GAO 

United States Government Accountability Office

Report to Congressional Committees

RECOVERY ACT

As Initial 

Implementation 

Unfolds in States and 

Localities, Continued 

Attention to 

Accountability Issues 

Is Essential 

April 2009 

GAO-09-580 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

April 2009 

RECOVERY ACT

As Initial Implementation Unfolds in States and 

Localities, Continued Attention to Accountability 

Issues Is Essential 

Highlights of GAO-09-580, a report to 

Senate and House Committees on 

Appropriations, Senate Committee on 

Homeland Security and Governmental 

Affairs, and House Committee on 

Oversight and Government Reform 

The American Recovery and 

Reinvestment Act of 2009 

(Recovery Act) is estimated to cost 

about $787 billion over the next 

several years, of which about $280 

billion will be administered through 

states and localities. The Recovery 

Act requires GAO to do bimonthly 

reviews of the use of funds by 

selected states and localities. In 

this first report, GAO describes 

selected states’ and localities’ (1) 

uses of and planning of Recovery 

Act funds, (2) accountability 

approaches, and (3) plans to 

evaluate the impact of funds 

received. GAO’s work is focused on 

16 states and the District of 

Columbia—representing about 65 

percent of the U.S. population and 

two-thirds of the intergovernmental 

federal assistance available 

through the Recovery Act. GAO 

collected documents from and 

interviewed state and local 

officials, including Governors, 

“Recovery Czars,” State Auditors, 

Controllers, and Treasurers. GAO 

also reviewed guidance from the 

Office of Management and Budget 

(OMB) and other federal agencies. 

What GAO Recommends

GAO makes a number of 

recommendations, which are 

discussed on the next page. In 

general, OMB concurred with the 

overall objectives of our 

recommendations and plans to 

work with GAO to further 

accountability for these funds. 

Uses and Planning for Recovery Act Funds

About 90 percent of the estimated $49 billion in Recovery Act funding to be 

provided to states and localities in FY2009 will be through health, 

transportation and education programs. Within these categories, the three 

largest programs are increased Medicaid Federal Medical Assistance 

Percentage (FMAP) grant awards, funds for highway infrastructure 

investment, and the State Fiscal Stabilization Fund (SFSF). The funding 

notifications for Recovery Act funds for the 16 selected states and the District 

of Columbia (the District) have been approximately $24.2 billion for Medicaid 

FMAP on April 3, $26.7 billion for highways on March 2, and $32.6 billion for 

SFSF on April 2. 

Increased Medicaid FMAP Funding

Fifteen of the 16 states and the District have drawn down approximately 

$7.96 billion in increased FMAP grant awards for the period October 1, 2008 

through April 1, 2009. The increased FMAP is for state expenditures for 

Medicaid services. The receipt of this increased FMAP may reduce the state 

share for their Medicaid programs. States have reported using funds made 

available as a result of the increased FMAP for a variety of purposes. For 

example, states and the District reported using these funds to maintain their 

current level of Medicaid eligibility and benefits, cover their increased 

Medicaid caseloads-which are primarily populations that are sensitive to 

economic downturns, including children and families, and to offset their state 

general fund deficits thereby avoiding layoffs and other measures detrimental 

to economic recovery. 

Highway Infrastructure Investment

States are undertaking planning activities to identify projects, obtain approval 

at the state and federal level and move them to contracting and 

implementation. For the most part, states were focusing on construction and 

maintenance projects, such as road and bridge repairs. Before they can 

expend Recovery Act funds, states must reach agreement with the 

Department of Transportation on the specific projects; as of April 16, two of 

the 16 states had agreements covering more than 50 percent of their states’ 

apportioned funds, and three states did not have agreement on any projects. 

While a few, including Mississippi and Iowa had already executed contracts, 

most of the 16 states were planning to solicit bids in April or May. Thus, 

states generally had not yet expended significant amounts of Recovery Act 

funds. 

State Fiscal Stabilization Fund 

The states and D.C. must apply to the Department of Education for SFSF 

funds. Education will award funds once it determines that an application 

contains key assurances and information on how the state will use the funds. 

As of April 20, applications from three states had met that determinationSouth Dakota, and two of GAO’s sample states, California and Illinois. The 

applications from other states are being developed and submitted and have 

View GAO-09-580 or key components. 

For more information, contact J. Christopher 

Mihm at (202) 512-6806 or mihmj@gao.gov. 
United States Government Accountability Office

tate activities include appointing Recovery Czars; 

ublicize 

eceive 

r 

ccountability Approaches

tes and the District are 

isks. 

ir 

ditors are 

nt for 

o 

Highlights of GAO-09-580 (continued) 

not yet been awarded. The states and the District report 

that SFSF funds will be used to hire and retain teachers, 

reduce the potential for layoffs, cover budget shortfalls, 

and restore funding cuts to programs. 

Nearly half of the estimated spending programs in the 

Recovery Act will be administered by non-federal 

entities. State officials suggested opportunities to 

improve communication in several areas. For example, 

they wish to be notified when Recovery Act funds are 

made available directly to prime recipients within their 

state that are not state agencies. 

This report contains separate appendixes on each of the 

16 states and the District that discuss the plans and uses 

of funds in these three major programs as well as 

selected other programs that are receiving Recovery Act 

funds. 

Plans to Evaluate Impact 

Two of the several objectives of the Recovery Act are to 

(1) preserve existing jobs and stimulate job creation and 

(2) promote economic recovery. Officials in nine of the 

16 states and the District expressed concern about 

determining jobs created and retained under the 

Recovery Act, as well as methodologies that can be used 

for estimation of each. 

Planning continues for the use of Recovery Act funds. 

The figure below shows the projected timing of funds 

made available to states and localities. 

S

0

20

40

60

80

100

120

2009 2010 2011 2012 2013 2014 2015 2016

Dollars in billions

Fiscal year

Source: GAO analysis of CBO and FFIS data.

GAO’s Recommendations

OMB has moved out quickly to guide implementation of 

the Recovery Act. As OMB’s initiatives move forward, it 

has opportunities to build upon its efforts to date by 

addressing several important issues. 

Accountability and Transparency Requirements

The Director of OMB should: 

-- adjust the single audit process to provide for review of 

the design of internal controls during 2009 over 

programs to receive Recovery Act funding, before 

significant expenditures in 2010 

establishing task forces and other entities, and 

developing public websites to solicit input and p

selected projects. In many states, legislative 

authorization is needed before the state can r

and/or expend funds or make changes to programs o

eligibility requirements. --continue efforts to identify methodologies that can be 

used to determine jobs created and retained from 

projects funded by the Recovery Act. A

GAO found that the selected sta --evaluate current requirements to determine whether 

sufficient, reliable and timely information is being 

collected before adding further data collection 

requirements. 

taking various approaches to ensuring that internal 

controls to manage risk up-front; they are assessing 

known risks and developing plans to address those r

However, officials in most of the states and the District 

expressed concerns regarding the lack of Recovery Act 

funding provided for accountability and oversight. Due 

to fiscal constraints, many states reported significant 

declines in the number of oversight staff—limiting the

ability to ensure proper implementation and 

management of Recovery Act funds. State au

also planning their work including conducting required 

single audits and testing compliance with federal 

requirements. The single audit process is importa

effective oversight but can be modified to be a more 

timely and effective audit and oversight tool for the 

Recovery Act and OMB is weighing options on how t

modify it. 

Administrative Support and Oversight

The Director of OMB should clarify what Recovery Act 

funds can be used to support state efforts to ensure 

accountability and oversight. 

Communications

The Director of OMB should provide timely and efficient 

notification to (1) prime recipients in states and 

localities when funds are made available for their use, 

(2) states, where the state is not the primary recipient of 

funds, but has a state-wide interest in this information, 

and (3) all recipients, on planned releases of federal 

agency guidance and whether additional guidance or 

modifications are expected. 
Page i GAO-09-580 

Contents 

Letter 1

Background 3 

States’ and Localities’ Use of and Plans for Recovery Act Funds 

Focus on Purposes of the Act and States’ Fiscal Stresses 11 

Selected States’ and Localities’ Internal Controls and Safeguards to 

Manage and Mitigate the Risk of Mismanagement, Waste, Fraud, 

and Abuse of Recovery Act Funds 36 

State Plans to Assess Recovery Act Spending Impact 49 

Concluding Observations and Recommendations: Moving Forward 

to Clarify Recovery Act Roles and Responsibilities 53 

Agency Comments and Our Evaluation 57 

Appendix I Objectives, Scope, and Methodology 60 

Appendix II Localities Visited by GAO in Selected States 64 

Appendix III Arizona 65 

Overview 65 

Arizona Beginning to Use Recovery Act Funds 67 

Recovery Act Funds Supporting Other Programs 69 

State Agencies and Localities Are Expecting to Use Existing 

Internal Controls to Safeguard Recovery Act Funds, Although in 

Some Cases, Resource Constraints Could Affect Oversight 73 

State Agencies and Localities Will Use Existing Performance 

Measures to Gauge the Impacts of Recovery Act Funding and 

Are Waiting for Federal Guidance on How to Implement New 

Measures the Act Requires, Especially on Jobs Created and 

Saved 76 

Arizona’s Comments on This Summary 76 

GAO Contacts 77 

Staff Acknowledgments 77 

 Recovery Act 
Appendix IV California 78 

Overview 78 

California Beginning to Use Recovery Act Funds 79 

Plans for Oversight and Control of Recovery Funds Are Still 

Evolving 87 

State Officials Expressed Concerns about Lack of Guidance and 

Ability to Measure the Impacts of Recovery Act Funds 90 

California’s Comments on This Summary 91 

GAO Contacts 92 

Staff Acknowledgments 92 

Appendix V Colorado 93 

Overview 93 

Colorado Beginning to Use Recovery Act Funds 94 

Colorado Officials Expressed Concerns Related to Tracking of, 

Internal Controls over, and Safeguards for Recovery Act Funds 99 

Colorado Is Developing Plans to Assess the Effects of Recovery 

Act Funds 103 

Colorado’s Comments on This Summary 104 

GAO Contacts 104 

Staff Acknowledgments 104 

Appendix VI Florida 105 

Overview 105 

Florida Beginning to Use Recovery Act Funds 106 

Florida’s Planning Process Has Set the Stage for Decisions on 

Spending of Recovery Act Funds 109 

Plans for Safeguards and Controls Being Developed at State Level 112 

Plans to Assess Impact of Recovery Act Funds Are in Initial Stages 115 

Florida’s Comments on This Summary 116 

GAO Contacts 116 

Staff Acknowledgments 116 

Page ii GAO-09-580 Recovery Act
Appendix VII Georgia 117 

Overview 117 

Georgia Beginning to Use Recovery Act Funds 118 

Georgia Has Been Establishing Internal Controls for Recovery Act 

Funds 129 

Plans to Assess Impact of Recovery Act Funds Are in Initial Stages 133 

Georgia’s Comments on This Summary 134 

GAO Contacts 134 

Staff Acknowledgments 134 

Appendix VIII Illinois 135 

Overview 135 

Illinois Beginning to Use Recovery Act Funds 136 

Illinois Is Taking Steps to Assess Risk and Develop Plans for 

Safeguards Related to Recovery Act Funds 142 

Agencies Are Considering Ways to Assess Impacts, but Additional 

Guidance Is Needed 145 

Illinois’s Comments on This Summary 145 

GAO Contacts 145 

Staff Acknowledgments 146 

Appendix IX Iowa 147 

Overview 147 

Iowa Beginning to Use Recovery Act Funds 149 

Iowa Has a Foundation of Safeguards and Controls That Could 

Help Assure Proper Spending of Recovery Act Funds 156 

State Agencies Are Considering How to Assess the Effects of 

Recovery Act Funds 158 

Iowa’s Comments on This Summary 160 

GAO Contacts 160 

Staff Acknowledgments 160 

Appendix X Massachusetts 161 

Overview 161 

Massachusetts Beginning to Use Recovery Funds 162 

Plans for Safeguards and Controls Being Developed at State Level 169 

Plans to Assess Impact of Recovery Act Funds Are in Initial Stages 173 

Massachusetts’s Comments on This Summary 174 

GAO Contacts 174 

Staff Acknowledgments 174 

Page iii GAO-09-580 Recovery Act
Appendix XI Michigan 175 

Overview 175 

Michigan Beginning to Use Recovery Act Funds 177 

Michigan Is Augmenting Its Approach to Safeguarding and 

Transparency of Recovery Act Funds but Gaps Exist 182 

Michigan Using Existing Internal Controls 184 

Plans to Assess Impact of the Recovery Act Are Preliminary 186 

Michigan’s Comments on This Summary 186 

GAO Contacts 186 

Staff Acknowledgments 187 

Appendix XII Mississippi 188 

Overview 188 

Mississippi Beginning to Use Recovery Act Funds 189 

Mississippi’s Comments on This Summary 199 

GAO Contacts 199 

Staff Acknowledgments 199 

Appendix XIII New Jersey 200 

Overview 200 

New Jersey Beginning to Use Recovery Act Funds 201 

New Jersey’s Comments on this Summary 214 

GAO Contacts 214 

Staff Acknowledgments 214 

Appendix XIV New York 215 

Overview 215 

New York Beginning to Use Recovery Act Funds 216 

New York Plans to Oversee and Safeguard Recovery Act Funds 

Using Existing Control Mechanisms Where Possible 222 

New York’s Comments on This Summary 228 

GAO Contacts 228 

Staff Acknowledgments 228 

Page iv GAO-09-580 Recovery Act
Appendix XV North Carolina 229 

Overview 229 

North Carolina Beginning to Use Recovery Act Funds 230 

Plans for Safeguards and Controls Being Developed at the State 

Level and at State Agencies Administering Federal Programs 237 

Plans to Assess Impact of Recovery Act Funds Are Just Being 

Developed 239 

North Carolina’s Comments on This Summary 240 

GAO Contacts 240 

Staff Acknowledgments 240 

Appendix XVI Ohio 241 

Overview 241 

Ohio Beginning to Use Recovery Act Funds 243 

Ohio Is Planning to Use Existing Systems and Safeguards to Track 

Recovery Act Funds, But Reliance on Subrecipients to Provide 

Data for Enhanced Reporting Requirements Could Present 

Challenges 247 

Ohio Is Exploring Ways to Assess Impact of Recovery Act Funds, 

but Officials Anticipate Challenges 249 

Ohio’s Comments on This Summary 250 

GAO Contacts 250 

Staff Acknowledgments 250 

Appendix XVII Pennsylvania 251 

Overview 251 

Pennsylvania Beginning to Use Recovery Act Funds 253 

Pennsylvania Developing Plans for Safeguards and Controls 259 

Plans to Assess Impact of Recovery Act Funds Depend on Federal 

Guidance 263 

Pennsylvania’s Comments on This Summary 264 

GAO Contacts 264 

Staff Acknowledgments 264 

Page v GAO-09-580 Recovery Act
Appendix XVIII Texas 265 

Overview 265 

Texas Beginning to Use Recovery Act Funds 267 

Texas Is Taking Steps to Help Ensure Accountability and 

Transparency and Address Potential Areas of Vulnerability 272 

Plans for Assessing the Impact of Recovery Act Funds Are 

Evolving 279 

Texas’s Comments on This Summary 280 

GAO Contacts 280 

Staff Acknowledgments 280 

Appendix XIX Washington, D.C. 281 

Overview 281 

District of Columbia Beginning to Use Recovery Act Funds 283 

The District Plans to Use Existing Systems to Track Recovery Act 

Funds 287 

District Web site Used to Promote Transparent Use of Recovery 

Act Funds 288 

District Plans for Ensuring that Adequate Safeguards and Internal 

Controls Are in Place 288 

Plans to Assess Impact of Recovery Act Funds Have Not Yet Been 

Developed 290 

District of Columbia’s Comments on This Appendix 291 

GAO Contacts 291 

Staff Acknowledgments 291 

Appendix XX GAO Contacts and Staff Acknowledgments 292 

Tables 

Table 1: FMAP Changes from Fiscal Year 2008 to the First Two 

Quarters of Fiscal Year 2009, for 16 states and the District 4 

Table 2: Notification of Recovery Act Funds for GAO Core States 

and the District of Columbia for Select Programs (Dollars 

in thousands) 11 

Table 3: FMAP Grant Awards and Funds Drawn Down, for 16 

States and the District 13 

Table 4: Highway Apportionments and Obligations as of April 16, 

2009 (Dollars in millions) 20 

Table 5: States and Localities Visited by GAO 64 

Page vi GAO-09-580 Recovery Act
Table 6: Planned Uses of Selected Recovery Act Funds 124 

Table 7: Budget for Selected State Agencies in Georgia, Fiscal 

Years 2008 and 2009 126 

Table 8: Budget Reductions for Selected State Agencies in 

Mississippi for Fiscal Year 2009 194 

Table 9: Estimated Allocations by Program Areas of Federal 

Recovery Act Funds in Texas (as of March 2009) 270 

Figures 

Figure 1: State and Local Recovery Act Funding by Broad 

Functional Category, Fiscal Years 2009-2019 6 

Figure 2: Projected Timing of Federal Recovery Act Funding Made 

Available to States and Localities by Fiscal Year 7 

Figure 3: Composition of State and Local Recovery Act Funding, 

Fiscal Years 2009 and 2012 8 

Figure 4: California State and Local Recovery Act Funding 84 

Figure 5: Georgia’s Estimated Recovery Act Funding, by Major 

Programs, as of April 17, 2009 119 

Figure 6: Georgia Department of Transportation’s Project 

Implementation Schedule 122 

Figure 7: Organizational Chart of Georgia’s Recovery Act 

Implementation Team 127 

Figure 8: State of Georgia Review Process for Recovery Act Funds 129 

Figure 9: Estimated Allocation of Mississippi’s Recovery Act 

Funding by Major Programs 195 

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Page vii GAO-09-580 Recovery Act
Page 1 GAO-09-580 

 

United States Government Accountability Office

Washington, DC 20548 

 

April 23, 2009 

Report to Congressional Committees: 

The Nation faces what is generally reported to be the most serious 

economic crisis since the Great Depression. In response, the American 

Recovery and Reinvestment Act of 2009 (Recovery Act)1

 was enacted to 

promote economic recovery, make investments, and to minimize and 

avoid reductions in state and local government services. The 

Congressional Budget Office (CBO) estimated that the Recovery Act’s 

combined spending and tax provisions will cost $787 billion over ten 

years, of which more than $580 billion will be in additional federal 

spending. The stated purposes of the Recovery Act are to: 

• preserve and create jobs and promote economic recovery; 

• assist those most impacted by the recession; 

• provide investments needed to increase economic efficiency by 

spurring technological advances in science and health; 

• invest in transportation, environmental protection, and other 

infrastructure that will provide long-term economic benefits; and 

• stabilize state and local government budgets, in order to minimize and 

avoid reductions in essential services and counterproductive state and 

local tax increases. 

The Recovery Act specifies several roles for GAO including conducting 

bimonthly reviews of selected states’ and localities’ use of funds made 

available under the act.2

 Accordingly, our objectives for this report were to 

describe (1) selected states’ and localities’ uses of and planning for 

Recovery Act funds, (2) the approaches taken by the selected states and 

localities to ensure accountability for Recovery Act funds, and (3) states’ 

plans to evaluate the impact of the Recovery Act funds they received. 

To address these objectives, we selected a core group of 16 states and the 

District of Columbia (District) that we will follow over the next few years 

to provide an ongoing longitudinal analysis of the use of funds provided in 

conjunction with the Recovery Act. The states are Arizona, California, 

Colorado, Florida, Georgia, Iowa, Illinois, Massachusetts, Michigan, 

1

Pub. L. No. 111-5, 123 Stat. 115 (February 17, 2009). 

2

Recovery Act, div. A, title IX, §901. 

 Recovery Act 
 

Mississippi, New Jersey, New York, North Carolina, Ohio, Pennsylvania, 

and Texas. These states contain about 65 percent of the U.S. population 

and are estimated to receive collectively about two-thirds of the 

intergovernmental federal assistance funds available through the Recovery 

Act. We selected these states and the District on the basis of outlay 

projections, percentage of the U.S. population represented, unemployment 

rates and changes, and a mix of states’ poverty levels, geographic 

coverage, and representation of both urban and rural areas. In addition, 

we visited a non-probability sample of about 60 localities within the 16 

selected states.3

We collected documents from and conducted semi-structured interviews 

with executive-level state and local officials and staff from Governors’ 

offices, “Recovery Czars,” State Auditors, Controllers, and Treasurers. We 

also interviewed staff from state legislatures. In addition, our work 

focused on federal, state, and local agencies administering programs 

receiving Recovery Act funds. We analyzed data and interviewed officials 

from the federal Office of Management and Budget (OMB). We also 

analyzed other federal guidance on programs selected for this review and 

spoke with relevant program officials at the Centers for Medicare & 

Medicaid Services (CMS), the U.S. Department of Transportation and the 

U.S. Department of Education. We did not review state legal materials for 

this report, but relied on state officials and other state sources for 

description and interpretation of relevant state constitutions, statutes, 

legislative proposals, and other state legal materials. 

We based our selection of the programs to review for this initial report on 

Recovery Act funding and potential risks associated with receipt of 

additional funds for these programs. An estimated 90 percent of fiscal year 

2009 Recovery Act funding provided to states and localities will be for 

health, transportation and education programs. The three largest programs 

in these categories are the Medicaid Federal Medical Assistance 

Percentage (FMAP) awards, the State Fiscal Stabilization Fund, and 

highways. These three programs are therefore highlighted throughout this 

report. The information obtained from this review cannot be generalized 

to all states and localities receiving Recovery Act funding. A detailed 

description of our scope and methodology can be found in Appendix I. 

 

3

This total includes two entities in the District of Columbia which received direct federal 

funding that was not passed through the District government. 

Page 2 GAO-09-580 Recovery Act
 

We conducted this performance audit from February 17, to April 20, 2009 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. 

Recovery Act funds are being distributed to states, localities, other 

entities, and individuals through a combination of formula and competitive 

grants and direct assistance. Nearly half of the approximately $580 billion 

associated with Recovery Act spending programs will flow to states and 

localities affecting about 50 state formula and discretionary grants as well 

as about 15 entitlement and other countercyclical programs. As noted 

above, three of the largest streams of funds flowing to states and localities 

are (1) the temporary increase in FMAP funding which will provide states 

with approximately $87 billion in assistance; (2) the State Fiscal 

Stabilization Fund, which will provide nearly $54 billion to help state and 

local governments avert budget cuts, primarily in education; and (3) 

highway infrastructure investment funds of approximately $27 billion. 

Background 

Medicaid FMAP Medicaid is a joint federal-state program that finances health care for 

certain categories of low-income individuals, including children, families, 

persons with disabilities, and persons who are elderly. The federal 

government matches state spending for Medicaid services according to a 

formula based on each state’s per capita income in relation to the national 

average per capita income. The amount of federal assistance states receive 

for Medicaid service expenditures is known as the FMAP. Across states, 

the FMAP may range from 50 to no more than 83 percent, with poorer 

states receiving a higher federal matching rate than wealthier states. 

Under the Recovery Act, states are eligible for an increased FMAP for 

expenditures that states make in providing services to their Medicaid 

populations.4

 The Recovery Act provides eligible states with this increased 

FMAP for 27 months between October 1, 2008, and December 31, 2010. On 

 

4

See Recovery Act, div. B, title V, § 5001 (a)-(c). U.S. territories are also eligible for an 

increased FMAP subject to a different formula than states. Recovery Act div. B, title V, § 

5001 (d). 

Page 3 GAO-09-580 Recovery Act
 

February 25, 2009, CMS made increased FMAP grant awards to states, and 

states may retroactively claim reimbursement for expenditures that 

occurred prior to the effective date of the Recovery Act.5

 Generally, for 

fiscal year 2009 through the first quarter of fiscal year 2011, the increased 

FMAP, which is calculated on a quarterly basis, provides for: (1) the 

maintenance of states’ prior year FMAPs; (2) a general across-the-board 

increase of 6.2 percentage points in states’ FMAPs; and (3) a further 

increase to the FMAPs for those states that have a qualifying increase in 

unemployment rates. For the first two quarters of 2009, the increases in 

the FMAP for the 16 states and the District ranged from 7.09 percentage 

points in Iowa to 11.59 percentage points in California. (See table 1.) 

Table 1: FMAP Changes from Fiscal Year 2008 to the First Two Quarters of Fiscal 

Year 2009, for 16 states and the District 

State 

Fiscal Year

 2008 FMAP

Fiscal Year 2009 

FMAP, first two quarters Difference

Arizona 66.20 75.01 8.81

California 50.00 61.59 11.59

Colorado 50.00 58.78 8.78

District of Columbia 70.00 77.68 7.68

Florida 56.83 67.64 10.81

Georgia 63.10 73.44 10.34

Illinois 50.00 60.48 10.48

Iowa 61.73 68.82 7.09

Massachusetts 50.00 58.78 8.78

Michigan 58.10 69.58 11.48

Mississippi 76.29 83.62 7.33

New Jersey 50.00 58.78 8.78

New York 50.00 58.78 8.78

North Carolina 64.05 73.55 9.50

Ohio 60.79 70.25 9.46

Pennsylvania 54.08 63.05 8.97

Texas 60.56 68.76 8.20

Source: GAO analysis of HHS data, as of April 16, 2009. 

 

5

Although the effective date of the Recovery Act was February 17, 2009, states generally 

may claim reimbursement for Medicaid service expenditures made on or after October 1, 

2008. 

Page 4 GAO-09-580 Recovery Act
 

Highway Infrastructure 

Investment 

The Recovery Act provides approximately $48 billion to fund grants to 

states, localities, regional authorities and others for transportation 

projects of which the largest piece is $27.5 billion for highway and related 

infrastructure investments. The Recovery Act largely provides for 

increased transportation funding through existing programs-such as the 

Federal-Aid Highway Surface Transportation Program—a federally 

funded, state-administered program. Under this program, funds are 

apportioned annually to each state department of transportation (or 

equivalent) to construct and maintain roadways and bridges on the 

federal-aid highway system. The Federal-Aid Highway Program refers to 

the separately funded grant programs mostly funded by formula, 

administered by the Federal Highway Administration (FHWA) in the U.S. 

Department of Transportation. 

State Fiscal Stabilization 

Fund 

The Recovery Act provided $53.6 billion in appropriations for the State 

Fiscal Stabilization Fund (SFSF) to be administered by the U.S. 

Department of Education. The Recovery Act requires that the Secretary of 

Education set aside $5 billion for State Incentive Grants, referred to by the 

department as the Reach for the Top program, and the establishment of an 

Innovation Fund. After reserving these and certain other funds, the 

remaining funds are to be distributed to states by formula, with 61 percent 

of the state award based on the state’s relative share of the population 

aged 5 to 24 and 39 percent based on the state’s relative share of the total 

U.S. population. The Recovery Act specifies that 81.8 percent (about $39.5 

billion) of these remaining funds are to be distributed to states for support 

of elementary, secondary, and postsecondary education, and early 

childhood education programs. The remaining 18.2 percent of SFSF (about 

$8.8 billion) is available for public safety and other government services 

including for educational purposes. The Department of Education 

announced on April 1, 2009 that it will award the SFSF in two phases. The 

first phase—$32.6 billion—represents about two-thirds of the SFSF. 

Figure 1 shows the distribution of Recovery Act funds to states by broad 

functional categories over the next several years. 

Page 5 GAO-09-580 Recovery Act
 

Figure 1: State and Local Recovery Act Funding by Broad Functional Category, 

Fiscal Years 2009-2019 

Source: GAO analysis of CBO and FFIS data.

16%

10%

7%

7%

31%

29%

Education and training

Community development

Health

Energy and environment

Income security

Transportation

The timeline of Recovery Act spending has been a key issue in the debate 

and design of the Recovery Act because of the elapsed time between when 

policy changes are first proposed and actual spending begins to flow from 

enacted changes. Figure 2 shows the projected timing of state and localadministered Recovery Act spending. 

Page 6 GAO-09-580 Recovery Act
 

Figure 2: Projected Timing of Federal Recovery Act Funding Made Available to 

States and Localities by Fiscal Year 

Source: GAO analysis of CBO and FFIS data.

0

20

40

60

80

100

120

2009 2010 2011 2012 2013 2014 2015 2016

Dollars in billions

Fiscal year

Over time, the programmatic focus of Recovery Act spending will change. 

As shown in figure 3, about two-thirds of Recovery Act funds expected to 

be spent by states in the current 2009 fiscal year will be health related, 

primarily temporary increases in Medicaid FMAP funding. Health, 

education, and transportation is estimated to account for approximately 

90 percent of fiscal year 2009 Recovery Act funding for states and 

localities. However, by fiscal year 2012, transportation will be the largest 

share of state and local Recovery Act funding. Taken together, 

transportation spending, along with investments in the community 

development, energy, and environmental areas that are geared more 

toward creating long-run economic growth opportunities will represent 

approximately two-thirds of state and local Recovery Act funding in 2012. 

Page 7 GAO-09-580 Recovery Act
 

Figure 3: Composition of State and Local Recovery Act Funding, Fiscal Years 2009 

and 2012 

Source: GAO analysis of CBO and FFIS data.

18%

8%

3%

1%

64%

30%

17%

16%

19%

17%

Health

Education and training

Transportation

Income security

Community development

Energy and environment

1%

Fiscal year 2009 Fiscal year 2012

6%

The administration has stipulated that every taxpayer dollar spent on 

economic recovery must be subject to unprecedented levels of 

transparency and accountability. To that end, the Recovery Act 

established the Recovery Accountability and Transparency Board to 

coordinate and conduct oversight of funds distributed under the Act in 

order to prevent fraud, waste and abuse. The Board includes a Chairman 

appointed by the President, and ten Inspectors General specified by the 

Page 8 GAO-09-580 Recovery Act
 

Act.6 The Board has a series of functions and powers to assist it in the 

mission of providing oversight and promoting transparency regarding 

expenditure of funds at all levels of government. The Board will report on 

the use of Recovery Act funds and may also make recommendations to 

agencies on measures to avoid problems and prevent fraud, waste and 

abuse. 

The Board is also charged under the Act with establishing and maintaining 

a web site, www.recovery.gov, (Recovery.gov) to foster greater 

accountability and transparency in the use of covered funds. The website 

currently includes overview information about the Recovery Act, a 

timeline for implementation, a frequently asked questions page, and an 

announcement page that is to be regularly updated. The administration 

plans to develop the site to encompass information about available 

funding, distribution of funds, and major recipients. The website is 

required to include plans from federal agencies; information on federal 

awards of formula grants and awards of competitive grants; and 

information on federal allocations for mandatory and other entitlement 

programs by state, county, or other appropriate geographical unit.7

Eventually, prime recipients of Recovery Act funding will provide 

information on how they are using their federal funds. Currently, 

Recovery.gov features projections for how, when, and where the funds 

will be spent, as well as which states and sectors of the economy are due 

to receive what proportion of the funds. As money starts to flow, 

additional data will become available. In addition to Recovery.gov, OMB 

has also issued guidance directing executive branch agencies to develop a 

dedicated portion of their web sites for information related to the 

recovery. 

To ensure a high level of accountability, OMB has issued guidance to the 

heads of federal departments and agencies for implementing and 

 

6

The Recovery Accountability and Transparency Board is comprised of a chairperson 

appointed by the President; Inspectors General from the Departments of Agriculture, 

Commerce, Education, Energy, Health and Human Services, Homeland Security, Justice, 

Transportation, Treasury, and the Treasury Inspector General for Tax Administration; and 

any other Inspector General designated by the President from any agency that expends or 

obligates Recovery Act funds. 

7

Recovery Act, div. A, title XV, § 1527(c)(11)–(13). 

Page 9 GAO-09-580 Recovery Act
 

managing activities enacted under the Recovery Act.8 OMB has also issued 

for comment detailed reporting requirements for Recovery Act fund 

recipients that include the number of jobs created and jobs retained as a 

result of Recovery Act funding.9

 OMB’s guidance documents are available 

on Recovery.gov. In addition, the Civilian Acquisition Council and the 

Defense Acquisition Regulations Council have issued an interim rule 

revising the Federal Acquisition Regulation (FAR) to require a contract 

clause that implements these reporting requirements for contracts funded 

with Recovery Act dollars.10

The Recovery Act also assigns GAO a range of responsibilities to help 

promote accountability and transparency. Some are recurring 

requirements such as providing bimonthly reviews of the use of funds 

made available under Division A of the Recovery Act by selected states 

and localities and reviews of quarterly reports on job creation and job 

retention as reported by Recovery Act fund recipients. Other requirements 

include targeted studies in several areas such as small business lending, 

education, and trade adjustment assistance. We completed the first of 

these mandates on April 3, 2009, by announcing the appointment of 13 

members to the Health Information Technology Policy Committee, a new 

advisory body established by the Recovery Act. The committee will make 

recommendations on creating a policy framework for the development 

and adoption of a nationwide health information technology 

infrastructure, including standards for the exchange of patient medical 

information. On April 16, 2009, we issued a report completing a second 

mandate to report on the actions of the Small Business Administration 

(SBA) to, among other things, increase liquidity in the secondary market 

for SBA loans.11

 

8

See, OMB memoranda, M-09-10, Initial Implementing Guidance for the American 

Recovery and Reinvestment Act of 2009, February 18, 2009, and M-09-15, Updated 

Implementing Guidance for the American Recovery and Reinvestment Act of 2009, April 

3, 2009. 

9

 OMB, “Information Collection Activities: Proposed Collection; Comment Request,” 74 Fed. 

Reg. 14824 (Apr. 1, 2009). 

1074 Fed. Reg. 14,639 (March 31, 2009). 

11GAO, Small Business Administration’s Implementation of Administrative Provisions 

in the American Recovery and Reinvestment Act of 2009, GAO-09-507R (Washington, 

D.C.: April 16, 2009). 

Page 10 GAO-09-580 Recovery Act
 

States’ and Localities’ 

Use of and Plans for 

Recovery Act Funds 

Focus on Purposes of 

the Act and States’ 

Fiscal Stresses 

Officials in the 16 selected states and the District indicated they have used 

certain Recovery Act funds and continue planning for the use of additional 

funds they have not yet received. States’ existing intergovernmental 

programs—such as Medicaid, transportation, and education—have been 

among the first programs to receive Recovery Act funds. Planning 

continues for the use of Recovery Act funds for these and other program 

areas. States’ planning actions include appointing Recovery Czars; 

establishing task forces and other entities, and developing public web sites 

to solicit input and publicize selected projects. In some cases, according to 

state officials, state legislation will be required to receive and expend 

funds or to make required changes to programs for eligibility prior to using 

the funds. States’ approaches to planning for Recovery Act funds also vary 

in response to state legislative and budget processes regarding the use of 

federal funds and states’ fiscal situations. 

States’ Use of Recovery 

Act Funds by Selected 

Program Areas 

The three largest programs making funds available to the state and 

localities so far have been the Medicaid FMAP, highways funds, and the 

SFSF. Table 2 shows the breakout of funding available for these three 

programs in the 16 selected states and the District that GAO visited. 

Recovery Act funding for these 17 jurisdictions accounts for a little less 

than two-thirds of total Recovery Act funding for these three programs. 

Table 2: Notification of Recovery Act Funds for GAO Core States and the District of Columbia for Select Programs (Dollars in 

thousands) 

(Dollars in thousands) 

State Medicaid FMAP Highways States Fiscal Stabilization Fund

Arizona $534,576 $521,958 $681,360 

California $3,331,167 $2,569,568 $3,993,379 

Colorado $226,959 $403,924 $509,363 

District of Columbia $87,831 $123,508 $59,883 

Florida $1,394,945 $1,346,735 $1,809,196 

Georgia $521,251 $931,586 $1,032,684 

Illinois $992,042 $935,593 $1,376,965 

Iowa $136,023 $358,162 $316,467 

Massachusetts $1,182,968 $437,865 $666,153 

Michigan $700,522 $847,205 $1,066,733 

Mississippi $225,471 $354,564 $321,131 

New Jersey $549,847 $651,774 $891,424 

New York $3,143,641 $1,120,685 $2,021,924 

Page 11 GAO-09-580 Recovery Act
 

(Dollars in thousands) 

State Medicaid FMAP Highways States Fiscal Stabilization Fund

North Carolina $657,111 $735,527 $951,704 

Ohio $760,647 $935,677 $1,198,882 

Pennsylvania $1,043,920 $1,026,429 $1,276,766 

Texas $1,448,824 $2,250,015 $2,662,203 

Total Case Study $16,937,745 $15,550,776 $20,836,218 

Percent of National Total 70 58 64

National Total $24,233,145 $26,660,000 $32,552,620 

Notifications as of April 3, 2009 March 2, 2009 April 2, 2009

Source: GAO analysis of agency data. 

Note: For Medicaid FMAP amounts shown are the increased Medicaid FMAP Grant Awards as of 

April 3, 2009. For Highways, the amounts shown are the full state apportionment. For the SFSF, the 

amounts shown are the initial release of the state allocation. 

Under the Recovery Act, states are eligible for an increased FMAP for 

expenditures that states make in providing services to their Medicaid 

populations.12 The Recovery Act provides eligible states with an increased 

FMAP for 27 months between October 1, 2008 and December 31, 2010. 

Generally, for fiscal year 2009 through the first quarter of fiscal year 2011, 

the increased FMAP, which is calculated on a quarterly basis, provides for: 

(1) the maintenance of states’ prior year FMAPs; (2) a general across-theboard increase of 6.2 percentage points in states’ FMAPs; and (3) a further 

increase to the FMAPs for those states that have a qualifying increase in 

unemployment rates. 

Medicaid FMAP 

In our sample of 16 states and the District, officials from 15 states and the 

District indicated that they had drawn down increased FMAP grant 

awards, totaling $7.96 billion for the period of October 1, 2008 through 

April 1, 2009—47 percent of their increased FMAP grant awards. In our 

sample, the extent to which individual states and the District accessed 

these funds varied widely, ranging from 0 percent in Colorado to about 66 

percent in New Jersey. Nationally, the 50 states and several territories 

combined have drawn down approximately $11 billion as of April 1, 2009, 

 

12See Recovery Act, div. B, title V, § 5001 (a)-(c). U.S. territories are also eligible for an 

increased FMAP subject to a different formula than states. Recovery Act div. B, title V, § 

5001 (d). 

Page 12 GAO-09-580 Recovery Act
 

which represents almost 46 percent of the increased FMAP grants 

awarded for the first three quarters of federal fiscal year 2009 (Table 3).13

Table 3: FMAP Grant Awards and Funds Drawn Down, for 16 States and the District 

(Dollars in thousands) 

State FMAP grant awards Funds drawn Percentage of funds drawn

Arizona $534,576 $286,286 53.6

California $3,331,167 $1,511,539 45.4

Colorado $226,959 0 0.0

District of Columbia $87,831 $49,898 56.8

Florida $1,394,945 $817,025 58.6

Georgia $521,251 $311,515 59.8

Illinois $992,042 $117,081 11.8

Iowa $136,023 $81,663 60.0

Massachusetts $1,182,968 $272,559 23.0

Michigan $700,522 $462,982 66.1

Mississippi $225,471 $114,112 50.6

New Jersey $ 549,847 $362,235 65.9

New York $3,143,641 $1,739,073 55.3

North Carolina $657,111 $414,644 63.1

Ohio $760,647 $420,630 55.3

Pennsylvania $1,043,920 $330,811 31.7

Texas $1,448,824 $665,665 45.9

Total $16,937,745 $7,957,718 47.0

Source: GAO analysis of HHS data. 

Note: FMAP grant awards are those funds awarded as of April 3, 2009, and funds drawn down are as 

of April 1, 2009. 

In order for states to qualify for the increased FMAP available under the 

Recovery Act, they must meet certain requirements. In particular 

• Maintenance of Eligibility: In order to qualify for the increased 

FMAP, states generally may not apply eligibility standards, 

methodologies, or procedures that are more restrictive than those in 

effect under their state Medicaid programs on July 1, 2008.14 In 

 

13This amount includes funds drawn down by U.S. territories and the District. 

14See Recovery Act, div. B, title V, § 5001(f)(1). 

Page 13 GAO-09-580 Recovery Act
 

guidance to states, CMS noted that examples of restrictions of 

eligibility could include (1) the elimination of any eligibility groups 

since July 1, 2008 or (2) changes in an eligibility determination or 

redetermination process that is more stringent than what was in effect 

on July 1, 2008. States that fail to initially satisfy the maintenance of 

eligibility requirements have an opportunity to reinstate their eligibility 

standards, methodologies, and procedures before July 1, 2009 and 

become retroactively eligible for the increased FMAP. 

• Compliance with Prompt Payment: Under federal law states are 

required to pay claims from health practitioners promptly.15 Under the 

Recovery Act, states are prohibited from receiving the increased FMAP 

for days during any period in which that state has failed to meet this 

requirement.16 Although the increased FMAP is not available for any 

claims received from a practitioner on each day the state is not in 

compliance with these prompt payment requirements, the state may 

receive the regular FMAP for practitioner claims received on days of 

non-compliance. CMS officials told us that states must attest that they 

are in compliance with the prompt payment requirement, but that 

enforcement is complicated due to differences across states in 

methods used to track this information. CMS officials plan to issue 

guidance on reporting compliance with the prompt payment 

requirement and are currently gathering information from states on the 

methods they use to determine compliance. 

• Rainy Day Funds: States are not eligible for an increased FMAP if any 

amounts attributable (either directly or indirectly) to the increased 

FMAP are deposited or credited into any reserve or rainy day fund of 

the state.17

• Percentage Contributions from Political Subdivisions: In some 

states, political subdivisions—such as cities and counties—may be 

required to help finance the state’s share of Medicaid spending. States 

that have such financing arrangements are not eligible to receive the 

 

15States are required to pay 90 percent of clean claims from health care practitioners within 

30 days of receipt and 99 percent of these claims within 90 days of receipt. See 42 U.S.C. § 

1396a(a)(37)(A). 

16This provision only applies to claims received after February 17, 2009, the date of 

enactment of the Recovery Act. 

17This prohibition does not apply to any increase in FMAP based on maintenance of the 

states’ prior year FMAPs. 

Page 14 GAO-09-580 Recovery Act
 

increased FMAP if the percentage contributions required to be made 

by a political subdivision are greater than what was in place on 

September 30, 2008.18

In addition to meeting the above requirements, states that receive the 

increased FMAP must submit a report to CMS no later than September 30, 

2011 that describes how the increased FMAP funds were expended, in a 

form and manner determined by CMS.19 In guidance to states, CMS has 

stated that further guidance will be developed for this reporting 

requirement. CMS guidance to states also indicates that, for federal 

reimbursement, increased FMAP funds must be drawn down separately, 

tracked separately, and reported to CMS separately. Officials from several 

states told us they require additional guidance from CMS on tracking 

receipt of increased FMAP funds and on reporting on the use of these 

funds. 

The increased FMAP available under the Recovery Act is for state 

expenditures for Medicaid services.20 However, the receipt of this 

increased FMAP may reduce the state share for their Medicaid programs. 

States have reported using these available funds for a variety of purposes. 

In our sample, individual states and the District reported that they would 

use the funds to maintain their current level of Medicaid eligibility and 

benefits, cover their increased Medicaid caseloads—which are primarily 

populations that are sensitive to economic downturns, including children 

and families, and to offset their state general fund deficits thereby avoiding 

layoffs and other measures detrimental to economic recovery. Ten states 

and the District reported using these funds to maintain program eligibility. 

Nine states and the District reported using these funds to maintain 

benefits. Specifically, Massachusetts reported that during a previous 

financial downturn, the state limited the number of individuals eligible for 

some services and reduced certain program benefits that were optional for 

the state to cover. However, with the funds made available as a result of 

the increased FMAP, the state did not have to make such reductions. 

