLEY. We commenced work on our first weatherization project approximately 2 weeks ago in a home of a very nice

family in Montgomery County, and what we have found is that the

capacity for accommodating weatherization work was better in

some counties than in other counties, and so we’re—we’ve created

partnerships much like the ones Governor Rendell talked about.

We found that our community colleges are also tremendous sources

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for us in terms of providing the training, and the companies themselves are helpful in that as well.

It has been a bit of a ramp-up. Some of our counties are

partnering with neighboring counties in order to get them up to

steam, but we’ve already begun that work, and we anticipate that

we’re going to be able to fill the demand and get it in done in a

timely fashion.

Governor RENDELL. To add to what Governor O’Malley said, it’s

a great program for taking displaced workers, cabinetmakers

whose factory closed because they made cabinets for homes—for

new homes, taking them and giving them not jobs that necessarily

are going to pay at the income level they were getting before but

jobs that will get them an income flow again. And we’re spending—the stimulus gave us almost $700,000 to do job—excuse me, $700 million to do retraining, and we have a lot

of retraining programs through the Department of Labor for the

weatherization program because 30,000 homes you can imagine in

18 months, it’s very labor intensive.

Mr. TIERNEY. Thank you. I know a lot of Members here are having some discussion about whether the jobs are being created fast

enough, but I note that our minority leader, John Boehner, was

quoted on June 15th as saying he’s pleased that the Federal officials stepped in in order for Ohio to use all of its construction dollars for shovel-ready projects that will create much-needed jobs.

And I think that’s what most people expected. This will happen on

that.

Do you agree with Mr. Boehner, that once we get this money out

of the Federal agencies and to the States that, in fact, we should

see some jobs created in both your States?

Governor RENDELL. At every level. I mean, the transportation

money—again, Maryland was ahead of a lot of us, but you’re going

to see in Pennsylvania, July, August, September, October, November, tremendous amount of construction work, I mean a tremendous amount of construction work.

Mr. TIERNEY. Do you agree, Governor O’Malley?

Governor O’MALLEY. Congressman, I do. We anticipate some

17,000 jobs being created in the course of the life of the stimulus

on transportation. I support it because of these transportation dollars, not to mention the water and the wastewater projects. I mean,

we’ll have a ramp-up trajectory.

Mr. TIERNEY. Is there any doubt in either of your minds that the

money from the Recovery and Reinvestment Act given to States so

far has at least stopped or enabled you not to lay off additional people? I know it’s been tough on everybody’s State and some people

have been laid off, but what would be the situation in your State

in terms of your losing your job and things not happening, services

for citizens if the Federal moneys had not been out there?

Governor O’MALLEY. I can tell you that there were 700 jobs that

were about to be eliminated within our State government on the

eve of the passage of the Recovery and Reinvestment Act. So that’s

700 right off the top. But the ripple effect of that, the cascading effect of that, if we had to close $2 billion, $3 billion holes in our

budget in the current year, that would have affected all of our

schoolteachers. That would have been teachers being laid off. That

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would have been other layoffs at the local level as well. We would

have exacerbated what is already a very daunting and challenging

problem. So there is not a doubt in my mind that these dollars

have actually been very, very effective in keeping this unemployment rate from being worse than it otherwise would be.

Governor RENDELL. I agree, and I related that in my earlier testimony. But I also think it is creating new jobs. The 38 jobs on that

bridge in Beaver County that I talked about, every one of them

were building trades, men and women, who hadn’t worked in 6

months, hadn’t worked in 6 months. The vendors told me that they

were bringing back people that they had previously laid off. We

had a big ceremony. So we’re actually—in addition to retaining,

we’re creating new jobs.

And I also want to say that I think most States—and I know

Maryland’s doing this—we’re not using this stimulus money as

supplanting money we’ve been spending before. For example—and

Congressman Brady knows this—Pennsylvania is engaged in its

own accelerated bridge program. I got the legislature to commit an

additional $350 million last fiscal year to do bridge work. All told, Pennsylvania there is $1 billion of road resurfacing and bridge in AARA. All told, Pennsylvania is spending $3 billion on

this.

So we are trying to add to the stimulus program with our own

stimulus, and I think that’s true in a lot of States.

Chairman TOWNS. I now yield 5 minutes to Mr. Chaffetz of Utah.

Mr. CHAFFETZ. Thank you both for being here. I appreciate your

service and your commitment to our country and your States. I appreciate the opportunity to ask you a few questions.

Governor Rendell, how many jobs have been created in Pennsylvania with the stimulus?