Similarly, New Jersey reported that the state used these funds to eliminate 

premiums for certain children in its State Children’s Health Insurance 

 

18This prohibition does not apply to any increase in FMAP based on maintenance of the 

states’ prior year FMAPs. 

19Recovery Act, div. B, title V, § 5001 (g)(1). 

20Recovery Act, div. B, title V, § 5001 (a)-(c), (h)(1). 

Page 15 GAO-09-580 Recovery Act
 

Program, allowing it to retain coverage for children whose enrollment in 

the program would otherwise have been terminated for non-payment of 

premiums. Nine states and the District reported using these funds to cover 

increases to their Medicaid caseloads, primarily to populations that are 

sensitive to economic downturns, such as children and families. For 

example, New Jersey indicated that these funds would help the state meet 

the increased demand for Medicaid services. According to a New Jersey 

official, due to significant job losses, the state’s proposed 2010 budget 

would not have accommodated all the applicants newly eligible for 

Medicaid and that the funds available as a result of the increased FMAP 

have allowed the state to maintain a “safety net” of coverage for uninsured 

and unemployed people. In addition, 10 states and the District indicated 

that the increased funds made available would help offset deficits in their 

general funds. Pennsylvania reported that because funding for its Medicaid 

program is derived, in part, on state revenues, program funding levels 

fluctuate as the economy rises and falls. However, the state was able to 

use funds made available to offset the effects of lower state revenues. 

Arizona officials also reported that the state used funds made available as 

a result of the increased FMAP to pay down some of its debt and make 

payroll payments, thus allowing the state to avoid a serious cash flow 

problem. 

Finally, six states in our sample also reported that they used funds made 

available as a result of the increased FMAP to comply with prompt 

payment requirements. Specifically, Illinois reported that these funds will 

permit the state to move from a 90-day payment cycle to a 30-day payment 

cycle for all Medicaid providers. Three states also reported using these 

funds to restore or to increase provider payment rates. 

In our sample, many states and the District indicated that they need 

additional guidance from CMS regarding eligibility for the increased FMAP 

funds. Specifically, 5 states raised concerns about whether certain 

programmatic changes could jeopardize the state’s eligibility for these 

funds. For example Texas officials indicated that guidance from CMS is 

needed regarding whether certain programmatic changes being considered 

by Texas, such as a possible extension of the program’s eligibility period, 

would affect the state’s eligibility for increased FMAP funds. Similarly, 

Massachusetts wanted clarification from CMS as to whether certain 

changes in the timeframe for the state to conduct eligibility redeterminations would be considered a more restrictive standard. Four 

states also reported that they wanted additional guidance from CMS 

regarding policies related to the prompt payment requirements or changes 

to the non-federal share of Medicaid expenditures. For example, California 

Page 16 GAO-09-580 Recovery Act
 

officials noted that the state reduced Medicaid payments for in-home 

support services, but that counties could voluntarily choose to increase 

these payments without altering the cost sharing arrangements between 

the counties and the state. The state wants clarification from CMS on 

whether such an arrangement would be allowable in light of the Recovery 

Act requirements regarding the percentage of contributions by political 

subdivisions within a state toward the non-federal share of expenditures. 

In response to states’ concerns regarding the need for guidance, CMS told 

us that it is in the process of developing draft guidance on the prompt 

payment provisions in the Recovery Act. One official noted that this 

guidance will include defining the term practitioner, describing the types 

of claims applicable under the provision, and addressing the principles 

that are integral to determining a state’s compliance with prompt payment 

requirements. Additionally, CMS plans to have a reporting mechanism in 

place through which states would report compliance under this provision. 

With regard to Recovery Act requirements regarding political subdivisions, 

CMS described their current activities for providing guidance to states. 

Due to the variability of state operations, funding processes, and political 

structures, CMS has been working with states on a case-by-case basis to 

discuss particular issues associated with this provision and to address the 

particular circumstances for each state. A CMS official told us that if there 

were an issue(s) or circumstance(s) that had applicability across the 

states, or if there were broader themes having national significance, CMS 

would consider issuing guidance. 

Of the $27.5 billion provided in the Recovery Act for highway and related 

infrastructure investments, $26.7 billion is provided to the 50 states for 

restoration, repair, construction and other activities allowed under the 

Federal-Aid Highway Surface Transportation Program and for other 

eligible surface transportation projects. Nearly one-third of these funds are 

required to be sub-allocated to metropolitan and other areas. States must 

follow the requirements for the existing program, and in addition, the 

Recovery Act requires that the Governor must certify that the state will 

maintain its current level of transportation spending, and the governor or 

other appropriate chief executive must certify that the state or local 

government to which funds have been made available has completed all 

necessary legal reviews and determined that the projects are an 

appropriate use of taxpayer funds. The certifications must include a 

statement of the amount of funds the state planned to expend from state 

sources as of the date of enactment, during the period beginning on the 

date of enactment through September 30, 2010, for the types of projects 

that are funded by the appropriation. 

Highway Infrastructure 

Investment 

Page 17 GAO-09-580 Recovery Act
 

The U.S. Department of Transportation is reviewing the Governors’ 

certifications regarding maintaining their level of effort for highways. 

According to the Department, of the 16 states in our review and the 

District of Columbia, three states have submitted a certification free of 

explanatory or conditional language—Arizona, Michigan, and New York. 

Eight submitted “explanatory” certifications—certifications that used 

language that articulated assumptions used or stated the certification was 

based on the “best information available at the time,” but did not clearly 

qualify the expected maintenance of effort on the assumptions proving 

true or information not changing in the future. Six submitted a 

“conditional” certifications, which means that the certification was subject 

to conditions or assumptions, future legislative action, future revenues, or 

other conditions.21

Recovery Act funding for highway infrastructure investment differs from 

the usual practice in the Federal-aid Highway Program in a few important 

ways. Most significantly, for projects funded under the Recovery Act, the 

federal share is 100 percent; typically projects require a state match of 20 

percent while the federal share is typically 80 percent. Under the Recovery 

Act, priority is also to be given to projects that are projected to be 

completed within three years. In addition, within 120 days after the 

apportionment by the Department of Transportation to the states (March 

2, 2009), and specifically before June 30, 2009, 50 percent of the 

apportioned funds must be obligated.22 Any amount of this 50 percent of 

apportioned funding that is not obligated may be withdrawn by the 

Secretary of Transportation and redistributed to other states that have 

obligated their funds in a timely manner. Furthermore, one year after 

enactment the Secretary will withdraw any remaining unobligated funds 

and redistribute them based on states’ need and ability to obligate 

additional funds. These provisions are applicable only to those funds 

apportioned to the state and not those funds required by the Recovery Act 

to be suballocated to metropolitan, regional and local organizations. 

 

21The legal effect of such qualifications is currently being examined by the U.S. Department 

of Transportation and has not been reviewed by GAO. 

22For federal-aid highway projects, the Federal Highway Administration of the U.S. 

Department of Transportation has interpreted the term obligation of funds to mean the 

federal government’s contractual commitment to pay for the federal share of a project. This 

commitment occurs at the time the federal government approves a project agreement and 

the project agreement is executed. 

Page 18 GAO-09-580 Recovery Act
 

Finally, states are required to give priority to projects that are located in 

economically distressed areas as defined by the Public Works and 

Economic Development Act of 1965, as amended. In March 2009, FHWA 

directed its field offices to provide oversight and take appropriate action 

to ensure that states gave adequate consideration to economically 

distressed areas in selecting projects. Specifically, field offices were 

directed to discuss this issue with the states and to document its review 

and oversight of this process. 

States are undertaking planning activities to identify projects, obtain 

approval at the state and federal level and move them to contracting and 

implementation. However, because of the steps necessary before 

implementation, states generally had not yet expended significant amounts 

of Recovery Act funds. States are required to reach agreement with the 

Department of Transportation (DOT) on a list of projects reimbursement 

from DOT for these projects. States will then request reimbursement from 

DOT as the state makes payments to contractors working on approved 

projects. 

As of April 16, 2009, the U.S Department of Transportation reported that 

nationally $6.4 billion of the $26.6 billion in Recovery Act highway 

infrastructure investment funding provided to the states had been 

obligated – meaning Transportation and the states had reached 

agreements on projects worth this amount. As shown in Table 4 below, for 

the locations that GAO reviewed, the extent to which the Department of 

Transportation had obligated funds apportioned to the states and 

Washington D.C. ranged from 0 to 65 percent. For two of the states, the 

Department of Transportation had obligated over 50 percent of the states’ 

apportioned funds, for 4 it had obligated 30 to 50 percent of the states’ 

funds, for 9 states it had obligated under 30 percent of funds, and for three 

it had not obligated any funds. 

Page 19 GAO-09-580 Recovery Act
 

Table 4: Highway Apportionments and Obligations as of April 16, 2009 (Dollars in millions) 

State Amount apportioned Amount obligated

Percent of 

apportionment 

obligated Number of projects

Arizona $522 $148 28 26

California 2,570 261 10 20

Colorado 404 118 29 19

District of Columbia 124 37 30 1

Florida 1,347 0 0 0

Georgia 932 0 0 0

Illinois 936 606 65 214

Iowa 358 221 62 107

Massachusetts 425 64 15 19

Michigan 847 111 13 27

Mississippi 355 137 39 32

New Jersey 652 281 43 12

New York 1,121 277 25 108

North Carolina 736 165 22 53

Ohio 936 0 0 0

Pennsylvania 1,026 309 30 108

Texas 2,250 534 24 159

Total $15,538 $3,269 21 905

Source: FHWA. 

Note: Totals may not add due to rounding. 

In most states we visited, while they had not yet expended significant 

funds, they were planning to solicit bids in April or May. They also stated 

that they planned to meet statutory deadlines for obligating the highway 

funds. A few states had already executed contracts. As of April 1, 2009, the 

Mississippi Department of Transportation (MDOT), for example, had 

signed contracts for 10 projects totaling approximately $77 million.23 These 

projects include the expansion of State Route 19 in eastern Mississippi 

into a four-lane highway. This project fulfills part of MDOT’s 1987 FourLane Highway Program which seeks to link every Mississippian to a fourlane highway within 30 miles or 30 minutes. Similarly, as of April 15, 2009, 

the Iowa Department of Transportation had competitively awarded 25 

contracts valued at $168 million. Most often, however, we found that 

 

23As of April 16, 2009, the U.S. Department of Transportation had obligated $137.0 million 

for 32 Mississippi projects. 

Page 20 GAO-09-580 Recovery Act
 

highway funds in the states and the District have not yet been spent 

because highway projects were at earlier stages of planning, approval, and 

competitive contracting. For example, in Florida, the Department of 

Transportation (FDOT) plans to use the Recovery Act funds to accelerate 

road construction programs in its preexisting 5- year plan which will result 

in some projects being reprioritized and selected for earlier completion. 

On April 15, 2009, the Florida Legislative Budget Commission approved 

the Recovery Act-funded projects that FDOT had submitted. 

For the most part, states were focusing their selection of Recovery Actfunded highway projects on construction and maintenance, rather than 

planning and design, because they were seeking projects that would have 

employment impacts and could be implemented quickly. These included 

road repairs and resurfacing, bridge repairs and maintenance, safety 

improvements, and road widening. For example, in Illinois, the 

Department of Transportation is planning to spend a large share of its 

estimated $655 million in Recovery Act funds24 for highway and bridge 

construction and maintenance projects in economically distressed areas, 

those that are shovel-ready, and those that can be completed by February 

2012. In Iowa, the contracts awarded have been for projects such as bridge 

replacements and highway resurfacing—shovel-ready projects that could 

be initiated and completed quickly. Knowing that the Recovery Act would 

include opportunities for highway investment, states told us they worked 

in advance of the legislation to identify appropriate projects. For example, 

in New York, the state DOT began planning to manage anticipated federal 

stimulus money in November 2008. A key part of New York’s DOT’s 

strategy was to build on existing planning and program systems to 

distribute and manage the funds. 

The states and D.C. must apply to the Department of Education for SFSF 

funds. Education will award funds once it determines that an application 

contains key assurances and information on how the state will use the 

funds. As of April 20, applications from three states had met that 

determination-South Dakota, and two of GAO’s sample states, California 

State Fiscal Stabilization Fund 

 

24According to the Federal Highway Administration, Illinois’ share of Recovery Act funds 

for highway infrastructure investment is approximately $936 million. This total consists of 

$655 million for IDOT projects and $281 million in sub-allocations for local governments’ 

highway projects. The $655 million to IDOT includes $627 million for IDOT to use statewide 

and $28 million for mandatory transportation enhancements. Transportation enhancements 

include activities such as provision of facilities for pedestrians and bicyclists, preservation 

of abandoned railway corridors, acquisition of scenic easements, and historic preservation 

projects. 

Page 21 GAO-09-580 Recovery Act
 

and Illinois. The applications from other states are being developed and 

submitted and have not yet been awarded. The states and the District 

report that SFSF funds will be used to hire and retain teachers, reduce the 

potential for layoffs, cover budget shortfalls, and restore funding cuts to 

programs. The applications to Education must contain certain assurances. 

For example, states must assure that, in each of fiscal years 2009, 2010, 

and 2011, they will maintain state support at fiscal year 2006 levels for 

elementary and secondary education and also for public institutions of 

higher education (IHEs). However, the Secretary of Education may waive 

maintenance of effort requirements if the state demonstrates that it will 

commit an equal or greater percentage of state revenues to education than 

in the previous applicable year. The state application must also contain (1) 

assurances that the state is committed to advancing education reform in 

increasing teacher effectiveness, establishing state-wide education 

longitudinal data systems, and improving the quality of state academic 

standards and assessments; (2) baseline data that demonstrates the state’s 

current status in each of the education reform areas; and (3) a description 

of how the state intends to use its stabilization allocation. 

Within two weeks of receipt of an approvable SFSF application, Education 

will provide the state with 67 percent of its SFSF allocation. Under certain 

circumstances, Education will provide the state with up to 90 percent of 

its allocation. In the second phase, Education intends to conduct a full 

peer review of state applications before awarding the final allocations. 

After maintaining state support for education at fiscal year 2006 levels, 

states are required to use the education portion of the SFSF to restore 

state support to the greater of fiscal year 2008 or 2009 levels for 

elementary and secondary education, public IHEs, and, if applicable, early 

childhood education programs. States must distribute these funds to 

school districts using the primary state education formula but maintain 

discretion in how funds are allocated to public IHEs. If, after restoring 

state support for education, additional funds remain, the state must 

allocate those funds to school districts according to the funding formula 

found in Title I, Part A, of the Elementary and Secondary Education Act of 

1965 (ESEA), commonly known as the No Child Left Behind Act. However, 

if a state’s education stabilization fund allocation is insufficient to restore 

state support for education, then a state must allocate funds in proportion 

to the relative shortfall in state support to public schools and IHEs. 

Education stabilization funds must be allocated to school districts and 

public IHEs and cannot be retained at the state level. 

Page 22 GAO-09-580 Recovery Act
 

Once stabilization funds are awarded to school districts and public IHEs, 

they have considerable flexibility over how they use those funds. School 

districts are allowed to use stabilization funds for any allowable purpose 

under the Elementary and Secondary Education Act (ESEA), (commonly 

known as the No Child Left Behind Act), the Individuals with Disabilities 

Education Act (IDEA), the Adult Education and Family Literacy Act, or the 

Perkins Act, subject to some prohibitions on using funds for, among other 

things, sports facilities and vehicles. In particular, because allowable uses 

under the Impact Aid provisions of ESEA are broad, school districts have 

discretion to use Recovery Act funding for things ranging from salaries of 

teachers, administrators, and support staff to purchases of textbooks, 

computers, and other equipment. The Recovery Act allows public IHEs to 

use SFSF funds in such a way as to mitigate the need to raise tuition and 

fees, as well as for the modernization, renovation, and repair of facilities, 

subject to certain limitations. However, the Recovery Act prohibits public 

IHEs from using stabilization funds for such things as increasing 

endowments, modernizing, renovating, or repairing sports facilities, or 

maintaining equipment. According to Education officials, there are no 

maintenance of effort requirements placed on local school districts. 

Consequently, as long as local districts use stabilization funds for 

allowable purposes, they are free to reduce spending on education from 

local-source funds, such as property tax revenues. 

States have broad discretion over how the $8.8 billion in SFSF funds 

designated for basic government services are used. The Recovery Act 

provides that these funds can be used for public safety and other 

government services and that these services may include assistance for 

education, as well as for modernization, renovation, and repairs of public 

schools or IHEs, subject to certain requirements. Education’s guidance 

provides that the funds can also be used to cover state administrative 

expenses related to the Recovery Act. However, the Act also places 

several restrictions on the use of these funds. For example, these funds 

cannot be used to pay for casinos (a general prohibition that applies to all 

Recovery Act funds), financial assistance for students to attend private 

schools, or construction, modernization, renovation, or repair of stadiums 

or other sports facilities. 

States’ expected that SFSF uses by school districts and public IHEs would 

include retaining current staff and spending on programmatic initiatives, 

among other uses. Some states’ fiscal condition could affect their ability to 

meet maintenance of effort (MOE) requirements in order to receive SFSF 

monies, but they are awaiting final guidance from Education on 

procedures to obtain relief from these requirements. For example, due to 

Page 23 GAO-09-580 Recovery Act
 

substantial revenue shortages, Florida has cut their state budget in recent 

years and the state will not be able to meet the maintenance-of-effort 

requirement to readily qualify for these funds. The state will apply to 

Education for a waiver from this requirement; however, they are awaiting 

final instructions from Education on submission of the waiver. Florida 

plans to use SFSF funds to reduce the impact of any further cuts that may 

be needed in the state education budget. 

In Arizona, generally, state officials expect that SFSF recipients, such as 

local school districts, will use their allocations to improve the tools they 

use to assess student performance and determine to what extent 

performance meets federal academic standards, rehire teachers that were 

let go because of prior budget cuts, retain teachers, and meet the federal 

requirement that all schools have equal access to highly qualified teachers, 

among other things. Funds for the state universities will help them 

maintain services and staff as well as avoid tuition increases. Illinois 

officials stated that the state plans to use all of the $2 billion in State Fiscal 

Stabilization funds, including the 18.2 percent allowed for government 

services, for K-12 and higher education activities and hopes to avert layoffs 

and other cutbacks many districts and public colleges and universities are 

facing in their fiscal year 2009 and 2010 budgets. State Board of Education 

officials also noted that U.S. Department of Education guidance allows 

school districts to use stabilization funds for education reforms, such as 

prolonging school days and school years, where possible. However, 

officials said that Illinois districts will focus these funds on filling budget 

gaps rather than implementing projects that will require long-term 

resource commitments. While planning is underway, most of the selected 

states reported that they have not yet fully decided how to use the 18.2 

percent of the SFSF which is discretionary. 

In addition to funds for Medicaid, transportation, and SFSF which flow 

primarily directly to the states, the Recovery Act provided funds for other 

program areas ranging from housing to training to alternative energy. 

Localities’ planning for the use of Recovery Act education funds varied 

according to both the status of federal guidance in place at the time of our 

review and individuals states’ and localities’ own planning process. New 

Jersey state education officials said they were initially limited in their 

ability to provide guidance to local institutions because they were awaiting 

guidance from the U.S. Department of Education. As a result, school 

district officials we interviewed in Newark and Trenton said they are 

waiting for state officials to tell them what their allocations are for each of 

the federal Recovery Act education programs. The timing of the federal 

and state guidelines for these funds are important as the local schools 

Localities Report Limited Initial 

Use of Recovery Act Funds 

Page 24 GAO-09-580 Recovery Act
 

districts are planning their upcoming fiscal year budgets and would like to 

know how the Recovery Act funds would complement their upcoming 

school spending. According to the governor’s chief of staff, the state 

already funds local school districts with $8.8 billion in state funds, so 

ensuring accountability for the use of state funds to so many school 

districts is not a new challenge to the state oversight agencies. On April 1, 

2009, the U.S. Department of Education issued guidance to the states on 

how Recovery Act funds could be used for education. State officials are 

continuing to review the guidance, and on April 16, 2009, issued guidance 

to local school districts outlining each district’s allocation of additional 

funds made available under the Recovery Act for programs authorized 

under Title I of the Elementary and Secondary Education Act (ESEA) and 

the Individuals with Disabilities Education Act. In Arizona, Tempe School 

District No. 3 plans to use the vast majority of the Recovery Act funding 

for ESEA Title I for existing programs, but it has tentative plans to use 

portions of it each year to hire two temporary regional facilitators and to 

fund five existing preschool programs, among other uses. 

Officials from the selected states and the District said there were plans in 

place to apply for and use Recovery Act funds. For example, Michigan 

plans to apply for $67 million in Recovery Act funds for crime control and 

prevention activities under the Department of Justice’s Edward Byrne 

Memorial Justice Assistance Grants. Michigan Department of Community 

Health officials told us that about $41 million of these funds will support, 

among other things, state efforts to reduce the crime lab backlog, funding 

for multi-jurisdictional courts, and localities’ efforts regarding law 

enforcement programs, community policing, and local correctional 

resources. An additional $26 million in Recovery Act funds will go directly 

to localities to support efforts against drug-related and violent crime. On 

April 13, 2009, Michigan began accepting grant applications for the Byrne 

program and will continue to accept them until May 11, 2009. In another 

example, officials in the District told us that as of April 3, 2009, the District 

Department of Employment Services had received about $1.5 million for 

adult Workforce Investment Act (WIA) programs, about $3.8 million for 

dislocated workers programs, and almost $4 million for youth programs. 

They said that D.C. plans to use these Recovery Act funds in accordance 

with the U.S. Department of Labor’s guidance stating the intent of the 

Recovery Act to use WIA Adult funds to provide the necessary services to 

substantially increased numbers of adults to support their entry or reentry 

into the job market, and that WIA Dislocated Worker funds be used to 

provide the necessary services to dislocated workers to support their 

reentry into the job market. 

Page 25 GAO-09-580 Recovery Act
 

Recovery Act Funds 

Expected to Alleviate 

Some State Fiscal 

Pressures As States 

Continue to Adjust Budget 

Plans to Address Current 

and Emerging Challenges 

Officials in all of the selected states indicated they were able to reduce or 

eliminate expected budget shortfalls through the inclusion of Recovery 

Act funds in their budget projections. In Texas, some representatives told 

us that absent the availability of Recovery Act funds, state agencies likely 

would have been asked to make cuts of about 10 percent for the state’s 

fiscal year 2010-2011 biennial budget, in addition to the state drawing upon 

the rainy day fund. However, other officials representing the Texas Office 

of the Governor said that budget deficit situations do not necessarily result 

in the state using its rainy day fund. The officials stressed that—to meet 

the requirement to pass a balanced budget—a variety of other solutions 

could be considered, such as budget reallocations among state agencies 

and programs, as well as spending cuts. Colorado officials said Recovery 

Act funds will help prevent cuts to state programs such as transportation. 

Illinois officials said the state hopes to avert layoffs and create new jobs 

with Recovery Act funds. 

Officials in Massachusetts also said that federal Recovery Act funds are 

critical to addressing the Commonwealth’s immediate fiscal pressures. 

State officials expect to use a significant portion of funds made available 

as a result of their state-projected $8.7 billion in Recovery Act funds (over 

2 years) for budget stabilization. As of April 2009, the Commonwealth is 

addressing a budget shortfall of approximately $3.0 billion, driven largely 

by lower-than-anticipated revenues. The combination of funds made 

available as a result of the increased FMAP and state rainy day funds— a 

reserve fund built up during more favorable economic conditions to be 

used during difficult economic times—will help the state avoid cuts in 

several areas, including health care, education, and public safety. Faced 

with declining revenue projections since fiscal year 2008, Pennsylvania 

officials believe that funds made available as a result of the Recovery Act 

are critical to help alleviate the immediate fiscal pressure and help balance 

the state budget. Based on February 2009 projections, Pennsylvania faces 

a $2.3 billion shortfall in fiscal year 2009, largely because of lower-thanexpected revenues. 

Despite the infusion of Recovery Act funds into state budgets, some state 

officials reported that the current fiscal situation still requires action to 

maintain balanced budgets. These actions include budget reductions, fee 

increases and scaling back of state rebates of local property taxes. In 

Georgia, officials amended the state budget by reducing revenue 

estimates, using reserves, and cutting program funding. These actions 

were necessary despite the inclusion of additional Medicaid funds made 

available as a result of the Recovery Act. The largest budget cuts in New 

Jersey come from scaling back of state rebates of local property taxes by 

Page 26 GAO-09-580 Recovery Act
 

$500 million, and reducing state payments to the pension funds by $895 

million. 

Officials in the selected states acknowledged the Recovery Act’s 

contributions to easing immediate fiscal pressures but remain wary of 

continued fiscal pressures likely to remain after federal assistance ends. 

Officials in several states reported that their planning efforts focused on 

maintaining existing services rather than creating new programs or staff 

positions which could extend their state’s financial liabilities beyond the 

end date for Recovery Act funds. Officials generally expected to use 

Recovery Act funds to fill gaps in existing programs rather than funding 

new initiatives. In the midst of program budget cuts, state officials 

acknowledged the challenge of ensuring that, where required to do so, 

they use Recovery Act funds to supplement and not supplant current state 

program funds.25 For example, in Arizona, programs receiving Recovery 

Act funds may have a share of the state general fund reduced to help 

balance the fiscal year 2010 budget, thus demonstrating the state has met 

the prohibition on supplanting state funds could be a challenge. The 

Arizona Treasurer’s Office estimated that even with Recovery Act funding, 

Arizona’s expenditures were expected to exceed revenues through about 

2014, and the state’s “rainy day” fund has been depleted.26

In California, even when the state Legislative Analyst’s Office factors in the 

state’s anticipated Recovery Act funding and a package of state budget 

solutions that will be voted on in a May 19, 2009 special election, it 

estimates an $8 billion deficit in fiscal year 2009-10. Further, since the 

release of the governor’s budget in January 2009, the state’s economic 

condition continues to deteriorate, and the state legislature and governor 

may need to develop additional budgetary solutions to rebalance the 

2009-10 budget following an update of the budget in May.27

 

25For certain programs, states may use Recovery Act funds to supplement but may not 

supplant current state program funds. Certain other programs are not subject to this 

restriction. 

26In addition, the Arizona state legislature passed a budget in January 2009 that closed an 

estimated shortfall of $1.8 billion for fiscal year 2008 and $2.1 billion for fiscal year 2009. 

27In January 2009, the fiscal year 2009-2010 Governor’s Budget projected that the state 

would end the 2009-2010 period with a $41.6 billion deficit if the state took no corrective 

actions. 

Page 27 GAO-09-580 Recovery Act
 

All of the 16 selected states and the District reported taking action to plan 

for and monitor the use of Recovery Act funding. Some states reported 

that Recovery Act planning activities for funds received by the state are 

directed primarily by the governor’s office. In New York, for example, the 

governor provides program direction to the state’s departments and 

offices, and he established a Recovery Act Cabinet comprised of 

representatives from all state agencies and many state authorities to 

coordinate and manage Recovery Act funding throughout the state. In 

North Carolina, Recovery Act planning efforts are led by the newly created 

Office of Economic Recovery and Investment, which was established by 

the governor to oversee the state’s economic recovery initiatives. 

States’ Actions to Plan for 

Use of Recovery Act Funds 

Include New and Existing 

Entities and Processes 

Other states reported that their Recovery Act planning efforts were less 

centralized. In Mississippi, the governor has little influence over the state 

Departments of Education and Transportation, as they are led by 

independent entities. In Texas, oversight of federal Recovery Act funds 

involves various stakeholders, including the Office of the Governor, the 

Office of the Comptroller of Public Accounts, and the State Auditor’s 

Office as well as two entities established within the Texas legislature 

specifically for this purpose—the House Select Committee on Federal 

Economic Stabilization Funding and the House Appropriations’ 

Subcommittee on Stimulus.28

Several states reported that they have appointed “Recovery Czars” or 

identified a similar key official and established special offices, task forces 

or other entities to oversee the planning and monitor the use of Recovery 

Act funds within their states. In Michigan, the governor appointed a 

recovery czar to lead a new Michigan Economic Recovery Office, which is 

responsible for coordinating Recovery Act programs across all state 

departments and with external stakeholders such as GAO, the federal 

OMB, and others. 

Some states began planning efforts before Congress passed the Recovery 

Act. For example, the state of Georgia recognized the importance of 

accounting for and monitoring Recovery Act funds and directed state 

agencies to take a number of steps to safeguard Recovery Act funds and 

 

28Under Texas law, according to state officials, the governor is the state’s chief budget 

officer, but the state legislature and the Legislative Budget Board have a large role in the 

state’s budget process, which operates on a 2-year cycle. Both the governor and the 

Legislative Budget Board develop budget recommendations and submit budget proposals 

to the legislature, which adopts a budget (general appropriations bill) for the 2-year period. 

Page 28 GAO-09-580 Recovery Act
 

mitigate identified risks. Georgia established a small core team in 

December 2008 to begin planning for the state’s implementation of the 

Recovery Act. Within 1 day of enactment, the governor appointed a 

Recovery Act Accountability Officer, and she formed a Recovery Act 

implementation team shortly thereafter. The implementation team 

includes a senior management team, officials from 31 state agencies, an 

accountability and transparency support group comprised of officials from 

the state’s budget, accounting, and procurement offices, and five crossagency implementation teams. At one of the first implementation team 

meetings, the Recovery Act Accountability Officer disseminated an 

implementation manual to agencies, which included multiple types of 

guidance on how to use and account for Recovery Act funds, and new and 

updated guidance is disseminated at the weekly implementation team 

meetings. 

In contrast, officials in some states are using existing mechanisms rather 

than creating new offices or positions to lead Recovery Act efforts. For 

example, a District official stated that the District would not appoint a 

Recovery Czar, and instead would use its existing administrative 

structures to distribute and monitor Recovery Act funds to ensure quick 

disbursement of funds. In Mississippi, officials from the Governor’s Office 

said that the state did not establish a new office to provide statewide 

oversight of Recovery Act funding, in part because they did not believe 

that the act provided states with funds for administrative expenses—

including additional staff. The Governor did designate a member of his 

staff to act as a stimulus coordinator for Recovery Act activities. 

All 16 states we visited and the District have established Recovery Act web 

sites to provide information on state plans for using Recovery funding, 

uses of funds to date, and, in some instances, to allow citizens to submit 

project proposals. For example, Ohio has created www.recovery.Ohio.gov, 

which represents the state’s efforts to create an open, transparent, and 

equitable process for using Recovery Act funds. The state has encouraged 

citizens to submit proposals for use of Recovery Act funds, and as of April 

8, 2009, individuals and organizations from across Ohio submitted more 

than 23,000 proposals. Iowa officials indicated they want to use the state’s 

recovery web site (www.recovery.Iowa.gov) to host a “dashboard” 

function to report updated information on Recovery Act spending that is 

easily searchable by the public. Also in Colorado, the state plans to create 

a web-based map of projects receiving Recovery Act funds to help inform 

the public about the results of Recovery Act spending in Colorado. 

Page 29 GAO-09-580 Recovery Act
 

In many states we spoke to, officials reported that their planning efforts 

were affected by the need for the state legislature to approve state 

agencies’ use of Recovery Act funds.29 For example, in Florida, the state 

legislature must authorize the use of all Recovery Act funds received by 

the state; including those passed on to local governments. In Colorado, 

some Recovery Act funds, including those going to Child Care 

Development Block Grants (CDBG) and the Temporary Assistance to 

Needy Families (TANF) Emergency Contingency Fund, must be allocated 

by the Colorado General Assembly, which is in session only through early 

May. Mississippi officials also plan to use Recovery Act funds to address 

the state’s fiscal challenges. Mississippi legislative officials we met with 

told us that the state legislature was considering adding escalation 

language to the current fiscal year’s appropriations bills that would 

authorize state agencies to spend any Recovery Act funds received. The 

legislature normally conducts its regular session between the beginning of 

January and the end of March. However, the legislature recessed early 

during the 2009 regular session in part because of uncertainty regarding 

how Recovery Act funds that the state will receive should be spent. The 

legislature plans to reconvene in early May 2009 to complete its work on 

the state’s fiscal year 2010 budget. 

States’ Legislatures Approve 

Use of Recovery Act Funds 

Selected States’ and the 

District’s Plans to Track 

Recovery Act Funds 

The selected states’ and localities’ tracking and accounting systems are 

critical to the proper execution and accurate and timely recording of 

transactions associated with the Recovery Act. OMB has issued guidance 

to the states and localities that provides for separate “tagging” of Recovery 

Act funds so that specific reports can be created and transactions can be 

traced. Officials from all 16 of the selected states and the District told us 

they have established or were establishing methods and processes to 

separately identify (i.e., tag), monitor, track, and report on the use of the 

Recovery Act funds they receive. The states and localities generally plan 

on using their current accounting system for recording Recovery Act 

funds, but many are adding identifiers to account codes to track recovery 

act funds separately. Many said this involved adding digits to the end of 

existing accounting codes for federal programs. In California for instance, 

officials told us that while their plans for tracking, control, and oversight 

are still evolving, they intend to rely on existing accountability 

 

29We did not review state legal materials for this report, but relied on state officials and 

other state sources for description and interpretation of relevant state constitutions, 

statutes, legislative proposals, and other state legal materials. 

Page 30 GAO-09-580 Recovery Act
 

mechanisms and accounting systems, enhanced with newly created codes, 

to separately track and monitor Recovery Act funds that are received by 

and pass through the state. Several officials told us that the state’s 

accounting system should be able to track Recovery Act funds separately. 

In one state, Arizona, officials told us that state agencies will primarily be 

responsible for administering, tracking, reporting on and overseeing 

Recovery Act funds for their respective programs because the state 

government is highly decentralized. The state’s existing accounting system 

will have new accounting codes added in order to segregate and track the 

Recovery Act funds separately from other funds that will flow through the 

state government. Under Arizona’s decentralized government, some larger 

agencies, and program offices within them, have their own accounting 

systems that will need to code and track Recover Act funds as well. The 

Arizona General Accounting Office has issued guidance to state agencies 

on their responsibilities, including how they were to receive, disburse, tag 

or code in their accounting systems, track separately, and to some extent 

report on these federal resources. 

A concern expressed by state officials is that agencies within the state 

often use different accounting software making it difficult to ensure 

consistent and timely reporting. For example, Georgia officials stated that 

the majority of state agencies use the same software; however, some 

agencies do not use this software and others have greatly customized the 

software. Similarly, officials from the Illinois Office of the Internal Auditor 

said that the state is assessing an issue that could affect reporting — 

specifically that there are currently more than 100 separate financial 

systems used throughout the Illinois state government. Furthermore, 

Colorado state officials are concerned that their accounting system is 

outdated and said they faced challenges in meeting federal reporting 

requirements. Some state departments do not use the state financial 

system grant module and therefore manually post aggregate revenue and 

expenditure data. As a result, they may have to compile a list of Recovery 

Act funding received outside of their central financial management system. 

State officials are determining what approach they will use in tracking 

funds, and told us they plan to create an accounting fund and a centrally 

defined budget coding structure through which to track state agencies’ use 

of Recovery Act funds. 

Page 31 GAO-09-580 Recovery Act
 

State Concerns Over 

Accountability of Recovery 

Act Funds Going to SubRecipients or Directly to 

Localities and Other NonState Entities 

State officials reported a range of concerns regarding the federal 

requirements to identify and track Recovery Act funds going to subrecipients, localities and other non-state entities. These concerns include 

their inability to track these funds with existing systems, uncertainty 

regarding state officials’ accountability for the use of funds which do not 

pass through state government entities, and their desire for additional 

federal guidance to establish specific expectations on sub-recipient 

reporting requirements. 

Officials from many of the 16 selected states and the District told us that 

they had concerns about the ability of sub-recipients, localities, and other 

non-state entities to separately tag, monitor, track, and report on the 

Recovery Act funds they receive. For example, in New Jersey officials 

noted that certain towns and cities, as well as regional planning 

organizations, can apply for and directly receive federal funds under the 

terms of the Recovery Act. According to the state Inspector General, the 

risk for waste, fraud and abuse increases the farther removed an 

organization is from state government controls. While some state officials 

said that they have statewide investigative authority, they would not be 

able to readily track the funding going directly to local and regional 

government organizations and nonprofits as a result of the funding 

delivery and reporting requirements set up in the Recovery Act. In 

addition, staff from the State Auditor’s office noted that some smaller 

cities and towns in New Jersey are not used to implementing guidance 

from the state or federal government on how they are using program funds 

and this could result in the localities reporting using funds for ineligible 

purposes. 

Officials in many states expressed concern about being held accountable 

for funds flowing directly from federal agencies to localities or other 

recipients. For example, officials in Colorado expressed concern that they 

will be held accountable for all Recovery Act funds flowing to the state, 

including those funds for which they do not have oversight or even 

information about, because some funds flow directly to non-state entities 

within Colorado (such as school districts and transportation districts). 

Officials in some states said they would like to at least be informed about 

funds provided to non-state entities in order to facilitate planning for the 

use of these funds and so they can coordinate Recovery Act activities. For 

example, Georgia officials do not expect to track and report on funds 

going directly to localities, but would like to be informed about these 

funds so that the state can coordinate with localities. They cited Recovery 

Act-funded broadband initiatives and health funding to nonprofit hospitals 

Page 32 GAO-09-580 Recovery Act
 

as areas where a lack of coordination could result in a duplication of 

services or missed opportunities to leverage resources. Officials at the 

Colorado Department of Public Safety told us that, because Colorado and 

other states expressed interest in receiving data on localities’ grant 

funding, the federal Bureau of Justice Assistance in the U.S. Department of 

Justice began providing data to the states on localities’ funding. 

In another example, officials told us that the Ohio Administrative 

Knowledge System (OAKS) will allow the state to tag Recovery Act 

funding. However, they said in many cases state agencies will rely on 

grantees and contractors to track the funds to their end use. Because the 

state intends to code each Recovery Act funding stream separately and 

recipients typically manage more than one funding stream at a time, state 

officials said recipients should be able to track Recovery Act funds 

separately from other funding sources. However, state and local officials 

we interviewed raised concerns about the capacity of grantees and 

contractors to track funds spent by sub-recipients. For example, officials 

with the Ohio Department of Education said they can track Recovery Act 

funds to school districts and charter schools, but they have to rely on the 

recipients’ financial systems to be able to track funds beyond that. An 

official with the Columbus City Schools said that while they could provide 

assurances that Recovery Act funds were spent in accordance with 

program rules; they could not report back systematically how each federal 

Recovery Act dollar was spent. Officials with the Columbus Metropolitan 

Housing Authority also noted limitations in how far they could reasonably 

be expected to track Recovery Act funds. They said they could track 

Recovery Act dollars to specific projects but could not systematically 

track funds spent by subcontractors on materials and labor. These officials 

added, however, that if they required the contractors to collect this 

information from their subcontractors, they would be able to report back 

with great detail. Still, they said, without additional guidance from the 

federal government on specific reporting requirements, they were hesitant 

to specify requirements for their contractors to collect the data. 

Pennsylvania officials said that the state will rely on sub-recipients to meet 

reporting requirements at the local level. Recipients and sub-recipients can 

be local governments or other entities such as transit agencies. For 

example, about $367 million in Recovery Act money for transit capital 

assistance and fixed guideway (such as commuter rails and trolleys) 

modernization was allocated directly to areas such as Philadelphia, 

Pittsburgh, and Allentown. State officials also told us that the state would 

not track or report Recovery Act funds that go straight from the federal 

Page 33 GAO-09-580 Recovery Act
 

government to localities and other entities, such as public housing 

authorities. 

Officials in several states indicated that either their states would not be 

tracking Recovery Act funds going to the local levels or that they were 

unsure how much data would be available on the use of these funds. For 

example, Massachusetts officials told us that the portion of recovery funds 

going directly to recipients other than Massachusetts state government 

agencies, such as independent state authorities, local governments, or 

other entities, will not be tracked through the Office of the Comptroller. 

While state officials acknowledged that the Commonwealth lacks 

authority to ensure adequate tracking of these funds, they also are 

concerned about the ability of smaller entities to manage Recovery Act 

funds, particularly smaller municipalities that traditionally do not receive 

federal funds and who are not familiar with Massachusetts tracking and 

procurement procedures, and recipients receiving significant increases in 

federal funds. In order to address this concern, the state administration 

introduced emergency legislation that, according to state officials, 

includes a provision requiring all entities within Massachusetts that 

receive Recovery Act money to provide information to the state on their 

use of Recovery Act funds. Nevertheless, two large non-state government 

entities we spoke with—the city of Boston and the Massachusetts Bay 

Transportation Authority (an independent authority responsible for the 

metropolitan Boston’s transit system)—believe that their current systems, 

with some modifications, will allow them to meet Recovery Act 

requirements. For example, the city of Boston hosted the Democratic 

National Convention in 2004 and officials said that their system was then 

capable of segregating and tracking a sudden influx of temporary funds. 

This response was common among the selected states. For example, 

officials in Florida told us that the state’s accounting system will not track 

the portion of Recovery Act funds that flow directly to local entities from 

federal agencies. Officials in Michigan’s Auditor General’s Office told us 

that their oversight responsibilities do not include most sub-recipients that 

receive direct federal funding, so any upfront safeguards to track or 

ensure accountability have not been determined.30 Mississippi officials 

also said that although special accounting codes will be added to the 

Statewide Automated Accounting System in order to track the expenditure 

 

30Some Michigan state departments are sub-recipients of other state departments and so 

these recipients are under the State Auditor General’s authority. 

Page 34 GAO-09-580 Recovery Act
 

of Recovery Act funds, the system would not track Recovery Act fund

allocated directly to local and regional government organizations and 

nonprofit organizations. 

s 

In Arizona, the portion of recovery funds going directly to recipients other 

than Arizona government agencies, such as independent state authorities, 

local governments, or other entities, may not be tracked by the state. State 

officials expressed concern that they may not be able to attest to localities’ 

ability to tag, track, and report on Recovery Act funds when these entities 

receive the moneys directly from federal agencies rather than through 

state agencies. Department heads and program officials generally 

expected that they could require sub-recipients receiving funds from the 

state, through agreements, grant applications, and revised contract 

provisions, to separately track and report Recovery Act funding. For 

example, unemployment program managers said they were issuing new 

intergovernmental agreements with localities to cover new reporting 

requirements. However, several of the state officials did raise questions 

about the ability of some local organizations to do this, such as small, rural 

entities, boards or commissions, or private entities not used to doing 

business with the federal government. Furthermore, several of the state 

department officials acknowledged that either some state agency 

information systems have data reliability problems, which will have to be 

resolved, or they had sub-recipients who in the past had problems 

providing timely and accurate reporting, but said that they would work 

with these entities to comply, and also had sanctions to use as a last 

resort. 

Officials in Arizona, Florida, Georgia, and New York, also expressed 

concern that the new requirement to provide reports on use of Recovery 

Act funds within 10 days after a quarter ends may be challenging to meet 

by both state and local entities. In some program areas, some state 

officials raised concerns that the Recovery Act requirement will create 

much shorter deadlines for processing financial data that local areas will 

have difficultly meeting. 

Page 35 GAO-09-580 Recovery Act
 

The selected states and the District are taking various approaches to 

ensure that internal controls are in place to manage risk up-front, rather 

than after problems develop and deficiencies are identified after the fact, 

and have different capacities to manage and oversee the use of Recovery 

Act funds. Many of these differences result from the underlying 

differences in approaches to governance, organizational structures, and 

related systems and processes that are unique to each jurisdiction. A 

robust system of internal control specifically designed to deal with the 

unique and complex aspects of the Recovery Act funds will be key to 

helping management of the states and localities achieve the desired 

results. Effective internal control can be achieved through numerous 

different approaches, and, in fact, we found significant variation in 

planned approaches by state. For example, 

Selected States’ and 

Localities’ Internal 

Controls and 

Safeguards to Manage 

and Mitigate the Risk 

of Mismanagement, 

Waste, Fraud, and 

Abuse of Recovery 

Act Funds 

• New York’s Recovery Act cabinet plans to establish a working group 

on internal controls; the Governor’s office plans to hire a consultant to 

review the state’s management infrastructure and capabilities to 

achieve accountability, effective internal controls, compliance and 

reliable reporting under the act; and, the state plans to coordinate 

fraud prevention training sessions. 

• Michigan’s Recovery Office is developing strategies for effective 

oversight and tracking of the use of Recovery Act funds to ensure 

compliance with accountability and transparency requirements. 

• Ohio’s Office of Internal Audit plans to assess the adequacy and 

effectiveness of the current internal control framework and test 

whether state agencies adhere to the framework. 

• Florida’s Chief Inspector General established an enterprise-wide 

working group of agency program Inspectors General who are 

updating their annual work plans by including the Recovery Act funds 

in their risk assessments and will leave flexibility in their plans to 

address issues related to funds. 

• Massachusetts’s Joint Committee on Federal Recovery Act Oversight 

will hold hearings regarding the oversight of Recovery Act spending. 

• Georgia’s State Auditor plans to provide internal control training to 

state agency personnel in late April. The training will discuss basic 

internal controls, designing and implementing internal controls for 

Recovery Act programs, best practices in contract monitoring, and 

reporting on Recovery Act funds. 

Page 36 GAO-09-580 Recovery Act
 

Internal controls include management and program policies, procedures, 

and guidance that help ensure effective and efficient use of resources; 

compliance with laws and regulations; prevention and detection of fraud, 

waste, and abuse; and the reliability of financial reporting. Because 

Recovery Act funds are to be distributed as quickly as possible, controls 

are evolving as various aspects of the program become operational. 

Effective internal control is a major part of managing any organization to 

achieve desired outcomes and manage risk. GAO’s Standards for Internal 

Control include five key elements: control environment, risk assessment, 

control activities, information and communication, and monitoring.31

The control environment should create a culture of accountability by 

establishing a positive and supportive attitude toward improvement and 

the achievement of established program outcomes. Control environment 

includes the integrity and ethical values maintained and demonstrated by 

management, the organizational structure, and management’s philosophy 

and operating style. As detailed earlier in this report, although the 

implementation has varied, many locations we reviewed have attempted to 

enhance their control environment through the appointment of a Recovery 

czar or the establishment of boards or working groups that focus on the 

Recovery Act. Also, as noted earlier, state officials expressed concerns 

about the reliability and accuracy of data coming from localities. 

The second feature of strong internal controls is risk assessment—that is, 

performing comprehensive reviews and analyses of program operations to 

determine if risks exist and the nature and extent of risks have been 

identified. Some states told us that they are conducting such risk 

assessments and the existing body of work by state auditors and others 

provide a good roadmap for states to use to pinpoint key areas of concern 

and to strengthen internal controls and subsequent oversight. For 

example, the Illinois Office of Internal Audit is performing a risk 

assessment of all programs related to the Recovery Act, and North 

Carolina’s Office of Internal Audit is assessing the risk of the state 

department’s financial management system and internal controls. 

Michigan’s major state departments are conducting self assessments of 

controls, including identification of internal control and programmatic 

weaknesses. In Georgia, the budget office is requiring state agencies to 

complete a tool that assesses risk as part of the budget process for the 

States’ and Localities’ 

Internal Controls Will Be 

Critical to Ensuring That 

Recovery Act Funds Are 

Used Appropriately 

Control Environment 

Risk Assessments 

 

31GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1 

(Washington, D.C.: November 1999). 

Page 37 GAO-09-580 Recovery Act
 

Recovery Act funds. Selected states have thus far identified various risks 

that the Recovery Act funds and programs face, including Georgia officials 

identifying three state departments with increased risk—the Georgia 

Department of Labor that is on a different accounting system than other 

state departments, the Georgia Department of Transportation which had 

previously identified accounting problems and is currently being 

reorganized, and the Georgia Department of Human Resources, which is 

currently being divided into three parts, which increases risk. Additionally, 

Massachusetts’ fiscal year 2007 Single Audit report also identified 

deficiencies, especially in the Department of Education’s sub-recipient 

monitoring. 

Officials in several of the selected states told us that risk assessment is 

being conducted to look at programs receiving Recovery Act funds. 

Officials in Texas’ State Auditor’s Office noted that relatively high risks 

generally can be anticipated with certain types of programs such as new 

programs with completely new processes and internal controls; programs 

that distribute significant amounts of funds to local governments or 

boards, and programs that rely on sub-recipients for internal controls and 

monitoring. Officials from New York, North Carolina, and Pennsylvania 

commented that the weatherization program was an example of a program 

at increased risk. 

The results of recent audits are a readily available source of information to 

use in the risk assessment process. Material weaknesses and other 

conditions identified in an audit represent potential risks that can be 

analyzed for their significance and occurrence that will allow management 

and others to decide how to manage the risk and what actions should be 

taken. A readily available source of information on internal control 

weaknesses and other risks present in the states and other jurisdictions 

receiving Recovery Act funding is the Single Audit report, prepared to 

meet the requirements of the Single Audit Act, as amended (Single Audit 

Act) and OMB’s implementing guidance in OMB Circular No. A-133, Audits 

of States, Local Governments, and Non-Profit Organizations. The Single 

Audit Act adopted a single audit concept to help meet the needs of federal 

agencies for grantee oversight and accountability as well as grantees’ 

needs for single, uniformly structured audits. The Single Audit Act requires 

states, local governments and nonprofit organizations expending over 

$500,000 in federal awards in a year to obtain an audit in accordance with 

Page 38 GAO-09-580 Recovery Act
 

requirements set forth in the Act. 32 A single audit consists of (1) an audit 

and opinions on the fair presentation of the financial statements and the 

Schedule of Expenditures of Federal Awards (SEFA); (2) gaining an 

understanding of and testing internal control over financial reporting and 

the entity’s compliance with laws, regulations, and contract or grant 

provisions that have a direct and material effect on certain federal 

programs (i.e., the program requirements),33 and (3) an audit and an 

opinion on compliance with applicable program requirements for certain 

federal programs. The audit report also includes the auditor’s schedule of 

findings and questioned costs, and the auditee’s corrective action plans 

and a summary of prior audit findings that includes planned and 

completed corrective actions. Auditors are also required to report on 

significant deficiencies in internal control and on compliance associated 

with the audit of the financial statements. 

For example, in California, the most recent single audit conducted by the 

State Auditor for fiscal year 2007 identified 81 material weaknesses, 27 of 

which were associated with programs we reviewed for purposes of this 

report.34 The State Auditor plans to use past audit results to target state 

agencies and programs with a high number and history of problems, 

including data reliability concerns, and is closely coordinating with us on 

these efforts. For example, the fiscal year 2007 State Single Audit Report 

identified 8 material weaknesses pertaining to the ESEA Title I program 

and the Individuals with Disabilities Education Act programs. The audit 

findings included a material weakness in the California Department of 

Education’s management of cash because it disbursed funds without 

assurances from LEAs that the time between the receipt and disbursement 

of federal funds was minimized, contrary to federal guidelines. Education 

officials told us that they have addressed some of these material 

weaknesses and, in other cases, they are still working to correct them. If 

 

32If an entity expends federal awards under only one federal program, the entity may elect 

to have an audit of that program. 

33The auditor identifies the applicable federal programs, including “major programs,” based 

on risk criteria, including minimum dollar thresholds, set out in the Single Audit Act and 

OMB Circular No. A-133. Guidance on identifying compliance requirements for most large 

federal programs is set out in the Compliance Supplement to OMB Circular No. A-133. OMB 

has 14 requirements that generally are to be tested for each major federal program to opine 

on compliance and report on significant deficiencies in internal control over compliance 

with each applicable compliance requirement. 

34State of California: Internal Control and State and Federal Compliance Audit Report for 

the Fiscal Year Ended June 30, 2007 (June 2008 Report 2007-002). 

Page 39 GAO-09-580 Recovery Act
 

these and other material weaknesses are not corrected, they may affect 

the state’s ability to appropriately manage certain Recovery Act funds. The 

State Auditor’s Office told us that it is in the process of finalizing the fiscal 

year 2007 State Single Audit Report and plans to issue the report within 

the next 30 days. In addition, the State Auditor’s Office is summarizing the 

results of the single audit to identify those programs that continue to have 

material weaknesses. Finally, the State Auditor’s Office plans to use the 

results of other audits it has conducted in conjunction with the single 

audit to develop its approach for determining the state’s readiness to 

receive the large influx of federal funds and comply with the requirement 

regarding the use of those funds under the Recovery Act. 

Arizona’s fiscal year 2007 Single Audit report identified a number of 

material weaknesses related to the state Department of Education. The 

report identified a material weakness involving IDEA where the state 

department had not reviewed sub-recipients to ensure that federal awards 

were used for authorized purposes in compliance with laws, regulations, 

and the provisions of contracts or grant agreements. The Audit report also 

identified one financial reporting material weaknesses related to the state 

Department of Administration’s ability to prepare timely financial 

statements, including its Comprehensive Annual Financial Report (CAFR). 

In fiscal year 2007, the CAFR was issued in June 2008, approximately 6 

months after the scheduled deadline. According to the Auditor General’s 

Office, the fiscal year 2008 CAFR will also be completed late as the last 

agency submitted its financial statement on March 9, 2008. According to 

the Auditor General’s Office, this control deficiency affects the timeliness 

of financial reporting which affects the needs of users. It is especially 

important that Arizona try to address the timeliness issue with regard to 

financial statements given the number and strict reporting timelines that 

are imposed on states under the Recovery Act. 

The third element of a comprehensive system of internal controls is that of 

control activities, which involve taking actions to address identified risk 

areas and help ensure that management’s decisions, directives, and plans 

are carried out and program objectives met. Various control activities 

already exist and are also being put in place in the states related to the 

Recovery Act. Control activities for states and localities consist of the 

policies, procedures, and guidance that enforce management’s directives 

and achieve effective internal control over specific program activities. 

Examples of such policies and procedures particularly relevant to the 

Recovery Act spending are (1) proper execution and accurate and timely 

recording of transactions and events, (2) controls to help ensure 

compliance with program requirements, (3) establishment and review of 

Control Activities 

Page 40 GAO-09-580 Recovery Act
 

performance measures and indicators, and (4) appropriate documentation 

of transactions and internal control. 

Documented policies, procedures and guidance that are effectively 

implemented will be critical tools for states and localities management and 

staff as well as program recipients for achieving good management of 

Recovery Act programs. Control activities are also key in helping to 

achieve accurate, reliable reporting of information and results. 

Effective control activities and monitoring are key to achieving this 

objective. Pennsylvania’s Auditor General also found potential weaknesses 

and vulnerabilities in programs expected to receive Recovery Act funds.35

For example, a recent Auditor General report found, among other things, 

weak internal controls, weaknesses in contracting, and inconsistent 

verification and inspection of subcontractor work in the state’s 

Weatherization Assistance Program. States and localities that receive and 

administer the Recovery Act funds will be expected to minimize fraud, 

waste, and abuse in contracting. 

According to Florida state officials, the state completed an initiative to 

strengthen contracting requirements several years ago. For example, the 

majority of state contracts greater than $1 million are required to be 

reviewed for certain criteria by the Department of Financial Services’ 

Division of Accounting and Auditing before the first payment is processed. 

The contract must also be negotiated by a contract manager certified by 

the Florida Department of Management Services, Division of State 

Purchasing Training and Certification Program. In another example of 

efforts to enhancing contracting processes and oversight, officials in New 

Jersey told us that the controls and reports will be put into place by the 

state’s centralized purchasing department, the Division of Purchase and 

Property (DPP). The current accounting system will be able to account for 

and control the use of Recovery Act funds used for procurement because 

DPP will create special accounting codes for these funds. New Jersey 

officials stated that their accounting systems had the capability to track 

funds using special accounting codes and that they were confident no 

special enhancements were needed to their accounting software, although 

they would monitor the accounting system to ensure it was functioning 

 

35Other audits the office performs include: financial audits of counties, and state aided and 

owned institutions; performance audits of state agencies, programs and state owned 

institutions; financial and compliance audits of school districts; special investigations; and 

audits of the operations of welfare county assistance offices. 

Page 41 GAO-09-580 Recovery Act
 

properly. DPP will also publicly advertise bids for projects funded with 

Recovery Act funds, include terms and conditions in each request for 

proposals and contract for these projects stating detailed reports required 

by the Act, and will post contract award notices for Recovery Act-funded 

projects. 

Information should be communicated to management and within the 

entity to enable accountable officials and others throughout the entity to 

carry out their responsibilities and determine whether they are meeting 

their goals of accountability and efficient use of resources. The states have 

undertaken a variety of information and communication methods. For the 

Recovery Act, internal state communication is being conducted through 

newly created task forces or working groups such as those in California 

and the District, implementation teams such as in Florida and Georgia, and 

state offices such as in North Carolina. Texas also uses a periodic forum of 

the internal audit staff of Texas state agencies for another statewide 

communication method. Various officials are developing guidance related 

to the Recovery Act and dispensing the information to state agencies. 

Information and 

Communication 

Monitoring activities include the systemic process of reviewing the 

effectiveness of the operation of the internal control system. These 

activities are conducted by management, oversight boards and entities, 

and internal and external auditors. Monitoring enables stakeholders to 

determine whether the internal control system continues to operate 

effectively over time. It also improves the organization’s overall 

effectiveness and efficiency by providing timely evidence of changes that 

have occurred, or might need to occur, in the way the internal control 

system addresses evolving or changing risks. 

Monitoring 

Many of the boards or offices discussed in the control environment above 

have responsibilities related to monitoring the Recovery Act funds. States 

have undertaken various other activities to monitor Recovery Act funds, 

including Arizona’s budget director meeting with the heads of programs 

potentially receiving Recovery Act funds to gauge each programs’ 

preparedness; Arizona’s Comptroller conducting a survey to inventory 

current internal controls at state agencies to help ensure controls are in 

place to limit the risk of fraud, waste, abuse and mismanagement of 

Recovery Act funds; California’s Governor appointing the state’s first 

Inspector General specifically to oversee Recovery Act funds as they are 

disbursed in the state; Massachusetts’ legislature creating the Joint 

Committee on federal Recovery Act Oversight with the goals of ensuring 

compliance with federal regulations and reviewing current state laws, 

regulations and policies to ensure they allow access to Recovery Act funds 

Page 42 GAO-09-580 Recovery Act
 

and streamline the processes to quickly stimulate the economy; and Texas 

State Auditor’s Office plans to hire 10 additional staff. 

An important aspect of monitoring Recovery Act funding includes subrecipient monitoring. As noted, significant concerns exist regarding subrecipient monitoring, as this is an area where limited experience and 

known vulnerabilities exist. Some state auditors do not have authority to 

monitor local operations of internal controls. For example, in 

Pennsylvania, officials from the Auditor General’s office have different 

views about what authority they have to audit federal money that flows 

directly to localities, such as housing authorities and municipalities. 

In Texas, the State Auditor’s Office made a recommendation regarding the 

monitoring of sub-recipients in its most recent audit of the Texas 

Education Agency.36 The audit report did not find that sub-recipients were 

improperly spending federal funds or were not meeting federal 

requirements, however the report did note that the agency had “a limited 

number of resources available to monitor fiscal compliance.” The audit 

report recommended that the Texas Education Agency continue to add 

resources, within its budget constraints, to increase the amount of federal 

fiscal compliance performed. According to the State Auditor, following the 

audit in February 2009, the Texas Education Agency created a 

comprehensive correction plan to address this resource issue, which the 

agency is implementing. 

Current Single Audit Focus 

May Not Provide Timely 

Oversight Information for 

Recovery Act Funds 

OMB’s Circular No. A-133 sets out implementing guidelines for the single 

audit and defines roles and responsibilities related to the implementation 

of the Single Audit Act, including detailed instructions to auditors on how 

to determine which federal programs are to be audited for compliance 

with program requirements in a particular year at a given grantee. The 

Circular No. A-133 Compliance Supplement is issued annually to guide 

auditors on what program requirements should be tested for programs 

audited as part of the single audit. OMB has stated that it will use its 

Circular No. A-133 Compliance Supplement to notify auditors of program 

requirements that should be tested for Recovery Act programs, and will 

issue interim updates as necessary. 

 

36State Auditor’s Office, State of Texas Federal Portion of the Statewide Single Audit 

Report for the Fiscal Year Ended August 31, 2008, SAO Report No. 09-330 (Austin, Tex., 

Feb. 2009). The audit was performed by an independent public auditing firm under contract 

to the State Auditor’s Office. 

Page 43 GAO-09-580 Recovery Act
 

Both the Single Audit Act and OMB Circular No. A-133 call for a “riskbased” approach to determine which programs will be audited for 

compliance with program requirements as part of a single audit. In 

general, the prescribed approach relies heavily on the amount of federal 

expenditures during a fiscal year and whether findings were reported in 

the previous period to determine whether detailed compliance testing is 

required for a given program that year.37 Under the current approach for 

risk determination in accordance with Circular No. A-133, certain risks 

unique to the Recovery Act programs may not receive full consideration. 

Recovery Act funding carries with it some unique challenges. The most 

significant of these challenges are associated with (1) new government 

programs (2), the sudden increase in funds or programs that are new for 

the recipient entity, and (3) the expectation that some programs and 

projects will be delivered faster so as to inject funds into the economy. 

This makes timely and efficient evaluations in response to the Recovery 

Act’s accountability requirements critical. Specifically, 

• new programs and recipients participating in a program for the first 

time may not have the management controls and accounting systems 

in place to help ensure that funds are distributed and used in 

accordance with program regulations and objectives; 

• Recovery Act funding that applies to programs already in operation 

may cause total funding to exceed the capacity of management 

controls and accounting systems that have been effective in past years; 

• the more extensive accountability and transparency requirements for 

Recovery Act funds will require the implementation of new controls 

and procedures; and 

• risk may be increased due to the pressures of spending funds quickly. 

In response to the risks associated with Recovery Act funding, the single 

audit process needs adjustment to put appropriate focus on Recovery Act 

programs to provide the necessary level of accountability over these funds 

in a timely manner. The single audit process could be adjusted to require 

the auditor to perform procedures such as the following as part of the 

routine single audit: 

 

37The Single Audit Act requires that all major programs be audited and specifies minimum 

dollar amounts and minimum proportions of federal funds expended for programs to be 

identified by the auditor as major programs. See 31 U.S.C. §§ 7501. 

Page 44 GAO-09-580 Recovery Act
 

• provide for review of the design and implementation of internal 

control over compliance and financial reporting for programs under 

the Recovery Act; 

• consider risks related to Recovery Act-related programs in determining 

which federal programs are major programs; and 

• specifically, test Recovery Act programs to determine whether the 

auditee complied with laws and regulations.38

The first two items above should preferably be accomplished during 2009 

before significant expenditures of funds in 2010 so that the design of 

internal control can be strengthened prior to the majority of those 

expenditures. We further believe that OMB Circular No. A-133 and/or the 

Circular No. A-133 Compliance Supplement could be adjusted to provide 

some relief on current audit requirements for low-risk programs to offset 

additional workload demands associated with Recovery Act funds. 

OMB told us that it is developing audit guidance that would address the 

above audit objectives. OMB also said that it is considering reevaluating 

potential options for providing relief from certain existing audit 

requirements in order to provide some balance to the increased 

requirements for Recovery Act program auditing. 

State and Local Capacity 

to Manage Risks 

Officials in several states expressed concerns regarding the lack of funding 

provided to state oversight entities in the Recovery Act given the 

additional federal requirements placed on states to provide proper 

accounting, and ensure transparency. Due to fiscal constraints, many 

states reported significant declines in the number of management and 

oversight staff—limiting states’ ability to ensure proper implementation 

and management of Recovery Act funds. To the extent that states’ 

management infrastructures were already strained due to resource issues, 

risks will be exacerbated by increased workloads and new program 

implementation. While the majority of states indicated that they lack the 

necessary resources to conduct additional management and oversight 

related to the Recovery Act, some states indicated that they are taking 

 

38The Single Audit Act sets out minimum federal expenditure amounts and proportions to 

use as criteria in defining which programs are to be tested for compliance with program 

requirements during a single audit. OMB will need to consider those statutory criteria when 

considering revisions to the single audit process. 

Page 45 GAO-09-580 Recovery Act
 

measures to either hire new staff or reallocate existing staff to ensure 

adequate oversight of Recovery Act funds. 

Officials we interviewed in several states said the lack of funding for state 

oversight entities in the Recovery Act presents them with a challenge, 

given the increased need for oversight and accountability. According to 

state officials, state budget and staffing cuts have limited the ability of 

state and local oversight entities to ensure adequate management and 

implementation of the Recovery Act. For example, Colorado’s state 

auditor reported that state oversight capacity is limited, noting that the 

Department of Health Care Policy and Financing has had 3 controllers in 

the past 4 years and the state legislature’s Joint Budget Committee 

recently cut field audit staff for the Department of Human Services in half. 

In addition, the Colorado Department of Transportation’s deputy 

controller position is vacant, as is the Department of Personnel & 

Administration’s internal auditor position. Colorado officials noted that 

these actions are, in part, due to administrative cuts during a past 

economic downturn in an attempt to maintain program delivery levels. 

In Massachusetts, the task forces the Governor convened in December 

2008 concluded that it is critical the Inspector General and State Auditor 

have resources to audit Recovery Act contracts and management of 

Recovery Act funds, as well as recommended that the Attorney General’s 

office be provided with the resources to promptly and effectively pursue 

fraud and abuse. Massachusetts officials explained that the oversight 

community is facing budget cuts of about 10 percent at a time when 

increased oversight and accountability is critically needed. To illustrate 

the impact of the impending budget situation, the Inspector General stated 

that his department does not have the resources to conduct any additional 

oversight related to Recovery Act funds. This significantly affects the 

Inspector General’s capacity to conduct oversight since the budget is 

almost entirely comprised of salaries, and any cuts in funding would result 

in fewer staff available to conduct oversight. In addition, the 

Massachusetts State Auditor described how their department has had to 

resort to staff being furloughed already for 6 days and is anticipating 

further layoffs before the end of fiscal year 2009. Similarly, 94 percent of 

their department’s budget is labor and any cuts in funding generally result 

in cuts in staff. Much like Colorado and Massachusetts, Arizona and 

Florida state officials report significant declines in oversight staff. The 

Florida Auditor General told us that the office has not been hiring new 

staff for over a year and has about 10 percent of the office’s positions 

unfilled. In addition, the Office of Policy Analysis and Government 

Accountability officials also told us their respective staffs have decreased 

Page 46 GAO-09-580 Recovery Act
 

by 10 percent in the past two years. State officials stated that these staff 

resource constraints may lead them to reassesses priorities and reallocate 

staff to ensure adequate oversight of Recovery Act funds. 

Officials within Arizona state executive offices that are coordinating 

oversight activities—such as the Office of Strategic Planning and 

Budgeting, the Office of Economic Recovery, and the Comptroller’s 

Office—stated that they will need additional people to help ensure 

compliance with Recovery Act funding requirements, but that the state has 

a hiring freeze to help address budget deficits. For example, the General 

Accounting Office within the state Department of Administration has 

experienced a reduction from 74 to 50 staff, posing challenges to its 

increased oversight responsibilities, and the state Department of 

Economic Security that manages workforce investment programs had 

8,214 staff on furloughs of five or nine days, depending on pay grade, and 

has laid off about 800 staff members as well. Similarly, a state Department 

of Housing official stated that the office currently has a vacancy rate of 

about 15 percent because of the hiring freeze. Furthermore, the state 

Auditor General reported that its staffing levels are nearly 25 percent 

below the authorized staffing level of 229 full time equivalents. 

Although most states indicated that they lack the resources needed to 

provide effective monitoring and oversight, some states indicated they will 

hire additional staff to help ensure the prudent use of Recovery Act funds. 

For example, according to officials with North Carolina’s Governor’s 

Crime Commission, the current management capacity in place is not 

sufficient to implement the Recovery Act. Officials explained that the 

Recovery Act funds for the Edward Byrne Memorial Justice Assistance 

Grant program have created an increase in workload that the department 

will have to hire additional staff to handle over the next 3 years. Officials 

explained that these staff will be hired for the short term since the money 

will run out in 3 years. Additionally, officials explained that they are able 

to use 10 percent of the Justice Assistance Grants funding to pay for the 

administrative positions that are needed. 

In addition, officials from Ohio’s Office of Budget and Management (OBM) 

stated that its Office of Internal Audit plans to increase its internal audit 

staff from 9 (current) to 33 by transferring internal audit personnel from 

other state agencies and hiring new staff by July 2009. OBM officials say 

that the increase in Office of Internal Audit staff will provide the needed 

resources to implement its objectives and ensure that current safeguards 

are in place and followed as the state manages its Recovery Act funded 

programs. Additionally, some Georgia state officials that directly 

Page 47 GAO-09-580 Recovery Act
 

administer programs stated that overseeing the influx of funds could be a 

challenge, given the state’s current budget constraints and hiring freeze. 

For example, the State Auditor, whose fiscal year 2009 budget was cut by 

11 percent, expressed concerns about the lack of additional funds for 

Recovery Act oversight. The Georgia State Auditor noted that, if state 

fiscal conditions do not improve or federal funding does not become 

available for audit purposes, additional budget and staffing cuts may occur 

within the department. In some cases, state officials told us that they 

planned to use Recovery Act funds to cover their administrative costs. 

Meanwhile, other state officials want additional clarity on when they could 

use program funds to cover such costs. 

A number of states expressed concerns regarding the ability to track 

Recovery Act funds due to state hiring freezes, resulting from budget 

shortfalls. For instance, New Jersey has not increased its number of state 

auditors or investigators, nor has there been an increase in funding 

specifically for Recovery Act oversight. In addition, the state hiring freeze 

has not allowed many state agencies to increase their Recovery Act 

oversight efforts. For example, despite an increase of $469 million in 

Recovery Act funds for state highway projects, no additional staff will be 

hired to help with those tasks or those directly associated with the 

Recovery Act, such as reporting on the number of jobs created. While the 

state’s Department of Transportation has committed to shift resources to 

meet any expanded need for internal Recovery Act oversight, one person 

is currently responsible for reviewing contractor-reported payroll 

information for disadvantaged business enterprises, ensuring compliance 

with Davis-Bacon wage requirements, and development of the job creation 

figures. State education officials in North Carolina also said that greater 

oversight capacity is needed to manage the increase in federal funding. 

However, due to the state’s hiring freeze, the agency will be unable to use 

state funds to hire the additional staff needed to oversee Recovery Act 

funds. The North Carolina Recovery Czar said that his office will work 

with state agencies to authorize hiring additional staff when directly 

related to Recovery Act oversight. 

Hiring Freezes May Limit Some 

States’ Capacity to Provide 

Effective Management and 

Oversight 

Michigan officials reported that the state’s hiring freeze may not allow 

state and local agencies to hire the additional staff needed to increase 

Recovery Act oversight efforts. For example, an official with the state’s 

Department of Community Health said that because it has been 

downsizing for several years through attrition and early retirement, it does 

not have sufficient staff to cover its current responsibilities and that 

further reductions are planned for fiscal year 2010. However, state officials 

told us that they will take the actions necessary to ensure that state 

Page 48 GAO-09-580 Recovery Act
 

departments have the capacity to provide proper oversight and 

accountability for Recovery Act funds. 

In contrast, two states indicated that they have or will have sufficient 

levels of existing personnel to track funds. Texas state officials noted that 

state agencies plan on using existing staff to manage the stimulus funds. 

Agency officials will monitor the situations and, as need arises, will 

determine whether additional staff should be hired to ensure adequate 

oversight of the state Recovery Act funds. Additionally, in preparation of 

the infusion of Recovery Act funds, the Illinois Governor is seeking 

approximately 350 additional positions state-wide in the fiscal year 2010 

budget to help implement Recovery Act programs, according to officials 

from the Governor’s Office of Management and Budget. 

With respect to oversight of Recovery Act funding at the local level, 

varying degrees of preparedness were reported by state and local officials. 

While the California Department of Transportation (Caltrans) officials 

stated that extensive internal controls exist at the state level, there may be 

control weaknesses at the local level. Caltrans is collaborating with local 

entities to identify and address these weaknesses. Likewise, Colorado 

officials expressed concerns that effective oversight of funds provided to 

Jefferson County may be limited due to the recent termination of its 

internal auditor and the elimination of its internal control audit function. 

Arizona state officials expressed some concerns about the ability of rural, 

tribal, and some private entities such as; boards, commissions, and 

nonprofit organizations to manage, especially if the Recovery Act does not 

provide administrative funding for some programs. 

Local Oversight Capacity

As recipients of Recovery Act funds and as partners with the federal 

government in achieving Recovery Act goals, states and local units of 

government are expected to invest Recovery Act funds with a high level of 

transparency and to be held accountable for results under the Recovery 

Act. As a means of implementing that goal, guidance has been issued and 

will continue to be issued to federal agencies, as well as to direct 

recipients of funding. To date, OMB has issued two broad sets of guidance 

to the heads of federal departments and agencies for implementing and 

State Plans to Assess 

Recovery Act 

Spending Impact 

Page 49 GAO-09-580 Recovery Act
 

managing activities enacted under the Recovery Act.39 OMB has also 

issued for public comment detailed proposed standard data elements that 

federal agencies will require from all (except individuals) recipients of 

Recovery Act funding.40 When reporting on the use of funds, recipients 

must show the total amount of recovery funds received from a federal 

agency, the amount expended or obligated to the project, project specific 

information including the name and description of the project, an 

evaluation of its completion status, the estimated number of jobs created 

and retained by the project, and information on any subcontracts a

by the recipient, as specified in the Recovery Act. In addition, the Ci

Acquisition Council and Defense Acquisition Regulations Council have 

issued an interim rule revising the Federal Acquisition Regulation (FAR) to 

require a contract clause that implements these reporting requirements for 

contracts funded with Recovery Act dollars.

warded 

vilian 

 

41

State reactions vary widely and often include a mixture of responses to the 

reporting requirements. Some states will use existing federal program 

guidance or performance measures to evaluate impact, particularly for ongoing programs. Other states are waiting for additional guidance from 

federal departments or from OMB on how and what to measure to assess 

impact. While Georgia is waiting on further federal guidance, the state is 

adapting an existing system (used by the State Auditor to fulfill its Single 

Audit Act responsibilities) to help the state report on Recovery Act funds. 

The statewide web-based system will be used to track expenditures, 

project status, and job creation and retention. The Georgia governor is 

requiring all state agencies and programs receiving Recovery Act funds to 

use this system. Some states indicated that they have not yet determined 

how they will assess impact. 

39See, OMB memoranda, M-09-10, Initial Implementing Guidance for the American 

Recovery and Reinvestment Act of 2009, February 18, 2009, and M-09-15, Updated 

Implementing Guidance for the American Recovery and Reinvestment Act of 2009, April 

3, 2009. 

40OMB, Information Collection Activities: Proposed Collection; Comment Request, Federal 

Register – 74 Fed. Reg. 14824 (Apr. 1, 2009). 

4174 Fed. Reg. 14639 (March 31, 2009). 

Page 50 GAO-09-580 Recovery Act
 

Preserving existing jobs and stimulating job creation and promoting 

economic recovery are among the Recovery Act’s key objectives.42

Officials in 9 of the 16 states and the District expressed concern about the 

definitions of jobs retained and jobs created under the Recovery Act, as 

well as methodologies that can be used for estimation of each. Officials 

from several of the states we met with expressed a need for clearer 

definitions of “jobs retained” and “jobs created.” Officials from a few states 

expressed the need for clarification on how to track indirect jobs,43 while 

others expressed concern about how to measure the impact of funding 

that is not designed to create jobs. Mississippi state officials suggested the 

need for a clearly defined distinction for time-limited, part-time, full-time, 

and permanent jobs; since each state may have differing definitions of 

these two categories. Officials from Massachusetts expressed concern that 

contractors may overestimate the number of jobs retained and created. 

Some existing programs, such as highway construction, have 

methodologies for estimating job creation. But other programs, existing 

and new, do not have job estimation methodologies. 

State officials that we spoke with are pursuing a number of different 

approaches for measuring the effects of Recovery Act funding. For 

example, Florida’s state workforce agency is encouraging recipients of 

Recovery Act funds throughout the state to list jobs created with the funds 

in the state’s existing online job bank. The Iowa Department of 

Transportation tracks the number of worker hours by highway project on 

the basis of contractor reports and will use these reports to estimate jobs 

created. In New Jersey, state and local agencies will collect or estimate 

data on the number of jobs created or retained as a result of Recovery Act 

funds in different ways. For example, the Newark Housing Authority will 

use payroll data to keep track of the exact number of union tradesmen and 

housing authority residents employed to turn damaged vacant units into 

rentable ones. In contrast, New Jersey Transit is using an academic study 

that examined job creation from transportation investment to estimate the 

number of jobs that are created by contractors on its Recovery Act-funded 

 

42Recovery Act, § 3(a)(1). Non-federal entities receiving discretionary funds appropriated 

under the Recovery Act must report on the number of jobs created and retained, among 

other requirements. Mandatory and entitlement programs are excluded from this 

requirement. Recovery Act, div. A, title XV. § 1512. 

43Indirect jobs are jobs created as a result of demand for goods and services generated by 

direct funding from the Recovery Act. 

Page 51 GAO-09-580 Recovery Act
 

construction projects.44 Beyond employment issues, some Michigan state 

universities and the state’s economic development department are 

expected to participate in analyses of the potential impact of Recovery Act 

funds. 

Some of the questions that states and localities have about Recovery Act 

implementation may have been answered in part via the guidance 

provided by OMB for the data elements and in the Federal Acquisition 

Regulation, as well as by guidance issued by federal departments. For 

example, OMB provided definitions for employment, as well as for jobs 

retained and jobs created via Recovery Act funding. However, OMB did 

not specify methodologies for estimating jobs retained and jobs created, 

which has been a concern for some states. Data elements were presented 

in the form of templates with section by section data requirements and 

instructions. OMB provided a comment period during which it is likely to 

receive many questions and requests for clarifications from states, 

localities, and other direct recipients of Recovery Act funding. OMB plans 

to update this guidance again within 30 to 60 days of its April 3, 2009 

issuance. Some federal agencies have also provided guidance to the states. 

The U.S. Departments of Education, Housing and Urban Development, 

Justice, Labor, Transportation, the Corporation for National and 

Community Service, the National Institutes of Health, and the Centers for 

Medicare & Medicaid Services have provided guidance for program 

implementation, particularly for established programs. Although guidance 

is expected, some new programs, such as the Broadband Deployment 

Grants, are awaiting issuance of implementation instructions. 

 

44The study estimated that for every $1 million of transportation infrastructure investment, 

11 jobs are created, 70 percent of them are directly related to the investment and 30 

percent are indirectly related. (Rutgers University Edward J. Bloustein School of Planning 

and Public Policy, “Economic Impacts of Planned Transportation Investments in New 

Jersey” Camden, New Jersey, April 2008.) 

Page 52 GAO-09-580 Recovery Act
 

Concluding 

Observations and 

Recommendations: 

Moving Forward to 

Clarify Recovery Act 

Roles and 

Responsibilities 

It has been a little over two months since enactment of the Recovery Act 

and OMB has moved out quickly. In this period, OMB has issued two sets 

of guidance, first on February 18 and next on April 3, with another round 

to be issued within 60 days. OMB has sought formal public comment on its 

April 3 guidance update and before this, according to OMB, reached out 

informally to Congress, federal, state, and local government officials, and 

grant and contract recipients to get a broad perspective on what is needed 

to meet the high expectations set by Congress and the Administration. In 

addition, OMB is standing up two new reporting vehicles, Recovery.gov, 

which will be turned over to the Recovery Accountability and 

Transparency Board and is expected to provide unprecedented public 

disclosure on the use of Recovery Act funds, and a second system to 

capture centrally information on the number of jobs created or retained. 

As OMB’s initiatives move forward and it continues to guide the 

implementation of the Recovery Act, OMB has opportunities to build upon 

its efforts to date by addressing several important issues. 

These issues can be characterized broadly in three categories: (1) 

Accountability and Transparency Requirements, (2) Administrative 

Support and Oversight, and (3) Communications. 

Accountability and 

Transparency 

Requirements 

Recipients of Recovery Act funding face a number of implementation 

challenges in this area. The Act includes many programs that are new or 

new to the recipient and, even for existing programs; the sudden increase 

in funds is out of normal cycles and processes. Add to this the expectation 

that many programs and projects will be delivered faster so as to inject 

funds into the economy and it becomes apparent that timely and efficient 

evaluations are needed. The following are our recommendations to help 

strengthen ongoing efforts to ensure accountability and transparency. 

Single Audit The single audit process is a major accountability vehicle but should be 

adjusted to provide appropriate focus and the necessary level of 

accountability over Recovery Act funds in a timelier manner than the 

current schedule. OMB has been reaching out to stakeholders to obtain 

input and is considering a number of options related to the single audit 

process and related issues. 

We Would Recommend: To provide additional leverage as an oversight 

tool for Recovery Act programs, the Director of OMB should adjust the 

current audit process to: 

Page 53 GAO-09-580 Recovery Act
 

• focus the risk assessment auditors use to select programs to test for 

compliance with 2009 federal program requirements on Recovery Act 

funding; 

• provide for review of the design of internal controls during 2009 over 

programs to receive Recovery Act funding, before significant 

expenditures in 2010; and 

• evaluate options for providing relief related to audit requirements for 

low-risk programs to balance new audit responsibilities associated 

with the Recovery Act. 

Reporting on Impact Responsibility for reporting on jobs created and retained falls to nonfederal recipients of Recovery Act funds. As such, states and localities 

have a critical role in determining the degree to which Recovery Act goals 

are achieved. Senior Administration officials and OMB have been soliciting 

views and developing options for recipient reporting. In its April 3 

guidance, OMB took an important step by issuing definitions, standard 

award terms and conditions, and clarified tracking and documenting 

Recovery Act expenditures. Furthermore, OMB and the Recovery 

Accountability and Transparency Board are developing the data 

architecture for the new federal reporting system that will be used to 

collect recipient reporting information. According to OMB, state chief 

information officers commented on an early draft and OMB expects to 

provide an update for further state review. 

We Would Recommend: Given questions raised by many state and local 

officials about how best to determine both direct and indirect jobs created 

and retained under the Recovery Act, the Director of OMB should 

continue OMB’s efforts to identify appropriate methodologies that can be 

used to: 

• assess jobs created and retained from projects funded by the Recovery 

Act; 

• determine the impact of Recovery Act spending when job creation is 

indirect; 

• identify those types of programs, projects, or activities that in the past 

have demonstrated substantial job creation or are considered likely to 

do so in the future. Consider whether the approaches taken to estimate 

jobs created and jobs retained in these cases can be replicated or 

adapted to other programs. 

Page 54 GAO-09-580 Recovery Act
 

There are a number of ways that the needed methodologies could be 

developed. One option would be to establish a working group of federal, 

state and local officials and subject matter experts. 

State and Federal Data 

Collection 

Given that governors have certified to the use of funds in their states, state 

officials are uncertain about their reporting responsibilities when 

Recovery Act funding goes directly to localities. Additionally, they have 

concerns about the capacity of reporting systems within their states, 

specifically, whether these systems will be capable of aggregating data 

from multiple sources for posting on Recovery.gov. Some state officials 

are concerned that too many federal requirements will slow distribution 

and use of funds and others have expressed reservations about the 

capacity of smaller jurisdictions and non-profits to report data. Even those 

who are confident about their own systems are uncertain about the cost 

and speed of making any required modifications for Recovery.gov 

reporting or further data collection. 

Problems also have been identified with federal systems that support the 

Recovery Act as well. For example, questions have been raised about the 

reliability of www.USAspending.gov (USAspending.gov) and the ability of 

Grants.gov to handle the increased volume of grant applications. OMB is 

taking concerted actions to address these concerns. It plans to reissue 

USAspending guidance shortly to include changes in operations that are 

expected to improve data quality. In a memorandum dated March 9, OMB 

said that it is working closely with federal agencies to identify system risks 

that could disrupt effective Recovery Act implementation and 

acknowledged that Grants.gov is one such system. A subsequent 

memorandum on April 8, offered a short-term solution to the significant 

increase in Grants.gov usage while longer-term alternative approaches are 

being explored. GAO has work underway to review differences in agency 

policies and methods for submitting grant applications using Grants.gov 

and will issue a report shortly. 

OMB addressed earlier questions about reporting coverage in its April 3 

guidance. According to OMB there are limited circumstances in which 

prime and sub recipient reporting will not be sufficient to capture 

information at the project level. OMB stated that it will expand its current 

model in future guidance. OMB guidance described recipient reporting 

requirements under the Recovery Act’s section 1512 as the minimum 

which must be collected, leaving it to federal agencies to determine 

whether additional information would be required for program oversight. 

Page 55 GAO-09-580 Recovery Act
 

We Would Recommend: In consultation with the Recovery 

Accountability and Transparency Board and States, the Director of OMB 

should evaluate current information and data collection requirements to 

determine whether sufficient, reliable and timely information is being 

collected before adding further data collection requirements. As part of 

this evaluation, OMB should consider the cost and burden of additional 

reporting on states and localities against expected benefits. 

At a time when states are experiencing cutbacks, state officials expect the 

Recovery Act to incur new regulations, increase accounting and 

management workloads, change agency operating procedures, require 

modifications to information systems, and strain staff capacity, 

particularly for contract management. Although federal program 

guidelines can include a percentage of grants funding available for 

administrative or overhead costs, the percentage varies by program. In 

considering other sources, states have asked whether the portion of the 

State Fiscal Stabilization Fund that is available for government services 

could be used for this purpose. Others have suggested a global approach 

to increase the percentage for all Recovery Act grants funding that can be 

applied to administrative costs. As noted earlier, state auditors also are 

concerned with meeting increased audit requirements for Recovery Act 

funding with a reduced number of staff and without a commensurate 

reduction in other audit responsibilities or increase in funding. OMB and 

senior administration officials are aware of the states’ concerns and have a 

number of options under consideration. 

Administrative Support and 

Oversight 

We Would Recommend: The Director of OMB should timely clarify what 

Recovery Act funds can be used to support state efforts to ensure 

accountability and oversight, especially in light of enhanced oversight and 

coordination requirements. 

State officials expressed concerns regarding communication on the 

release of Recovery Act funds and their inability to determine when to 

expect federal agency program guidance. Once funds are released, there is 

no consistent procedure for ensuring that the appropriate officials in 

states and localities are notified. According to OMB, agencies must 

immediately post guidance to the Recovery Act web site and inform to the 

“maximum extent practical, a broad array of external stakeholders.” In 

addition, since nearly half of the estimated spending programs in the 

Recovery Act will be administered by non-federal entities, state officials 

have suggested opportunities to improve communication in several areas. 

For example, they wish to be notified when funds are made available to 

prime recipients that are not state agencies. 

Communications 

Page 56 GAO-09-580 Recovery Act
 

Some of the uncertainty can be attributed to evolving reports and timing of 

these reports at the federal level as well as the recognition that different 

terms used by federal assistance programs add to the confusion. A 

reconsideration of how best to publicly report on federal agency plans and 

actions led to OMB’s decision to continue the existing requirement to 

report on the federal status of funds in the Weekly Financial and Activity 

Reports and eliminate a planned Monthly Financial Report. The Formula 

and Block Grant Allocation Report has been replaced and renamed the 

Funding Notification Report. This expanded report includes all types of 

awards, not just formula and block grants, and is expected to better 

capture the point in the federal process when funds are made available. 