Governor RENDELL. Well, so far, the $17 billion that’s come into

Pennsylvania, about $1 billion has been spent. Now, when I told

you that 131 of our 242 projects are underway, we pay as you go.

We reimburse for work done by the contractor. So that number is

going to ramp up very, very fast.

I would say on creation of jobs, there are probably a couple of

thousand at this point; on retention of jobs, probably 5,000 to

10,000.

Mr. CHAFFETZ. One of the things we struggle with is everybody

estimating and guessing. The real number we look at is the unemployment rate, and it’s skyrocketed.

Governor RENDELL. For us, though, our unemployment rate is

about a point and a quarter below the national average. Still horrible. Horrific. But a point and a quarter below the national average. I think the stimulus has helped us to some degree. And again,

the State stimulus adding to the Federal stimulus I think has been

very effective for us. Whereas we are just starting work on the

bridges and roads with the Federal stimulus, our accelerated

bridge program, we had targeted 470 bridges, and we are working

on 420 now. So that is having an effect. I know each of us want

definitiveness.

Mr. CHAFFETZ. When you say $1 billion, and you talk about 2,000

jobs, and yet we hear through the testimony from the Office of

Management and Budget that one of the important things you can

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do is get money back into people’s pockets. We are going to create—70 percent of the jobs created in this country are created from

small businesses. And when I hear Governor O’Malley talk about

700 jobs, those are 700 government jobs.

Governor RENDELL. But first and foremost, the retention of jobs

initially—.

Mr. CHAFFETZ. Pardon me, Governor, my time is so short. I know

I’m interrupting.

Your numbers directly coincide from what we heard from the Office of Management and Budget. The Federal Government has

spent some $75 billion and can only point to 150,000 jobs.

Governor RENDELL. I think I can explain that, though, Congressman. A lot of that billion dollars has gone to individuals. It’s gone

to the worker who has lost his job and is getting unemployment

comp, he——

Mr. CHAFFETZ. But that’s not creating jobs.

Governor RENDELL. I understand. But what I’m saying is, remember, the stimulus had a number of different goals, and I

hope——

Mr. CHAFFETZ. My understanding it was jobs, jobs, jobs.

Governor RENDELL. It was, but it was also relief for people in

need. So when you consider giving an unemployed worker a longer

period of unemployment compensation and a higher stipend, that’s

not going to create a job. Maybe he will have more money to spend.

But do you think that was an appropriate thing to do under stimulus?

Mr. CHAFFETZ. When you go out and you spend hundreds of billions of dollars, there are going to be jobs created and there is

going to be relief given to the people. I understand that.

I think what I disagree with is the notion that where government

is creating jobs, they’re creating government jobs. Let’s empower

people.

Governor, I will give you a chance to answer.

We heard in earlier testimony that 28 States have raised taxes,

which you say deepens the impact of the downturn. And is that

your perspective as well? If you raise taxes within the State, would

that, quote, deepen the taxes?

Governor RENDELL. It depends on the scope of the increase, No.

1. But No. 2, without the stimulus, those 28 States would have had

to raise taxes infinitely greater. I mean, you’ve got to understand

that. Right now, this year that concluded——

Mr. CHAFFETZ. I guess the question is, who should pay for it?

I want to give Governor O’Malley a chance here, too. But that’s

what is offensive, I think, to a lot of people is that people will have

to end up paying the tab for—States like Utah, we balance our

budget. We don’t have—we had a $400-plus million rainy day fund.

We didn’t have to tap into that.

Governor RENDELL. I would submit to you, if you look at the demographic of Utah, it’s totally different than the demographic of

Pennsylvania and Maryland when it comes to people living below

the poverty line, the number of disabled people, the number of specialized students. You can’t compare apples to oranges.

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But the one thing that I wanted to say is look, I think the stimulus bill was misnamed. Part of it was stimulus, part of it was job

creation, but a lot of it was relief. It was——

Mr. CHAFFETZ. Part of the semantics that we are struggling with

is what the jobs are.

Governor RENDELL. That’s why I would like to see—and again,

my guess is you are not in favor of an additional stimulus, but if

you do it just do infrastructure, I guarantee you——

Mr. CHAFFETZ. 3.5 percent of the stimulus was infrastructure, as

I understand it, roads and bridges. That’s a scam. Wow, you know?

Come on.

Governor RENDELL. Infrastructure, because I can bring you to

every infrastructure project we’ve got going and you will see people

working who weren’t working before. You will see Pennsylvania

factories getting orders that didn’t have orders before, and that’s

what it’s all about.

Governor O’MALLEY. And they work for private companies.

Governor RENDELL. And they work for private companies. They

don’t work for us.

Chairman TOWNS. The gentleman’s time has long expired.

Mr. ISSA. When the Governor was saying ‘‘jobs, jobs, jobs, give us

public works jobs, road jobs,’’ it was just too good to cutoff, wasn’t

it?

Chairman TOWNS. But I think that the gentleman needs to understand, though, that when you look at the whole situation in

terms of job creation, you cannot look past retention. I think about

the 14,000 teaching jobs that were saved in New York City as a

result of the stimulus package; which means that affects our educational system, because if they had been laid off, then the classrooms, in terms of the amount of students there, would have been

much larger, the learning process would have slowed down and all

of these kinds of things.

Anyway. Let me yield to the gentleman from Virginia by way of

Massachusetts.

Mr. CONNOLLY. I thank the chairman and I would ask, without

objection, that my opening statement be entered into the record.

Chairman TOWNS. Without objection.

[The prepared statement of Hon. Gerald E. Connolly follows:]

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Mr. CONNOLLY. It’s fascinating to me to hear my friends on the

other side of the aisle express so much concern about jobs, since

every one of them voted against this recovery package. And had,

in fact, their view prevailed, there would be zero jobs. Zero. And,

in fact, it was because of their importunings, there was less infrastructure investment, Governor Rendell; isn’t that true?

Governor RENDELL. There was a movement in the House to dramatically raise the infrastructure investment and it got voted

down.

Mr. CONNOLLY. Precisely. The AMT may be a good thing to do,

but it was because of three Members of the other side of the aisle

in the other body who insisted that had to replace infrastructure

money that this went into the stimulus bill.

Having said that, one of the things that concerns me is we’ve

seen some linear thinking in this hearing today that literally takes

the amount of money and divides it by the amount of jobs and then

says that’s what it costs per job. Is that how it works?

For example, when you build, Governor O’Malley, a metro system

such as we have here in the Nation’s Capital, the only benefit from

that investment was the actual number of jobs created at the time

of construction. Isn’t that true?

Governor O’MALLEY. No. There would be a cascading benefit because of the demand created within the economy for all sorts of

things.

Mr. CONNOLLY. So there’s been a return on that investment?

Governor O’MALLEY. There is a return that’s much greater than

the initial investment, which is why in the past, this great country

always made big investments like that.

Mr. CONNOLLY. So, for example, Governor Rendell, when Dwight

Eisenhower, a Republican President, had the vision to make an investment in the interstate highway system, which today I think

probably would have been opposed by some of my friends on the

other sides of the aisle—and by the way, that water was carried

by none other than a Senator from Connecticut named Prescott

Bush—that interstate highway system created 50 years ago had a

drop-dead cost to it, but 50 years later has it had other positive

benefits since the construction?

Governor RENDELL. Sure, in terms of competitiveness, quality of

life, public safety. But it was also a great jobs and orders-for-American-factory bill as well.

Look, Congressman, if we are really concerned about jobs, I have

a suggestion: Change the way you score the Federal budget. And

it’s not just my suggestion and the organization I had, Building

America’s Future. I had Speaker Gingrich and former leader Gephart together, and they both say let’s change the way we score the

Federal budget, go off line, do a capital budget like every other political entity in this country has, put a trillion dollars into an infrastructure repair program. Let’s get it done in the next 5 years and

you will see this economy humming. Not just construction jobs but

steel plants.

Mr. CONNOLLY. Good point. But I guess I want to still return to

the point that you and Mr. O’Malley have clarified for us that you

can’t just count the exact jobs created by activity X today; you’ve

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actually got to look at whether it’s an investment that has a return

on it or is it just a sunk cost that has no other——

Governor RENDELL. You do the jobs on the constructionsite, then

go back to every vendor, interview the CEO, and find out how

many people they brought back or how many new people he hired.

That’s the only way to accurately do it.

Governor O’MALLEY. But then when you look at the lasting nature of the infrastructure, we also have future generations that

benefit from the upgrades to the roads, the bridges, and also the

water and infrastructure and its impact on the environment.

Mr. CONNOLLY. It enhances mobility, transshipment, movement

of goods and services, helps the economy in creating aggregate demand; is that true?

Governor O’MALLEY. That’s true.

Mr. CONNOLLY. So we can’t just look at it in a linear way.