We Would Recommend: To foster timely and efficient communications, 

the Director of OMB should develop an approach that provides 

dependable notification to (1) prime recipients in states and localities 

when funds are made available for their use, (2) states, where the state is 

not the primary recipient of funds, but has a state-wide interest in this 

information, and (3) all non-federal recipients, on planned releases of 

federal agency guidance and, if known, whether additional guidance or 

modifications are expected. 

We provided the Director of the Office of Management and Budget with a 

draft of this report for comment on April 20, 2009. OMB staff responded 

the next day, noting that in its initial review, OMB concurred with the 

overall objectives of our recommendations. OMB staff also provided some 

clarifying information, adding that OMB will complete a more thorough 

review in a few days. We have incorporated OMB’s clarifying information 

as appropriate. In addition, OMB said it plans to work with us to define the 

best path forward on our recommendations and to further the 

accountability and transparency of the Recovery Act. The Governors of 

each of the 16 states and the Mayor of the District were provided drafts for 

comment on each of their respective appendixes in this report. Those 

comments are included in the appendixes. 

Agency Comments 

and Our Evaluation 

We are sending copies of this report to the Office of Management and 

Budget and relevant sections to the selected states and the District. 

The report will also be available at no charge on the GAO Web site at 

http://www.gao.gov. 

Page 57 GAO-09-580 Recovery Act
 

If you or your staffs have any questions about this report, please contact 

me at (202) 512-5500. Contact points for our offices of Congressional 

Relations and Public Affairs may be found on the last page of this report. 

GAO staff who made major contributions to this report are listed in 

appendix III-XX. 

Sincerely, 

daro 

Acting Comptroller General of the United States 

Gene L. Do

Page 58 GAO-09-580 Recovery Act
 

List of Congressional Committees 

The Honorable Daniel K. Inouye 

Chairman 

The Honorable Thad Cochran 

Ranking Member 

Committee on Appropriations 

United States Senate 

The Honorable Joseph I. Lieberman 

Chairman 

The Honorable Susan M. Collins 

Ranking Member 

Committee on Homeland Security and Governmental Affairs 

United States Senate 

The Honorable David R. Obey 

Chairman 

The Honorable Jerry Lewis 

Ranking Member 

Committee on Appropriations 

House of Representatives 

The Honorable Edolphus Towns 

Chairman 

The Honorable Darrell Issa 

Ranking Member 

Committee on Oversight and Government Reform 

House of Representatives 

Page 59 GAO-09-580 Recovery Act
Appendix I: 

Methodology 

Objectives, Scope, and 

Page 60 GAO-09-580 

Appendix I: Objectives, Scope, and 

Methodology 

The Recovery Act specifies several roles for GAO, including conducting 

bimonthly reviews of selected states’ and localities’ use of funds made 

available under the act. As a result, our objectives for this report were to 

describe (1) selected states’ and localities’ uses of and planning for 

Recovery Act funds, (2) approaches taken by the selected states and 

localities to ensure accountability for Recovery Act funds, and (3) states’ 

plans to evaluate the impact of the Recovery Act funds they have received 

to date. 

Selection of States To address our objectives, we selected a core group of 16 states and the 

District that we will follow over the next few years to provide an ongoing 

longitudinal analysis of the use of funds provided in conjunction with the 

Recovery Act. The selected states are Arizona, California, Colorado, 

Florida, Georgia, Iowa, Illinois, Massachusetts, Michigan, Mississippi, New 

Jersey, New York, North Carolina, Ohio, Pennsylvania, and Texas. We 

selected these states and the District on the basis of outlay projections, 

percentage of the U.S. population represented, unemployment rates and 

changes, and a mix of states’ poverty levels, geographic coverage, and 

representation of both urban and rural areas. These states and D.C. 

contain about 65 percent of the U.S. population and are estimated to 

receive about two-thirds of the intergovernmental grant funds available 

through the Recovery Act. Furthermore, they strike a balance between 

covering a significant portion of Recovery Act funding and obtaining a mix 

that reflects the breadth of circumstances facing states and localities 

throughout the country. 

Selection of Programs To focus our analysis, we examined a set of programs receiving Recovery 

Act funding that are administered by states and localities. To do this, we 

reviewed analysis and estimates of Recovery Act funds flowing to states 

and localities that were done by state and local associations including the 

National Governors Association, the National Conference of State 

Legislatures, and the Federal Funds Information for States (FFIS). We also 

analyzed data from congressional appropriations committees and the 

Congressional Budget Office (CBO) on the distribution, allocation, and 

spend out rates of Recovery Act funding. 

The programs we selected were streams of Recovery Act funding flowing 

to states and localities through increased Medicaid Federal Medical 

Assistance Percentage (FMAP) grant awards, funding for highway 

infrastructure investment, and the State Fiscal Stabilization Fund (SFSF). 

Together, they are expected to account for about 91 percent of fiscal year 

 Recovery Act 
Appendix I: Objectives, Scope, and 

Methodology 

2009 Recovery Act spending by states and localities. For the FMAP grant 

awards, we conducted a web-based inquiry, asking the 16 states and D.C. 

to provide data and information on enrollment, expenditures, and changes 

to their Medicaid programs and to report their plans to use state funds 

made available as a result of the increased FMAP. We reviewed states’ 

responses for internal consistency and conducted follow-up with the 

states as needed. We also spoke with individuals from the U.S. Department 

of Health and Human Services regarding the changes to the FMAP and the 

disbursement of increased FMAP funds. In addition, we spoke with 

individuals from the Centers for Medicare & Medicaid regarding their 

oversight and guidance to states. For highways infrastructure investment, 

we reviewed status reports and guidance to the states and discussed these 

with the U.S. Department of Transportation (DOT) and Federal Highways 

Administration (FHWA) officials. To understand how the U.S. Department 

of Education is implementing the SFSF, we reviewed relevant laws, 

guidance, and communications to the states and interviewed Education 

officials. Our review of related documents and interviews with federal 

agency officials focused on determining and clarifying how states, school 

districts, and public Institutions of Higher Education would be expected to 

implement various provisions of the SFSF. 

We considered programs with large amounts of funding, programs 

receiving significant increases in funding, new programs, and those with 

known risks. For example, the Medicaid program is on the GAO high risk 

list. In addition, we consulted with our internal program experts and 

outside experts including federal agency inspectors general, state and 

local auditors, and state and local government associations. 

Approach in States and 

Localities on Uses and 

Plans for Recovery Act 

Funds 

Our teams visited the 16 selected states, localities within those states, and 

D.C. during March and April 2009 to collect documentation on the plans, 

uses, and tracking of Recovery Act funds and to conduct interviews with 

state and local officials. The teams met with a variety of state and local 

officials from executive-level offices including Governors and their key 

staff, Comptrollers’ Offices, Treasurers’ Offices, State Auditors’ Offices, 

Recovery Czars, Inspectors Generals, senior finance and budget officials, 

and local officials such as from housing authorities, school districts, police 

departments, and other key audit community stakeholders to determine 

how they planned to conduct oversight of Recovery Act funds. The teams 

also met with state and local agencies administering programs receiving 

Recovery Act funds, including state Departments of Education, 

Transportation, and Health and Human Services, and with selected 

legislative offices in the states. In support of these interviews, we 

Page 61 GAO-09-580 Recovery Act
Appendix I: Objectives, Scope, and 

Methodology 

developed a series of program review and semi-structured interview 

guides that addressed state plans for management, tracking, and reporting 

of Recovery Act funds and activities. These guides focused on 

identification of risk, risk mitigation, contracting, the internal control 

environment and safeguards against fraud, waste, and abuse. While in the 

16 states and D.C., the teams also met with and interviewed a number of 

local government officials, whose offices are identified in Appendix 2. 

To determine how states and localities plan to track the receipt of, 

planning for, and use of Recovery Act funds, the state and D.C. teams 

asked cognizant officials to describe the accounting systems and 

conventions that would be used to execute transactions and to monitor 

and report on expenditures. In addition, to assist in the planning of the 

audit work and for inclusion in their risk assessment framework, we 

provided the state and D.C. teams with fiscal year 2007 single audit 

summary information, which was the most recent single audit information 

available. Single audit information was obtained from the Federal Audit 

Clearinghouse (FAC) single audit data collection forms and the single 

audit reports. The single audit summary information provided included : 

(1) total federal awards expended; (2) whether there were questioned 

costs; (3) the financial statement audit opinion, number of material 

weaknesses, and a brief description of each material weakness; and (4) 

major federal program audit opinion, number of material weaknesses, and 

a brief description of each material weakness. We examined the Single 

Audit reports to identify these issues and used that information when 

interviewing state officials in order to ascertain how they have addressed 

or plan to address the weaknesses. We also asked auditors to address how 

they planned to monitor and oversee the Recovery Act funds and whether 

or not they felt their offices had sufficient capacity to handle any new or 

increased responsibilities related to the Recovery Act. 

Assessing Safeguards and 

Internal Controls 

Recovery Act Reporting 

Requirements 

To understand the reporting requirements of the Recovery Act, we 

reviewed the guidance issued by OMB on February 18 and April 3, 2009 

and selective federal agency guidance related to grants and to states and 

localities. We also reviewed an interim rule amending the Federal 

Acquisition Regulation containing interim reporting requirements for the 

Recovery Act, issued March 31, 2009.1

 Additionally we studied the OMB 

issued Information Collection Requirements: Proposed Collection (April 1, 

 

1

74 Fed. Reg. 14,639. 

Page 62 GAO-09-580 Recovery Act
Appendix I: Objectives, Scope, and 

Methodology 

2009) that contains the data elements for the quarterly recipient reports 

specified in Section 1512 of the Recovery Act. Each of the states and D.C. 

provided information on its plans to provide assessment data required by 

Section 1512. 

We conducted this performance audit from February 17, 2009, through 

April 20, 2009, in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives. Data on states’ and 

localities’ plans, uses, and tracking of Recovery Act funds was provided 

during interviews and follow-up meetings with state and local officials. 

Given that much of the Recovery Act funding had not yet reached the 

states and localities, we could not validate nor test the accuracy of the 

statements made by these officials regarding their accounting and tracking 

systems. Overall, we determined that the data were sufficiently reliable for 

the purposes of providing the background information on Recovery Act 

funding for this report. Our sample of selected states is not a random 

selection and therefore cannot be generalized to the total population of 

state and local governments. 

Page 63 GAO-09-580 Recovery Act
Appendix II: Localities Visited by GAO in Appendix II: Localities Visited by GAO in Selected States 

Selected States 

Table 5: States and Localities Visited by GAO 

States and the 

District of Columbia Localities (or Associations Representing Localities) 

Arizona Regional Public Transportation Authority, Maricopa Association of Governments, City of 

Phoenix Public Transit Department, City of Phoenix Housing Department, City of Glendale 

Housing Department, Tempe School District, Peoira Accelerated High School, Maricopa 

Workforce Connections, City of Phoenix Workforce Connection Division 

California Sacramento Housing and Redevelopment Agency 

Colorado Denver Mayor’s Office, Denver City Auditor, Denver Housing Authority, Denver Office of 

Economic Development 

District of Columbia District of Columbia Housing Authority, Washington Metropolitan Area Transportation 

Authority 

Florida Florida Association of Counties, Workforce Plus (a regional workforce board for Leon, 

Gadsden, and Wakulla Counties), Tallahassee Housing Authority, Florida Association of 

School District Superintendents 

Georgia Atlanta Housing Authority, Atlanta Regional Workforce Board 

Iowa City of Des Moines 

Illinois Chicago Transit Authority 

Massachusetts City of Boston, Massachusetts Bay Transportation Authority 

Michigan City of Detroit Mayor’s Office, City of Lansing Mayor’s Office, City of Detroit Office of Auditor 

General, Detroit Public Schools, Lansing School District 

Mississippi Central Mississippi Planning and Development District, The Housing Authority of the City of 

Jackson 

New Jersey Newark Mayor’s Office, New Jersey Transit in Newark, Newark Housing Authority, Newark 

Public Schools, Trenton Mayor’s Office, Trenton Police Department, Trenton Housing 

Authority, Trenton Board of Education 

New York New York City’s Mayor’s Office, New York City Budget Director, New York City Comptroller 

North Carolina City of Raleigh, Wake County, North Carolina Association of County Commissioners, North 

Carolina League of Municipalities 

Ohio Columbus Metropolitan Housing Authority, Franklin County Government, City of Columbus, 

Columbus City Schools, Local WIA 

Pennsylvania Harrisburg Housing Authority, South Central Workforce Investment Board 

Texas City of Austin Office of the City Auditor, City of Austin-Financial & Administrative Services 

Department, The Housing Authority of the City of Austin 

Source: GAO. 

Page 64 GAO-09-580 Recovery Act 
Appendix III: Arizona Appendix III: Arizona 

Use of funds: An estimated 90 percent of fiscal year 2009 Recovery Act 

funding provided to states and localities will be for health, transportation 

and education programs. The three largest programs in these categories 

are the Medicaid Federal Medical Assistance Percentage (FMAP) awards, 

the State Fiscal Stabilization Fund, and highways. 

Overview 

9 Medicaid Federal Medical Assistance Percentage (FMAP) Funds

• As of April 3, 2009, the Centers for Medicare & Medicaid Services (CMS) have made about $534.6 million in 

Medicaid FMAP grant awards to Arizona. 

• As of April 1, 2009, the state has drawn down about $286.3 million, or almost 54 percent of its initial 

increased FMAP grant awards. 

• Officials plan to use a significant portion of funds made available as a result of the increased FMAP to offset 

statewide general fund shortfalls. 

9 Transportation—Highway Infrastructure Investment 

• Arizona was apportioned about $522 million for highway infrastructure investment on March 2, 2009, by the 

U.S. Department of Transportation. 

• As of April 16, 2009, the U.S. Department of Transportation had obligated $148.1 million for 26 Arizona 

projects. 

• As of April 20, 2009, the Arizona Department of Transportation (ADOT) had selected 41 highway 

transportation projects worth almost $350 million and had advertised competitive bids on 27 of these 

projects totaling about $190 million. The earliest bids will close on April 24, 2009, with projects expected to 

begin work later this spring. 

• These projects include activities such as preserving pavement, widening lanes and adding shoulders, and 

repairing bridges and interchanges. 

• Arizona will request reimbursement from the Federal Highway Administration as the state makes payments 

to contractors. 

9 U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) 

• Arizona was allocated about $681.4 million from the initial release of these funds on April 2, 2009, by the 

U.S. Department of Education. 

• Before receiving the funds, states are required to submit an application that provides several assurances to 

the Department of Education. These include assurances that they will meet maintenance of effort 

requirements (or that they will be able to comply with waiver provisions) and that they will implement 

strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing 

inequities in the distribution of highly qualified teachers, and improving the quality of state academic 

standards and assessments. The state plans to submit its application by April 24, 2009, once officials review 

the latest estimates for the state’s fiscal year 2010 budget situation. 

• The state expects funds to be used to improve student assessments, obtain more teachers, and meet federal 

standards, among other things, in compliance with federal requirements.

Page 65 GAO-09-580 Recovery Act
Appendix III: Arizona 

Arizona is also receiving additional Recovery Act funds under other 

programs, such as programs under Title I, Part A of the Elementary and 

Secondary Education Act (ESEA), (commonly known as No Child Left 

Behind); programs under the Individuals with Disabilities Education Act 

(IDEA); several housing programs such as the Low-Income Housing Tax 

Credit (LIHTC) Assistance program; and programs under the Workforce 

Investment Act to help provide employment-related services, among other 

things. Plans to use these funds are discussed throughout this appendix. 

Safeguarding and transparency: The state government created a new 

Office of Economic Recovery within the Office of the Governor, the 

purpose of which is to coordinate the use of Recovery Act funds across 

state agencies and to ensure accountability for and transparency in the use 

of these funds. In addition, to meet Recovery Act requirements, the state 

comptroller noted that Arizona intends to add new codes to its central 

accounting system to track Recovery Act funds separately and work with 

state agencies that have their own accounting systems to ensure that they 

can also track funds separately. The state has issued guidance on 

managing the funds, and has plans to publicly report its Recovery Act 

spending, although officials have said that the state may not be aware of 

all funds sent directly by federal agencies to other entities, such as 

municipalities and independent authorities. The officials also identified 

other challenges, such as ensuring that recipients can report on their use 

of funds and that, where applicable, funds are used to supplement and not 

supplant state funds that support relevant affected programs. State and 

local officials noted that they expect to use existing internal controls and 

monitoring techniques to safeguard Recovery Act funds, but are 

concerned about having enough resources to do so. State departments 

were in the early stages of addressing some of these challenges, and are 

awaiting further guidance from the federal government on these issues. 

Assessing the effects of spending: Arizona state agencies and select 

localities that we met with expect to use or enhance existing performance 

metrics to assess the results achieved through Recovery Act funding, 

unless the federal government requires new metrics that will need to be 

developed. State officials were unclear, however, on how to determine the 

number of jobs created and saved by certain Recovery Act funds and were 

awaiting further guidance from the federal government. 

Page 66 GAO-09-580 Recovery Act
Appendix III: Arizona 

Arizona has begun to use some of its Recovery Act funds as follows: 

Increased Federal Medical Assistance Percentage Funds: Medicaid is 

a joint federal-state program that finances health care for certain 

categories of low-income individuals, including children, families, persons 

with disabilities, and persons who are elderly. The federal government 

matches state spending for Medicaid services according to a formula 

based on each state’s per capita income in relation to the national average 

per capita income. The amount of federal assistance states receive for 

Medicaid service expenditures is known as the Federal Medical Assistance 

Percentage (FMAP). Across states, the FMAP may range from 50 to no 

more than 83 percent, with poorer states receiving a higher federal 

matching rate than wealthier states. The Recovery Act provides eligible 

states with an increased FMAP for 27 months between October 1, 2008, 

and December 31, 2010.1

 On February 25, 2009, the Centers for Medicare & 

Medicaid Services (CMS) made increased FMAP grant awards to states, 

and states may retroactively claim reimbursement for expenditures that 

occurred prior to the effective date of the Recovery Act.2

 Generally, for 

federal fiscal year 2009 through the first quarter of federal fiscal year 2011, 

the increased FMAP, which is calculated on a quarterly basis, provides for 

(1) the maintenance of states’ prior year FMAPs; (2) a general across-theboard increase of 6.2 percentage points in states’ FMAPs; and (3) a further 

increase to the FMAPs for those states that have a qualifying increase in 

unemployment rates. The increased FMAP available under the Recovery 

Act is for state expenditures for Medicaid services. However, the receipt of 

the increased FMAP may reduce the funds that states must use for their 

Medicaid programs, and states have reported using these available funds 

for a variety of purposes. 

Arizona Beginning to 

Use Recovery Act 

Funds 

As of April 1, 2009, Arizona has drawn down $286.3 million in increased 

FMAP grant awards, which is almost 54 percent of its total awards of 

$534.5 million. Officials plan to use a significant portion of funds made 

available as a result of the increased FMAP to offset shortfalls created by 

reductions implemented to balance the budget. The state used the initial 

funds made available as a result of the increased FMAP to meet payroll 

and to avoid serious cash-flow problems. 

 

1

 See Recovery Act § 5001. 

2

 Although the effective date of the Recovery Act was February 17, 2009, states generally 

may claim reimbursement for the increased FMAP for Medicaid service expenditures made 

on or after October 1, 2008. 

Page 67 GAO-09-580 Recovery Act
Appendix III: Arizona 

Transportation—Highway Infrastructure Investment: The Recovery 

Act provides additional funds for highway infrastructure investment using 

the rules and structure of the existing Federal-Aid Highway Surface 

Transportation Program, which apportions money to states to construct 

and maintain eligible highways and to undertake other surface 

transportation projects. States must follow the requirements for the 

existing programs, and in addition, the governor must certify that the state 

will maintain its current level of transportation spending, and the governor 

or other appropriate chief executive must certify that the state or local 

government to which funds have been made available has completed all 

necessary legal reviews and determined that the projects are an 

appropriate use of taxpayer funds. Arizona has provided this certification. 

As of April 20, 2009, the Arizona Department of Transportation (ADOT) 

had selected 41 highway transportation projects to be funded with 

Recovery Act dollars.3

 These projects are worth approximately $350 

million of the state’s total $521.9 million apportionment. These include 

projects such as pavement preservation, widening lanes and adding 

shoulders, and bridge and interchange repair. As of April 20, 2009, the 

state had advertised 27 projects worth about $190 million with the earliest 

bids to close on April 24, 2009, and projects expected to begin work this 

spring. Among the projects that have been advertised for bid are the 

widening of Interstate 10 in Maricopa County, repaving of state routes, 

making safety improvements to a state route, and improving intersections. 

Among the first advertisements to close will be the widening of a shoulder 

within the Tonto National Forest, on State Route 87. The cost of this 

project is estimated at approximately $6.8 million, and is estimated to take 

150 days to complete. Bids will close on April 24, 2009. 

U.S. Department of Education State Fiscal Stabilization Fund: The 

Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be 

administered by the U.S. Department of Education (Education). The SFSF 

provides funds to states to help avoid reductions in education and other 

essential public services. The initial award of SFSF funding requires each 

state to submit an application to Education that assures it will take action 

 

3

As of April 16, 2009, the U.S. Department of Transportation had obligated $148.1 million 

for 26 Arizona projects. For federal-aid highway projects, the Federal Highway 

Administration of the U.S. Department of Transportation has interpreted the term 

obligation of funds to mean the federal government’s contractual commitment to pay for 

the federal share of a project. This commitment occurs at the time the federal government 

approves a project agreement and the project agreement is executed. 

Page 68 GAO-09-580 Recovery Act
Appendix III: Arizona 

to meet certain educational requirements, such as increasing teacher 

effectiveness and addressing inequities in the distribution of highly 

qualified teachers. 

Arizona’s initial SFSF allocation is $681.4 million. The state plans to 

submit its application for funds by May 4, 2009, but according to state 

education officials, they are waiting for the legislature to propose a 2010 

budget for their programs before they can definitely decide how they will 

spend the funds. Generally, the state expects that recipients, such as local 

school boards, will use their allocations to improve the tools they use to 

assess student performance and determine to what extent performance 

meets federal academic standards, rehire teachers that were let go 

because of prior budget cuts, retain teachers, and meet the federal 

requirement that all schools have equal access to highly qualified teachers, 

among other things. Funds for the state universities will help them 

maintain services and staff as well as avoid tuition increases. 

In addition to stabilization funding to support education through the state 

fiscal stabilization fund, a senior official from the Arizona Department of 

Education noted that, as of April 3, 2009, Arizona had received $97.5 

million for programs under Title I, Part A of ESEA. The funds will be used 

to improve assessments to meet federal standards, enrich teacher 

qualifications, avoid more teacher layoffs, improve poorer performing 

schools, and ultimately improve student performance, among other things. 

The state had also received about $89.2 million for programs under IDEA, 

Part B, which provides funds for public education to children with 

disabilities. According to state Department of Education officials, these 

funds will be used to hire more teachers to serve students with special 

needs, among other things. se programs, The state education officials said 

that they had prepared estimated allocations for the No Child Left Behind 

Recovery Act funds to the local school districts, which in turn will prepare 

and submit applications before they can use the funds. 

Recovery Act Funds 

Supporting Other 

Programs 

Arizona is also eligible to receive Recovery Act funds for several housing 

programs including the Low-Income Housing Tax Credit (LIHTC) 

Assistance program. The Arizona Department of Housing received notice 

that it will receive approximately $32 million to provide gap financing for 

LIHTC projects which provide funding for development of low income 

housing. Finally, the state Department of Economic Security had received 

approximately $43 million in Recovery Act funding anticipated for 

Workforce Investment Act programs to be used for adult, youth (including 

a summer youth program), and dislocated worker services. 

Page 69 GAO-09-580 Recovery Act
Appendix III: Arizona 

State Agencies and Select 

Localities Will Use 

Recovery Act Funds to 

Restore Programs That 

Suffered Past Budget Cuts 

and Will Track These 

Funds Separately, but 

Expect Some Challenges 

Faced with deteriorating revenue projections, declining consumer 

confidence, a depressed real estate market, and a requirement to balance 

its budget, Arizona officials believe that much of the money the state will 

receive in Recovery Act funds will relieve some of the state’s immediate 

fiscal pressures. State officials envision that funds made available as a 

result of the Recovery Act will be used to support program budgets that 

had been reduced in the state’s efforts to balance the budget. Arizona has 

about $7 billion in its General Fund with a current budget of about $10 

billion. State officials are working to close a budget gap of about $1.3 

billion for fiscal year 2008, an estimated budget gap of about $2.1 billion 

for state fiscal year 2009 and about $2.8 billion for fiscal year 2010 through 

reductions and other strategies. These strategies were limited to some 

extent, because voter propositions protect major programs from 

significant cuts, including Medicaid, education, and corrections, meaning 

other programs must absorb the cuts. The state’s budget imbalance has 

been complicated by lower-than-anticipated revenues. For example, state 

fiscal year 2009 revenue is significantly lower than estimated and has left 

the state unable to support previously approved spending levels. Arizona’s 

Budget Office has estimated its future revenues and expenditures for each 

fiscal year through 2014. It projects an increasing deficit in each fiscal 

year, from $2.1 billion in 2009 to $4.1 billion in 2014, a situation which 

most likely would mean continued cuts. The state’s Budget Stabilization 

Fund, known as its “rainy day” fund—a reserve fund built up during more 

favorable economic conditions to be used during difficult economic 

times—has been depleted. 

As of April 13, 2009, decisions about finalizing the fiscal year 2010 budget 

were still in flux in part because Governor Brewer—only in office since 

January after the former Governor, Janet Napolitano, became Secretary of 

the U.S. Department of Homeland Security—has not issued a formal 

budget proposal. The Governor recognized that further reductions in 

government services may be necessary to help close the significant deficit 

between state revenues and expenditures. Given this, in early March, the 

Governor certified that the state would accept the funds made available by 

the Recovery Act and use certain funds to create jobs and promote 

economic growth within the state. Because of the state’s economic and 

budgetary challenges, some state agency and local officials we met with 

expected to use the funds as they had been using them under their existing 

programs and did not expect to use Recovery Act funding on new 

initiatives. They also were confident recipients had sufficient critical uses 

for the funds and could use them immediately. 

Page 70 GAO-09-580 Recovery Act
Appendix III: Arizona 

However, state officials expressed concerns that using Recovery Act funds 

to make longer term operational and program commitments would mean 

higher future state spending that would not be sustainable once Recovery 

Act funds were no longer available, given the state of the economy. As a 

result, officials from one state agency explained that they are advising 

subrecipients to spend their funds on shorter term projects. Furthermore, 

with program budgets being cut to help relieve fiscal pressures, some state 

officials have said it may be challenging to ensure compliance with 

provisions requiring certain Recovery Act funds to be used to supplement 

and not supplant FY 2010 program funds. Officials with the state 

Department of Education, however, had one concern about passing the 

supplanting test. They said that it was unclear whether states could treat 

Recovery Act funds provided under the fiscal stabilization program as 

“state” funds versus “federal” funds. If they could use the funds as state 

resources, they would be able to meet the supplanting restrictions, but if 

not, they would have serious challenges in complying, jeopardizing the use 

of the funds. On the other hand, some state officials and program 

managers did not think it would be difficult to demonstrate they were not 

supplanting state funds in part because state funding for the programs had 

already been cut so significantly—in other words, there were few state 

funds to supplant. For example, they did not think it would be difficult to 

show that activities supported with Recovery Act resources, such as 

keeping teachers, could only be accomplished with federal support. 

One issue raised by officials in the Office of the Governor and within some 

state and local program offices was covering the costs to oversee and 

track the use of the Recovery Act funds, given past budget cuts, staff 

reductions, and increasing workloads—for example, increasing numbers 

of unemployed individuals who want services. These officials noted that 

their service delivery capacity will be challenged to administer funds 

flowing into eligible programs. Some of the officials wondered what 

flexibility they had to use some of the Recovery Act funds to cover 

administrative costs. On the other hand, some state agency officials said 

that they expected to be able to oversee and track Recovery Act funds 

with existing resources because funding to current programs that had 

administrative processes in place would be increased. In still other cases, 

Recovery Act funds will be disbursed through existing grant programs that 

may provide for a certain percentage of funds to be used for 

administration. 

Page 71 GAO-09-580 Recovery Act
Appendix III: Arizona 

The State Has a System to 

Track How It Is Using 

Recovery Act Funds but 

Cannot Ensure Localities 

Will Be Able to Meet the 

Act’s Reporting 

Requirements 

The state comptroller told us that the state’s existing accounting system 

will have new accounting codes added in order to segregate and track the 

Recovery Act funds separately from other funds that will flow through the 

state government. Because some larger agencies and program offices 

maintain their own accounting systems, the Arizona General Accounting 

Office has issued guidance to state agencies on their responsibilities, 

including how they are to receive, disburse, tag, or code funds in their 

accounting systems; track funds separately; and, to some extent, report on 

these federal resources. State officials we spoke with noted that they do 

not foresee that it will be difficult to track Recovery Act funds separately 

from other funds. However, an official in the state Department of 

Economic Security noted that the Recovery Act funds will stress the 

tracking and reporting capacity of the financial management systems they 

use because the systems are old, are not very flexible, and were not 

designed for these purposes. The official said that the systems must be 

enhanced to provide the capacity needed for Recovery Act funds and that 

they are working to design a solution for this problem. 

Department heads and program officials generally expect that they will 

require subrecipients, through agreements, grant applications, and revised 

contract provisions, to track and report Recovery Act funding separately. 

For example, unemployment program managers said they were issuing 

new intergovernmental agreements with localities to cover new reporting 

requirements. However, several of the state officials raised questions 

about the tracking and reporting abilities of some local organizations, such 

as small, rural entities, boards or commissions, or private entities not used 

to doing business with the federal government. Furthermore, several of the 

state department officials acknowledged that either some state agency 

information systems have data reliability problems that will have to be 

resolved, or they had subrecipients that in the past had problems 

providing timely and accurate reporting, but said that they would work 

with these entities to comply, and also had sanctions to use as a last 

resort. Furthermore, state officials expressed some concern that the new 

requirement to provide financial reports on subrecipients’ use of funds 

within 10 days after a quarter ends may be challenging to meet by both 

state and local entities, because they may not have actual data in time to 

meet this reporting time frame. 

Finally, the state may lack the ability to track the portion of Recovery Act 

funds going directly to recipients other than Arizona government agencies, 

such as independent state authorities, local governments, or other entities. 

State officials expressed concern that they may not be able to track and 

Page 72 GAO-09-580 Recovery Act
Appendix III: Arizona 

report Recovery Act funds when these entities receive the monies directly 

from federal agencies rather than through state agencies. 

Overall, the state agency and local officials that we spoke with expect that 

their existing internal controls and techniques to manage any potential 

risks posed to Recovery Act funding will be sufficient and effective to 

safeguard Recovery Act funds, unless additional requirements are 

mandated by the federal government that generate the need to change 

business processes. These controls and techniques include submitting 

financial and performance reports for review, as well as conducting 

supervisory and compliance reviews, on-site inspections, external audits, 

and audits by the state Auditor General. Although Arizona is largely 

decentralized—state agencies and localities have responsibility for 

monitoring and are accountable for their respective Recovery Act funds—

the state executives are reaching out to the state agencies to help ensure 

they are ready. For example, the state budget director met with the heads 

of the programs potentially receiving Recovery Act funds to gauge each 

program’s preparedness. In addition, a number of state agencies were 

conducting or had plans to conduct meetings, training, and outreach to 

funding recipients to help them understand the goals and objectives of the 

act and their responsibilities for managing the funding it would provide. 

Similarly, in early April 2009, the state’s General Accounting Office 

released a technical bulletin, the purpose of which was to establish 

consistent policies and procedures that all state agencies receiving 

Recovery Act funds must “immediately implement in order to effectively 

manage activities under the act.” A senior official in the state comptroller’s 

office said that office plans to conduct a survey to inventory current 

internal controls at state agencies to help ensure controls are in place to 

limit the risk of fraud, waste, abuse, and mismanagement of Recovery Act 

funds. 

State Agencies and 

Localities Are 

Expecting to Use 

Existing Internal 

Controls to Safeguard 

Recovery Act Funds, 

Although in Some 

Cases, Resource 

Constraints Could 

Affect Oversight 

Several risks still to be addressed have been identified as a result of using 

audits as an internal control. For example, Arizona’s fiscal year 2007 Single 

Audit report4

 identified a number of material weaknesses related to the 

state Department of Education. The report identified a material weakness 

involving IDEA in which the state department had not reviewed 

subrecipients to ensure that federal awards were used for authorized 

purposes in compliance with laws, regulations, and the provisions of 

 

4

Arizona’s fiscal year 2007 Single Audit report is the most recent report available. 

Page 73 GAO-09-580 Recovery Act
Appendix III: Arizona 

contracts or grant agreements. The audit report also identified one 

financial reporting material weakness related to the state Department of 

Administration’s ability to prepare timely financial statements, including 

its Comprehensive Annual Financial Report (CAFR). This is mostly 

because many of the larger state agencies maintain separate accounting 

systems and submit financial data to the Department of Administration for 

inclusion in its consolidated financial statements. In fiscal year 2007, the 

CAFR was issued in June 2008, approximately 6 months after the 

scheduled deadline. According to the Auditor General’s Office, the fiscal 

year 2008 CAFR will also be completed late, as the last agency submitted 

its financial statement on March 9, 2008. According to the Auditor 

General’s Office, this control deficiency affects the timeliness of financial 

reporting, which affects the needs of users. It is especially important that 

Arizona try to address the timeliness issue with regard to financial 

statements given the number and strict reporting timelines that are 

imposed on the state under the Recovery Act. For most of the other 

programs, managers stated that they had no outstanding material 

weaknesses and that any past weaknesses had been brought into 

compliance. 

According to state officials, another area of risk that the state agency is 

trying to manage is that some Recovery Act funds, particularly in the 

transportation area, are reimbursable, meaning that either ADOT or 

localities will have to spend funds from their own budgets until they are 

reimbursed by Recovery Act funds. Because of the state’s challenging 

financial situation, it may be a challenge for some state and local 

government entities to spend the funds up front with the limited cash they 

have on hand. This is particularly true for rural transit projects. According 

to an ADOT official, to address this risk, they are vetting applications for 

rural transit funds closely, with an eye toward granting funds only to those 

localities that have shown they have the cash on hand to pay up front for 

the costs of the rural transit projects. 

Page 74 GAO-09-580 Recovery Act
Appendix III: Arizona 

State Agencies and 

Localities Will Continue or 

Enhance Current 

Monitoring Techniques to 

Oversee Recovery Act 

Funds, but in Some Cases, 

Reduced Resources Could 

Pose Challenges 

Representatives of a number of state executive offices, state agencies, and 

select localities reported that they would at a minimum continue to 

monitor Recovery Act funding as they had monitored federal funding 

provided to these same programs in the past. They expected to meet the 

financial monitoring, performance measurement, and accountability 

requirements using existing systems and reports, unless the federal 

government institutes any new requirements that would require changes to 

their systems and processes. The entities were still waiting for further 

guidance from the federal government to determine any needed changes. 

In some cases, agencies had plans to increase monitoring. For example, 

according to officials for the Arizona Division of the Federal Highway 

Administration (FHWA), they plan on increasing the number of site visits 

on projects that use Recovery Act funds. Similarly, state transportation 

officials will require that contractors report the Recovery Act dollars spent 

and the jobs they created as part of their regular reports to the state. 

To some extent, Arizona is providing the public an opportunity to monitor 

how the state is using Recovery Act funding and what it is achieving with 

these funds through a Web site, azrecovery.gov, where the state has posted 

links to program funding levels, guidance, and intended uses of Recovery 

Act money, and intends to post reports on the use of funds, among other 

things. 

However, several state officials expressed concern that the Recovery Act 

did not provide funding specifically for state oversight activities, despite 

their importance in ensuring that the Recovery Act funds are used 

appropriately and effectively. Officials within state executive offices that 

are coordinating oversight activities—such as the Office of Economic 

Recovery and the Comptroller’s Office—stated that they will be challenged 

to oversee compliance with Recovery Act funding requirements within 

their existing staffing levels, given that the state currently has a hiring 

freeze to help relieve its budget deficits. For example, the Arizona General 

Accounting Office within the state Department of Administration has 

experienced a reduction of staff from 74 to 50, posing challenges to its 

increased oversight responsibilities. The Department of Economic 

Security, which manages workforce investment programs and human 

services programs, among other responsibilities, has an estimated 8,214 

staff on furloughs and has laid off about 800 staff members as well. 

Similarly, a Department of Housing official stated that the office currently 

has a vacancy rate of about 15 percent because of the hiring freeze. 

Furthermore, the state Auditor General reported that its staffing levels are 

nearly 25 percent below the authorized staffing level of 229 full time 

equivalents. 

Page 75 GAO-09-580 Recovery Act
Appendix III: Arizona 

State agencies and the select localities that we spoke with expected to use 

existing performance metrics to assess results achieved through Recovery 

Act funding, but were also looking for more guidance from the federal 

government on how to comply with new assessment requirements under 

the act. Agency officials generally stated that because the Recovery Act 

funds are for pre-existing programs, they will continue to use their existing 

performance metrics to assess impacts. For example, the Arizona Criminal 

Justice Commission, which oversees among other things the Edward 

Byrne Memorial Justice Assistance Grants, tracks a wide list of both shortterm and long-term performance measures that assess the effectiveness of 

law enforcement projects funded by the grants. Short-term measures 

include increasing the number of units that report high program quality, 

while long-term measures include changing crime rate percentages in 

communities. Commission officials stated that they will continue to track 

these measures for Recovery Act funding, in addition to any new measures 

required under the act. Likewise, administrators at a local school district 

we visited stated that they have a department that uses a system to track 

the performance for every school and every student in the school district. 

The officials stated that they will use the same measures to track school 

and student performance improvements using Recovery Act funds. 

However, officials were unclear as to how to determine the number of jobs 

created and saved by certain Recovery Act funds, new measures required 

by the act. State education officials noted that the act is vague about 

determining the number of teachers who would have been laid off in the 

absence of Recovery Act funding. Although a state housing official 

expected that her office would have the capabilities to assess results, such 

as job creation and economic output, local housing officials stated they 

may have difficulty doing so. State and local officials were waiting for 

additional guidance from the federal government on how to implement 

measures for jobs created and saved, as well as any new measures 

required under the act. 

We provided the Governor of Arizona with a draft of this appendix on 

April 17, 2009. The Director of the Office of Economic Recovery 

responded for the Governor on April 20, 2009. In general, the state agreed 

with our draft and provided some clarifying information which we 

incorporated. The state also provided technical suggestions that were 

incorporated, as appropriate. 

State Agencies and 

Localities Will Use 

Existing Performance 

Measures to Gauge 

the Impacts of 

Recovery Act Funding 

and Are Waiting for 

Federal Guidance on 

How to Implement 

New Measures the Act 

Requires, Especially 

on Jobs Created and 

Saved 

Arizona’s Comments 

on This Summary 

Page 76 GAO-09-580 Recovery Act
Appendix III: Arizona 

Eileen Laurence, (202) 512-6510 or larencee@gao.gov GAO Contacts 

Charles Jeszeck, (202) 512-7036 or jeszeckc@gao.gov 

In addition to the contacts named above, Kirk Kiester, Assistant Director; 

Joseph Dewechter, analyst-in-charge; Lisa Brownson; Aisha Cabrer; 

Alberto Leff; Jeff Schmerling; and Margaret Vo made major contributions 

to this report. 

Staff 

Acknowledgments 

Page 77 GAO-09-580 Recovery Act
Appendix IV: California Appendix IV: California 

Overview Use of funds: An estimated 90 percent of fiscal year 2009 Recovery Act 

funding provided to states and localities will be for health, transportation 

and education programs. The three largest programs in these categories 

are the Medicaid Federal Medical Assistance Percentage (FMAP) awards, 

the State Fiscal Stabilization Fund, and highways. 

9 Medicaid Federal Medical Assistance Percentage (FMAP) Funds

• As of April 3, 2009, Centers for Medicare & Medicaid Services (CMS) had made about $3.331 billion in 

increased Federal Medical Assistance Percentage (FMAP) grant awards to California. 

• As of April 1, 2009, the state has drawn down about $1.5 billion, or 45.4 percent of its initial increased FMAP 

grant awards. 

• Funds made available as a result of increased FMAP will help offset the state’s general fund budget deficit, 

according to California officials. 

9 Transportation—Highway Infrastructure Investment 

• California was apportioned about $2.570 billion for highway infrastructure investment on March 2, 2009 by 

the U.S. Department of Transportation. 

• Under a state law enacted in late March 2009, 62.5 percent of funds ($1.606 billion) will go to local 

governments for projects of their selection. 

• Of the remaining 37.5 percent ($964 million), $625 million will go to State Highway Operation and Protection 

Program (SHOPP) projects for highway rehabilitation, eligible maintenance and repair; $29 million will fund 

Transportation Enhancement projects; and $310 million will be loaned to fund stalled capacity expansion 

projects. 

• As of April 16, 2009, the U.S. Department of Transportation had obligated $261.4 million for 20 California 

projects. 

• California will request reimbursement from the U.S. Department of Transportation as the state makes 

payments to contractors. 

9 U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) 

• California was allocated about $3.993 billion from the initial release of these funds on April 2, 2009 by the 

U.S. Department of Education. 

• Before receiving the funds, states are required to submit an application that provides several assurances to 

the Department of Education. These include assurances that they will meet maintenance of effort 

requirements (or that they will be able to comply with waiver provisions) and they will implement strategies 

to meet certain educational requirements, including teacher effectiveness, addressing inequities in the 

distribution of highly qualified teachers, and improving the quality of state academic standards and 

assessments. California’s application was approved by the U.S. Department of Education on April 17, 2009 

and the state is now eligible to draw funds for local school districts and universities. 

• Approximately $3.266 billion of the $3.993 billion (81.8 percent) must be spent on education. The remaining 

$727 million (18.2 percent) can be spent at the Governor’s discretion and is expected to be directed to public 

safety. Of the funds devoted to education, the majority will be spent on primary and secondary education. 

Page 78 GAO-09-580 Recovery Act 
Appendix IV: California 

California is receiving additional Recovery Act funds under other 

programs, such as Title I, Part A of the Elementary and Secondary 

Education Act of 1965 (ESEA), (commonly known as No Child Left 

Behind); the Individuals with Disabilities Education Act, Part B, and 

workforce training programs under the Workforce Investment Act (WIA). 

Safeguarding and transparency: The Governor established the 

California Federal Economic Stimulus Task Force to ensure both 

accountability and transparency in how funds are spent, consistent with 

the Recovery Act and the state’s own goals. The Task Force will also 

manage California’s recovery Web site (www.recovery.ca.gov), the state’s 

principal vehicle for reporting on the use and status of Recovery Act 

funds. In addition, on April 3, 2009, California appointed a Recovery Act 

Inspector General to make sure Recovery Act funds are used as intended 

and to identify instances of waste, fraud, and abuse. California intends to 

use its existing accounting system to track funds flowing through the state 

government. Although California will publicly report its Recovery Act 

spending, officials have said that the state may not be aware of all federal 

funds sent directly to other entities, such as municipalities and 

independent authorities. The California State Auditor has raised concerns 

about internal controls at various state agencies that could affect 

accountability for Recovery Act funds, and will take this into account 

when assessing risk during her current audit planning efforts. 

Assessing the effects of spending: According to state officials, 

California has begun to develop plans to assess the effects of Recovery Act 

spending. However, they are waiting for further guidance from the federal 

government, particularly related to measuring job creation. 