I also heard earlier this morning from our friends on the other

side the idea—actually, the idea that wouldn’t have tax cuts been

better than direct spending. Did we not try tax cuts like the largest

tax cut in history in 2001 in this economy, Governor Rendell?

Governor RENDELL. We did.

Mr. CONNOLLY. And Governor Rendell, what was the net effect

of job creation from those historic tax cuts in 2001 by 2009?

Governor RENDELL. We actually lost jobs in the country and not

all to blame on the tax cuts, but tax cuts clearly by themselves

don’t work.

Mr. CONNOLLY. Do you know how many jobs have been lost, as

a matter of fact, in that recession that began in 2007, not January

2009?

Governor RENDELL. Several million.

Mr. CONNOLLY. 61⁄2 million jobs lost. So we’ve tried that; is that

true?

Governor RENDELL. Agreed. And remember, just to be fair, it was

President Obama who suggested the $800 family tax cut, which I

believe went to pay off bills—which was a good thing from the family standpoint, didn’t create any jobs. I would love to have seen

some of that tax cut money traded for infrastructure, because we

know infrastructure creates jobs. There is no doubt about it. There

is no quarrel. There is no debate.

And by the way, infrastructure is not a Republican or Democratic

issue. I testified before in the Senate Committee and Senator

Inhofe, I guess considered to be one of the more conservative Members of the Senate, said that aside from keeping the peace, he

thinks building the infrastructure is the second most important

thing we can do as a Nation, and we ought to get to it.

Governor O’MALLEY. And I might add that President Obama also

had to labor under the burden, as any chief executive of a Republic

does, of fashioning a consensus to get his package through Congress. And to have done nothing was certainly—I don’t think is an

option that anybody in these halls would say was available to him.

Chairman TOWNS. I yield 30 seconds to the ranking member.

Then at that point, I will yield 5 minutes to Mr. Dent who has been

yielded unanimous consent to be able to participate.

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Mr. ISSA. Thank you, Mr. Chairman. And I will use just a small

part of it to recognize the senior Senator Gore for his contribution

in that superhighway system under Eisenhower.

Mr. Chairman, pursuant to rule 6, clause 2, I request to call witnesses selected by the minority on 1 day of hearing concerning the

tracking of Federal Recovery Act dollars funding. And we request

the hearing take place before the summer district work period at

a mutually agreeable date.

And, Mr. Chairman, briefly, the only reason for this, as we discussed, is that we weren’t able to have a third panel. That panel

was dismissed and it was found to be inappropriate to put them

on either of the first two panels. So we do not have a witness, but

we believe it will be productive to have witnesses at a future time

to be decided.

And I thank the chairman.

Chairman TOWNS. Congressman Dent, Pennsylvania.

Mr. DENT. Thank you. And I know you are all going through a

tortuous process and I’m so delighted you could be here with us.

One thing on the stimulus. It seems that much of the funding is

being used to fill holes: budget holes, potholes. One thing I noticed,

too, is that you are a great advocate for infrastructure, as am I. A

lot of us are. But one of the frustrations—this is not a criticism of

you or PennDOT. It’s just a statement of reality that, according to

what I’m reading from PennDOT, there is $307 billion of commitments for roads, bridges, highway projects, and we’ve spent, up to

this point, about $9.3 million.

Governor RENDELL. There’s a big difference between spending

and obligated.

Mr. DENT. I know. This is what’s spent, not obligated.

Governor RENDELL. Again, it’s less than 4 months and most of

the projects, the 131 I talked about, are just starting up. And

PennDOT is pay-as-you-go.

Mr. DENT. I just want to be clear that you are not able to do a

whole lot of new capacity construction with this money because of

the rules. You get a dollar, you’re mostly doing resurfacing and

bridge repairs.

Governor RENDELL. Because we wanted to do it fast and create

jobs. And we built a new road. We would have had to do right away

an environmental assessment or environmental impact statement.

It would have been 2 years before we ever took a shovel to that.

Mr. DENT. That is right. The Federal process is what prevents

you from spending money on new capacity. I think we agree on

that point.

It seems that much of the stimulus money in Pennsylvania, and

I suspect around the rest of the country, is being used for basic

services—Medicaid, Title I, IDEA—and I think that’s an issue that

we are all confronting here. It’s going to basic services relief as opposed to jobs. I guess we can have this argument about relief versus jobs. But nevertheless, it’s relief money.

One other thing, too. In the GAO report, it says the Pennsylvania

Department of Education officials expressed concerns about assessing jobs created and retained, and they are telling districts not to

use the recovery funds to create new positions that will need to be

sustained beyond the 2-year period but, instead, to use the funds

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for one-time costs such as teacher retention, bonuses, and even

some recruitment issues.