California has begun to use some of its Recovery Act funds, as follows: 

Increased Federal Medical Assistance Percentage Funds: Medicaid is 

a joint federal-state program that finances health care for certain 

categories of low-income individuals, including children, families, persons 

with disabilities, and persons who are elderly. The federal government 

matches state spending for Medicaid services according to a formula 

based on each state’s per capita income in relation to the national average 

per capita income. The amount of federal assistance states receive for 

Medicaid service expenditures is known as the Federal Medical Assistance 

Percentage (FMAP). Across states, the FMAP may range from 50 to no 

more than 83 percent, with poorer states receiving a higher federal 

matching rate than wealthier states. The Recovery Act provides eligible 

California Beginning 

to Use Recovery Act 

Funds 

Page 79 GAO-09-580 Recovery Act
Appendix IV: California 

states with an increased FMAP for 27 months between October 1, 2008, 

and December 31, 2010.1

 On February 25, 2009, the Centers for Medicare & 

Medicaid Services (CMS) made increased FMAP grant awards to states, 

and states may retroactively claim reimbursement for expenditures that 

occurred prior to the effective date of the Recovery Act.2

 Generally, for 

federal fiscal year 2009 through the first quarter of federal fiscal year 2011, 

the increased FMAP, which is calculated on a quarterly basis, provides for 

(1) the maintenance of states’ prior year FMAPs; (2) a general across-theboard increase of 6.2 percentage points in states’ FMAPs; and (3) a further 

increase to the FMAPs for those states that have a qualifying increase in 

unemployment rates. The increased FMAP available under the Recovery 

Act is for state expenditures for Medicaid services. However, the receipt of 

the increased FMAP may reduce the funds that states must use for their 

Medicaid programs, and states have reported using these available funds 

for a variety of purposes. 

Under the Recovery Act, California will receive increased FMAP grant 

awards of at least 61.6 percent, up from 50 percent. As of April 1, 2009, 

California has drawn down $1.5 billion, or 45.4 percent of its initial FMAP 

grant awards. Initially, the state could not obtain increased FMAP funds 

because the state reduced its eligibility period for children from 12 months 

of continuous eligibility to 6 months, effective January 1, 2009. However, 

because this change was suspended on March 27, 2009 and eligibility was 

restored to any children affected, the state has been able to draw down 

increased FMAP funds. Officials plan to use funds made available as a 

result of the increased FMAP to offset the state’s general fund budget 

deficit. 

Transportation—Highway Infrastructure Investment: The Recovery 

Act provides funds for highway infrastructure investment using the rules 

and structure of the existing Federal-Aid Highway Surface Transportation 

Program, which apportions money to states to construct and maintain 

eligible highways and for other surface transportation projects. States 

must follow the requirements for the existing programs, and in addition, 

the governor must certify that the state will maintain its current level of 

transportation spending, and the governor or other appropriate chief 

 

1

Recovery Act, div. B, title V, § 5001. 

2

Although the Recovery Act was enacted February 17, 2009, states generally may claim 

reimbursement for the increased FMAP for Medicaid service expenditures made on or after 

October 1, 2008. 

Page 80 GAO-09-580 Recovery Act
Appendix IV: California 

executive must certify that the state or local government to which the 

funds have been made available has completed all necessary legal reviews 

and determined that the projects are an appropriate use of taxpayer funds. 

California provided these certifications but noted that the state’s level of 

funding was based on the best information available at the time of the 

state’s certification.3

According to state sources, under a state law enacted in late March 2009, 

62.5 percent of funds ($1.606 billion) will go to local governments for 

projects of their selection. Of the remaining 37.5 percent ($964 million), 

$625 million will go to State Highway Operation and Protection Program 

(SHOPP) projects for highway rehabilitation, eligible maintenance and 

repair; $29 million will fund transportation enhancement projects; and 

$310 million will be loaned to fund stalled capacity expansion projects.4

 As 

of April 16, 2009, the U.S. Department of Transportation had obligated 

$261.4 million for 20 California projects.5

 These projects consist of 

rehabilitating roadways, pavement, and rest areas as well as upgrading 

median barriers and guardrails. For example, a $33 million project is being 

funded to rehabilitate a road in San Jose. 

U.S. Department of Education State Fiscal Stabilization Fund: The 

Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be 

administered by the U.S. Department of Education (Education). The SFSF 

provides funds to states to help avoid reductions in education and other 

essential public services. The initial award of SFSF funding requires each 

state to submit an application to Education that assures it will take action 

to meet certain educational requirements, such as increasing teacher 

effectiveness and addressing inequities in the distribution of highly 

qualified teachers. 

 

3

A number of states qualified their certifications in various ways. The legal effect of such 

qualifications is currently being examined by the U.S. Department of Transportation and 

has not been reviewed by GAO. 

4

The state is using the $310 million to jump-start stalled highway projects, which will then 

be repaid to fund other SHOPP projects once bonds can be issued. 

5

For federal-aid highway projects, the Federal Highway Administration of the U.S. 

Department of Transportation has interpreted the term “obligation of funds” to mean the 

federal government’s contractual commitment to pay for the federal share of a project. This 

commitment occurs at the time the federal government approves a project agreement and 

the project agreement is executed. 

Page 81 GAO-09-580 Recovery Act
Appendix IV: California 

California’s initial SFSF allocation is $3.993 billion. Approximately $3.266 

billion of this money (81.8 percent) must be spent on education. The 

remaining $727 million (18.2 percent) can be spent on public safety and 

other government services (including education). California officials told 

us that the Governor plans to recommend to the State Legislature that the 

funds be spent on the Department of Corrections.6

 Like other states, 

California will receive its SFSF funds in two phases. California’s 

application was approved by the U.S. Department of Education on April 

17, 2009, and the state is now eligible to draw funds for local school 

districts and universities. Of the $3.266 billion for education, the state 

plans to spend the maximum amount possible under Recovery Act 

formulas--approximately $2.57 billion on primary and secondary education 

and $537 million on higher education, for the purpose of restoring funding 

to 2008-2009 levels. The remaining $164 million will be used to restore 

education funding in future years. These funds will help ensure that 

primary and secondary schools and institutions of higher education have 

the resources they need to avert cuts and retain teachers and professors. 

Overall Management and 

Reporting of Recovery Act 

Funds Are Being Centrally 

Coordinated 

The Governor and his administration are setting the overall policy for 

coordination of and accountability for Recovery Act funds. Prior to the 

enactment of the Recovery Act, the Governor’s office formed nine working 

groups organized around broad program areas (e.g., transportation, 

environment, etc.) and comprising representatives of the Department of 

Finance, program departments, the legislative branch, and California’s 

Washington, D.C. office. The working groups worked with the California 

congressional delegation to estimate the effects of the Recovery Act and to 

lobby for changes helpful to the state. The Recovery Act was enacted on 

February 17, 2009, and California signed a state certification letter on 

March 5 stating that the state would request and use certain Recovery Act 

funds to create jobs and promote economic growth (California was the 

first state to do so). 

Initially, the Department of Finance, the Director of which is appointed by 

the Governor, was the focal point for working with state agencies to 

prepare to meet Recovery Act accountability and reporting requirements. 

In late March 2009, the Governor’s office established the California 

Federal Economic Stimulus Task Force, which is responsible both for 

 

6

As required by California’s constitution, all money drawn from the state’s treasury must be 

appropriated by the State Legislature. 

Page 82 GAO-09-580 Recovery Act
Appendix IV: California 

tracking Recovery Act funds that come into the state and ensuring that 

those funds are spent efficiently and effectively. The task force is chaired 

by the Deputy Chief of Staff to the Governor and Director of the 

Governor’s Office of Planning and Research, and will include one 

representative from the administration for each of the main program areas 

that will receive funds. The Chief Deputy Director of Finance will serve as 

deputy coordinator of the task force and will be responsible for, among 

other things, tracking the funds coming into the state. The Chief Operating 

Officer of the Department of Finance will oversee the accountability and 

auditing functions of the task force. 

State Agencies and 

Localities Are Developing 

Spending Plans, but in 

Some Cases Are Awaiting 

Further Guidance and 

Final Determination of 

Amounts to Be Received 

In total, as of March 27, 2009, the state of California estimates that the 

state and its localities will receive approximately $48.3 billion for various 

programs, including health, education, and infrastructure. (see figure 4.) 

Of this, about $14 billion will go directly to local governments and the 

other $34 billion will go to the state. 

Page 83 GAO-09-580 Recovery Act
Appendix IV: California 

Figure 4: California State and Local Recovery Act Funding 

Source: Department of Finance @ www.recovery.ca.gov (March 27, 2009).

Dollars in millions

Program

0

3,000

6,000

9,000

12,000

15,000

Local

State

Housing

Public safety

Infrastructure

Labor

Health and

Education

human services

Science and 

technology

Energy and

climate

The extent to which spending decisions have been made varies by 

program in California, with some uses determined while others are still 

unknown. For example, for some funding, like the $10 billion made 

available as a result of the increased FMAP, all or most is formula driven, 

and the application of funds is already determined. Likewise, for public 

transit investment grants and fixed-guideway infrastructure programs (due 

to receive approximately $1.019 billion in Recovery Act funds, according 

to Federal Transit Administration officials), all or most of the funding is 

formula driven, but local priority-setting processes will determine which 

projects will be funded. For education (receiving about $11.8 billion in 

Recovery Act funds), while the majority of allocations to school districts 

are based on formulas, education officials told us that spending decisions 

Page 84 GAO-09-580 Recovery Act
Appendix IV: California 

will largely be made at the local level.7 Officials from the Sacramento 

Housing and Redevelopment Agency (SHRA)—one of the state’s 55 public 

housing authorities hoping to receive a portion of Recovery Act funding 

from the formula-based Public Housing Capital Fund—stated that they 

have begun to prioritize how funds will be used. Contracts will be awarded 

by SHRA for bids received within 120 days on projects listed in its 5-year 

Capital Fund Plan. State officials from the Department of Housing and 

Community Development are not sure how much funding another 

program, the Neighborhood Stabilization Program, will receive. Officials 

told us that their plans for spending the money will be determined by the 

amount received. 

In some instances, state officials have sought federal guidance on the use 

of certain funds. For example, California Employment Development 

Department (EDD) officials told us that they hoped to receive additional 

federal guidance clarifying whether California, through its legislative 

budget process, can use all discretionary Workforce Investment Act 

funding through Recovery Act funds to offset employment and training 

program general fund costs in either the California Department of 

Corrections and Rehabilitation or the California Conservation Corps. EDD 

officials noted that using the discretionary funds in this way might 

contradict recent U.S. Department of Labor guidance, which only allows 

funds to be used for new programs and not to replace state or local 

funding for existing programs. State officials are also seeking guidance 

from CMS regarding policies on payments for in home support services 

funded by Medicaid. State officials are also uncertain whether Recovery 

Act funds can help pay for the increased costs of administering, 

overseeing, and auditing Recovery Act program funds and stated that 

federal guidance, thus far, has not addressed these questions. 

In some cases, state agencies face deadlines for using their funds. Caltrans 

must obligate at least half of certain Recovery Act funds within 120 days of 

when the funds were apportioned by the Department of Transportation or 

the funds will be redistributed to other states.8

 Caltrans did not foresee 

 

7

State education officials have provided some guidance to local education agencies on 

appropriate uses for Recovery Act money, and plan to provide more, both formally and 

informally, as it becomes available from the federal government. 

8

These provisions are applicable only to those funds apportioned to the state and not to 

those funds required by the Recovery Act to be suballocated to metropolitan, regional and 

local organizations. 

Page 85 GAO-09-580 Recovery Act
Appendix IV: California 

problems meeting this deadline. Caltrans officials further stated that most 

projects could be completed within 1 year; however, project completion 

time lines and specific project funding outlays by year have not been 

finalized. Caltrans officials stated that some project construction may 

begin by early-May 2009. In another case, the Tax Credit Allocation 

Committee (TCAC) must commit at least 75 percent of the $325.9 million 

in Recovery Act’s Tax Credit Assistance Program funds by February 17, 

2010. TCAC did not foresee problems meeting this deadline. TCAC 

officials told us that they have a system in place to quickly identify 

recipients and that they are planning to make sure to comply with the 

timeline as reflected in regulations. 

Recovery Act Funds Will 

Help but Not Resolve 

California State Budgetary 

Pressures 

The state’s economy and California state revenues have been severely 

affected by the national recession and financial market credit crunch. In 

March 2009, California’s unemployment rate rose to 11.2 percent, 2.7 

percentage points higher than the national average. In February, according 

to RealtyTrac, California posted the nation’s third highest state foreclosure 

rate, behind Nevada and Arizona, with 1 in every 165 housing units in 

foreclosure. On March 19, Fitch Investor Services downgraded California 

General Obligation bonds to an “A” rating, the lowest current rating of any 

state. 

State general fund revenues are projected to fall in state fiscal year 2008-

2009 by $15.1 billion, or 14.7 percent, from fiscal year 2007-2008.9

 In 

January 2009, the fiscal year 2009-2010 Governor’s Budget projected that 

the state would end the state fiscal year with a $41.6 billion deficit if no 

corrective actions were taken. In response, the State Legislature and the 

Governor agreed to a $42 billion package of solutions. As described by 

state sources, this package includes reducing spending, temporarily 

increasing taxes, using funds made available as a result of the Recovery 

Act, and borrowing from future lottery profits.10 The budget package 

depends, in part, on voter approval of six different propositions at a May 

 

9

The California state government fiscal year is July 1 to June 30. 

10 As part of the budget agreement, the Treasurer and the Director of the Department of 

Finance had to determine by April 1, 2009, if by June 30, 2010, the state would use more 

than $10 billion in funds made available as a result of the Recovery Act to offset its general 

fund budget deficit. If so, the state would rescind $948 million in spending cuts and about 

$1.8 billion in tax increases under the budget agreement. On March 27, 2009, the two state 

officials estimated that only $8.2 billion would be applied as a general fund budget offset, 

and therefore the spending cuts and tax increase were retained. 

Page 86 GAO-09-580 Recovery Act
Appendix IV: California 

19, 2009, special election. If three of these propositions are approved, the 

state Legislative Analyst’s Office (LAO) estimates the package will reduce 

the state’s budget deficit by $6 billion. 

Unfortunately, the state’s economic condition since the release of the 

Governor’s budget in January 2009 has continued to deteriorate. Even if 

the May 19, 2009, propositions pass, and the state uses $8.2 billion in funds 

made available as a result of the Recovery Act, the LAO estimates an $8 

billion deficit in 2009-2010. Consequently, the State Legislature and the 

Governor may need to work on additional budgetary solutions to 

rebalance the 2009-2010 budget following the May 2009 budget update. On 

February 3, 2009, the California State Auditor added the state’s budget 

condition to its list of high-risk issues facing the state. 

State officials are working to get the necessary guidance and systems up 

and running that will allow for a comprehensive and accurate accounting 

of California Recovery Act funds. As previously mentioned, the California 

Federal Economic Stimulus Task Force is responsible for tracking 

Recovery Act funds and ensuring that they are spent efficiently and 

effectively. The state’s new recovery Web site (www.recovery.ca.gov) will 

serve as the primary tool to fulfill federal reporting and accountability 

requirements consistently throughout the state. A representative from 

each state agency is tasked with ensuring that data required by federal 

Recovery Act reporting requirements are available on the state Web site. 

Development of the related processes and procedures to accumulate and 

consolidate the spending data is underway. State officials also plan to use 

the Web site to provide the public with up-to-date information about 

federal funds received by the state, how those dollars are being spent, and, 

through the use of digital mapping, the geographic distribution of 

expenditures. 

Plans for Oversight 

and Control of 

Recovery Funds Are 

Still Evolving 

Internal Control and 

Tracking Is Expected to Be 

Achievable for State-Level 

Funds, but Concerns Exist 

Over Funds Provided to 

Localities 

The state intends to rely heavily on existing systems to track and account 

for Recovery Act funds. State agency officials generally told us that their 

existing accounting systems, enhanced with newly created codes for 

Recovery Act funds, will enable them to separately track and monitor how 

state and local agencies spend Recovery Act funds that pass through the 

state. For example, California Department of Education officials told us 

that the department already has a consistent accounting structure in place 

for tracking and reporting on how federal funds are used. The department 

plans to create separate accounting codes within that structure to track 

and report how the different programmatic funds received through the 

Page 87 GAO-09-580 Recovery Act
Appendix IV: California 

Recovery Act are used. According to the officials, the department will 

provide those codes to the local education agencies (LEA), as well as 

instruct them on what the codes mean. However, some officials still 

expressed concerns about the ability of LEAs to consistently maintain 

accountability for funds. For example, a Department of Finance official 

with responsibility for education program budgets stated that there are 

over 1,000 school districts in California, and they possess varying levels of 

sophistication in their accounting systems. While the state will be 

providing guidance to help ensure proper accountability, this official 

expects some districts may face challenges complying. 

Most state program officials told us that they will apply the same controls 

and oversight processes that they currently apply to other program funds. 

For example, the California Employment and Development Department 

has an independent division that conducts monitoring, audits, and 

evaluations to guard against mismanagement, waste, fraud, and abuse. The 

effectiveness of internal controls at the local level, however, is unknown 

for some programs. Caltrans officials, for example, stated that while 

extensive internal controls exist at the state level, there may be control 

weaknesses at the local level.11 Caltrans is collaborating with local entities 

to identify and address these weaknesses. Additionally, Caltrans has 

conducted workshops and other outreach activities to ensure that regions 

and localities are fully informed regarding requirements for the tracking 

and expenditure of Recovery Act funds, and would like to increase its 

capacity to provide oversight, particularly at the local level. 

Various Audit Functions 

Will Provide Oversight 

California intends to use existing internal and independent audit functions 

and a new inspector general to oversee Recovery Act funds received by 

the state. The Office of State Audits and Evaluations (OSAE) is an internal 

audit function within the Department of Finance which performs audits of 

various state funds and programs, including those receiving Recovery Act 

funds. According to state officials, OSAE is also responsible for ensuring 

compliance with the state’s Financial Integrity and State Manager’s 

Accountability Act of 1983 (FISMA) and oversees the activities of internal 

audit functions within most state agencies. According to state sources, 

FISMA requires each state agency to maintain effective systems of internal 

 

11In the past, the Federal Highway Administration has reported that there are risks 

associated with local implementation of federal regulations, including difficulty 

maintaining compliance with these federal requirements. 

Page 88 GAO-09-580 Recovery Act
Appendix IV: California 

accounting and administrative control, to evaluate the effectiveness of 

these controls on an ongoing basis, and to review and report biennially on 

the adequacy of the agency’s systems of internal accounting and 

administrative control. OSAE has not yet determined the scope or 

approach for its review of Recovery Act funds or the extent to which it can 

utilize FISMA in assessing compliance with Recovery Act requirements. In 

addition, the State Controller audits claims for payment submitted by state 

agencies and provides internal audit services to some state agencies, such 

as Caltrans, for Recovery Act funds. 

The State Auditor, California’s independent audit and evaluation office, 

conducts financial and performance audits as authorized or required by 

law and requested by the State Legislature. The State Auditor is also 

annually responsible for conducting California’s statewide single audit of 

numerous federal programs administered in California.12 Based on the 

State Auditor’s initial analysis of Recovery Act funds the state expects to 

receive and the formula for determining which programs require an audit, 

the State Auditor anticipates it will likely need to expand single audit 

coverage to capture additional programs receiving Recovery Act funds. 

Finally, on April 3, 2009, the Governor appointed the nation’s first 

Recovery Act Inspector General, whose role is to make sure Recovery Act 

funds are used as intended and to identify instances of waste, fraud, and 

abuse. 

Prior Work of State 

Auditor Indicates Areas 

Requiring Additional 

Oversight 

The most recent single audit, conducted by the State Auditor for fiscal 

year 2007, identified 81 material weaknesses, 27 of which were associated 

with programs we reviewed for purposes of this report.13 The State Auditor 

plans to use past audit results to target state agencies and programs with a 

high number and history of problems, including data reliability concerns, 

and is closely coordinating with us on these efforts. For example, the fiscal 

year 2007 State Single Audit Report identified eight material weaknesses 

pertaining to the ESEA Title I program and the Individuals with 

 

12The Single Audit Act of 1984 (Pub. L. No. 98-502) and its 1996 amendments (Pub. L. No. 

104-156) require that nonfederal entities that expend a threshold amount each year in 

federal awards have a single or program-specific audit in accordance with the provisions of 

the act’s audit requirements. OMB Circular A-133 set the threshold amount at $500,000 or 

more a year for fiscal years ending after December 31, 2003, and specifies guidance for 

entities that conduct these single audits. 

13State of California, Internal Control and State and Federal Compliance Audit Report for 

the Fiscal Year Ended June 30, 2007 (June 2008 Report 2007-002). 

Page 89 GAO-09-580 Recovery Act
Appendix IV: California 

Disabilities Education Act programs. The audit findings included a 

material weakness in the California Department of Education’s 

management of cash because it disbursed funds without assurances from 

LEAs that the time between the receipt and disbursement of federal funds 

was minimized, contrary to federal guidelines. Education officials told us 

that they have addressed some of these material weaknesses and, in other 

cases, they are still working to correct them. If these and other material 

weaknesses are not corrected, they may affect the state’s ability to 

appropriately manage certain Recovery Act funds. The State Auditor’s 

Office told us that it is in the process of finalizing the fiscal year 2008 State 

Single Audit Report and plans to issue the report within the next 30 days. 

In addition, the State Auditor’s Office is summarizing the results of the 

single audit to identify those programs that continue to have material 

weaknesses. Finally, the State Auditor’s Office plans to use the results of 

other audits it has conducted in conjunction with the single audit to assess 

risk and develop its approach for determining the state’s readiness to 

receive the large influx of federal funds and comply with the requirement 

regarding the use of those funds under the Recovery Act. 

State officials with whom we spoke have not yet established plans or 

processes for assessing the impacts of Recovery Act funds. According to 

Department of Finance officials, the newly created California Federal 

Economic Stimulus Task Force will assume this responsibility. Several 

state agency officials and a local public housing authority believe that 

additional guidance is needed from the U.S. Office of Management and 

Budget (OMB) before they can fully address the issue of impact 

assessments. State officials told us that assessing the impact of Recovery 

Act funds on job creation in particular will be difficult. That is, while they 

believe that tracking the impact for contracts, grants, or discrete projects 

is possible, it is extremely difficult to separate out the specific impact of 

Recovery Act funds when they are combined with other federal, state, or 

local funds, as they will be in many situations. 

State Officials 

Expressed Concerns 

about Lack of 

Guidance and Ability 

to Measure the 

Impacts of Recovery 

Act Funds 

The state program officials with whom we spoke raised a number of 

specific concerns about their ability to measure the impact of Recovery 

Act funds. For example, 

• California education officials told us they did not yet know how the 

state will measure the impact of the Recovery Act funds spent on 

education. The officials said that, although it should be possible to 

track Recovery Act education spending separately from non-Recovery 

Act money, this does not mean that they will be able to report on 

Page 90 GAO-09-580 Recovery Act
Appendix IV: California 

specific outcomes that result from this spending. One concern 

mentioned by several officials is that it may not be possible to link the 

spending categories used in the accounting system to specific 

outcomes. Furthermore, even if such links could be made, another 

difficulty would be determining the extent to which an outcome was 

the result of the Recovery Act funds received in April 2009 versus the 

non-Recovery Act funds received earlier in the year for the same 

program. Finally, officials expressed concern about the incompatibility 

between desired Recovery Act outcomes and Recovery Act funding. 

One of the Recovery Act’s desired outcomes is job creation and 

preservation, which requires ongoing funds, but the Recovery Act 

provides only temporary funds. 

• According to Caltrans officials, measuring the full economic impact of 

highway funds presents challenges. Caltrans officials told us that since 

Recovery Act funds may be combined with other funds to complete 

projects, isolating the number of jobs created using just the Recovery 

Act funds may be difficult. In addition, Caltrans officials told us that 

guidance on measuring and reporting the effect of Recovery Act funds 

for transit and fixed-guideway investments has not yet been issued, 

however they anticipate it will be difficult to report on jobs preserved 

or created. 

• California Employment Development Department officials told us that 

its existing accounting system can report output, such as how many 

more participants are registered and enrolled in Workforce Investment 

Act programs and the level of program services increased due to the 

Recovery Act. They also said that the existing system can track certain 

performance indicators for program participants, such as successful 

employment, wage increases, and job retention. However, these 

officials noted that they anticipate challenges determining whether 

such outcomes are specifically due to services supported by the 

additional Recovery Act funds versus services previously or currently 

provided to program participants through existing Workforce 

Investment Act funds. 

We provided the Governor of California with a draft of this appendix on 

April 17, 2009. Members of the California Federal Economic Stimulus Task 

Force responded for the Governor on April 20, 2009. These officials 

provided clarifying and technical comments that we incorporated where 

appropriate. 

California’s 

Comments on This 

Summary 

Page 91 GAO-09-580 Recovery Act
Appendix IV: California 

Linda Calbom, (206) 287-4809 or calboml@gao.gov 

Randy Williamson, (206) 287-4860 or williamsonr@gao.gov 

In addition to the contacts named above, Paul Aussendorf, Candace 

Carpenter, Joonho Choi, Brian Chung, Nancy Cosentino, Kerry Dunn, 

Michelle Everett, Chad Gorman, Richard Griswold, Bonnie Hall, Delwen 

Jones, Brooke Leary, Jeff Schmerling, Steve Secrist, and Eddie Uyekawa 

made major contributions to this report. 

GAO Contacts 

Staff 

Acknowledgments 

Page 92 GAO-09-580 Recovery Act
Appendix V: Colorado 

Page 93 GAO-09-580 

Appendix V: Colorado 

Use of funds: An estimated 90 percent of Recovery Act funding provided 

to states and localities nationwide in fiscal year 2009 (through Sept. 30, 

2009) will be for health, transportation and education programs. The three 

largest programs in these categories are the Medicaid Federal Medical 

Assistance Percentage awards, the State Fiscal Stabilization Fund, and 

highways. 

Overview 

9 Medicaid Federal Medical Assistance Percentage (FMAP) Funds

• As of April 3, 2009, the Centers for Medicare & Medicaid Services had made about $227 million in increased 

FMAP grant awards to Colorado. 

• As of April 16, 2009, the state had not drawn down any of its increased FMAP grant awards. 

• State officials noted they are working to ensure that the state is in compliance with Recovery Act provisions 

governing eligibility for the increased FMAP. 

9 Transportation—Highway Infrastructure Investment 

• Colorado was apportioned about $404 million for highway infrastructure investment on March 2, 2009, by the 

U.S. Department of Transportation. 

• As of April 16, 2009, the U.S. Department of Transportation had obligated $118.4 million for 19 projects; the 

Colorado Department of Transportation had advertised 17 of these projects, and 5 of the 17 had been 

awarded. 

• Colorado’s Recovery Act transportation funds are being directed to projects that can be advertised within 90 

to 180 days of the passage of the act, can be completed within 3 years, and will result in job creation. 

• Projects include resurfacing roads and replacing highway bridges in the Denver metropolitan area, as well as 

improvements to mountain highways. 

• Colorado will request reimbursement from the U.S. Department of Transportation as the state makes 

payments to contractors. 

9 U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) 

• Colorado was allocated about $509 million from the initial release of these funds on April 2, 2009, by the U.S. 

Department of Education. 

• Before receiving the funds, states are required to submit an application that provides several assurances to 

the U.S. Department of Education. These include assurances that they will meet maintenance of effort 

requirements (or that they will be able to comply with waiver provisions) and that they will implement 

strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing 

inequities in the distribution of highly qualified teachers, and improving the quality of state academic 

standards and assessments. 

• The Governor is working with the state legislature on a plan for spending the fiscal stabilization funds 

Colorado will receive to support education. Once legislative concurrence is obtained, the plan will be 

submitted to the U.S. Department of Education. A state official estimated that could happen as early as the 

week of April 20, 2009. 

 Recovery Act 
Appendix V: Colorado 

Colorado is also receiving additional Recovery Act funds under other 

programs, such as those under Title I, Part A of the Elementary and 

Secondary Education Act of 1965 (ESEA) (commonly known as No Child 

Left Behind); programs under the Individuals with Disabilities Education 

Act (IDEA), Part B; programs under the Workforce Investment Act; and 

Edward Byrne Memorial Justice Assistance Grants. These are described 

throughout this appendix. 

Safeguarding and transparency: As the state makes its plans, some 

officials raised concerns about how well the state is positioned to track 

and oversee Recovery Act expenditures and identified general areas of 

vulnerability in spending Recovery Act funds. For example, Colorado’s 

accounting system is 18 years old, which will make it challenging for the 

state to tag and track Recovery Act funds, according to state officials. 

State officials are determining what approach they will use in tracking 

funds and told us they currently plan to create an accounting fund to track 

state agencies’ use of Recovery Act funds, employing a centrally defined 

budget-coding structure to distinguish between Recovery Act and nonRecovery Act federal funds. State officials were also concerned about 

tracking funds that bypass the state and flow directly to local entities. 

Assessing the effects of spending: The state is making plans to assess 

the effects of Recovery Act spending on Colorado’s economy. Some 

agencies plan to use their existing performance indicators to assess the 

effects of recovery, while others have received guidance including new 

indicators. Some officials identified concerns with recipients’ ability to 

submit reports more quickly or more frequently than normal, while some 

questioned how precisely economic effects can be measured. 

Colorado has begun to use some of its Recovery Act funds, as follows: 

Increased Federal Medical Assistance Percentage Funds: Medicaid is 

a joint federal-state program that finances health care for certain 

categories of low-income individuals, including children, families, persons 

with disabilities, and persons who are elderly. The federal government 

matches state spending for Medicaid services according to a formula 

based on each state’s per capita income in relation to the national average 

per capita income. The amount of federal assistance states receive for 

Medicaid service expenditures is known as the Federal Medical Assistance 

Percentage (FMAP). Across states, the FMAP may range from 50 percent 

to no more than 83 percent, with poorer states receiving a higher federal 

matching rate than wealthier states. The Recovery Act provides eligible 

Colorado Beginning 

to Use Recovery Act 

Funds 

Page 94 GAO-09-580 Recovery Act
Appendix V: Colorado 

states with an increased FMAP for 27 months between October 1, 2008, 

and December 31, 2010.1

 On February 25, 2009, the Centers for Medicare & 

Medicaid Services (CMS) made increased FMAP grant awards to states, 

and states may retroactively claim reimbursement for expenditures that 

occurred prior to the effective date of the Recovery Act.2

 Generally, for 

fiscal year 2009 through the first quarter of fiscal year 2011, the increased 

FMAP, which is calculated on a quarterly basis, provides for (1) the 

maintenance of states’ prior year FMAPs; (2) a general across-the-board 

increase of 6.2 percentage points in states’ FMAPs; and (3) a further 

increase to the FMAPs for those states that have a qualifying increase in 

unemployment rates. The increased FMAP available under the Recovery 

Act is for state expenditures for Medicaid services. However, the receipt of 

this increased FMAP may reduce the funds that states must use for their 

Medicaid programs, and states have reported using these available funds 

for a variety of purposes. 

As of April 3, 2009, CMS had made about $227 million in increased FMAP 

grant awards to Colorado. As of April 16, 2009, state officials had not 

drawn down any of the state’s increased FMAP grant awards. State 

officials noted they are working to ensure that the state is in compliance 

with Recovery Act provisions governing eligibility for the increased FMAP. 

Officials also indicated that, in order to account for the increased FMAP 

funds available through the Recovery Act, the state has created unique 

codes that will calculate the additional federal reimbursement. The state 

will use these codes to assist with the proper drawing down and reporting 

of these expenditures on quarterly Medicaid reports. 

Transportation—Highway Infrastructure Investment: The Recovery 

Act provides additional funds for highway infrastructure investment using 

the rules and structure of the existing Federal-Aid Highway Surface 

Transportation Program, which apportions money to states to construct 

and maintain eligible highways and to undertake other surface 

transportation projects. States must follow the requirements for the 

existing programs, and in addition, the Governor must certify that the state 

will maintain its current level of transportation spending, and the 

Governor or other appropriate chief executive must certify that the state 

 

1

Recovery Act, div. B, title V, § 5001. 

2

Although the Recovery Act was enacted February 17, 2009, states generally may claim 

reimbursement for the increased FMAP for Medicaid service expenditures made on or after 

October 1, 2008. 

Page 95 GAO-09-580 Recovery Act
Appendix V: Colorado 

or local government to which funds have been made available has 

completed all necessary legal reviews and determined that the projects are 

an appropriate use of taxpayer funds. Colorado provided this certification 

but noted that the state’s level of funding was based on “planned nonbond 

state expenditures” and represented the best information available at the 

time of the state’s certification.3

Colorado was apportioned about $404 million in Highway Infrastructure 

Investment Recovery Act funds by the U.S. Department of Transportation 

on March 2, 2009. As of April 16, 2009, the U.S. Department of 

Transportation had obligated $118.4 million for 19 Colorado projects.4

Seventeen of these projects, which include resurfacing roads and 

replacing highway bridges in the Denver metropolitan area and 

improvements to mountain highways, had been advertised for bid, and 5 of 

the 17 projects had been awarded. According to Colorado Department of 

Transportation officials, the department has a well-established process for 

distributing funds and contracting projects and has already begun to use 

this process in applying for Recovery Act funds. In order to spend funds 

quickly and create jobs, Colorado is directing Recovery Act transportation 

funds to projects that can be advertised within 90 to 180 days of the 

passage of the Recovery Act, can be completed within 3 years, and will 

result in job creation. Department officials told us they are emphasizing 

construction projects rather than projects in planning or design phases, in 

order to maximize job creation. 

U.S. Department of Education State Fiscal Stabilization Fund: The 

Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be 

administered by the U.S. Department of Education (Education). The SFSF 

provides funds to states to help avoid reductions in education and other 

essential public services. The initial award of SFSF funding requires each 

state to submit an application to Education that assures it will take action 

to meet certain educational requirements such as increasing teacher 

 

3

A number of states qualified their certifications in various ways. The legal effect of such 

qualifications is currently being examined by the U.S. Department of Transportation and 

has not been reviewed by GAO. 

4

For federal-aid highway projects, the Federal Highway Administration of the U.S. 

Department of Transportation has interpreted the term obligation of funds to mean the 

federal government’s contractual commitment to pay for the federal share of a project. This 

commitment occurs at the time the federal government approves a project agreement and 

the project agreement is executed. 

Page 96 GAO-09-580 Recovery Act
Appendix V: Colorado 

effectiveness and addressing inequities in the distribution of highly 

qualified teachers. 

The Governor has proposed a plan for spending the majority of the $760 

million in stabilization funds Colorado will receive to support education, 

focusing on offsetting current and planned reductions in state funding for 

higher education. Officials told us that funding cuts were directed 

primarily toward higher education rather than kindergarten through 12th 

grade education because of a state constitutional provision requiring 

guaranteed annual increases in state funding of kindergarten through 12th 

grade education5

—and as a result, SFSF funds are more urgently needed 

in higher education. The state will receive its first allocation of funds—

$509 million or 67 percent of the total—after it has applied to Education, 

which it plans to do once the Governor’s office and legislature agree on 

the plan and the state’s budget. As of April 20, 2009, the state’s General 

Assembly was negotiating the final budget and a school finance bill that 

could affect the specific use of the SFSF funds. A Colorado official said 

that if the state approves a budget the week of April 20, 2009, the propo

could go to Education soon after that date. The Governor is also 

developing a plan for the Government Services Fund, a component of 

SFSF, which will provide $138 million of SFSF funds that may be used for 

public safety and other gove

sal 

the 

rnment services. 

 

Colorado Will Manage 

Recovery Act Funds 

through an Oversight 

Board and State Executive 

Departments 

Following passage of the Recovery Act, Colorado’s Governor established 

an oversight board, the Colorado Economic Recovery Accountability 

Board, to oversee Colorado’s Recovery Act funding and ensure funds are 

spent effectively and transparently. The board is chaired by the Director of 

the Colorado Office of Economic Development, who has also been 

charged with being Colorado’s recovery coordinator. The board is 

composed of 12 public- and private-sector leaders from across the state, 

including the state treasurer, a state senator and a state representative, 

and a number of business leaders. To date, the board has held three public 

meetings during which members discussed the short time frames for 

disbursing Recovery Act funds and a lack of federal guidance, among 

5

According to a Colorado state legislative study, in 2000, Colorado voters approved a 

measure to increase education spending in the state; this amendment directed a portion of 

state tax revenues to the State Education Fund through fiscal year 2011. The amendment 

requires an annual increase in per pupil funding and requires the state general fund 

appropriation for state aid to schools to increase by 5 percent per year, unless state 

personal income increased by less than 4.5 percent during the previous year. 

Page 97 GAO-09-580 Recovery Act
Appendix V: Colorado 

other issues. The board has also developed a Web site to publicize 

information about the Recovery Act.6

Management of and decisions about Recovery Act funds are the 

responsibility of the Governor, according to state officials. The Governor’s 

office is directly responsible for exercising discretion with regard to 

certain funds such as portions of the SFSF. The Governor is working in 

consultation with the executive directors of Colorado’s state departments 

and agencies to develop plans for spending Recovery Act funds, which are 

to be publicly available on the state’s Web site. Officials told us the 

Governor has directed that all departmental decisions on spending 

Recovery Act funds are to be made in line with the original charge of the 

Recovery Act to promote job creation or preservation and economic 

development, as well as the Governor’s agenda. The decision process for 

using Recovery Act funds depends on the program, consistent with federal 

and state statutes and guidance. Officials from several departments, such 

as the Departments of Public Safety, Labor and Employment, and Local 

Affairs, told us they have made initial programmatic decisions for 

Recovery Act funds. Other programs have not made such decisions; for 

example, Colorado Department of Education officials told us the 

department will distribute funds such as those under the ESEA and IDEA 

programs directly to local school districts to make programmatic 

decisions about the funds. 

Many Colorado officials said the Recovery Act would increase their 

departments’ workloads and said they would like to add personnel and 

perhaps systems to manage the funds, but the overall extent to which 

Recovery Act funds are permitted to be used for those costs is uncertain. 

While some officials we interviewed said their departments had received 

or would receive Recovery Act funds to cover administrative or 

management activities, officials in other departments did not know 

whether they would receive funds for that purpose. Officials at the 

Colorado Department of Labor and Employment, for example, said they 

can spend about $1.5 million in Recovery Act funding to cover 

 

6

Colorado’s Recovery Act Web site is http://www.colorado.gov/recovery/. To help inform 

the public about the results of Recovery Act spending in Colorado, the state also plans to 

create a Web-based map of projects receiving Recovery Act funds and plans to “brand” 

projects funded by the Recovery Act, where possible. For example, the Colorado 

Department of Transportation has already developed a sign template for road projects 

funded by the Recovery Act. 

Page 98 GAO-09-580 Recovery Act
Appendix V: Colorado 

administrative costs associated with Workforce Investment Act programs,7

consistent with their normal procedures for administration of the 

programs, while officials from the Colorado Department of Education said 

they were uncertain what, if any, funds they were going to receive to 

administer and manage recovery programs. State officials told us they 

believe the government services portion of the SFSF can be used by the 

Colorado Department of Education and other state departments to cover 

administrative costs.8

Colorado officials identified general areas of vulnerability in spending 

Recovery Act funds, as well as specific concerns about their ability to 

oversee Recovery Act funds coming into the state. Areas of vulnerability 

include new programs and localities that may be ill-equipped to manage 

the influx of new funds. In addition, state officials are concerned about 

their ability to oversee Recovery Act funds because of three primary 

challenges: (1) the state’s accounting system is 18 years old, which may 

make it challenging to tag and track Recovery Act funds; (2) adequate 

resources to administer and audit expenditures of Recovery Act funds may 

not be available; and (3) state officials are still determining what they will 

be required to track and report on and are particularly concerned about 

tracking funds that bypass the state and flow directly to local entities. 

Colorado Officials 

Expressed Concerns 

Related to Tracking 

of, Internal Controls 

over, and Safeguards 

for Recovery Act 

Funds 

Colorado Officials 

Identified Potential Areas 

of Vulnerability in 

Spending Recovery Act 

Funds 

The state’s departments have begun to identify potential areas of 

vulnerability in spending Recovery Act funds, according to officials. One 

area that officials identified is the influx of new Recovery Act funds that 

must be adequately managed as they are spent quickly. For example, some 

programs, such as Medicaid, already have known weaknesses in managing 

existing funds (identified, for example, in audits conducted by the 

Colorado state auditor) and may be challenged in managing large amounts 

of additional funds. A second vulnerable area, according to officials, 

involves new programs that do not have well-established processes, or 

programs that will need to establish additional processes, to accommodate 

 

7

In addition, an official from the department said that regions within the state that receive 

Recovery Act funds for Workforce Investment Act programs can also use 10 percent of 

their regional allocations for administration. 

8

In April 2009, the U.S. Department of Education issued guidance on the SFSF, stating that 

administrative costs associated with implementing the Recovery Act are allowable 

expenditures under the SFSF. 

Page 99 GAO-09-580 Recovery Act
Appendix V: Colorado 

significant funding increases, such as the state’s energy program, which 

will receive funds for weatherization and other energy projects. Funds that 

go directly to localities are a third area that may be vulnerable because, 

according to officials, the state does not currently oversee these funds and 

cannot provide assistance to local entities, some of which may not be wellequipped to manage the increased funds. 

Colorado’s Accounting 

System Is Outdated 

State officials were concerned that Colorado’s accounting system—the 

Colorado Financial Reporting System (COFRS)—is 18 years old, which 

may make it difficult for the state to use and track Recovery Act funds. For 

example, state officials are concerned about Colorado’s ability to report 

quickly on Recovery Act expenditures. Because of limitations associated 

with COFRS, officials told us the state will have difficulties meeting 

reporting requirements established for certain Recovery Act expenditures, 

such as the requirement in section 1512 of Title I, Division A of the 

Recovery Act calling for recipient reports within 10 days of the end of the 

calendar quarter. In addition, some individual state departments do not 

use the COFRS grant module and therefore must manually post aggregate 

revenue and expenditure data to COFRS. Consequently, given the state’s 

current capabilities, data on total Recovery Act funding received by the 

state may not be able to be drawn from COFRS and may have to be 

compiled through a manual exercise outside of the central financial 

management system, raising internal control concerns among some 

officials we talked with. These concerns include inadequate audit 

documentation on how the information is compiled, potential human error 

in inputting and aggregating information, and potentially inconsistent or 

duplicative reporting from various agencies on the extent and nature of 

Recovery Act funding received and used. Finally, state officials also voiced 

concerns that COFRS uses Catalog of Federal Domestic Assistance 

numbers to track grants from each federal agency, but some federal 

departments are not establishing unique Catalog of Federal Domestic 

Assistance numbers for some Recovery Act funds, which will make 

automated reporting difficult. 

Procurement and Audit 

Resources May Be 

Inadequate 

Officials with the Colorado Department of Personnel & Administration 

were concerned that vacancies in procurement positions posed an 

impediment to effective tracking and control over the state’s Recovery Act 

funds. Many Colorado state agencies have vacancies for procurement 

officers, which have been left unfilled due to the state budget shortfall and 

a consequent hiring freeze. For example, the Department of Personnel & 

Administration, which administers statewide contracts and supports 

Page 100 GAO-09-580 Recovery Act
Appendix V: Colorado 

several state agencies that have little or no purchasing authority, currently 

has three vacancies in its purchasing agent and contracting positions. 

Filling these vacancies would enable this department to better assist state 

agencies receiving Recovery Act funds, according to department officials. 

Similar purchasing agent vacancies exist, according to these officials, in 

the Colorado Departments of Corrections, Education, Human Services, 

Labor and Employment, and Local Affairs. Colorado Department of 

Personnel & Administration officials hope to hire former or retired state 

employees with procurement experience on a 6-month basis to alleviate 

this problem, but additional funding—and possibly legislative and 

budgetary approval—may be needed in order to hire temporary 

procurement personnel, which could potentially delay hiring if the state 

needs to await legislative action. 

State officials were also concerned with the amount of audit coverage 

throughout the state. For example, officials with the Colorado state 

auditor’s office told us their office would have difficulty absorbing 

additional work associated with the Recovery Act, and believed that state 

oversight capacity was limited. For example, according to these officials, 

the Department of Health Care Policy and Financing (the state’s Medicaid 

agency) has had three controllers in the past 4 years; these officials also 

told us the state legislature’s Joint Budget Committee recently cut field 

audit staff levels for the state Department of Human Services in half. 

Officials with the Department of Personnel & Administration told us their 

department’s internal auditor position is vacant, while officials with the 

Colorado Department of Transportation told us that two of their 

department’s financial management positions, including the deputy 

controller position, are vacant. At the county level, Jefferson County 

recently terminated its internal auditor and eliminated its internal control 

audit office. 

The reduced number of staff in oversight positions resulted in part from 

budget cuts and staffing decisions during the state’s last economic 

downturn, and state officials told us certain positions would be difficult to 

fill because of the state’s current hiring freeze. Officials said because the 

“ratchet effect” of Colorado’s constitutional and legislative requirements 

limits the growth of spending, it can be difficult to re-establish and fill 

Page 101 GAO-09-580 Recovery Act
Appendix V: Colorado 

positions that are eliminated during economic downturns.9 Officials told 

us, for example, that some state agencies have not refilled all of the staff 

positions they lost to budget cuts during Colorado’s 2001-2003 downturn. 

Colorado Officials Are Still 

Determining State 

Reporting Requirements 

Colorado officials said they have not received state-specific guidance on 

Recovery Act reporting from the federal Office of Management and 

Budget. They said the guidance provided in February and April 2009 was 

addressed to federal departments and agencies, and it was necessary to 

determine whether and how this guidance applied to state governments. 

Officials wondered, for example, whether the state would be required to 

report centrally on all funds coming through the state or whether state 

agencies will report as normal through federal departments, or both; what 

the frequency and form of reports will be; and the level to which funds will 

need to be tracked and reported (e.g., at the recipient level, subrecipient 

level, etc.). Officials were especially concerned that a substantial portion 

of funds provided to Colorado will go directly to local entities, making it 

difficult for state officials to be aware of and track all funds within the 

state. 

In the absence of state-specific guidance, state officials were taking some 

steps on their own to track the use of Recovery Act funds. Department of 

Personnel & Administration officials said they anticipated that statewide 

reporting on the use of Recovery Act funds will be necessary, in addition 

to having individual state departments and agencies reporting directly to 

their respective federal granting agencies. The department discussed 

various tracking and reporting methodologies with state department 

controllers to determine what tracking method would be the most 

effective and least disruptive; the department determined that the state 

would create an accounting fund through which it could track state 

agencies’ use of Recovery Act funds and would employ a centrally defined 

budget-coding structure for Recovery Act funds, which should be able to 

distinguish between Recovery Act funds and other federal non-Recovery 

 

9

The provisions include the Taxpayer Bill of Rights, or TABOR, which the voters passed in 

1992. These provisions, as described by state officials and documents, limit annual growth 

in state revenues to the amount of population growth plus inflation over the previous year, 

and also require any tax increase to be voted on by taxpayers. The amendment is also 

considered to have “locked in” a separate 6-percent limit on state spending increases 

passed by the legislature in 1991. During an economic downturn, reduced government 

revenues may lead to reduced government services and expenditures. The “ratchet effect” 

comes into play during subsequent recovery periods, when constitutional revenue and 

spending limitations restrict the growth of these services. 

Page 102 GAO-09-580 Recovery Act
Appendix V: Colorado 

Act funds. This accounting process would capture only those funds 

flowing through state agencies. State officials said they are still 

determining how they will capture funds that do not flow through the state 

and said that guidance will be important in order to prevent duplicate 

reporting of Recovery Act funds by state and federal agencies. Although 

they are moving forward, state officials are hesitant to establish statewide 

reporting requirements for fear they could waste state resources 

developing and implementing an approach that is not consistent with the 

federal guidance ultimately established. 

Colorado’s state departments with responsibility for the funds we 

examined described a range of approaches to assess and report on the 

effects of recovery spending in the state. Some agencies plan to use their 

existing performance indicators to assess the effects of Recovery Act 

funding, as they have not yet received reporting guidance from the federal 

departments involved. For example, Colorado Housing and Finance 

Authority officials said they plan to use existing indicators, such as the 

number of affordable housing units created and the relative income levels 

of populations served by those units, to assess the effects of Recovery Act 

funding for the Low-Income Housing Tax Credit. Other agencies, such as 

the Colorado Department of Transportation, have received guidance to 

report on existing and new indicators, such as direct jobs associated with 

Recovery Act projects; the indicators will involve a significant increase in 

data collection and reporting by the department, including gathering data 

from more entities and reporting more frequently than the department has 

reported in the past, according to department officials. In another 

example, the Colorado Department of Public Safety, which did not report 

on jobs in the past, will report on the jobs created or retained with the 

spending of justice assistance grants. In addition, it will report on a set of 

new performance measures being developed by the federal Department of 

Justice Bureau of Justice Assistance. Department of Public Safety officials 

are concerned about the timing of reporting job creation and retention 

data, however, because the Recovery Act requires states to report 10 

calendar days after the end of each quarter, which is faster than the 

normal reporting time frames and, according to officials, will necessitate 

that recipients report to the department within 5 calendar days of the end 

of the quarter. Some grantees will have difficulty reporting within such 

short time frames, according to one department official, because they still 

mail or hand deliver their reports. 

Colorado Is 

Developing Plans to 

Assess the Effects of 

Recovery Act Funds 

Page 103 GAO-09-580 Recovery Act
Appendix V: Colorado 

State and local officials raised other concerns about tracking the 

economic effects of Recovery Act funds. Officials with the state auditor’s 

office, for example, said that tying specific funding to the creation of 

particular jobs is problematic. One state official pointed out that increased 

FMAP available under the Recovery Act would reduce the amount of funds 

that Colorado will need to spend on its Medicaid program, allowing the 

state to use these funds for other purposes and avoid cutting other 

programs to balance the state budget. However, because specific program 

cuts were not determined, identifying the preserved programs and their 

economic effects is impossible. While some state departments have 

received guidance on counting jobs created or retained, officials from at 

least one local department said they needed more guidance about how to 

measure the number of new jobs created. Another official said that her 

department will report jobs created or retained but questioned how 

indirect jobs would be counted. According to this official, spending 

Recovery Act funds to purchase items such as equipment or vehicles will 

have substantial economic effects, particularly the creation of indirect 

jobs, but she was not certain how these jobs would be counted and asked 

whether clarification would come through Office of Management and 

Budget or other guidance. To measure such impacts for the state, an 

economic impact assessment would need to be conducted, according to a 

member of the Colorado Economic Recovery Accountability Board. The 

board is considering contracting for such an assessment, according to the 

member, but has not yet decided on whether or when to do it. 

We provided the Governor of Colorado with a draft of this appendix on 

April 17, 2009. State officials from the Governor’s office responded for the 

Governor on April 20, 2009. In general, they agreed with this summary of 

Colorado’s recovery efforts to date. The officials also provided technical 

comments that were incorporated, as appropriate. 

Colorado’s Comments 

on This Summary 

Robin M. Nazzaro, (202) 512-3841 or nazzaror@gao.gov GAO Contacts 

Brian Lepore, (202) 512-4523 or leporeb@gao.gov 

In addition to the contacts named above, Steve Gaty, Susan Iott, Tony 

Padilla, Ellen Phelps Ranen, Lesley Rinner, Glenn Slocum, and Mary Welch 

made significant contributions to this report. 

Staff 

Acknowledgments 

Page 104 GAO-09-580 Recovery Act
Appendix VI: Florida Appendix VI: Florida 

Use of funds: An estimated 90 percent of Recovery Act funding provided 

to states and localities nationwide in fiscal year 2009 (through Sept. 30, 

2009) will be for health, transportation and education programs. The three 

largest programs in these categories are the Medicaid Federal Medical 

Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund, 

and highways. 

Overview 

9 Medicaid Federal Medical Assistance Percentage (FMAP) Funds 

• As of April 3, 2009, the Centers for Medicare & Medicaid Services (CMS) had made about $1.4 billion in 

increased FMAP grant awards to Florida. 

• As of April 1, 2009, Florida has drawn $817 million, or 58.6 percent of its increased FMAP grant awards to 

date. 

• From January 2008 to January 2009, the state’s Medicaid enrollment increased from 2,151,917 to 2,391,569, 

with most enrollment changes attributable to two population groups: (1) children and families and (2) other 

individuals, including those with disabilities. 

• While funds are made available as a result of the increased FMAP, the state legislature is still determining 

how to make use of these funds. 

9 Transportation—Highway Infrastructure Investment 

• Florida was apportioned about $1.3 billion for highway infrastructure investment on March 2, 2009, by the 

U.S. Department of Transportation. 

• As of April 16, 2009, the U.S. Department of Transportation had not obligated any Recovery Act funds for 

Florida projects. 

• On April 1, 2009, the Florida Department of Transportation (FDOT) prepared a final listing of potential 

Recovery Act funded projects and on April 15, 2009, the Florida Legislative Budget Commission approved 

the list of projects. The U.S. Department of Transportation, Federal Highway Administration must also 

approve the final listing of projects before the state can advertise bids for contracts. 

• These projects include activities such as resurfacing roads, expanding existing highways, repairing bridges 

and installing sidewalks. 

9 U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) 

• Florida was allocated about $1.8 billion from the initial release of these funds on April 2, 2009, by the U.S. 

Department of Education. 

• Before receiving the funds, states are required to submit an application that provides several assurances to 

the Department of Education. These include assurances that they will meet maintenance-of-effort 

requirements (or that they will be able to comply with waiver provisions) and that they will implement 

strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing 

inequities in the distribution of highly qualified teachers, and improving the quality of state academic 

standards and assessments. According to Florida officials, Florida plans to apply for a waiver to obtain these 

funds after the Department of Education issues final instructions for waiver applications. 

Page 105 GAO-09-580 Recovery Act 
Appendix VI: Florida 

Florida is also receiving Recovery Act funds under other programs, such 

as programs under Title I, Part A of the Elementary and Secondary 

Education Act of 1965 (ESEA) (commonly known as No Child Left 

Behind); programs under the Individuals with Disabilities Education Act 

(IDEA); and Workforce Investment Act employment and training 

programs. The status of plans for using these funds is described 

throughout this appendix. 

Safeguarding and transparency: The Governor has created the Florida 

Office of Economic Recovery to oversee, track and provide transparency 

in how Recovery Act funds are spent. In addition, according to Florida 

officials, Florida’s accounting system will be able to separately track the 

Recovery Act funds flowing through the state government. Florida plans to 

publicly report its Recovery Act spending on a state Web site. Florida state 

accountability organizations have identified areas where Recovery Act 

funds may be at greater risk of fraud, waste, and abuse, such as Medicaid, 

and have begun to collaborate in developing plans for oversight. 

Assessing the effects of spending: Florida state officials are in the early 

stages of developing plans to assess the effects of Recovery Act spending 

and told us that guidance from the federal government would be 

instrumental in developing their plans. On April 3, 2009, the U.S. Office of 

Management and Budget (OMB) issued guidance indicating that it will be 

developing a comprehensive system to collect information, including jobs 

retained and created, on Recovery Act funds sent to all recipients. Florida 

state officials told us that they will ask OMB to allow the state to obtain 

data from this system on local entities in Florida that receive Recovery Act 

funds directly from federal agencies. 

Florida has begun to use some of its funds made available as a result of the 

Recovery Act, as follows: 

Increased Federal Medicaid Assistance Percentage Funds: Medicaid 

is a joint federal-state program that finances health care for certain 

categories of low-income individuals, including children, families, persons 

with disabilities, and persons who are elderly. The federal government 

matches state spending for Medicaid services according to a formula 

based on each state’s per capita income in relation to the national average 

per capita income. The amount of federal assistance states receive for 

Medicaid service expenditures is known as the Federal Medical Assistance 

Percentage (FMAP). Across states, the FMAP may range from 50 percent 

to no more than 83 percent, with poorer states receiving a higher federal 

Florida Beginning to 

Use Recovery Act 

Funds 

Page 106 GAO-09-580 Recovery Act
Appendix VI: Florida 

matching rate than wealthier states. The Recovery Act provides eligible 

states with an increased FMAP for 27 months between October 1, 2008 and 

December 31, 2010.1

 On February 25, 2009, the Centers for Medicare & 

Medicaid Services (CMS) made increased FMAP grant awards to states, 

and states may retroactively claim reimbursement for expenditures that 

occurred prior to the effective date of the Recovery Act.2

 Generally, for 

federal fiscal year 2009 through the first quarter of federal fiscal year 2011, 

the increased FMAP, which is calculated on a quarterly basis, provide for: 

(1) the maintenance of states’ prior year FMAPs; (2) a general across-theboard increase of 6.2 percentage points in states’ FMAPs; and (3) a further 

increase to the FMAPs for those states that have a qualifying increase in 

unemployment rates. The increased FMAP available under the Recovery 

Act is for state expenditures for Medicaid services. However, the receipt of 

this increased FMAP may reduce the funds that the state must use for their 

Medicaid programs, and states have reported using these available funds 

for a variety of purposes. 

As of April 1, 2009, Florida has drawn down $817 million in increased 

FMAP grant awards, which is about 58.6 percent of its awards to date.3

The state is determining how to make use of the state funds made 

available as a result of the increased FMAP grant awards. Officials told u

that each state agency with a budget impact resulting from Recovery Act

funding has prepared budget amendments for the current state fiscal year 

(July 1, 2008, to June 30, 2009) for consideration by the Executive Office

the Governor and the Legislative Budget Commission (LBC). On April 

2009, the LBC approved 17 amendments to the 2008-2009 state 

appropriation to authorize the use of Recovery Act funds. The state has 

drawn down funds that are for Medicaid expenditures retroactive to 

October 1, 2008. Florida officials told us they require additional guidance 

s 

 of 

15, 

from CMS on the prompt payment requirements, and for CMS to provide 

 

1

Recovery Act, div. B, title V, § 5001. 

2

Although the effective date of the Recovery Act was February 17, 2009, states generally 

may claim reimbursement for the increased FMAP grant awards for Medicaid service 

expenditures made on or after October 1, 2008. 

3

Florida received increased FMAP grant awards of $1.4 billion for the first three quarters of 

federal fiscal year 2009. 

Page 107 GAO-09-580 Recovery Act
Appendix VI: Florida 

the state guidance, if applicable, on any additional reporting 

requirements.4

Transportation—Highway Infrastructure Investment: The Recovery 

Act provides additional funds for highway infrastructure investment using 

the rules and structure of the existing Federal-Aid Highway Surface 

Transportation Program, which apportions money to states to construct 

and maintain eligible highways and for other surface transportation 

projects. States must follow the requirements for the existing programs, 

and in addition, the governor must certify that the state will maintain its 

current level of transportation spending, and the governor or other 

appropriate chief executive must certify that the state or local government 

to which funds have been made available has completed all necessary 

legal reviews and determined that the projects are an appropriate use of 

taxpayer funds. Florida provided this certification, but conditioned it, 

noting that state funding for the transportation programs is provided from 

dedicated funding sources that are subject to fluctuations resulting from 

economic conditions.5

On April 15, 2009, the Florida LBC approved the Recovery Act funded 

projects that the FDOT had submitted. As of April 16, 2009, the U.S. 

Department of Transportation had not obligated any Recovery Act funds 

for Florida projects.6

 The Federal Highway Administration must approve 

this final listing of projects before the FDOT can advertise bids or request 

reimbursement from the Federal Highway Administration. The state’s 

projects include activities such as resurfacing roads, expanding existing 

highways, repairing bridges, and installing sidewalks. 

 

4

Under the Recovery Act, to be eligible for the increased FMAP grant awards, states must 

comply with prompt payment requirements that require states to pay 90 percent of clean 

claims from health care practitioners within 30 days of receipt and 99 percent of these 

claims within 90 days of receipt. 

5

A number of states qualified their certifications in various ways. The legal effect of such 

qualifications is currently being examined by the U.S. Department of Transportation and 

has not been reviewed by GAO. 

6

For federal-aid highway projects, the Federal Highway Administration of the U.S. 

Department of Transportation has interpreted the term obligation of funds to mean the 

federal government’s contractual commitment to pay for the federal share of a project. This 

commitment occurs at the time the federal government approves a project agreement and 

the project agreement is executed. 

Page 108 GAO-09-580 Recovery Act
Appendix VI: Florida 

U.S. Department of Education State Fiscal Stabilization Fund: The 

Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be 

administered by the U.S. Department of Education (Education). The SFSF 

provides funds to states to help avoid reductions in education and other 

essential public services. The initial award of SFSF funding requires each 

state to submit an application to Education that assures, among other 

things, it will take actions to meet certain educational requirements such 

as increasing teacher effectiveness and addressing inequities in the 

distribution of highly qualified teachers. Florida’s initial SFSF allocation is 

about $1.8 billion. However, according to Florida officials, the state will 

not be able to meet the maintenance-of-effort requirement to readily 

qualify for these funds because revenue declines led to cuts in the state’s 

education budget in recent years. The state will apply to Education for a 

waiver from this requirement; however, they are awaiting final instructions 

from Education on submission of the waiver. Florida plans to use SFSF 

funds to reduce the impact of any further cuts that may be needed in the 

state’s education budget. 

Florida state officials began preparing for the use of Recovery Act funds 

prior to the receipt of the funds. Florida officials believe that Recovery Act 

funds are critical to addressing the state’s budgetary crisis and maintain 

necessary services to its citizens. According to state officials, the state 

plans to use about $3 billion of Recovery Act funds to reduce the state’s $6 

billion budget shortfall for state fiscal year 2009-2010. One reason for this 

shortfall is the significant declines in revenue Florida has faced in recent 

years—23 percent since state fiscal year 2005-2006, from about $27.1 

billion to $20.9 billion in state fiscal year 2008-2009—due to such factors as 

the recession and housing crisis. State officials estimate that Florida will 

receive about $15 billion in Recovery Act funds over 3 state fiscal years. 

Florida estimates that approximately $14.1 billion of this amount will flow 

through state agencies, with at least $4.7 billion of this amount allocated to 

local entities. In addition, approximately $1.2 billion in funding will be 

directly allocated to local entities from federal agencies. 

Florida’s Planning 

Process Has Set the 

Stage for Decisions on 

Spending of Recovery 

Act Funds 

On March 3, 2009, the Governor established the Florida Office of 

Economic Recovery that is responsible for overseeing, tracking and 

providing transparency of Florida’s Recovery Act funds. The office is 

headed by the Special Advisor to the Governor for the Implementation of 

the American Recovery and Reinvestment Act (Recovery Czar) and 

includes three other staff members on loan from state agencies. The 

Florida Office of Economic Recovery also established an implementation 

team that meets twice a week and includes representatives from each of 

Page 109 GAO-09-580 Recovery Act
Appendix VI: Florida 

the state’s program agencies and administrative offices, such as the Office 

of Policy and Budget, the Chief Inspector General, the State Auditor 

General, the Department of Financial Services, as well as representatives 

from the Florida Association of Counties and the Florida League of Cities. 

On March 17, 2009, pursuant to Section 1607 of division A, title XVI of the 

Recovery Act, the Governor certified that the state would request and use 

funds provided by the act. Additional certifications for transportation, 

energy, and unemployment compensation have also been submitted. 

According to state officials, before Florida agencies can use the Recovery 

Act funds, the Florida legislature must authorize the use of all funds 

received by state agencies, including those passed-through to local 

governments. On April 15, 2009, the joint Legislative Budget Commission 

met and approved 17 amendments to the 2008-2009 state budget 

authorizing appropriations totaling almost $4 billion in Recovery Act 

funds. The Florida state legislature is still in session and developing the 

state’s fiscal year 2009-2010 budget. As explained by state officials, if the 

legislature does not pass the authorization for the Recovery Act funds 

before the end of the session (May 1, 2009), a joint legislative budget 

committee can later amend the Appropriation Act and authorize the use of 

the Recovery Act funds or the legislature can reconvene. 

To promote transparency, the Florida Office of Economic Recovery 

implemented a state Recovery Act Web site that became operational on 

March 19, 2009.7

 The Web site is intended to provide information to the 

public on the amount and uses of Recovery Act funds the state receives 

and on resources being made available to citizens, such as unemployment 

compensation and workforce training. 

Florida Has a System to 

Track Recovery Act Funds 

but Anticipates Challenges 

in Obtaining Timely Data 

from Localities 

Officials from Florida’s Department of Financial Services said that the 

state’s accounting system—Florida Accounting Information Resource 

(FLAIR)—will be used to track Recovery Act funds that will flow through 

the state government. The state agencies will record the Recovery Act 

funds separately from other state and federal funds using selected 

identifiers in FLAIR such as grant number or project number. Officials in 

some Florida state program agencies raised concerns that local areas will 

not be able to provide timely data to enable state agencies to meet 

financial reporting deadlines for the quarterly reports required by the 

 

7

www.flarecovery.com 

Page 110 GAO-09-580 Recovery Act
Appendix VI: Florida 

Recovery Act. These reports on the uses of Recovery Act funds are due 10 

days after the end of each quarter.8

 In addition, Florida officials and a 

group representing local school superintendents were particularly 

concerned about the ability of school districts to meet these deadlines 

after having experienced reductions in administrative staff due to recent 

budget cuts. 

Florida officials submitted feedback to OMB suggesting that OMB 

consider providing guidance on reconciling the information provided in 

the Recovery Act quarterly reports with other federal reporting 

requirements to avoid confusion. According to Florida officials, quarterly 

reports on many federal grants are due 45 days after the end of the quarter 

and reporting systems are currently oriented towards these requirements. 

Florida officials added that it is likely that meeting the Recovery Act 

quarterly reporting requirement will necessitate the submission of 

preliminary reports. 

State Agencies Are 

Providing Guidance to 

Localities on Use of Funds 

Some state agencies have issued or are developing guidance to assist local 

areas in planning for the use of Recovery Act funds that will be passed 

through the state to local areas. For example, on April 1, 2009, Florida 

received about $580 million for Title I, Part A of ESEA and for IDEA, 

which will be passed through to local school districts. In anticipation of 

these funds, the Florida Department of Education provided guidance to 

school districts on strategies for using education funds, such as assigning 

high-performing teachers to low-performing schools, providing reading 

coaches to schools, and investing in intensive professional development 

for teachers. 

On March 19, 2009, Florida received almost $143 million for the Workforce 

Investment Act Adult, Youth, and Dislocated Worker employment and 

training programs and made $121 million available to regional workforce 

areas the next day. As of April 13, 2009, regional workforce areas had 

drawn down about $744,000 of these funds, according to a Florida official. 

Florida’s Agency for Workforce Innovation had previously established 

various task teams, composed of state and regional workforce officials 

that created action plans for implementing these funds. For example, to 

facilitate the rapid expansion of summer youth employment programs, the 

 

8

Recovery Act, div. A, title XV, § 1512(c). 

Page 111 GAO-09-580 Recovery Act
Appendix VI: Florida 

state plans to develop a local implementation checklist and a toolkit of 

summer youth materials. 

Florida has various oversight entities responsible for monitoring, tracking, 

and overseeing financial expenditures, assessing internal controls and 

ensuring compliance with state and federal laws and regulations: the 

Office of the Chief Inspector General, Auditor General, Office of Program 

Policy Analysis and Government Accountability (OPPAGA), and the 

Department of Financial Services. Each state agency has an Office of 

Inspector General (OIG) that is responsible for conducting audits, 

investigations, and technical assistance, and promoting accountability, 

integrity and efficiency in the state government. The Auditor General has 

broad audit authority with respect to audits of government agencies in 

Florida and routinely conducts Single Audits of the State of Florida 

reporting entities and of the state’s district school boards. The single 

audits include determining if federal and state expenditures are in 

compliance with applicable laws and regulations and assessing the 

effectiveness of key internal controls. Florida’s OPPAGA—the research 

unit of the state’s legislature—is responsible for conducting studies on the 

performance of state agencies and programs to identify ways to improve 

services and cut costs. In addition, the Florida Department of Financial 

Services is responsible for overseeing state expenditures and financial 

reporting. Independent certified public accountants also conduct annual 

financial audits of local governmental entities, such as counties and 

municipalities. According to state officials, Florida law requires that the 

scope of such audits encompass federal and state Single Audit 

requirements, as applicable. 

Plans for Safeguards 

and Controls Being 

Developed at State 

Level 

Potential Areas of 

Vulnerability with Florida 

Recovery Act Funds 

Past experience has highlighted financial management vulnerabilities in 

agencies that will receive Recovery Act funds. Auditor General and state 

OIG reports identified several high-risk areas that are vulnerable to fraud, 

waste, and abuse. For example, in 2008: 

• State officials identified Medicaid as the highest risk program. The 

Auditor General reported breakdowns in internal controls over the 

Medicaid program because state Medicaid program officials failed to 

properly document and verify recipients’ income, which increased the 

risk of ineligible individuals receiving program benefits. 

Page 112 GAO-09-580 Recovery Act
Appendix VI: Florida 

• The Auditor General reported that, for some federal programs, the 

Florida Department of Education failed to provide monitoring that 

reasonably ensured sub-recipient adherence to program requirements. 

• The Auditor General reported that the Florida Department of 

Community Affairs failed to provide information that was needed to 

assess the success or progress of its federal low-income housing 

community development block grant program. 

• The agency OIGs continue to provide oversight through audits and 

investigations of contracting and grant activities associated with 

federal funds. For instance, FDOT and Florida’s Department of 

Education OIG reported on contractors’ inaccurate reporting of 

expenditures and inadequate oversight of sub-contractors. Moreover, 

in July 2008, the FDOT OIG reported their review of contract files 

disclosed that differences between the state’s accounting system 

payments and the recipient expenditures were not adequately 

explained. 

State officials also expressed some broader concerns about other potential 

risks. For example, state officials identified new programs in the Recovery 

Act as potentially risky and noted that the state’s fiscal year 2009 Single 

Audit report that will cover such new programs will not be completed until 

spring 2010. State officials also expressed concern about potential risk in 

programs receiving large funding increases under the Recovery Act. For 

example, Florida Department of Law Enforcement officials stated that the 

amount of Recovery Act funds received for the Edward Byrne Memorial 

Justice Assistance Grant Program, which is designed to help prevent and 

control crime and improve the operations of the criminal justice system 

will be four to five times the amounts received in prior years. For these 

programs, they estimate that about $52 million will be passed through to 

67 local Florida counties, which have had grants collectively totaling only 

$12 million to $15 million in past years. 

Plans for Oversight of 

Florida Recovery Act 

Funds 

In response to the Recovery Act, Florida’s Chief Inspector General 

established an enterprisewide working group of agency OIG’s to evaluate 

risk assessments, and promote fraud prevention, awareness, and training. 

The group members are updating their annual work plans by including the 

Recovery Act funds in their risk assessments and will leave flexibility in 

their plans to address issues related to these funds. In preparing to 

conduct the Single Audits for 2008-2009 and subsequent fiscal years, the 

Auditor General is monitoring the state’s plans for accounting for and 

Page 113 GAO-09-580 Recovery Act
Appendix VI: Florida 

expending Recovery Act funds, tracking the expected changes in OMB’s 

Single Audit requirements, and participating in the National State Auditors 

Association’s efforts to provide input on Recovery Act accounting, 

reporting, and auditing issues. The Auditor General expects the number of 

major federal programs to increase as a result of the large infusion of 

Recovery Act funds into the state, thus increasing the number of federal 

programs that the Auditor General must audit as part of the state’s annual 

Single Audit. Officials from Florida’s OPPAGA expect an increase in the 

number of legislative requests for their studies—particularly those focused 

on education programs—as Recovery Act funds are disbursed to 

recipients. 

The OIGs are developing and refining strategies to ensure oversight of 

Recovery Act funds. For example, the FDOT OIG is developing plans to 

increase its up-front monitoring activities for transportation funds to 

mitigate the potential risk of fraud, waste, and abuse. Some of these 

activities include: 

• Designating a team of seven auditors to monitor Recovery Act 

expenditures and other related activities; 

• Developing fraud awareness training specifically for Recovery Act 

projects; 

• Conducting risk assessments of Recovery Act transportation projects; 

and 

• Monitoring and providing oversight for the pre-construction, 

advertisement, bid, award, and contract-letting activities for Recovery 

Act projects. 

Florida officials told us that separate accounts have been established for 

receipt of increased FMAP grant awards. The OIG in the Agency for Health 

Care Administration will follow established recovery protocol and 

processes to prevent and detect Medicaid overpayments by conducting 

detection analyses and audits, imposing sanctions, and making referrals to 

the Medicaid Fraud Control Unit and other regulatory and investigative 

agencies as appropriate. 

According to Florida state officials, the state completed an initiative to 

strengthen contracting requirements several years ago. For example, the 

majority of state contracts greater than $1 million are required to be 

reviewed for certain criteria by the Department of Financial Services’ 

Page 114 GAO-09-580 Recovery Act
Appendix VI: Florida 

Division of Accounting and Auditing before the first payment is processed. 

The contract must also be negotiated by a contract manager certified by 

the Florida Department of Management Services, Division of State 

Purchasing Training and Certification Program. 

Availability of Resources 

for Oversight 

In light of decreased state budgets that have resulted in prior staff 

reductions, Florida state auditing officials expressed concern about the 

adequacy of staff resources to provide oversight of Recovery Act funds 

beyond that required under existing federal Single Audit Act requirements. 

For example, the Auditor General told us that the office has not hired new 

staff for over a year and about 10 percent of the office’s positions remain 

unfilled. In addition, OPPAGA officials told us their staff has decreased by 

10 percent in the past 2 years. State officials told us that the efficient use 

of existing and projected resource levels will require an ongoing 

assessment of risks and priorities and the allocation of staff resources to 

ensure the required oversight of state and federal funds, including 

Recovery Act funds. 

Florida state agencies were in the early stages of developing plans to 

assess the effects of the Recovery Act spending because they were waiting 

for guidance from OMB on how to measure jobs retained and created with 

Recovery Act funds. For example, Florida Department of Law 

Enforcement (FDLE) officials said that they could count the number of 

staff hired to implement a new program, but they did not know how to 

count the number of jobs retained or created if Recovery Act funds are 

used for purchases of goods such as new police cruisers. In addition, 

FDLE and other state officials said they needed clear OMB guidance in 

order to build this information upfront into the data reporting 

requirements. Florida’s Department of Education has created a new form 

that school districts will use to report quarterly Recovery Act expenditures 

and the number of jobs retained and created, but they need additional 

guidance from OMB to develop instructions for school districts on how to 

count these jobs. 

Plans to Assess 

Impact of Recovery 

Act Funds Are in 

Initial Stages 

Florida’s Agency for Workforce Innovation is encouraging recipients of 

Recovery Act funds throughout the state to list jobs created with the funds 

in the state’s existing online job bank. By including tags in the system to 

identify the jobs linked to Recovery Act funds, the agency expects to be 

able to count specific jobs created with the funds. A local workforce 

investment board official told us that the board is publicizing the use of 

Page 115 GAO-09-580 Recovery Act
Appendix VI: Florida 

the job bank for Recovery Act jobs through radio and town hall 

appearances and mailings to potential recipients of Recovery Act funds. 

Because Florida is only required to collect data on jobs created with 

Recovery Act funds for which Florida is the recipient, Florida officials 

plan to include data on the state Recovery Act Web site on all jobs created 

with Recovery Act funds in Florida. On April 3, 2009, OMB issued guidance 

indicating that it will be developing a comprehensive system to collect 

information, including jobs retained and created, from all recipients of 

Recovery Act funds. The state plans to ask OMB if they can obtain data 

relevant to Florida collected by the national reporting system on jobs 

retained and created with Recovery Act funds. According to Florida 

officials, this will reduce duplication and increase the efficiency of their 

reporting. 

We provided the Governor of Florida with a draft of this appendix on April 

17, 2009. The Special Advisor to Governor Charlie Christ, Florida Office of 

Economic Recovery, responded for the Governor on April 20, 2009. In 

general, the Florida official concurred with the information in the 

appendix. The official also provided technical suggestions that were 

incorporated, as appropriate. 

Florida’s Comments 

on This Summary 

Andrew Sherrill, (202) 512-7252 or sherrilla@gao.gov 

Zina Merritt, (202) 512-5257 or merrittz@gao.gov 

GAO Contacts 

In addition to the contacts named above, Fannie Bivins, Carmen Harris, 

Kathy Peyman, Robyn Trotter, and Cherie’ Starck made major 

contributions to this report. 

Staff 

Acknowledgments 

Page 116 GAO-09-580 Recovery Act
Appendix VII: Georgia 

Page 117 GAO-09-580 

Appendix VII: Georgia 

Use of funds: An estimated 90 percent of Recovery Act funding provided 

to states and localities nationwide in fiscal year 2009 (through Sept. 30, 

2009) will be for health, transportation and education programs. The three 

largest programs in these categories are the Medicaid Federal Medical 

Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund, 

and highways. 

Overview 

9 Medicaid Federal Medical Assistance Percentage (FMAP) Funds

• As of April 3, 2009, the Centers for Medicare & Medicaid Services (CMS) had made about $521 million in 

increased FMAP grant awards to Georgia. 

• As of April 1, 2009, Georgia had drawn down about $312 million, or 60 percent of its initial increased FMAP 

grant awards. 

• State officials plan to use funds made available as a result of the increased FMAP to address increased 

caseloads, offset general fund needs, and maintain current benefit levels and provider reimbursement rates in 

the state’s Medicaid program. 

9 Transportation—Highway Infrastructure Investment 

• Georgia was apportioned about $932 million for highway infrastructure investment on March 2, 2009, by the 

U.S. Department of Transportation. 

• As of April 16, 2009, the U.S. Department of Transportation had not obligated any Recovery Act funds for 

Georgia projects. 

• On April 7, 2009, the Governor certified that the Georgia Department of Transportation plans to spend $208 

million on 67 projects throughout the state. The department plans to award contracts for most of these 

projects by May 22, 2009. 

• These projects include maintenance, bridge work, and other activities. 

9 U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) 

• Georgia was allocated about $1 billion from the initial release of these funds on April 2, 2009, by the U.S. 

Department of Education. 

• Before receiving the funds, states are required to submit an application that provides several assurances to 

the Department of Education. These include assurances that they will meet maintenance of effort 

requirements (or that they will be able to comply with waiver provisions) and that they will implement 

strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing 

inequities in the distribution of highly qualified teachers, and improving the quality of state academic 

standards and assessments. Georgia plans to submit its application in late April or early May. 

• The state’s fiscal year 2010 budget, which passed on April 3, 2009, included $521 million in state fiscal 

stabilization funds for education. 

 Recovery Act 
Appendix VII: Georgia 

Georgia also is receiving Recovery Act funds under other programs, such 

as Title I, Part A of the Elementary and Secondary Education Act of 1965 

(ESEA) (commonly known as No Child Left Behind); the Individuals with 

Disabilities Education Act, Part B; and the Tax Credit Assistance Program. 

The status of plans for using these funds is discussed throughout this 

appendix. 

Safeguarding and transparency: A small core team consisting of 

representatives from the Office of Planning and Budget, State Accounting 

Office, and Department of Administrative Services (the department 

responsible for procurement) is taking steps to establish safeguards for 

Recovery Act funds and mitigate identified areas of risk. For example, the 

State Accounting Office has issued guidance on tracking Recovery Act 

funds separately, and the Office of Planning and Budget is developing a 

state-level strategy to monitor high-risk agencies. The State Auditor and 

Inspector General will monitor the use of Recovery Act funds. 

Assessing the effects of spending: While waiting for additional federal 

guidance, the state has taken some steps to assess the impact of Recovery 

Act funds on the state, including adapting an automated system currently 

used for financial management to meet Recovery Act reporting 

requirements. 

Although Georgia is still awaiting final information from the federal 

government, the state estimates it will receive about $7.3 billion in funding 

under the Recovery Act. Of that amount, about $467 million (or 6 percent) 

will be awarded by federal agencies directly to localities and other 

nonstate entities. As shown in figure 5, the majority of Recovery Act funds 

will support education (36 percent), health programs (35 percent, of which 

23 percent will go toward Medicaid), and transportation (15 percent). The 

Governor completed the blanket certification for Recovery Act funds on 

March 25, 2009, confirming that the state will use the funds to create jobs 

and promote economic growth.1

Georgia Beginning to 

Use Recovery Act 

Funds 

 

1

As of April 17, 2009, the Governor had also completed certifications for an arts program, 

energy efficiency, transportation, and unemployment insurance. 

Page 118 GAO-09-580 Recovery Act
Appendix VII: Georgia 

Figure 5: Georgia’s Estimated Recovery Act Funding, by Major Programs, as of 

April 17, 2009 

14%

15%

23%

36%

Source: Georgia Office of Planning and Budget.

Other programs

Transportation

Health

Medicaid

Education

35%

Note: Other programs include those for housing, energy, and employment and training. The Office of 

Planning and Budget estimates are based on federal announcements and estimates from Federal 

Funds Information for States. The primary mission of Federal Funds Information for States is to track 

and report on the fiscal impact of federal budget and policy decisions on state budgets and programs. 

The state has begun to use or plans to use funds for the following 

purposes: 

Increased Federal Medical Assistance Percentage Funds: Medicaid is 

a joint federal-state program that finances health care for certain 

categories of low-income individuals, including children, families, persons 

with disabilities, and persons who are elderly. The federal government 

matches state spending for Medicaid services according to a formula 

based on each state’s per capita income in relation to the national average 

per capita income. The amount of federal assistance states receive for 

Medicaid service expenditures is known as the Federal Medical Assistance 

Percentage (FMAP). Across states, the FMAP may range from 50 percent 

to no more than 83 percent, with poorer states receiving a higher federal 

matching rate than wealthier states. The Recovery Act provides eligible 

states with an increased FMAP for 27 months between October 1, 2008, 

and December 31, 2010.2

 On February 25, 2009, the Centers for Medicare & 

Medicaid Services (CMS) made increased FMAP grant awards to states, 

 

2

Recovery Act, § 5001. 

Page 119 GAO-09-580 Recovery Act
Appendix VII: Georgia 

and states may retroactively claim reimbursement for expenditures that 

occurred prior to the effective date of the Recovery Act.3

 Generally, for 

fiscal year 2009 through the first quarter of fiscal year 2011, the increased 

FMAP, which is calculated on a quarterly basis, provides for (1) the 

maintenance of states’ prior year FMAPs, (2) a general across-the-board 

increase of 6.2 percentage points in states’ FMAPs, and (3) a further 

increase to the FMAPs for those states that have a qualifying increase in 

unemployment rates. The increased FMAP available under the Recovery 

Act is for state expenditures for Medicaid services. However, the receipt of 

this increased FMAP may reduce the funds that states must use for their 

Medicaid programs, and states have reported using these available funds 

for a variety of purposes. 

As of April 1, 2009, Georgia had drawn down $311.5 million in increased 

FMAP grant awards, which is about 59.8 percent of its awards to date.4

Officials noted that these funds were drawn down retroactively for the 

period October 1, 2008, through February 25, 2009, but funds can now be 

drawn down on a more frequent basis. Georgia officials reported they plan 

to use funds made available as a result of the increased FMAP to address 

increased caseloads, offset general fund deficits, and maintain current 

eligibility and benefit levels in the state Medicaid program. 

Transportation—Highway Infrastructure Investment: The Recovery 

Act provides additional funds for highway infrastructure investment using 

the rules and structure of the existing Federal-Aid Highway Surface 

Transportation Program, which apportions money to states to construct 

and maintain eligible highways and for other surface transportation 

projects. States must follow the requirements for the existing programs, 

and in addition, the governor must certify that the state will maintain its 

current level of transportation spending, and the governor or other 

appropriate chief executive must certify that the state or local government 

to which funds have been made available has completed all necessary 

legal reviews and determined that the projects are an appropriate use of 

taxpayer funds. Georgia provided these certifications, but qualified its 

maintenance of effort certification, noting that the Georgia General 

 

3

Although the effective date of the Recovery Act was February 17, 2009, states generally 

may claim reimbursement for the increased FMAP for Medicaid service expenditures made 

on or after October 1, 2008. 

4

Georgia received increased FMAP grant awards of $521.3 million for the first three 

quarters of federal fiscal year 2009. 

Page 120 GAO-09-580 Recovery Act
Appendix VII: Georgia 

Assembly still was considering the Georgia Department of 

Transportation’s (GDOT) fiscal year 2010 budget, which could impact the 

state’s highway spending plans for that year.5

Georgia has been apportioned $932 million for highway infrastructure. On 

April 7, 2009, the Governor certified the first round of projects to be 

funded with Recovery Act funds. As of April 16, 2009, the U.S. Department 

of Transportation had not obligated any Recovery Act funds for Georgia 

projects.6

 Georgia plans to spend $208 million on 67 projects throughout 

the state. Of that amount, $97 million will be spent in economically 

distressed areas. The funds will be spent on maintenance (53 percent), 

bridges (23 percent), capacity projects (17 percent), safety projects (6 

percent), and enhancements (1 percent). The Georgia Department of 

Transportation plans to award contracts for the majority of these projects 

(73 percent) by May 22, 2009.7

 Figure 6 illustrates the implementation time 

line for Recovery Act highway projects. 

 

5

A number of states qualified their certifications in various ways. The legal effect of such 

qualifications is currently being examined by the Department of Transportation and has not 

been reviewed by GAO. 

6

For federal-aid highway projects, the Federal Highway Administration of the U.S. 

Department of Transportation has interpreted the term obligation of funds to mean the 

federal government’s contractual commitment to pay for the federal share of a project. This 

commitment occurs at the time the federal government approves a project agreement and 

the project agreement is executed. 

7

The department will award most of the remaining contracts in June and July 2009. 

Page 121 GAO-09-580 Recovery Act
Appendix VII: Georgia 

Figure 6: Georgia Department of Transportation’s Project Implementation Schedule 

Federal

Appropriation

of Funds

STIP

Amendments/

Modifications

FHWA

Approval

Authorization

FHWA Funding 

Authorization 

for projects

0-30 days

Bid Advertisement

Projects posted on 

Web site. Contractors 

prepare bids.

4 weeks

Bid Opening

GDOT opens 

contractors’ bids

on projects

1 day

Contract Awarded

GDOT reviews bids. 

Project awarded 

to contractor.

1 week

Notice to

Proceed

Document sent 

to contractor

1 week

Pre-Construction

Conference

Contractor assembles

materials and workers

0-30 days

Construction Begins

Board Approval

of Projects

Governor

Certification

Source: Georgia Department of Transportation.

to Awardee

GDOT Execution

GDOT signs

agreement

0-30 days

Contractor Execution

Contractor signs

agreement

1 week

Contract Documents

Includes sub-contractor 

approval if required

1 week

U.S. Department of Education State Fiscal Stabilization Fund: The 

Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be 

administered by the U.S. Department of Education (Education). The SFSF 

provides funds to states to help avoid reductions in education and other 

essential public services. The initial award of SFSF funding requires each 

state to submit an application to Education that assures, among other 

things, it will take actions to meet certain educational requirements such 

as increasing teacher effectiveness and addressing inequities in the 

distribution of highly qualified teachers. 