So I guess really a question is: Will the teachers who receive the

so-called retention bonuses be counted as jobs retained? And is

there a way to quantify how many teachers would have left work

without the recovery fund retention bonus?

Governor RENDELL. I think the Department of Education can do

that for you. But let me amend what you said.

The Department of Education properly recommended to the

school districts that, under the stabilization money that they receive, not to do any new hires because you lose that money in 2

years and you have to, obviously, get rid of the people they hired.

But they urged them to do it on things that had a legacy, like keeping teachers or teacher training or school modernization. I would

have loved to have seen the stimulus allow school construction and

school rehabilitation. But somewhere along in this process, and I

don’t know——

Governor O’MALLEY. It was on the Senate side.

Governor RENDELL. They knocked it out, and you can only use

it for school modernization. That would have been the best use of

these funds because they’re 2-year funds.

Mr. DENT. Understood. But that same fund of money that is

being used for retention and recruitment—I’m not sure why we

need to spend money for recruiting during an economic downturn

like we are experiencing—but that’s the same money that could be

used for a State-related institution like a Penn State, Temple/Pitt.

And I know you have to make a lot of hard decisions, you and the

general assembly. Penn State is getting cut significantly, but instead of funds being used for retention or recruitment, could those

not be used for, say, higher ed?

Governor RENDELL. Understand, the four State-related schools,

Penn State, Pitt Temple, etc., are getting stabilization money. The

cuts they are receiving would be much worse without the stimulus.

Much, much worse.

Mr. DENT. I guess finally, I appreciate the fact that you came

here. I think we all have to recognize that so much of this money

is being used for restoration of basic services where most of it has

been sent. I understand the frustration on the infrastructure. I feel

it, too. Alan Bieler does a great job for everybody in Pennsylvania,

and I’ve had these conversations with him many times about the

inability to spend this Federal money quickly because of our rules

that constrain your ability to build new capacity.

Mr. ISSA. Would the gentleman yield?

Mr. DENT. I would be happy to yield.

Mr. ISSA. Following up on the question that I asked Governor

Patrick earlier. Would both of you comment on how you feel you

should spend the money when you do spend it on public works

projects. Should you be spending it at the lowest allowable wage

under the act, or would you support what has been reported—and

the Governor is going to confirm—that Massachusetts is about $17

above the Federal prevailing wage. As such, they’re getting less

bang for their buck.

Would you both comment on how you feel that should be done

in your States?

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Governor RENDELL. Well, I would say, very succinctly, we followed the Federal rules. So the money that’s being spent is being

spent at a wage rate similar to money we get from ISTEA. No difference.

In Pennsylvania, it’s interesting. We have regional assessments

of what the prevailing wage is. So the prevailing wage in Philadelphia for a sheet metal worker is significantly higher than the prevailing wage in Altoona. So Altoona road projects get paid at their

prevailing wage, Philadelphia at their prevailing wage. But it’s the

same as the money that you give us that’s joined with State money

every year. And that should stay that way.

Governor O’MALLEY. And I believe that’s the same way that we

do it.

Mr. CONNOLLY. Mr. Chairman, would you yield me just 10 seconds?

Chairman TOWNS. I will yield you 10 seconds, yes.

To Mr. Issa’s point. But irrespective of prevailing wages, is it not

true that the cost of construction has gone down so much that as

a matter of fact, these dollars are creating more jobs and allowing

for more construction?

Governor O’MALLEY. We are seeing more competitive bids coming

in. They are coming in much more competitively. In other words,

a better bang for the buck for our Federal tax.

Governor RENDELL. Our bids are coming in about 17 percent

lower than expected, which will enable us to not only do 242

projects, we are going to take the money again and spread it

through the regional planning organizations and do some additional projects.

Governor O’MALLEY. The people that are competing for these

jobs, these are small business people. These are people whose families have at some time put their neck on the line keeping food on

the table. We all know it’s the private sector that creates these

jobs. But when it comes to big things like our bridges, like our infrastructure, these are things that we can only do together. So

these are real private sector jobs.

I might also add, the safety net, the so-called filling of the gap

for the budget, in this great recession there is a much greater demand from hardworking people, who through no fault of their own

find themselves unemployed. And being able to provide health care

while they transition, being able to allow them to go and put food

on their table, creates demand in the economy.