Page 122 GAO-09-580 Recovery Act
Appendix VII: Georgia 

Georgia’s initial SFSF allocation was about $1 billion. According to state 

officials, the state’s fiscal year 2010 budget passed on April 3, 2009, and 

included $521 million in state fiscal stabilization funds for education and 

$140 million in state fiscal stabilization funds for public safety.8

 Georgia 

plans to use the education funds for elementary, secondary, and public 

higher education. For instance, Georgia intends to use three established 

formulas to allocate funds to local education agencies, universities, and 

technical colleges. Georgia plans to use the public safety funds to help 

maintain safe staffing levels at state prisons, appropriately staff the state’s 

forensic laboratory system, and avoid cuts in the number of state troopers. 

Georgia plans to submit its application for fiscal stabilization funds in late 

April or early May. 

In addition to the major programs we discussed earlier, table 6 shows how 

Georgia and two local entities plan to use Recovery Act funds for other 

selected programs.9

 

8

The state’s fiscal year runs from July 1 through June 30. 

9

The two local entities we visited were the Atlanta Housing Authority and the Atlanta 

Regional Workforce Board. 

Page 123 GAO-09-580 Recovery Act
Appendix VII: Georgia 

Table 6: Planned Uses of Selected Recovery Act Funds 

Selected programs 

Anticipated funds

(in millions of dollars)a

Examples of planned uses 

Transportation 

Transit Capital Assistance Grants 144 Funds will be used to help with needs that were deferred as a result of 

budget cuts, such as bus replacement and the purchase of cleaner fuel 

vehicles. 

Fixed-Guideway Infrastructure 7 Funds will go to the Metropolitan Atlanta Rapid Transit Authority. 

Education 

Title I of the Elementary and 

Secondary Education Act of 1965 

(commonly known as No Child Left 

Behind) 

351 (grants to local 

education 

agencies); 

104 (school 

improvement) 

State will encourage local education agencies to focus on professional 

learning opportunities for staff and intervention programs for students 

who need help with math and writing. 

Individuals With Disabilities 

Education Act, Parts B and C 

339 Among other things, the state plans to encourage local education 

agencies to (1) provide professional development for special education 

teachers, (2) expand the availability and range of inclusive placement 

options for preschoolers, and (3) obtain state-of-the-art assistive 

technology devices and provide training in their use to enhance access 

to the general curriculum for students with disabilities. 

Other programs 

Workforce Investment Act 

programs 

88 State plans to use a portion for administration, oversight of local 

workforce agencies, as well as rapid response during major layoffs; the 

majority of the funds will be allocated to the 20 local areas within the 

state for adult, youth, and dislocated worker programs. 

The Atlanta Regional Workforce Board—the local workforce board for 

seven counties in the Atlanta metropolitan area—is concentrating on 

plans for using the $3.1 million it will receive for summer youth 

programs.b

Tax Credit Assistance Program 54 State will focus on fiscal year 2008 projects that received tax credits 

and those on the waiting list; for projects that received tax credits but 

are having difficulty using them, the state will either provide gap 

financing or exchange the tax credits for grants. 

Public Housing Capital Fund 112c The Atlanta Housing Authority will use $18.6 million to rehabilitate 13 

public housing developments and an additional $8 million to complete 

the demolition of 3 public housing developments. 

Neighborhood Stabilization 

Program 

To be determined State plans to apply, but the competition criteria have not yet been 

published. 

Edward Byrne Memorial Justice 

Assistance Grants 

36 State is currently developing a strategy to allocate the funds that must 

be passed through to local governments. 

Source: GAO. 

a

The anticipated funds are based on federal agency announcements as of April 17, 2009. 

b

The Atlanta Regional Workforce Board is administered by the Atlanta Regional Commission. 

c

These funds go directly to local public housing authorities. 

Page 124 GAO-09-580 Recovery Act
Appendix VII: Georgia 

The recent economic downturn adversely affected Georgia in a number of 

ways: 

• Higher unemployment rate—as of February 2009, the state’s 

unemployment rate was 9.3 percent. This rate surpassed the national 

unemployment rate (8.1 percent) and was almost double the state 

unemployment rate from a year earlier (5.4 percent). 

In Addition to Addressing 

Specific Program Areas, 

Recovery Act Funding Also 

Will Help Mitigate Ongoing 

Fiscal Challenges 

• Increases in Medicaid enrollment—from January 2008 to January 2009, 

the state’s Medicaid enrollment increased from 1,265,136 to 1,314,689, 

with increased enrollment attributable to three population groups: (1) 

children and families, (2) disabled individuals, and (3) other 

populations, which includes refugees and women with breast and/or 

cervical cancer. 

• Declining revenue—through March 2009, the state’s net revenue 

collections for fiscal year 2009 were 8 percent less than they were for 

the same time period in fiscal year 2008, representing a decrease of 

approximately $1 billion in total taxes and other revenues collected.10

• Use of reserves—to offset shortages in revenue, the state used $200 

million from its Revenue Shortfall Reserve, or “rainy day” fund, in 

fiscal year 2009 and will use an additional $259 million in fiscal year 

2010. 

• Recent budget cuts—overall, the state’s budget was cut by 8 percent 

from fiscal year 2008 to fiscal year 2009.11 As shown in table 2, some 

individual agencies were cut more significantly than others. Georgia 

officials plan to use Recovery Act funds to limit additional budget cuts. 

 

10Net revenue collections for the month of March 2009 totaled $988 million—compared 

with $1.2 billion for March 2008, a decrease of 14.5 percent. 

11This percentage represents the difference between the amended fiscal year 2008 budget 

and the amended fiscal year 2009 budget. 

Page 125 GAO-09-580 Recovery Act
Appendix VII: Georgia 

Table 7: Budget for Selected State Agencies in Georgia, Fiscal Years 2008 and 2009 

Selected state agencies 

Amended

fiscal year 2008 budgeta

Amended 

fiscal year 2009 budgeta

Percentage change from 

fiscal years 2008 to 2009

Department of Community Affairs $35,718,525 $17,011,787 -52.4

Criminal Justice Coordinating Council 898,061 472,465 -47.4

State Accounting Office 7,205,916 4,089,053 -43.3

Department of Administrative Services 9,707,880 7,767,003b-20.0

Department of Community Health 2,347,794,015 1,879,185,744 -20.0

State Inspector General 833,534 679,410 -18.5

State Housing Finance Agency 3,287,829 2,700,020 -17.9

Department of Human Resources 1,631,068,194 1,394,208,017 -14.5

Department of Labor 55,081,172 47,934,616 -13.0

Office of Planning and Budget 9,474,735 8,419,050 -11.1

Department of Audits and Accounts 34,429,800 30,654,383 -11.0

Office of the Governor 7,653,328 7,113,270 -7.1

Department of Education 7,973,900,641 7,506,343,096 -5.9

Department of Transportation 832,725,819 865,193,794 3.9

Source: GAO analysis of Georgia Office of Planning and Budget data. 

Notes: The state agencies in the table are those we interviewed or surveyed during this first reporting 

period. The Department of Administrative Services serves as the state’s procurement office. The 

State Accounting Office serves as the state’s controller. The Office of Planning and Budget is the 

state’s budget office. The Department of Audits and Accounts is the state auditor. 

a

The amended budgets for fiscal years 2008 and 2009 represent state funds only. 

b

The fiscal year 2009 amount for the Department of Administrative Services includes $5,424,149 in 

agency reserves used to supplement appropriations. 

Georgia Has Adapted 

Existing Processes to 

Approve Uses of Recovery 

Act Funding 

Georgia moved quickly to implement an infrastructure to manage 

Recovery Act funds. A small core team was in place as of December 2008 

to begin planning for implementation. Within 1 day of enactment, the 

Governor had appointed a Recovery Act Accountability Officer, and she 

formed a Recovery Act implementation team shortly thereafter. The 

implementation team includes a senior management team, officials from 

31 state agencies, a group to support accountability and transparency, and 

cross-agency teams (see fig. 7).12 The Recovery Act Accountability Officer 

and senior management team are responsible for analyzing and 

 

12The cross-agency teams work on initiatives such as energy, broadband, and competitive 

grants. 

Page 126 GAO-09-580 Recovery Act
Appendix VII: Georgia 

disseminating federal and state guidance to the state agencies receiving 

Recovery Act funds. The accountability and transparency support group 

comprises representatives from the Office of Planning and Budget, State 

Accounting Office, and Department of Administrative Services. The State 

Auditor will serve as the primary auditor of the funds, and the Inspector 

General will provide investigative support and respond to complaints of 

fraud. The first implementation team meeting was held on February 24, 

2009. Since then, the implementation team has met almost every week. 

Figure 7: Organizational Chart of Georgia’s Recovery Act Implementation Team 

Recovery Act 

Accountability Officer

Recovery Act 

Management Team

Recovery Act 

Implementation Team

(31 State Agencies)

Cross Agency

Implementation Teams

(5 Teams)

Accountability and

Transparency Support

• Office of Planning

and Budget

• State Accounting Office

• Department of

 Administrative Services

Oversight

• Department of Audits and Accounts

• Office of the Inspector General

Source: Georgia Recovery Act Accountability Officer. 

According to state officials, each year the Governor is required to present 

to the General Assembly a recommended state budget for the upcoming 

fiscal year and an amended budget for the current fiscal year. Prior to 

submitting the budget for the upcoming year, the Governor sets the state’s 

revenue estimate, which when added to surplus and reserve funds, 

determines the size of the forthcoming appropriations bill. Furthermore, 

state officials told us that the Governor has the authority to approve the 

Page 127 GAO-09-580 Recovery Act
Appendix VII: Georgia 

appropriations bill in its entirety or choose individual expenditure items to 

veto.13

To approve the use of Recovery Act funds, Georgia has enhanced its 

existing budget process. The majority of Recovery Act funds will be added 

into state budgets via an amendment process through the Governor’s 

Office of Planning and Budget. A monthly Recovery Act budgeting and 

amendment process has been established to account for federal dollars. 

The Recovery Act approval process requires that each state agency submit 

an action plan to the Office of Planning and Budget that includes 

information on the agency, funding sources, accountability measures, and 

details on individual projects funded (see fig. 8).14 For Recovery Act funds 

the state government receives, the budget office also is requiring state 

agencies to complete a tool that assesses risk. The budget office then 

reviews the plans submitted by the agency, provides feedback to the 

agency, and, in conjunction with the agency, finalizes the plans and risk 

assessment tool. The Governor, the Recovery Act Accountability Officer, 

budget office staff, and agency officials meet to vet the action plan and 

make a final decision on applying for funding. As of April 17, 2009, all state 

agencies had submitted action plans, and the budget office had begun its 

review of these plans.15

 

13However, state officials noted that the legislature can override a gubernatorial veto with a 

two-thirds majority in each chamber. 

14The actions plans were initially required to be submitted on February 12, 2009; however, 

due to delays in federal guidance, some state agencies were granted an extension until 

early March. 

15The Department of Education was given an exemption, and weekly meetings were held 

with the Office of Planning and Budget to gather information in lieu of action plans. 

Page 128 GAO-09-580 Recovery Act
Appendix VII: Georgia 

Figure 8: State of Georgia Review Process for Recovery Act Funds 

Source: Georgia Office of Planning and Budget.

State agency

completes

Recovery Act

action plan

Office of

Planning

and Budget

reviews

action plan

Questions Questions Decision

Process end.

No funding

application.

Agency

applies

for

federal

funding

Agency

head

meeting

with

governor

Executive

team / agency

head review

Yes Yes

No No Yes

No

Request for additional information

Questions

Note: The executive team for the action plan process includes the Recovery Act Accountability 

Officer, the Chief Financial Officer, the Chief Operating Officer, the Governor’s policy staff, Office of 

Planning and Budget staff, and agency officials. 

Georgia’s most recent Single Audit Act report identified a number of 

material weaknesses. Recognizing the risks associated with the influx of 

Recovery Act funds, the state has taken a number of steps to establish 

internal controls and safeguards for these funds. 

Georgia Has Been 

Establishing Internal 

Controls for Recovery 

Act Funds 

Georgia’s Most Recent 

Single Audit Report 

Identified Material 

Weaknesses 

Georgia’s most recent Single Audit Act findings indicate that the state may 

have difficulty accounting for the use of some Recovery Act funds. In its 

fiscal year 2008 Single Audit report, the State Auditor identified 28 

financial material weaknesses and 7 compliance material weaknesses. 

Three state agencies that expect to receive a substantial amount of 

Recovery Act funds were cited for most of the financial material 

weaknesses—the Department of Transportation (10), Department of Labor 

(4), and Department of Human Resources (2). For example, the 

Department of Transportation’s financial accounting system was deemed 

unsuitable for day-to-day management. It also did not have a system in 

place to correctly identify fund sources, and as a result, auditors found 

that $138 million of federal funds were misclassified. 

In addition, auditors found that the Department of Labor was unable to 

provide detailed account balances for the Unemployment Insurance 

Page 129 GAO-09-580 Recovery Act
Appendix VII: Georgia 

Program because it maintained an inadequate general ledger that 

consisted of manually updated spreadsheets.16 The auditors also found 

that the Department of Human Resources’ process of allocating indirect 

costs to programs had multiple deficiencies. They noted that inadequate 

internal controls and failure to follow established policies increases the

risk of material misstatement in the financial statements, including 

misstatements due to fraud and noncompliance with federal regulation. In

addition, the Department of Human Resources was cited for four 

compliance material weaknesses, such as requesting federal funds in

excess of program expenditures. 

 

To ensure that the affected state agencies will address these material 

weaknesses, the State Accounting Office will be monitoring corrective 

action plans developed in response to the Single Audit report. The office 

plans to issue guidance on the monitoring process by the end of April 2009 

and has asked agencies to start tracking actions taken to address material 

weaknesses. 

State Agencies Are Taking 

Steps to Safeguard and 

Oversee Recovery Act 

Funds 

Georgia recognizes the importance of accounting for and monitoring 

Recovery Act funds and, despite recent budget cuts, has directed state 

agencies to safeguard Recovery Act funds and mitigate identified risks. At 

one of the first implementation team meetings, the Recovery Act 

Accountability Officer disseminated an implementation manual to 

agencies, which included multiple types of guidance on how to use and 

account for Recovery Act funds. For example, the Office of Planning and 

Budget provided details on the budgeting process for Recovery Act funds. 

New and updated guidance is disseminated at the weekly implementation 

team meetings. At the direction of the Recovery Act Accountability 

Officer, the three agencies tasked with accountability support—the Office 

of Planning and Budget, State Accounting Office, and Department of 

Administrative Services—and other state agencies have instituted the 

following safeguards: 

• The Office of Planning and Budget, in collaboration with the State 

Accounting Office and others, is developing a state-level strategy to 

16The state expects to receive about $236 million in Recovery Act funds for unemployment 

insurance ($220 million for unemployment insurance benefits and $16 million for 

administration). 

Page 130 GAO-09-580 Recovery Act
Appendix VII: Georgia 

monitor high-risk agencies.17 Additional risk-mitigation strategies will 

be developed and implemented for these agencies. 

• The State Accounting Office issued two accounting directives to all 

state agencies. The first provides guidance on accounting for Recovery 

Act funds separately from other funds. The state plans to use Catalog 

of Federal Domestic Assistance numbers to track Recovery Act funds 

separately. Funds will also be segregated through a set of unique 

Recovery Act fund sources in the state’s financial accounting system. 

For example, the state is tracking increased FMAP funds for Medicaid 

through the development of a unique identifier for each grant award. 

The second accounting directive supplies language that should be 

included in all contracts issued under the Recovery Act. In addition, 

the office is reviewing the current accounting internal controls and 

assessing how they can be enhanced for Recovery Act funds.18

• The Georgia Department of Administrative Services plans to issue a 

communication alert stating that any state agency planning to award 

contracts with Recovery Act funds should contact the department for 

guidance. The department has developed standard contract language 

that should be included in all Recovery Act contracts and plans to 

publicize and offer training for state agency contracting staff. Further, 

the department plans to continue its compliance reviews of agencies 

with delegated purchasing authority to ensure they are following 

proper policies and procedures.19

• All of the agencies we met with that directly administer programs had 

monitoring processes in place that they plan to adapt or enhance for 

Recovery Act oversight. For example, the Georgia Department of 

Community Affairs’ plans for monitoring the Tax Credit Assistance 

 

17Certain state agencies have been identified as high risk due to their size, the potential for 

reorganization, and outdated financial reporting systems. 

18The majority of state agencies use PeopleSoft, the state’s current financial reporting 

system, to track their expenditures. However, there are some agencies that do not use this 

system and others that have greatly customized the software for their agency’s individual 

use. 

19A state official reported that the Georgia Department of Community Health is developing 

a separate contracting and vendor management process for any contracts that are needed 

or awarded to carry out the functions of grants that may be awarded to vendors as a result 

of the Recovery Act. Existing performance outcomes will be applied to the new contracting 

mechanism and are expected to provide early indicators regarding the need to apply 

additional audits or controls. 

Page 131 GAO-09-580 Recovery Act
Appendix VII: Georgia 

Program include a front-end analysis of costs, third-party inspections 

prior to the release of funds, and an audit of the general contractor by 

a certified public accountant. The last requirement is unique to 

projects funded with Recovery Act tax credits. 

In addition, the State Auditor, Inspector General, and internal audit 

divisions within state agencies have taken or plan to take the following 

steps to mitigate risk and oversee the use of Recovery Act funds: 

• The State Auditor issued two audit risk alerts. One urged all agency 

officials to include appropriate contractual provisions in Recovery Act 

contracts and to not rush the distribution of Recovery Act funds before 

adhering to proper internal control processes and understanding 

federal guidelines. The other alert discussed limits on the use of funds. 

The State Auditor also plans to provide internal control training to 

state agency personnel in late April. The training will discuss basic 

internal controls, designing and implementing internal controls for 

Recovery Act programs, best practices in contract monitoring, and 

reporting on Recovery Act funds. 

• Currently, the State Auditor conducts routine statewide risk 

assessments as a means of identifying high-risk agencies and 

determining where to best focus audit resources.20 Officials plan to 

target future risk assessments on programs receiving Recovery Act 

funding and are awaiting additional audit guidance from the Office of 

Management and Budget (OMB). 

• The Inspector General issued a directive requiring all state agencies to 

insert new contractual language in any contracts, subcontracts, grants, 

and bid solicitations financed with Recovery Act funds.21 The new 

language specifically gives her the right to inspect all records of 

outside vendors, subcontractors, and consultants. 

• In conjunction with the State Accounting Office, the Inspector General 

plans to conduct unannounced visits to state agencies receiving 

Recovery Act funding. 

 

20The risk assessments evaluate a program’s previous audit findings, internal controls, and 

material weaknesses based on pre-established criteria. 

21The Inspector General is part of the executive branch. 

Page 132 GAO-09-580 Recovery Act
Appendix VII: Georgia 

• The Inspector General also developed a database to specifically track 

Recovery Act complaints and a public service announcement to alert 

the public of how to report fraud, waste, and abuse. 

• Some state agencies, such as the Departments of Human Resources 

and Transportation, have internal audit divisions that plan to monitor 

the use of Recovery Act funds. For instance, the Department of Human 

Resources’ internal auditor has developed a plan to assess the risk of 

each program prior to receiving Recovery Act funding. 

Resources Available for 

Oversight May Be Limited 

As these actions and plans indicate, Georgia recognizes the importance of 

instituting safeguards for Recovery Act funds. However, state officials also 

stressed the costs of such efforts. Both the Governor’s Office and the State 

Auditor noted that they had not received additional funding for Recovery 

Act oversight. As shown in table 2, several agencies with oversight 

responsibilities experienced significant budget reductions in fiscal year 

2009, including the State Accounting Office (43 percent), Inspector 

General (19 percent), Office of Planning and Budget (11 percent), and 

State Auditor (11 percent). 

The State Auditor noted that, if state fiscal conditions do not improve or 

federal funding does not become available for audit purposes, additional 

budget and staffing cuts may occur within the department. Directives from 

OMB, due by May 1, will provide guidance on the audit requirements for 

Recovery Act programs. Officials noted that the scope of pending audit 

requirements may greatly impact the State Auditor’s ability to audit 

Recovery Act programs on top of existing audit requirements. In addition, 

some state officials that directly administer programs told us that 

overseeing the influx of funds could be a challenge, given the state’s 

current budget constraints and hiring freeze. In some cases, state agencies 

told us that they planned to use Recovery Act funds to cover their 

administrative costs. Other state agencies wanted additional clarity on 

when they could use program funds to cover such costs. 

In general, Georgia is awaiting additional federal guidance on reporting 

requirements before making detailed plans to assess impact. However, the 

State Auditor is adapting an existing system (used to fulfill its Single Audit 

Act responsibilities) to help the state report on Recovery Act funds. The 

statewide Web-based system will be used to track expenditures, project 

status, and job creation and retention. The state will make data from this 

system available on its Recovery Web site. The Governor is requiring all 

state agencies and programs receiving Recovery Act funds to use this 

Plans to Assess 

Impact of Recovery 

Act Funds Are in 

Initial Stages 

Page 133 GAO-09-580 Recovery Act
Appendix VII: Georgia 

system. State officials do not expect to track and report on funds going 

directly to localities, but some said they would like to be informed of these 

funds so that the state can coordinate with localities. They cited 

broadband initiatives and health funding to nonprofit hospitals as areas 

where a lack of coordination could result in a duplication of services or 

missed opportunities to leverage resources. 

In addition, some state agencies appear to have more experience tracking 

jobs than others. For example, the Georgia Department of Community 

Affairs has experience tracking jobs for the Community Development 

Block Grant program; therefore, agency officials do not expect to have 

difficulty tracking jobs for the Neighborhood Stabilization Program. For 

another program it will administer, the Tax Credit Assistance Program, 

Community Affairs surveyed potential applicants in March 2009 to gain a 

better understanding of performance measures that could be tracked as a 

part of its monitoring efforts, including job creation. In contrast, officials 

from other programs, such as the Edward Byrne Memorial Justice 

Assistance Grant program and the Transit Capital Assistance Grant 

program expressed concerns about identifying appropriate measures of 

job creation and retention within the purpose of their programs and were 

waiting for more guidance from federal agencies and OMB. 

We provided the Governor of Georgia with a draft of this appendix on 

April 17, 2009. The Recovery Act Accountability Officer responded for the 

Governor on April 19, 2009. In general, she noted that the report accurately 

and succinctly captures the implementation status of the Recovery Act 

process in Georgia. 

Terri Rivera Russell, (404) 679-1925 or russellt@gao.gov 

Alicia Puente Cackley, (202) 512-7022 or cackleya@gao.gov 

In addition to the contacts named above, Paige Smith, Assistant Director; 

Nadine Garrick, analyst-in-charge; Stephanie Gaines; Alma Laris; Marc 

Molino; Barbara Roesmann; Robyn Trotter; and Mark Yoder made major 

contributions to this report. 

Georgia’s Comments 

on This Summary 

GAO Contacts 

Staff 

Acknowledgments 

Page 134 GAO-09-580 Recovery Act
Appendix VIII: Illinois Appendix VIII: Illinois 

Overview Use of funds: An estimated 90 percent of Recovery Act funding provided 

to states and localities nationwide in fiscal year 2009 (through Sept. 30, 

2009) will be for health, transportation and education programs. The three 

largest programs in these categories are the Medicaid Federal Medical 

Assistance Percentage (FMAP) awards, highways, and the State Fiscal 

Stabilization Fund. 

9 Medicaid Federal Medical Assistance Percentage (FMAP) Funds

• As of April 3, 2009, the Centers for Medicare & Medicaid Services (CMS) had made about $992 million in 

increased FMAP grant awards to Illinois. 

• As of April 1, 2009, Illinois has drawn down about $117.1 million, or about 12 percent of its initial increased 

FMAP grant awards. 

• Illinois plans to use funds made available as a result of the increased FMAP in fiscal years 2009 and 2010 to 

fill a Medicaid budget gap, permitting the state to move from an average 90-day payment cycle to a cycle of 

no more than 30 days for all of its providers, including payments hospitals and nursing homes. 

9 Transportation—Highway Infrastructure Investment 

• Illinois was apportioned about $936 million for highway infrastructure investment on March 2, 2009, by the 

U.S. Department of Transportation. 

• As of April 16, 2009, the U.S. Department of Transportation had obligated $606.3 million for 214 Illinois 

projects. Illinois Department of Transportation officials stated that they will award most contracts based on 

a competitive bidding process, but they will use a quality based selection process for approximately $27 

million in engineering services contracts. 

• These projects include activities such as resurfacing highways and repairing bridge decks. 

• Illinois will request reimbursement from the U.S. Department of Transportation as the state makes payments 

to contractors. 

9 U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) 

• Illinois was allocated about $1.4 billion from the initial release of these funds on April 2, 2009 by the U.S. 

Department of Education. On April 20, 2009, these funds became available to the state. Illinois is expecting 

to receive an additional $678 million by September 30, 2009. 

• Before receiving the funds, states are required to submit an application that provides several assurances to 

the Department of Education. These include assurances that they will meet maintenance of effort 

requirements (or that they will be able to comply with waiver provisions) and that they will implement 

strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing 

inequities in the distribution of highly qualified teachers, and improving the quality of state academic 

standards and assessments. The state submitted its application on April 10, 2009. 

• Illinois plans to use all of its $2 billion in State Fiscal Stabilization funds for K-12 and higher education 

activities to address the layoffs and other cutbacks many district and public colleges and universities are 

facing in their fiscal year 2009 and 2010 budgets.

Page 135 GAO-09-580 Recovery Act 
Appendix VIII: Illinois 

Illinois is also receiving additional Recovery Act funds under other 

programs, such as programs under Title I, Part A of the Elementary and 

Secondary Education Act of 1965 (ESEA) (commonly known as No Child 

Left Behind); programs under the Individuals with Disabilities Education 

Act (IDEA); and two programs of the U.S. Department of Agriculture—one 

for administration of the Temporary Food Assistance Program and one for 

competitive equipment grants targeted to low income districts from the 

National School Lunch Program. 

Safeguarding and transparency: To provide accountability and 

transparency in how these funds are being spent, the state has established 

a high level Executive Committee and a separate working group to oversee 

Recovery Act compliance across agencies and departments. It has also 

developed a Web site (www.recovery.illinois.gov) that contains 

information about the use of Recovery Act funds. The state is in the 

process of performing a risk assessment of all state programs receiving 

Recovery Act funds to identify potential vulnerabilities. It will use the 

state’s Single Audit—a state-level audit of the largest programs receiving 

federal money—as a tool in identifying these risks. State agencies also 

reported that they are capable of tracking their Recovery Act funds 

separately from other program funds by tagging them with a special 

accounting or funding code. For the most part, these codes will permit 

agencies to then rely on existing processes to monitor and report on how 

these funds are being spent. 

Assessing the effects of spending: Officials at several state agencies 

indicated that they can track various performance measures for projects 

funded through the Recovery Act by utilizing existing systems. However, 

according to officials in the Governor’s office and other state agencies, 

more guidance is needed on definitions for job creation and retention 

measures to adequately measure their impact. 

Illinois has started to use some of its Recovery Act funds, and high level 

state officials we spoke with described several overarching priorities and 

goals that the state plans to achieve through use of these funds. These 

include averting layoffs and creating new jobs, concentrating resources on 

economically distressed areas, and funding infrastructure improvements, 

as described below. 

Illinois Beginning to 

Use Recovery Act 

Funds 

Increased Federal Medical Assistance Percentage Funds: Medicaid 

is a joint federal-state program that finances health care for certain 

categories of low-income individuals, including children, families, persons 

Page 136 GAO-09-580 Recovery Act
Appendix VIII: Illinois 

with disabilities, and persons who are elderly. The federal government 

matches state spending for Medicaid services according to a formula 

based on each state’s per capita income in relation to the national average 

per capita income. The amount of federal assistance states receive for 

Medicaid service expenditures is known as the Federal Medical Assistance 

Percentage (FMAP). Across states, the FMAP may range from 50 percent 

to no more than 83 percent, with poorer states receiving a higher federal 

matching rate than wealthier states. The Recovery Act provides eligible 

states with an increased FMAP for 27 months between October 1, 2008, 

and December 31, 2010.1

 On February 25, 2009, the Centers for Medicare & 

Medicaid Services (CMS) made increased FMAP grant awards to states, 

and states may retroactively claim reimbursement for expenditures that 

occurred prior to the effective date of the Recovery Act.2

 Generally, for 

federal fiscal year 2009 through the first quarter of federal fiscal year 2011, 

the increased FMAP, which is calculated on a quarterly basis, provides for 

(1) the maintenance of states’ prior year FMAPs; (2) a general across-theboard increase of 6.2 percentage points in states’ FMAPs; and (3) a further 

increase to the FMAPs for those states that have a qualifying increase in 

unemployment rates. The increased FMAP available under the Recovery 

Act is for state expenditures for Medicaid services. However, the receipt of 

the increased FMAP may reduce the funds that states must use for their 

Medicaid programs, and states have reported using these available funds 

for a variety of purposes. 

From January 2008 to January 2009, Illinois’s Medicaid enrollment 

increased slightly from 2,184,963 to 2,298,802, with the highest share of the 

enrollment increase attributable to two population groups: (1) children 

and families and (2) non-disabled non-elderly adults. Illinois is estimated 

to receive a total of $2.9 billion in increased FMAP funding, of which $992 

million has already been awarded to the state for the first three quarters of 

federal fiscal year 2009. For the second quarter of federal fiscal year 2009, 

Illinois received an FMAP of 60.48 percent—an increase of 10.48 

percentage points over its fiscal year 2008 FMAP. As of April 1, 2009, 

Illinois has drawn down $117.1 million in Recovery Act funds, which is 

almost 12 percent of the amount awarded to Illinois to date. Illinois state 

officials indicated that the main focus in using funds made available as a 

 

1

Recovery Act, div. B, title V, § 5001. 

2

Although the Recovery Act was enacted February 17, 2009, states generally may claim 

reimbursement for the increased FMAP for Medicaid service expenditures made on or after 

October 1, 2008. 

Page 137 GAO-09-580 Recovery Act
Appendix VIII: Illinois 

result of the Recovery Act will be to meet financial obligations and to 

ensure compliance with the prompt payment provisions of the Recovery 

Act.3

 Specifically, Illinois is using funds made available as a result of the 

Recovery Act to fill a Medicaid budget gap, permitting the state to move 

from a 90-day payment cycle to a 30-day cycle for all of its providers, 

including payments to hospitals and nursing homes. The state has also 

decided to include pharmacists in its prompt payment initiative. These 

actions will also help avoid potential layoffs in provider organizations. 

Transportation—Highway Infrastructure Investment: The Recovery 

Act provides additional funds for highway infrastructure investment using 

the rules and structure of the existing Federal-Aid Highway Surface 

Transportation Program, which apportions money to states to construct 

and maintain eligible highways and for other surface transportation 

projects. States must follow the requirements for the existing programs, 

and in addition, the governor must certify that the state will maintain its 

current level of transportation spending. The governor or other 

appropriate chief executive must also certify that the state or local 

government to which funds have been made available has completed all 

necessary legal reviews and determined that the projects are an 

appropriate use of taxpayer funds. Illinois provided the first of these 

certifications but noted that the state’s level of funding was based on the 

best information available at the time of the state’s certification.4

The Illinois Department of Transportation (IDOT) is planning to spend a 

large share of its estimated $655 million in Recovery Act funds5

 for 

highway and bridge construction and maintenance projects in 

 

3

Under the Recovery Act, to be eligible for the increased FMAP, states must comply with 

prompt payment requirements, which require states to pay 90 percent of clean claims from 

health care practitioners within 30 days of receipt and 99 percent of these claims within 90 

days of receipt. 

4

A number of states qualified their certifications in various ways. The legal effect of such 

qualifications is currently being examined by the U.S. Department of Transportation and 

has not been reviewed by GAO. 

5

According to the Federal Highway Administration, Illinois’ share of Recovery Act funds for 

highway infrastructure investment is approximately $936 million. This total consists of 

$655 million for IDOT projects and $281 million in suballocations for local government 

highway projects. The $655 million to IDOT includes $627 million for IDOT to use statewide 

and $28 million for mandatory transportation enhancements. Transportation enhancements 

include activities such as provision of facilities for pedestrians and bicyclists, preservation 

of abandoned railway corridors, acquisition of scenic easements, and historic preservation 

projects. 

Page 138 GAO-09-580 Recovery Act
Appendix VIII: Illinois 

economically distressed areas. Equally important criteria are that projects 

must be shovel-ready and can be completed by February 2012. These 

funds will expand the amount of money the state can invest in highway 

projects beyond the amounts the state had listed in its State 

Transportation Improvement Program. The projects will include 

resurfacing roads across the state, repairing bridge decks, replacing 

guardrail sections, and improving pavement markings. As of April 16, 2009, 

the U.S. Department of Transportation had obligated $606.3 million for 214 

Illinois projects.6

 IDOT officials stated that they will award most contracts 

based on a competitive bidding process, but they will use a quality based 

selection process for approximately $27 million in engineering services 

contracts. 

U.S. Department of Education State Fiscal Stabilization Fund: The 

Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be 

administered by the U.S. Department of Education (Education). The SFSF 

provides funds to states to help avoid reductions in education and other 

essential public services. The initial award of SFSF funding requires each 

state to submit an application to Education that assures, among other 

things, it will take actions to meet certain educational requirements, such 

as increasing teacher effectiveness and addressing inequities in the 

distribution of highly qualified teachers. The Illinois Office of the Governor 

submitted the state’s application for these funds to Education on April 10, 

2009. On April 20, 2009, these funds became available to the state. Illinois 

is expecting to receive an additional $678 million by September 30, 2009. 

The U.S. Department of Education has allocated a total of about $2 billion 

in SFSF monies to Illinois. Approximately $1.4 billion of this amount was 

allocated in an initial release on April 2, 2009. Illinois plans to use all of the 

$2 billion from the SFSF for K-12 and higher education activities and 

hopes to avert layoffs and other cutbacks many districts and public 

colleges and universities are facing in their fiscal year 2009 and 2010 

budgets. State Board of Education officials also noted that U.S. 

Department of Education guidance allows school districts to use 

stabilization funds for education reforms, such as prolonging school days 

 

6

For federal-aid highway projects, the Federal Highway Administration of the U.S. 

Department of Transportation has interpreted the term obligation of funds to mean the 

federal government’s contractual commitment to pay for the federal share of a project. This 

commitment occurs at the time the federal government approves a project agreement and 

the project agreement is executed. Illinois will request reimbursement from the U.S. 

Department of Transportation as the state makes payments to contractors. 

Page 139 GAO-09-580 Recovery Act
Appendix VIII: Illinois 

and school years, where possible. However, officials said that Illinois 

districts will focus these funds on filling budget gaps rather than 

implementing projects that will require long-term resource commitments. 

Additional Plans for Use of 

Funds Made Available as a 

Result of the Recovery Act 

Include Offsetting State’s 

Budget Deficit and 

Implementing New Capital 

Plan 

The State of Illinois has been in a recession since December 2007 and 

continues to face financial difficulties. The state’s unemployment rate 

surged by 46 percent from 5.9 percent in February 2008 to 8.6 percent in 

February 2009. Major job losses are expected to continue in 

manufacturing, construction, and retail. On the housing front, foreclosure 

filings in February 2009 were up 62 percent over 2008. While state general 

fund revenue grew 4.5 and 5.7 percent in fiscal years 2007 and 2008, 

respectively, revenues declined by 0.5 percent in fiscal year 2009. The state 

estimates that it faces a projected $11.6 billion operating budget deficit for 

fiscal years 2009 and 2010. To address this deficit, the Governor has 

proposed a number of measures in the state’s 2010 budget proposal, 

including the following: 

• Spending cuts, including 4 furlough days for state employees and a 2-

percent spending reduction in grant programs;7

• State employee pension reform, including provisions that would align 

the state’s eligible age for full benefits with that of Social Security, 

adjust benefit formulas, and increase contribution rates for current 

employees; 

• Creation of a taxpayer board to improve accountability and efficiency 

across state programs; and 

• Revenue increases, including income tax increases that would raise an 

estimated $2.8 billion from individuals and $350 million from 

corporations in fiscal year 2010; higher health care contributions from 

current and retired state employees; and higher vehicle registration, 

title, and license fees. 

Illinois officials expect that the state will receive at least $9 billion in 

direct Recovery Act funds to the state, and those local entities—such as 

public housing and transit authorities—will receive additional Recovery 

 

7

According to the proposed Illinois fiscal year 2010 budget, the 2 percent reductions in 

grant programs will exclude healthcare and education programs. 

Page 140 GAO-09-580 Recovery Act
Appendix VIII: Illinois 

Act funds. State officials said they have identified about $4.3 billion of 

Recovery Act funds, including use of the previously mentioned SFSF, that 

could be utilized to address the operating budget shortfall for fiscal years 

2009 and 2010.8

 They noted that these funds would potentially reduce 

pressure on the state for further tax increases and spending cuts. In 

addition, the state plans to use some of the remaining Recovery Act funds 

to help launch the Governor’s proposed infrastructure building program—

a $26.5 billion proposal to fund schools, roads and bridges, public transit, 

and energy and environmental capital projects during Illinois fiscal years 

2010 through 2015. The $26.5 billion plan would be paid for with funds 

from the state ($10.6 billion), federal sources ($11.6 billion), local sources 

($2.4 billion), and the Recovery Act ($2.0 billion).9

In addition to funds administered by state agencies, local entities will also 

receive funds through the Recovery Act for programs administered at the 

local level. We met with one local agency that will receive Recovery Act 

funds and will use its funds to address overdue capital improvements. The 

Chicago Transit Authority (CTA), an independent governmental agency 

that provides rail and bus service in the greater Chicago area, has already 

put plans in place to spend its $240 million. CTA has a backlog of $6.8 

billion in unfunded capital projects necessary to update its infrastructure 

and fleet. The agency has begun work on an $87.8 million project that will 

replace rails, ties, and fasteners for one subway line. The agency also 

expects to complete hybrid bus purchases, a bus and rail car fleet 

overhaul, and numerous facility improvements by the end of 2009. Finally, 

reconstruction of at least one rail station is expected to be completed by 

late 2010. 

While we found examples of programs that have received Recovery Act 

funds and have projects that are already underway, we spoke with state 

officials who said they needed more guidance about how they should use, 

track, and report on these funds at their agencies. State Board of 

Education officials said that understanding the reporting requirements and 

 

8

State officials told us Governor Pat Quinn recently signed a supplemental appropriations 

bill to give the state spending authority for Recovery Act funds during the remainder of 

fiscal year 2009. To allow for the use of Recovery Act funds in fiscal year 2010, the General 

Assembly must approve the fiscal year 2010 budget bill. The presentation of the fiscal year 

2010 budget did not occur until March 18, 2009, due to the impeachment and removal of the 

prior Governor in January 2009. State officials were not certain as to when the General 

Assembly will pass the fiscal year 2010 budget. 

9

Individual amounts do not sum to $26.5 billion due to rounding. 

Page 141 GAO-09-580 Recovery Act
Appendix VIII: Illinois 

eligible uses for Recovery Act funds is the biggest challenge they face as 

they prepare to disseminate funds to the local school districts. They also 

expressed concern with the Recovery Act’s dual emphases on 

accountability and quick expenditure of funds. The Illinois Criminal 

Justice Information Authority expressed similar concerns about the need 

for federal guidance in regard to reporting time frames that may not 

completely align with previous reporting procedures. 

During our meetings with high-level state officials, they said that efforts 

are underway to ensure accountability and transparency in the use of 

Recovery Act funds. The Governor’s office has established an Executive 

Committee and working group to identify concerns across state agencies 

and help them implement Recovery Act provisions. Also, state internal 

audit officials are developing a variety of internal control techniques to 

assure compliance with the Recovery Act’s requirements. To properly 

track funds, state agency officials explained that they plan to use unique 

identifiers or codes so that these funds can be separately tracked in their 

existing financial or grants management systems. 

Illinois Is Taking 

Steps to Assess Risk 

and Develop Plans for 

Safeguards Related to 

Recovery Act Funds 

Illinois Has Established a 

Recovery Act Executive 

Committee and Working 

Group 

To ensure accountability and transparency in the use of Recovery Act 

funds, the state has established an Executive Committee, a Recovery Act 

Working Group, and an Illinois Recovery Web site. The Executive 

Committee is comprised of state executives, including the Deputy Chief of 

Staff for Economic Recovery, the Chief Internal Auditor, the Budget 

Director, and the Chief Information Officer. According to state officials we 

spoke with, the Executive Committee is working to identify common risks 

to all state agencies in the use of Recovery Act funds. To address 

crosscutting Recovery Act issues, such as legal matters and procurement, 

the committee is also establishing subcommittees with agency subject 

matter experts to review critical information and develop policies on these 

subject matters.10 The Recovery Act Working Group consists of a contact 

point for each state agency for Recovery Act related matters and, 

according to state officials, meets to communicate requirements, 

guidance, and implementation related to the act. 

The Governor’s Office has also established an Illinois Recovery Web site at 

www.recovery.illinois.gov, which contains information on the programs 

 

10At the time of our meetings, these subcommittees were still being formed. 

Page 142 GAO-09-580 Recovery Act
Appendix VIII: Illinois 

receiving Recovery Act funds, amounts available through the act, and 

certifications signed by the Governor.11 The Web site will also include 

reports on Recovery Act program expenditures, and eventually users will 

have the ability to download raw data on project or program descriptions, 

budgets, spending, and job creation. Another feature of Illinois’s Web site 

is that it allows the public to submit suggestions for projects that the state 

could fund through the Recovery Act. 

State Audit Officials Are 

Developing Internal 

Control Measures 

Every state is required to have an annual Single Audit in accordance with 

U.S. Office of Management and Budget (OMB) requirements. This audit is 

required when $500,000 or more in federal funds is expended in any fiscal 

year. Officials from the Illinois Office of Internal Audit (OIA) stated that 

they will utilize the Office of the Auditor General’s (OAG) single audits to 

identify programs that may require additional scrutiny. In Illinois’s fiscal 

year 2007 Single Audit, the OAG identified four material weaknesses in 

internal controls over financial reporting and classified 46 findings as 

significant deficiencies and material weaknesses in internal controls 

related to compliance. Significant agency findings classified as a material 

weakness that are relevant to the Recovery Act and recipients of Recovery 

Act funds included 

• The State Board of Education not sanctioning a Local Education 

Agency that did not meet the comparability of services requirement 

under the Title I Grants to Local Educational Agencies Program; 

• IDOT not obtaining certifications from subrecipients for not having 

been suspended or debarred from participation for the Airport 

Improvement Program; 

• Multiple agencies inadequately conducting or failing to conduct on-site 

monitoring of subrecipient awards for federal programs; and 

• Multiple agencies inadequately monitoring subrecipient audit reports 

for federal programs. 

 

11To receive certain Recovery Act funds, among other requirements, the state’s governor 

must certify that: (1) the state will request and use funds provided by the act; and, (2) the 

funds will be used to create jobs and promote economic growth. Recovery Act, div. A, title 

XVI, § 1607. 

Page 143 GAO-09-580 Recovery Act
Appendix VIII: Illinois 

The OAG explained that to the extent that federal programs receiving 

Recovery Act funds are addressed in the OMB compliance supplement, it 

will be performing its required audit procedures. The OAG stated that 

OMB guidance will be critical for planning future audits of federal funds. 

Furthermore, the OAG conducted an analysis of programs receiving 

Recovery Act funds, and found that a few additional programs will likely 

be included in future single audits. OIA officials told us that they are using 

the Single Audit results to assist in conducting a risk assessment of all 

state-administered programs receiving Recovery Act funds. OIA officials 

said that they will use the results of this risk assessment to target their 

audit efforts to programs that demonstrate a high level of risk. OIA and 

OAG officials said that they plan to follow up on their respective prior 

audit findings to make sure that state agencies have taken appropriate 

corrective action. OIA officials said that in addition to large programs, they 

plan to follow up on prior internal audit findings on federal Recovery Act 

programs under $30 million that are not covered by the statewide single 

audit. 