And I might also add that the dollars invested in public education are most definitely saving teaching jobs. And teachers are

Americans, too, and they are part of this economy as well.

Governor RENDELL. The $32 increase in the food stamp program

in Pennsylvania translates to, in a year, almost $600 million of

more spending. Think about that. That’s how many people we have

on food stamps. Six hundred million dollars’ more spending, and it

is the direct and the most quick spending of all.

Chairman TOWNS. Let me yield myself 5 minutes.

OMB’s failure to issue timely guidance. In your opinion, if OMB

has not provided States with the necessary guidance in a timely

manner, is it possible to expect or is it feasible to expect States to

report all required data by October 10th? Is that possible?

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Governor O’MALLEY. From our standpoint, Mr. Chairman, we

certainly respect the hard work at OMB, and the clearer they can

be, the better. And at the same time with regard to the dollars that

we have already allocated and the dollars we are spending, we

don’t have a problem being able to report those in a timely manner

in Maryland, where we believe we can account for those and we

can fulfill those reporting requirements.

The difficulty comes in those things that go directly to local education boards or the things that go directly to municipalities. It creates a bigger challenge because we have to depend on getting the

feedback back from those municipalities and counties. So your efforts to force OMB to give us clear guidelines to put the responsibility where the dollars are being spent, I think is wise and proper.

Governor RENDELL. I agree.

Chairman TOWNS. Another concern I have. The communities that

desperately need Recovery Act funding are, in essence, being bypassed in many instances. Could you comment on this? I guess

Governor Rendell, as chairman of the National Governors Association, are you seeing this occurring in other States?

Governor RENDELL. Let me just refer to page 3 of my testimony where I talk about transportation funds. We’ve obligated $720 million of the $1 billion Federal funds we’ve gotten. And Mr. Chairman, $315 million of that is obligated in what are federally classified economically distressed areas. So that’s not quite half, but

about 45 percent of our transportation dollars are being spent in

economically distressed areas. We are trying, and I think we are

doing a pretty good job on it.

Governor O’MALLEY. Mr. Chairman, for our part, we map all of

the dollars that we distribute. And I have no doubt that if we were

not distributing these dollars in an equitable way, I would certainly

be hearing from the community leaders and mayors and other people.

So I think the map, the openness, the transparency showing

where the dollars land is critically important, and all of us need

to be able to do that, as indeed Governor Rendell has done on so

many of the things he mentioned, the tax cuts, the SNAP dollars,

extended unemployment benefits.

Chairman TOWNS. Would you talk about how the oversight committee works?

Governor RENDELL. The oversight committee meets twice a

month. And they’re given by the chief accountability officer all of

the material that had been done in the past and all of the decisions

that are coming up. Now, they can’t direct us to do anything per

se, but we do listen to their advice and listen to their suggestions.

And it’s been a valuable process. One, we get some very valuable

suggestions, but two, it really—because I’m from Philadelphia—I

was the mayor of Philadelphia before I was Governor.

Congressman Brady can tell you, there’s a belief out in the State

that Philadelphia gets all of the money. It’s not true, but nothing

I can do will disprove it. Since I’ve been Governor, I’ve given Allegheny County, which is greater Pittsburgh area, about $800 million

overall more than Philadelphia. No one in Allegheny County would

believe that.

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So there was a thought—and Congressman Dent can probably

tell you this—that some of his colleagues were going to direct all

of the money to the big cities in Democratic areas, etc. And that’s

just not the case.

First of all, so much of the money is driven by existing Federal

formulas. So for our transportation dollars, every county and the

State has transportation projects. And they made the decisions.

They’re involved in the regional planning organizations, they made

the decision.

The metropolitan Philadelphia area gets X dollars of percentage

out of our Federal dollars; they got the same percentage out of

stimulus they get every year. But people sort of had the feeling

that we would direct these dollars in a political or in a geographically sensitive way. And having this sort of oversight is good. I like

it, actually. I like it.

Chairman TOWNS. I yield 5 minutes to the gentleman from California, Mr. Issa.

Mr. ISSA. I thank both of you Governors for remaining. We are

going to have votes in a few minutes.

I would like to expand on a couple of things.

Governor Rendell, I can’t resist. The last time we were together

we were talking A–10 aircraft, if you recall. In light of the winddown of Iraq, in light of, if you will, the changing external forces

versus your National Guard and every Governor’s National Guard,

do you believe this administration should begin right-sizing both

the Active Duty and Reserve components, including the Guard, to

be lighter, quicker, perhaps less expensive to operate, once you get

past the highly trained personnel, and start shedding themselves

of legacy costs which, sadly, would probably include tank killers for

a battle we are not likely to have?

Governor RENDELL. Right. I believe the answer to that is yes,

Congressman, but I also think that should have happened in the

prior administration several years ago.

Mr. ISSA. I have no doubt it should have happened many administrations ago.

But Governor, would you echo the same answer that this administration now inherits this need to right-size both Active and Reserves more appropriate to the likely wars we are going to fight

and make them lighter, quicker, and, candidly, perhaps provide you

some further relief for the high tempo they’ve been experiencing?

Governor O’MALLEY. It’s an interesting question. I mean, at the

heart of the question is the constant need for military reform, not

to allow ourselves to be lulled into fighting or paying or investing

in fighting the last war. But I think you will never find another

time since 1814 when people have been more in danger here in the

United States. So I think that there is a changing mission for the

Guard, but I don’t know if that will necessarily be one that is less

expensive. More likely, it will probably be more expensive, given

the vulnerabilities that assymetrical warfare poses to population

centers, to ports, to critical infrastructure, telecommunications

mode, cybersecurity and the like.

Governor RENDELL. We do need to replenish the Guard in every

State. We lost equipment that hasn’t been replaced. That was a

constant refrain that Governors, Republican and Democratic alike,

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had with the prior administration. We would get our Guard units

back, but with 40 percent of the equipment we sent over.

Mr. ISSA. And then Governor, that’s the reason I asked the question for both of you. I’m not asking for going on the cheap. But

many of you have legacy equipment, heavy tanks, all kinds of

equipment that although if you replenish them, you’re back where

you started. Isn’t this an opportunity for the administration to go

ground-up and begin rebuilding the Guard perhaps with different

equipment, different missions, rather than ordering just replacements?

Governor RENDELL. I don’t know if you are familiar, Congressman, with the Stryker brigade. I know Congressman Dent is. The

Stryker brigade is a very, very mobile quick unit——

Mr. ISSA. I visited them both in theater and the West Coast. My

question is, wouldn’t you prefer that over M–1 tanks?

Governor RENDELL. And not only for foreign encounters.

Mr. ISSA. But for your domestic mission.

Governor RENDELL. No question.

Mr. ISSA. Because there is talk of a potential next round. But

even if there isn’t, this is still continuous.

Let me ask one more question which is unique to Governors and

not covered in the stimulus, but perhaps should have been, besides

infrastructure.

One of the greatest burdens that you have beyond Medicaid, and

obviously your Medicare recipients, is the unemployment burden.

And both the last administration and this administration tried to

address some of that growing unemployment with the Federal extensions. But the other burden you have, which often is called Medicaid and some of the other programs, is that when people become

unemployed they lose their health care, or they lose the ability to

pay their COBRA is probably more often.

Do you believe that this committee or the Congress in general

should begin looking separate from—we don’t know whether we’ll

get comprehensive health care reform or not—but should we consider modernizing unemployment, or at least the Federal match, to

ensure that it anticipates paying for health care costs during the

period of unemployment? Isn’t that inherently the modernization of

unemployment that has not been addressed?

Governor O’MALLEY. I would say yes.

Governor RENDELL. I think we both agree. But, Congressman, if

I could tell you anything other than my constant refrain about infrastructure, I would tell you we ought to find a way—and I think

it should be done in a bipartisan fashion—we should find a way to

do health care. The time has come for America to take care of its

people like every other modern country in the world does. And if

we found a way to do that, we wouldn’t have to do it. You are absolutely right. In the absence of a bill, that would be a great idea.

Great idea. But I think we should get together and pass something.

Mr. ISSA. Thank you, Governor.

Now that you are no longer mayor of Philadelphia, perhaps the

appropriate legend of your ability to get Philadelphia their fair

share will fade in time.

Governor RENDELL. I don’t have much time.

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Mr. CUMMINGS. I’m glad to hear Mr. Issa talk about health care

and the unemployed, because I’m going to hold him to that; because we may get to a point where we have to do something like

that, because we’ve got to make sure that our people are taken care

of.

This country, I’ve said it many times, we get our authority in the

world by moral authority and how we treat each other.

But on that note, Governor O’Malley, let me ask you, you—both

of you—before you all—earlier in your testimony there were a number of people that raised the issue that this is temporary help and

how do we hold the Governors accountable after this and how

does—are we setting ourselves up for taking people up, and then

a drop when stimulus money runs out?

Now, you may have answered that when I was out of the room.

How do you look at that, Governor O’Malley?

Governor O’MALLEY. It’s an interesting question. It’s one that’s

often asked of us by citizens and small business owners. The fact

of the matter is I think we all hope, regardless of our differences

in governing philosophy, we all hope that this recession will be of

a temporary nature, and that’s why this aid is of a temporary nature. But, fortunately, it does span a 2-year period of time.

And as I said in my earlier testimony—and I think Governor

Rendell echoed this—this recession and unemployment would be so

much worse were it not for the investments that came from the Recovery and Reinvestment Act dollars.

So we hope that with this greater demand created in the economy through a number of different vehicles, including these important investments, that we start pulling our economy out of the

ditch where it’s expanding and supporting jobs. And I might add,

while it’s certainly nothing that we can call a trend, for the last

month that we have complete data in Maryland, we have actually

seen our State create 2,500 more jobs than we lost. Now it was the

first month that we had done that in a long time. Might be a blip.

But all hope and progress starts with the first steps.

Governor RENDELL. I agree with everything Governor O’Malley

said and particularly the last thing. Because the answer to the

question and the answer to the citizens’ question, 2 years from

now, 2 fiscal years from now, our stimulus money goes away, but

Pennsylvania this year had negative 8 percent growth. Believe it

or not, for the mid-Atlantic that was good. The average mid-Atlantic State had negative 14 percent growth. I’m predicting, in this upand-coming budget, zero growth.

For my first 6 years as Governor, Congressman, I had between

5 and 6 percent growth. Every point of growth in Pennsylvania is

worth $260 million. So let’s assume by the year 3 when stimulus

drops off, we are back to 51⁄2 percent growth; 51⁄2 percent growth

means the Governor will have another $1.4 billion to cushion the

blow of losing those stimulus dollars. It’s all about growth.

That’s why the economy—first and foremost, the economy is important to people who need jobs. But second, it’s important for us

to be able to do all of the things that we do as a government, and

some that we do very well and some not so well and we need to

improve. But it’s all about growth, and that’s why it’s so important

to get that economy back.

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We’ll take care of this stimulus gap if we have growth again.

Chairman TOWNS. Let me say I thank the Members and the

staff, I thank the Governors and all of the witnesses that have participated today.

I’m encouraged that since the enactment of the Recovery Act, we

have made some strides toward putting our economy back on track.

But I am disappointed in the overall results so far. Unemployment

is at a high and the full force of stimulus spending has yet to be

felt. Moreover, I remain concerned with several issues related to

the Recovery Act implementation. One issue that I intend to address immediately is the Department of Transportation’s failure to

define what qualifies as an economically distressed area for allocating Recovery Act funds. The point of this requirement is to direct

stimulus spending to communities that need Recovery Act investments the most, like disadvantaged areas of my home district in

Brooklyn.

I will be sending a letter to the Secretary of Transportation, Ray

LaHood, to explain my concerns and request a meeting with the

Secretary to discuss this issue.

Another problem that needs to be corrected is OMB’s failure to

issue all necessary guidelines. OMB’s inconsistency in providing

adequate and comprehensive guidance creates greater challenges

for States to provide timely and reliable data by the October 10th

reporting deadline.

This is another obstacle in terms of the majority of States that

are already short-staffed due to severe budgetary cuts. In my home

State of New York, State government agencies have been forced to

function with a 10 percent reduction in their budgets for the fiscal

year. The Office of the State Controller is particularly concerned

that it will not be able to meet the escalating demands of auditing

Recovery Act programs.

The issues we discussed today are many of the same issues that

we identified at our field hearing on the stimulus that led me to

introduce H.R. 2182, the Enhanced Oversight of State and Local

Economic Recovery Act. The House has passed this bill, and I hope

we can continue moving forward until it is signed into law.

We recognize that there are still important issues to be resolved

before Recovery Act spending and accountability works as intended.

Be assured that we intend to continue our detailed oversight of

the programs until we finally see our recovery, economic recovery.

Please let the record demonstrate by submission of a binder with

documents relating to this hearing—without objection, I enter the

binder into the committee’s records, of course.

And now the committee stands adjourned, and let me again

thank the Governors for coming and staying. I apologize to you for

the way that we had to do this because there is a thing called votes

around here, and we have to make it over there. They complain if

we are not over there.

So thank you, Governor Rendell, and thank you, Governor

O’Malley.

The committee stands adjourned.

[Whereupon, at 2:12 p.m., the committee was adjourned.]

[Additional information submitted for the hearing record follows:]

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Æ