State Agencies Plan to Use 

Unique Identifiers or 

Codes to Track Recovery 

Act Funds 

Most agency officials we spoke with stated that their systems are capable 

of tracking Recovery Act funds separately from other funds for the same 

programs. For example, IDOT officials stated that Recovery Act projects 

are being noted in different systems, typically with special funding codes. 

In addition, when IDOT officials access Recovery Act funds, those 

transactions will have special codes and notations. Similarly, officials at 

the Illinois Department of Human Services told us that any funds the 

agency receives through the Recovery Act for the Neighborhood 

Stabilization Program will have accounting codes separate from any 

previous funds received through the program. In order to track increased 

FMAP funds, Illinois officials said they will use the state’s existing 

accounting systems and will use existing processes to review and 

reconcile expenditures. For example, state officials will record draw 

downs of increased FMAP funds separately from other Medicaid funds. 

State officials will also use special receipt, expenditure, and contract 

codes for all increased FMAP funds and related Medicaid expenditures. A 

CTA official we spoke with stated that his agency will use its existing 

financial system to track Recovery Act funds by unique project numbers or 

descriptions. Finally, officials from the State Comptroller’s Office told us 

that separate appropriation codes will likely be used to track Recovery Act 

expenditures statewide. One agency official indicated that while funds can 

easily be tagged at the state level, he was concerned that this might not be 

the case once funds are distributed to subrecipients. 

Page 144 GAO-09-580 Recovery Act
Appendix VIII: Illinois 

Agencies Are 

Considering Ways to 

Assess Impacts, but 

Additional Guidance 

Is Needed 

Officials at several state agencies we spoke with indicated that they can 

use various performance measures for projects funded through the 

Recovery Act by utilizing existing systems. For example, IDOT officials 

stated that they will track and monitor data for Recovery Act projects in 

the same manner as they do for regular program reporting, and should be 

able to report on and provide evidence regarding the status of project 

goals and objectives. Officials with the Illinois Housing Development 

Authority stated that they also track performance and goals for each 

project through current systems and should be able to build on these 

systems to customize reports as necessary for the Recovery Act. 

On the other hand, several state officials said that additional guidance is 

needed for measuring the potential impact of Recovery Act funds. 

According to officials from the Governor’s office and state agencies we 

spoke with, additional guidance is needed on definitions of “jobs saved,” 

“jobs created,” “jobs sustained,” and other similar terms included in the 

Recovery Act. Illinois Department of Commerce and Economic 

Opportunity officials stated that they had concerns regarding the 

evaluation of job retention as it relates to the Workforce Investment Act 

program. Specifically, they said OMB Recovery Act guidance focuses on 

quick job placement, but jobs created through the act may have lower 

retention than those under past program grants. Furthermore, while 

officials at most agencies we visited stated that they are considering plans 

to track the impact of Recovery Act funds, none of these plans have been 

finalized. Officials at two state agencies said that their systems do not 

track such specific performance measures, and they may need to develop 

additional mechanisms to link Recovery Act funds with their performance 

results. 

We provided the Governor of Illinois with a draft of this appendix on April 

17, 2009. The Deputy Chief Of Staff responded for the Governor on April 

20, 2009. In general, the state concurred with our statements and 

observations. The official also provided technical suggestions that were 

incorporated, as appropriate. 

Illinois’s Comments 

on This Summary 

Leslie Aronovitz, (312) 220-7712 or aronovitzl@gao.gov GAO Contacts 

Cynthia Bascetta, (202) 512-7114 or bascettac@gao.gov 

Page 145 GAO-09-580 Recovery Act
Appendix VIII: Illinois 

In addition to the contacts named above, Paul Schmidt, Assistant Director; 

Tarek Mahmassani, Analyst-in-Charge; Rick Calhoon; Katherine Iritani; 

David Lehrer; Lisa Reynolds; and Mark Ryan made major contributions to 

this report. 

Staff 

Acknowledgments 

Page 146 GAO-09-580 Recovery Act
Appendix IX: Iowa 

Page 147 GAO-09-580 

Appendix IX: Iowa 

Use of funds: An estimated 90 percent of Recovery Act funding provided 

to states and localities nationwide in fiscal year 2009 (through Sept. 30, 

2009) will be for health, transportation, and education programs. The three 

largest programs in these categories are the Medicaid Federal Medical 

Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund, 

and highways. 

Overview 

9 Medicaid Federal Medical Assistance Percentage Funds

• As of April 3, 2009, Centers for Medicare and Medicaid Services (CMS) had made about $84 million in 

increased FMAP grant awards to Iowa. 

• From January 2008 to January 2009, Iowa’s Medicaid enrollment increased from 358,112 to 392,813, with the 

highest enrollment increase attributable to two population groups: (1) children and families and (2) 

nondisabled nonelderly individuals. 

• As of April 15, 2009, Iowa had drawn down about $86 million, or 63 percent of its increased FMAP grant 

awards. 

• Officials plan to use funds made available as a result of the increased FMAP to cover increased caseloads, 

maintain existing populations of recipients, and avoid reductions to benefits for Medicaid recipients. 

9 Transportation—Highway Infrastructure Investment 

• Iowa was apportioned about $358 million for highway infrastructure investment on March 2, 2009, by the 

U.S. Department of Transportation. 

• As of April 16, 2009, the U.S. Department of Transportation had obligated $221.2 million for 107 Iowa 

projects. 

• As of April 15, 2009, the Iowa Department of Transportation had competitively awarded 25 contracts valued 

at $168 million, or 47 percent of the Recovery Act funds apportioned. 

• Contracts were awarded for projects such as bridge replacements and highway resurfacing—“shovel ready” 

projects that could be initiated and completed quickly. 

9 U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) 

• Iowa was allocated about $316 million from the initial release of these funds on April 2, 2009, by the U.S. 

Department of Education. 

• Before receiving the funds, states are required to submit an application that provides several assurances to 

the Department of Education. These include assurances that they will meet maintenance of effort 

requirements (or that they will be able to comply with waiver provisions) and that they will implement 

strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing 

inequities in the distribution of highly qualified teachers, and improving the quality of state academic 

standards and assessments. 

• Iowa plans to submit its application as soon as it can be accurately completed. 

• Iowa’s Department of Education plans to use these funds to maintain spending for grades K-12 and 

postsecondary education at fiscal year 2009 levels for fiscal years 2010 and 2011. 

 Recovery Act 
Appendix IX: Iowa 

In addition, Iowa estimates that other funding will be provided to the state 

under the Recovery Act for the following program areas: 

• Education—$214 million (includes programs such as those to provide 

grants to local education agencies and assist individuals with 

disabilities). 

• Housing and infrastructure—$252 million (includes programs such as 

the Weatherization Assistance Program). 

• Agriculture/natural resources—$152 million (includes programs such 

as the clean water state revolving fund). 

• Economic development—$94 million (includes programs such as the 

unemployment insurance program). 

The status of plans for using these funds is discussed throughout this 

appendix. 

Safeguarding and transparency: Iowa has a foundation of safeguards 

and controls that could help assure proper spending of Recovery Act 

funds. For example, the State Auditor is responsible for audits of state and 

local entities, such as counties, cities, and school districts, and must 

provide guidelines to public accounting firms that perform such audits. In 

addition, many state agencies have internal audit groups that focus on 

programmatic and financial issues. Furthermore, according to state 

officials, administrative and statutory mechanisms are in place that could 

oversee Recovery Act funds and provide information to the public on how 

these funds are being spent. For example, while previous audits have 

shown few financial weaknesses, the State Auditor is updating its 2009 

audit plan risk assessment to reflect the increased risk associated with 

Recovery Act funding. Iowa is also enhancing its accounting systems to 

track all Recovery Act funds that will flow through the state government to 

ensure that the state can adjust its spending plans as needed. Furthermore, 

Iowa is developing or planning systems to track funds provided to cities, 

counties, local governments, and other entities. Finally, Iowa is working to 

establish a framework that will provide transparency on the use of 

Recovery Act funds. This framework includes the state’s Recovery Act 

Web site, which is designed to provide up-to-date information on the use 

of Recovery Act funds by program, a state board to recommend 

improvements to existing practices to prevent fraud, waste, and abuse and 

oversee the spending of Recovery Act funds, and mechanisms provided 

through the state’s Accountable Government Act. 

Page 148 GAO-09-580 Recovery Act
Appendix IX: Iowa 

Assessing the effects of spending: State agencies have begun to 

consider how to measure outcomes and assess the effect of the Recovery 

Act. Some agencies have mechanisms in place to collect data in order to 

calculate outcomes. Other state agencies are awaiting guidance such as a 

consistent approach to quantifying the number of jobs created and 

sustained. In the meantime, Iowa’s Legislative Services Agency plans to 

work closely with the Iowa Department of Management to create outcome 

measures for the Recovery Act and report results. 

Most Iowa state officials said they plan to follow established allocation 

formulas while waiting for federal guidance on the use and tracking of 

Recovery Act funds. For example, the Iowa Department of Economic 

Development, which manages the state’s Community Development Block 

Grants and Neighborhood Stabilization Program, intends to follow the 

state-established allocation formula for the Community Development 

Block Grants program. This formula allocates funding in thirds: one-third 

to affordable housing, one-third to economic development, and one-third 

to infrastructure. 

Iowa Beginning to 

Use Recovery Act 

Funds 

Some agencies have gone even further in their spending of Recovery Act 

funds. For example, the Iowa Department of Transportation has funded 

some “shovel ready” projects within 3 days of the enactment of the 

Recovery Act. Additionally, the Iowa Department of Economic 

Development has already established guidance for allocating 

Neighborhood Stabilization Program funding to eligible entities, should the 

state be awarded competitive grant funds. 

As of April 15, 2009, Iowa had drawn down about $86 million of its 

increased FMAP grant awards for the Medicaid program, which is 63 

percent of its awards to date. The state plans to use funds made available 

as a result of the increased FMAP to cover increased caseloads and 

maintain current levels of benefits, noting that without these funds, the 

program would have faced budget shortfalls. Additionally, the state plans 

to use $110 million of funds made available as a result of the increased 

FMAP to fully fund Medicaid in the current fiscal year and $145 million of 

these funds to fully fund Medicaid in fiscal year 2010. 

Iowa has begun to use some of its Recovery Act funds, as follows. 

Increased Federal Medical Assistance Percentage Funds: Medicaid 

is a joint federal-state program that finances health care for certain 

categories of low-income individuals, including children, families, persons 

Page 149 GAO-09-580 Recovery Act
Appendix IX: Iowa 

with disabilities, and persons who are elderly. The federal government 

matches state spending for Medicaid services according to a formula 

based on each state’s per capita income in relation to the national average 

per capita income. The amount of federal assistance states receive for 

Medicaid service expenditures is known as the Federal Medical Assistance 

Percentage (FMAP). Across states, the FMAP may range from 50 percent 

to no more than 83 percent, with poorer states receiving a higher federal 

matching rate than wealthier states. The Recovery Act provides eligible 

states with an increased FMAP for 27 months between October 1, 2008, 

and December 31, 2010.1

 On February 25, 2009, CMS made increased 

FMAP grant awards to states, and states may retroactively claim 

reimbursement for expenditures that occurred prior to the effective date 

of the Recovery Act.2

 Generally, for fiscal year 2009 through the first 

quarter of fiscal year 2011, the increased FMAP, which is calculated on a 

quarterly basis, provides for (1) the maintenance of states’ prior year 

FMAPs; (2) a general across-the-board increase of 6.2 percentage points in 

states’ FMAPs; and (3) a further increase to the FMAPs for those states 

that have a qualifying increase in unemployment rates. The increased 

FMAP available under the Recovery Act is for state expenditures for 

Medicaid services. However, the receipt of this increased FMAP may 

reduce the funds that states must use for their Medicaid programs, and 

states have reported using these available funds for a variety of purposes. 

For the first two quarters of 2009, Iowa’s FMAP rate was 68.82 percent, a 

7.09 percentage point increase over fiscal year 2008. Iowa has received 

increased FMAP grant awards of $136 million for fiscal year 2009, and, as 

of April 15, 2009, Iowa had drawn down $86 million in increased FMAP 

grant awards, which is about 63 percent of its awards to date. Iowa 

officials indicated they will use funds made available as a result of the 

increased FMAP to cover increased caseloads, maintain existing 

populations of recipients, avoid cuts to eligibility, and maintain current 

levels of benefits. In addition, such funds will provide Iowa officials with 

the means to offset budget shortfalls, including shortfalls for the state’s 

Medicaid program. Iowa officials indicated that they expect the recession 

to continue longer for the state than for the nation as a whole, and if the 

increased FMAP funds are not available for all of federal fiscal year 2011, 

 

1

Recovery Act div. B, title V § 5001. 

2

Although the effective date of the Recovery Act was February 17, 2009, states generally 

may claim reimbursement for the increased FMAP for Medicaid service expenditures made 

on or after October 1, 2008. 

Page 150 GAO-09-580 Recovery Act
Appendix IX: Iowa 

the resulting deficit will likely be addressed through the use of reserve 

funds or cuts in program funding. According to state officials, the use of 

FMAP funds requires an appropriation from the state legislature. 

Transportation—Highway Infrastructure Investment: The Recovery 

Act provides additional funds for highway infrastructure investment using 

the rules and structure of the existing Federal-Aid Highway Surface 

Transportation Program, which apportions money to states to construct 

and maintain eligible highways and for other surface transportation 

projects. States must follow the requirements for existing programs, and in 

addition, the Governor must certify that the state will maintain its current 

level of transportation spending, and the Governor or other appropriate 

chief executive must certify that the state or local government to which 

funds have been made available has completed all necessary legal reviews 

and determined that the projects are an appropriate use of taxpayer funds. 

Iowa’s Governor certified that the state would “maintain its efforts” for 

Department of Transportation programs funded under the Recovery Act. 

However, Iowa noted in its certification that transportation spending 

would be influenced by the difference in the definition of the word 

“expend” for different covered programs; the uncertainty of the amount 

collected from state user fees to fund the programs; and variables (such as 

weather) that may affect the state’s timeline for spending Recovery Act 

transportation funds.3

Within 3 days of the enactment of the Recovery Act, the Iowa Department 

of Transportation competitively awarded contracts for 19 highway and 

bridge projects valued at about $56 million. Contracts were awarded for 

projects such as bridge replacements and highway resurfacing—shovelready projects that could be initiated and completed quickly. As of April 

15, 2009, Iowa had competitively awarded a total of 25 contracts valued at 

$168 million, or 47 percent of the Recovery Act funds apportioned. As of 

April 16, 2009, the U.S. Department of Transportation had obligated $221.2 

million for 107 Iowa projects.4

 According to Iowa transportation officials, 

 

3

A number of states qualified their certifications in various ways. The legal effect of such 

qualifications is currently being examined by the U.S. Department of Transportation and 

has not been reviewed by GAO. 

4

For federal-aid highway projects, the Federal Highway Administration of the U.S. 

Department of Transportation has interpreted the term obligation of funds to mean the 

federal government’s contractual commitment to pay for the federal share of a project. This 

commitment occurs at the time the federal government approves a project agreement and 

the project agreement is executed. 

Page 151 GAO-09-580 Recovery Act
Appendix IX: Iowa 

the agency could begin spending Recovery Act funds quickly because it 

maintained an inventory of shovel-ready projects and its accounting 

system needed few changes to track the projects. 

U.S. Department of Education State Fiscal Stabilization Fund: The 

Recovery Act created a State Fiscal Stabilization Fund (SFSF), to be 

administered by the U.S. Department of Education. The SFSF provides 

funds to states to help avoid reductions in education and other essential 

public services. The initial award of SFSF funding requires each state to 

submit an application to the U.S. Department of Education that assures, 

among other things, that it will take actions to meet certain educational 

requirements, such as increasing teacher effectiveness and addressing 

inequities in the distribution of highly qualified teachers. 

On April 2, Iowa was allocated $316 million for the education portion of 

the SFSF. Overall, Iowa expects that the state’s total SFSF allocation will 

be $472 million. In April, the Governor proposed using almost 82 percent 

of this amount, or $386 million, to support elementary, secondary, and 

higher education, as required. These funds will be used for activities such 

as updating standards and implementing a new data system. For the 

remaining 18 percent of the SFSF allocation, or $86 million, the Governor 

proposes to fund universities and community colleges, law enforcement, 

and corrections in fiscal year 2010. The Governor also proposed using 

$600,000 of the $86 million to oversee Recovery Act funds. Iowa plans to 

submit its application as soon as the application can be accurately 

completed. 

Iowa Has Established a 

Strategy for Spending 

Recovery Act Funds 

Beginning in April 2008, unemployment began to rise and in October 2008, 

state revenues began to slow. As of February 2009, Iowa’s unemployment 

rate was 4.9 percent, up from 3.9 percent in February 2008. According to a 

March 27, 2009, report by the Rural Policy Research Institute, the nation’s 

rural economy is losing jobs at a rate faster than the rest of the United 

States. Iowa state budget officials estimated that the state’s unemployment 

rate could increase to 7 percent by December 2009. 

Regardless of this economic downturn, Iowa’s Governor and General 

Assembly have statutory responsibility to balance the budget and meet 

expenditure limitations and are required to use the revenue estimates 

agreed to by Iowa’s Revenue Estimating Conference, which convenes 

quarterly, as the basis for determining the budget for the general fund, 

according to state officials. If revenue estimates are revised downward for 

the current fiscal year, state officials explained that the law still requires 

Page 152 GAO-09-580 Recovery Act
Appendix IX: Iowa 

the budget to be balanced. In the current fiscal year, and for the first time 

since fiscal year 2003, Iowa’s general fund revenues of almost $6 billion 

are expected to be lower than in the previous fiscal year, a decrease of 1.9 

percent from fiscal year 2008 to fiscal year 2009.5

 In response to this 

downturn, in December 2008, the Governor directed an across-the-board 

1.5 percent reduction in the state’s general fund appropriations, effective 

December 22, 2008. On April 3, 2009, the Governor released a revised 

budget for fiscal year 2010 of $5.9 billion for the state’s general fund, 

representing a 7.9 percent reduction for many state programs, even with 

the addition of more than $535 million in Recovery Act funds. According to 

state officials, decisions regarding the use of Recovery Act funds require 

approval by the General Assembly. Since the Iowa General Assembly is 

scheduled to adjourn on or around May 1, 2009, it may have to develop 

strategies if funding decisions are necessary after adjournment. For 

example, the Governor may request that the General Assembly return for a 

special session. 

In March 2009, the Governor established a Recovery Act implementation 

working group to provide a coordinated process for (1) reporting on 

Recovery Act funds available to Iowa through various federal grants and 

(2) tracking the federal requirements and deadlines associated with those 

grants. The implementation working group comprises representatives 

from nearly two dozen state agencies, led by an executive-level working 

group, and assisted by groups that will focus on implementation issues 

such as budget and tracking, intergovernmental coordination, and 

communications. The implementation working group includes several 

issue-specific small groups focusing on key program areas: education, 

energy, environment, health care, housing, information technology, public 

safety, transportation and infrastructure, and workforce. On April 14, 2009, 

the working group issued a progress report on Recovery Act funds in 

Iowa. For example, the working group reported on the planned and spent 

funding of the state’s energy program to reduce per capita energy 

consumption, loans for wastewater infrastructure projects, and 

neighborhood stabilization programs to provide emergency assistance to 

acquire and redevelop foreclosed properties. 

 

5

Iowa’s fiscal year begins July 1 and ends June 30. 

Page 153 GAO-09-580 Recovery Act
Appendix IX: Iowa 

In addition to FMAP, Transportation, and the State Fiscal Stabilization 

Fund programs, the Governor’s office estimates that the state will receive 

Recovery Act funding as follows: 

• Education: Of $214 million, a large majority involves two formula grant 

programs—grants to local education agencies ($52 million) and special 

education grants to assist individuals with disabilities ($122 million). 

• Housing and infrastructure: Of $252 million, 32 percent ($81 million) is 

for the Weatherization Assistance Program to provide energy-related 

improvements to homes and educate residents about energy 

conservation. 

• Agriculture/natural resources: Of $152 million, more than one-third (36 

percent or $54 million) is for the clean water state revolving fund. 

• Economic development: Of $94 million, more than three-quarters (76 

percent or $71 million) is to modernize the unemployment insurance 

program. 

To supplement Recovery Act funds, Iowa is considering other stimulus 

proposals, such as the Iowa Infrastructure Investment Initiative, or I-JOBS, 

and another bonding initiative. I-JOBS is designed to create jobs, 

strengthen the state’s economy, and rebuild the state’s infrastructure over 

3 years. If approved by the General Assembly, I-JOBS, as described by 

state officials, is expected to provide funding for various infrastructure 

projects, such as transportation, public buildings, and wastewater 

improvements, and will be funded through 20-year tax-exempt bonds paid 

for by gaming revenue, current tax revenue, or both. The General 

Assembly is also considering another bonding initiative to provide 

economic stimulus. As of April 17, 2009, the Iowa General Assembly had 

not authorized the issuance of bonds for either of these initiatives. 

In the absence of OMB and program-specific guidance, associations and 

organizations have provided guidance and assistance to Iowa on the use 

and reporting of Recovery Act funds. Among these associations are the 

National Association of Crime Victim Compensation Boards, the National 

Association of Victims of Crime Act Assistance Administrators, and the 

Association for Stop Violence Against Women Administrators. For 

example, justice associations have helped the Iowa Attorney General’s 

Office complete grant applications. 

Page 154 GAO-09-580 Recovery Act
Appendix IX: Iowa 

Iowa Is Developing 

Systems to Track Recovery 

Act Funds 

Many Iowa agencies expect that they will be able to track the Recovery 

Act funds they use through the state’s central accounting system. The state 

is also evaluating options for reporting Recovery Act funds provided to 

cities, counties, local governments, and other entities that will help satisfy 

reporting requirements for these funds. Specifically, state accounting 

officials are developing special codes to track Recovery Act funds and 

have begun to train state agencies’ accounting officials in the use of these 

new codes. However, Iowa’s central accounting system does not track 

Recovery Act funds provided directly to some agencies because they are 

not part of the system. For example, the central accounting system does 

not track Recovery Act funding provided to the Iowa Department of 

Transportation. In this case, Iowa transportation officials said the agency 

is establishing separate accounting codes to track Recovery Act funds by 

project. Similarly, the central accounting system does not track Recovery 

Act funds provided to state-funded universities. The state and Board of 

Regents are discussing how to track these funds. While local governing 

authorities are not required to report through the state, the Iowa 

Department of Management is in discussions with these entities to report 

Recovery Act spending on the state’s Web site. At the local level, some 

agencies can track these funds, while others are developing guidance to 

require such tracking, according to state officials. 

In order to track increased FMAP funds, Iowa is adapting its existing 

systems. In addition, Iowa’s state Medicaid agency uses a data warehouse 

for Medicaid payments made to counties, subcontractors, and medical 

facilities, and U.S. Health and Human Services’ Office of Inspector General 

has audited the state’s data warehouse. 

The General Assembly may also track Recovery Act spending. In 

particular, the assembly’s Legislative Services Agency—a nonpartisan 

analysis and research agency serving the Iowa General Assembly—

assisted members in interpreting the Recovery Act and provided 

preliminary estimates of funds provided to the state. Furthermore, the 

Legislative Services Agency will be able to access Iowa’s central 

accounting system to monitor agencies’ spending in real time. 

Even as Iowa plans for tracking Recovery Act funds, state officials said 

that they continue to have some questions about how to report Recovery 

Act funds. For example, Iowa officials noted that they need additional 

guidance on reporting increased FMAP funds to CMS. Specifically, Iowa 

officials said that they need guidance on the timing for drawing down 

increased FMAP grant awards, reporting receipts and expenditures, and 

submitting claims for expenditures made retroactively to October 2008. 

Page 155 GAO-09-580 Recovery Act
Appendix IX: Iowa 

Iowa Has a 

Foundation of 

Safeguards and 

Controls That Could 

Help Assure Proper 

Spending of Recovery 

Act Funds 

There are various entities in Iowa that are responsible for monitoring, 

tracking, and overseeing financial expenditures, including the Iowa State 

Accounting Enterprise (collects and reports state financial information 

and processes financial transactions); the State Auditor (audits state and 

local entities, such as counties, cities, and school districts, and provides 

guidelines to public accounting firms that perform such audits); and the 

Attorney General (prevents and prosecutes fraud). Finally, many state 

agencies have internal audit groups that focus on programmatic and 

financial issues. 

While Prior Audits Indicate 

Few Financial 

Weaknesses, State Auditor 

Is Identifying Potential 

Areas Needing Oversight 

Prior years’ audits indicate few weaknesses in Iowa’s financial 

management systems and controls. Iowa’s fiscal year 2007 single audit 

found one material weakness in internal controls related to a public 

assistance grant provided to the Iowa Department of Transportation: a 

computer program error resulted in a $3.6 million overpayment to the 

agency by the Federal Emergency Management Agency for materials 

related to disaster recovery. In 2009, Iowa refunded the $3.6 million. 

Iowa’s fiscal year 2008 single audit did not identify any material 

weaknesses. 

While prior audits indicate few financial weaknesses, the Office of the 

State Auditor is updating its 2009 audit plan risk assessment to reflect the 

increased risk associated with Recovery Act funding. Of great concern to 

officials of the State Auditor’s office are possible limits on the ability to 

charge fees for audit services. According to state officials, these limits 

would significantly reduce the effectiveness of the State Auditor to audit 

federal funds received, including those under the Recovery Act, as 

required by the Single Audit Act. If limits on audit fees were enacted, 

officials said that the state’s comprehensive annual financial report and 

the single audit report are likely to result in qualified opinions. 

Iowa Has Administrative 

and Statutory Mechanisms 

in Place That Could Help 

Oversee Iowa’s Recovery 

Act Funds 

The Iowa state government is working to establish a framework to provide 

transparency on the use of Recovery Act funds. In March 2009, the 

Governor’s office launched an economic Recovery Act Web site—

recovery.iowa.gov—to provide information on Recovery Act funding by 

program. Iowa plans to add a “dashboard” feature to the Web site—a userfriendly search capability that will provide detailed information on how 

and where Recovery Act funds are spent. The Governor’s office expects 

OMB to provide guidance on how to report information on Iowa’s 

Recovery Act Web site, including the dashboard feature, and how to 

Page 156 GAO-09-580 Recovery Act
Appendix IX: Iowa 

forward that information to the national Recovery Act Web site. In 

addition, the state is developing a system that will allow information on 

Recovery Act funding that does not come through the state government, 

such as grants federal agencies provide directly to localities, to be 

available on the state’s Web site. 

On April 14, the Governor created the Iowa Accountability and 

Transparency Board—which has similarities to the federal Recovery 

Accountability and Transparency Board—to, among other duties, assess 

existing practices to prevent fraud, waste, and abuse; recommend 

opportunities for improvement in these areas; and oversee real-time audits 

and reporting. The board will be made up of 14 members. Voting members 

include the Governor or his designee, the State Auditor or his designee, 

the State Treasurer or his designee, three local government members, and 

three citizens. Nonvoting members of the board include the Director of 

Iowa’s Department of Management or his designee and four members of 

the state’s General Assembly. The Iowa Accountability and Transparency 

Board will recommend improvements and oversee the spending of 

Recovery Act funds. 

Iowa’s Accountable Government Act could serve as a mechanism to 

safeguard Recovery Act funding. Under this act, Iowa is required to 

provide for the efficient and effective use of state funds. Among other 

things, Iowa’s Accountable Government Act requires grant recipients to 

certify that information on internal controls relating to processes are 

available for inspection by the state agency, and the Legislative Services 

Agency if the recipients provide a service of more than $500,000 that is 

paid for with local, state, or federal funds. In addition, recipients must 

report on financial information, reportable conditions in internal control 

or material noncompliance, and corrective actions taken or planned in 

response to these reportable conditions. State agencies can enforce this 

monitoring by terminating payments and recovering any expended 

government funds. Furthermore, the Legislative Services Agency tracks 

personnel services contracts—that is, contracts for consulting services or 

temporary hires—within all state agencies (except the Iowa Department of 

Transportation and the Iowa Board of Regents) regardless of the value of 

the contract. State officials could require a similar certification and 

monitoring of Recovery Act funds. 

Iowa officials said that they recognize the need for greater oversight and 

proper management of programs in light of the infusion of significant 

funds under the Recovery Act. According to state officials, the Recovery 

Act did not provide funds for oversight. For example, one state agency 

Page 157 GAO-09-580 Recovery Act
Appendix IX: Iowa 

official in the Iowa Department of Education expressed concern about the 

adequacy of resources available for ensuring the appropriate use of the 

Recovery Act funds—an estimated $386 million from the state fiscal 

stabilization program for education—particularly because the agency 

anticipates further state-imposed staff reductions. Recognizing that the 

Recovery Act did not specifically provide funds for state oversight, the 

Governor proposed using $600,000 of the $86 million in fiscal stabilization 

funds in his 2010 budget to be made available for general government 

services to oversee Recovery Act funds. 

Iowa officials indicated that they are identifying ways to use the state’s 

internal audit functions to address Recovery Act-related issues. Iowa state 

audit officials indicated that state programs that receive significant 

Recovery Act funds while maintaining a high level of discretion over use of 

those funds—such as the state’s Medicaid program—present an increased 

risk to the state and will receive greater scrutiny during internal state 

audits. 

Iowa has just begun to consider how to measure outcomes and assess the 

effect of Recovery Act funding while it awaits federal guidance on a 

consistent approach to measuring the number of jobs created and 

sustained. State officials identified Iowa’s Accountable Government Act as 

a mechanism that has familiarized state agencies with results-oriented 

management and could help them assess the impact of Recovery Act 

funds. The Iowa Accountable Government Act requires each state agency 

to measure and monitor progress toward achieving program goals and 

report the progress toward those goals. In addition, the Iowa Department 

of Management, in consultation with the Legislative Services Agency, the 

State Auditor, and agencies, must periodically conduct performance 

reviews to assess the effectiveness of programs and make 

recommendations to improve agency performance. 

State Agencies Are 

Considering How to 

Assess the Effects of 

Recovery Act Funds 

State agency officials said that they expect to be able to track information 

on the number of jobs created while others said they need further 

guidance. For example, the Iowa Department of Transportation tracks the 

number of worker hours by highway project on the basis of contractor 

reports. An Iowa Transportation official said that this information may be 

used to calculate the number of jobs created. Iowa education officials, in 

contrast, may need more guidance. Iowa teachers are notified by school 

districts in mid-March whether their jobs are guaranteed for the next 

school year, pending passage of school budgets. Once the budgets are 

passed, teachers are asked to return for the following school year. 

Page 158 GAO-09-580 Recovery Act
Appendix IX: Iowa 

Officials said that they believed that federal guidance would help them 

determine how to characterize whether these jobs would be created or 

sustained. 

According to Iowa’s Department of Management, once it receives federal 

guidance on how to assess the impact of Recovery Act funding, it plans to 

disseminate the information across state agencies. It intends to measure 

the impact of Recovery Act funds through the state’s Recovery Act Web 

site and current tracking software. The Legislative Services Agency plans 

to work closely with the Department of Management to create outcome 

measures for the Recovery Act and report the results. Additionally, the 

Iowa Department of Economic Development has already established 

output and outcome measures for the Neighborhood Stabilization 

Program. 

Although most state agencies are waiting for federal guidance on how to 

assess results from Recovery Act funding, officials from some state 

agencies told us that they have accounting systems in place to measure 

programmatic outcomes. For example, the Iowa Department of Economic 

Development will monitor its Recovery Act funds by using systems 

adopted for tracking federal disaster recovery funds, including systems 

that the federal Department of Housing and Urban Development uses to 

monitor and report on funding spent to recover from natural disasters. The 

Iowa Department of Economic Development plans to put in place 

procedures for working with the State Auditor to leverage oversight of 

stimulus funds. Similar procedures have been established to oversee 

funding the state expects to receive to recover from disastrous floods in 

2008. The Department of Economic Development expects a 20-fold 

increase in Community Development Block Grants in 2009 to help the 

recovery effort from these floods. 

Officials noted the potential difficulty of measuring Recovery Act 

outcomes separately from other recovery initiatives, such as Iowa’s 

proposed I-JOBS program. While state officials said that they believe there 

are benefits to supplementing federal efforts, the state may find it difficult 

to separate outcomes among the recovery programs. 

Page 159 GAO-09-580 Recovery Act
Appendix IX: Iowa 

We provided the Governor of Iowa with a draft of this appendix on April 

17, 2009. The Director, Iowa Office of State-Federal Relations and the 

Director for Performance Results, Department of Management responded 

for the Governor on April 20, 2009. In general, officials agreed with our 

findings and conclusions. The officials also offered several technical 

suggestions that we have incorporated, as appropriate. 

Lisa Shames (202) 512-3841 or shamesl@gao.gov 

Belva Martin (202) 512-4285 or martinb@gao.gov 

Iowa’s Comments on 

This Summary 

GAO Contacts 

In addition to the individuals named above, Thomas Cook, Assistant 

Director; Christine Frye, Analyst-in-Charge; Alisa Beyninson; Gary Brown; 

Daniel Egan; Nancy Glover; Marietta Mayfield; Mark Ryan; and Carol 

Herrnstadt Shulman made key contributions to this appendix. 

Staff 

Acknowledgments 

Page 160 GAO-09-580 Recovery Act
Appendix X: Massachusetts 

Page 161 GAO-09-580 

Appendix X: Massachusetts 

Use of funds: An estimated 90 percent of fiscal year 2009 Recovery Act 

funding provided to states and localities will be for health, transportation, 

and education programs. The three largest programs in these categories 

are the Medicaid Federal Medical Assistance Percentage (FMAP) awards, 

the State Fiscal Stabilization Fund, and highways. 

Overview 

9 Medicaid Federal Medical Assistance Percentage Funds

• As of April 1, 2009, Centers for Medicare & Medicaid Services (CMS) had made about $1.2 billion in 

increased FMAP grant awards to Massachusetts. 

• As of April 1, 2009, the state had drawn down about $273 million, or 23 percent, of its initial increased FMAP 

grant awards. 

• Officials plan to use funds made available as a result of the increased FMAP to avoid additional cuts in 

health care and social service programs, restore certain provider rates, and provide caseload mitigation for 

Medicaid and Commonwealth Care (an expansion of its Medicaid program). 

9 Transportation—Highway Infrastructure Investment 

• Massachusetts was apportioned about $425 million for highway infrastructure investment as of April 16, 

2009, by the U.S. Department of Transportation. 

• As of April 16, 2009, the U.S. Department of Transportation had obligated about $63.9 million for 19 projects 

in Massachusetts. 

• As of April 4, 2009, the Massachusetts Executive Office of Transportation had advertised 19 projects for 

competitive bids totaling more than $62 million; the earliest announcements were scheduled to close on 

April 14, 2009, and work on the projects is expected to begin this spring. 

• These projects include activities such as road repaving and sign replacement. 

• Massachusetts will request reimbursement from the U.S. Department of Transportation as project phases 

are completed by contractors. 

9 U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) 

• Massachusetts was allocated about $666 million from the initial release of these funds on April 2, 2009, by 

the U.S. Department of Education. 

• Before receiving the funds, states are required to submit an application that provides several assurances to 

the Department of Education. These include assurances that they will meet maintenance of effort 

requirements (or that they will be able to comply with waiver provisions) and that they will implement 

strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing 

inequities in the distribution of highly qualified teachers, and improving the quality of state academic 

standards and assessments. In early April 2009, state officials reported that the commonwealth will file its 

application for this money around April 15, 2009, when it would better understand the state fiscal year 2010 

budget situation. 

• The Governor has announced that he intends to provide funds to 166 school districts to help them increase 

spending to prior levels and avoid program cuts and teacher layoffs in fiscal year 2010. He also intends to 

use some of these funds at public colleges and universities to reduce layoffs, program cuts, and student fee 

hikes.

 Recovery Act 
Appendix X: Massachusetts 

The commonwealth of Massachusetts is also receiving additional Recovery 

Act funds under programs, such as Title I, Part A of the Elementary and 

Secondary Education Act of 1965 (ESEA, commonly known as No Child 

Left Behind); the Individuals with Disabilities Education Act, Part B 

(IDEA); and two programs of the U.S. Department of Agriculture—one for 

administration of the Temporary Food Assistance Program and one for 

competitive equipment grants targeted to low-income districts from the 

National School Lunch Program. The status of plans for using Recovery 

Act funds is discussed throughout this appendix. 

Safeguarding and transparency: Task forces, established by the 

Governor, encouraged the state to adopt accountability and transparency 

measures. Further, Massachusetts is expanding its accounting system to 

track funds flowing through the state government. Although 

Massachusetts has plans to publicly report its Recovery Act spending, 

officials have said that the state may not be aware of all funds sent directly 

to other entities, such as municipalities and independent authorities. The 

commonwealth’s oversight community has identified situations that raise 

concerns about the adequacy of safeguards, such as funding for larger 

projects and new programs, but is waiting for further information on what 

specific programs will receive funding before developing plans to address 

those concerns. 

Assessing the effects of spending: Massachusetts agencies are in the 

early stages of developing plans to assess the effects of Recovery Act 

spending. According to state officials, they are awaiting further guidance 

from the federal government, particularly related to measuring job 

creation. 

Massachusetts has begun to use some of its Recovery Act funds, as 

follows. 

Increased Federal Medical Assistance Percentage Funds: Medicaid 

is a joint federal-state program that finances health care for certain 

categories of low-income individuals, including children, families, persons 

with disabilities, and persons who are elderly. The federal government 

matches state spending for Medicaid services according to a formula 

based on each state’s per capita income in relation to the national average 

per capita income. The amount of federal assistance states receive for 

Medicaid service expenditures is known as the Federal Medical Assistance 

Percentage (FMAP). Across states, the FMAP may range from 50 percent 

to no more than 83 percent, with poorer states receiving a higher federal 

Massachusetts 

Beginning to Use 

Recovery Funds 

Page 162 GAO-09-580 Recovery Act
Appendix X: Massachusetts 

matching rate than wealthier states. The Recovery Act provides eligible 

states with an increased FMAP for 27 months between October 1, 2008, 

and December 31, 2010.1

 On February 25, 2009, the Centers for Medicare & 

Medicaid Services (CMS) made increased FMAP grant awards to states, 

and states may retroactively claim reimbursement for expenditures that 

occurred prior to the effective date of the Recovery Act.2

 Generally, for 

fiscal year 2009 through the first quarter of fiscal year 2011, the increased 

FMAP, which is calculated on a quarterly basis, provides for (1) the 

maintenance of states’ prior year FMAPs; (2) a general across-the-board 

increase of 6.2 percentage points in states’ FMAPs; and (3) a further 

increase to the FMAPs for those states that have a qualifying increase in 

unemployment rates. The increased FMAP available under the Recovery 

Act are for state expenditures for Medicaid services. However, the receipt 

of the increased FMAP may reduce the funds that states must use for their 

Medicaid programs, and states have reported using these available funds 

for a variety of purposes. 

Under the Recovery Act, the commonwealth’s FMAP will increase to at 

least 56.2 percent, up from 50 percent. As of April 1, 2009, Massachusetts 

had drawn down $272.6 million, or 23 percent, of its increased FMAP grant 

awards. In fiscal years 2009 and 2010, officials plan to use a significant 

portion of funds made available as a result of the increased FMAP funds to 

avoid additional cuts in health care and social service programs, restore 

certain provider rates, and provide caseload mitigation for Medicaid and 

Commonwealth Care. 

Transportation—Highway Infrastructure Investment: The Recovery 

Act provides additional funds for highway infrastructure investment using 

the rules and structure of the existing Federal-Aid Highway Surface 

Transportation Program, which apportions money to states to construct 

and maintain eligible highways, and for other surface transportation 

projects. States must follow the requirements for the existing programs, 

and in addition, the governor must certify that the state will maintain its 

current level of transportation spending, and the governor or other 

appropriate chief executive must certify that the state or local government 

to which funds have been made available has completed all necessary 

 

1

Recovery Act, §5001. 

2

Although the effective date of the Recovery Act was February 17, 2009, states generally 

may claim reimbursement for the increased FMAP for Medicaid service expenditures made 

on or after October 1, 2008. 

Page 163 GAO-09-580 Recovery Act
Appendix X: Massachusetts 

legal reviews and determined that the projects are an appropriate use of 

taxpayer funds. Massachusetts provided these certifications, but 

conditioned the state’s level of funding for these programs, noting that this 

spending will be financed through issuing bonds and may need to be 

decreased, depending on the state of the economy. The commonwealth’s 

debt affordability policy will determine the amount of debt that can be 

issued.3

As of April 4, 2009, the Massachusetts Executive Office of Transportation 

had advertised 19 projects for competitive bid totaling more than $62 

million. These projects included, for example, replacing traffic and guide 

signs along sections of Route I-95 and paving Route 6 in southeastern 

Massachusetts. As of April 16, 2009, the U.S. Department of Transportation 

had obligated about $63.9 million for 19 projects in Massachusetts.

4

Massachusetts will request reimbursement from the U.S. Department of 

Transportation as project phases are completed by contractors. 

U.S. Department of Education State Fiscal Stabilization Fund: The 

Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be 

administered by the U.S. Department of Education (Education). The SFSF 

is intended to help states avoid reductions in education and other essential 

public services. The initial award of SFSF funding requires each state to 

submit an application to Education that assures, among other things, it 

will take actions to meet certain educational requirements, such as 

increasing teacher effectiveness and addressing inequities in the 

distribution of highly qualified teachers. 

Massachusetts’ initial SFSF allocation is $666,152,997. In early April 2009, 

state officials reported that the state would file its application for this 

money around April 15, 2009, when it would better understand the state’s 

revenue projections and after the Massachusetts House issues its fiscal 

year 2010 budget proposal. In March 2009, the Governor of Massachusetts 

had announced he intended to fund $168 million in SFSF to 166 school 

 

3

A number of states qualified their certifications in various ways. The legal effect of such 

qualifications is currently being examined by the U.S. Department of Transportation and 

has not been reviewed by GAO. 

4

For federal-aid highway projects, the Federal Highway Administration of the U.S. 

Department of Transportation has interpreted the term obligation of funds to mean the 

federal government’s contractual commitment to pay for the federal share of a project. This 

commitment occurs at the time the federal government approves a project agreement and 

the project agreement is executed. 

Page 164 GAO-09-580 Recovery Act
Appendix X: Massachusetts 

districts to help them increase funding and avoid program cuts and 

teacher layoffs in fiscal year 2010. He also announced he intended to 

provide $162 million in SFSF to public university and college campus 

budgets to reduce layoffs, program cuts, and student fee hikes. 

Massachusetts’ Planning 

Process Has Set the Stage 

for Decisions on Spending 

of Recovery Act Funds 

Massachusetts officials began preparing for receipt of federal Recovery 

Act funds prior to enactment of the act. Faced with deteriorating revenue 

projections, the potential for expanding caseloads in some safety net 

programs, such as Medicaid, and a requirement to balance the budget, 

Massachusetts officials believe that funds made available as a result of the 

Recovery Act are critical to addressing the commonwealth’s immediate 

fiscal pressures. State officials envision a sizable portion of the stateprojected $8.7 billion in Recovery Act funds (over 2 years) going directly 

toward budget stabilization. According to state officials, as of April 2009, 

the state is addressing a budget gap of approximately $3.0 billion. This gap 

is driven largely by lower-than-anticipated revenues. State fiscal year 2009 

revenue is significantly lower than budgeted and has left the state unable 

to support previously approved spending levels, and revenues are 

expected to fall short of planned expenditures for 2010, as well. 

In December 2008, anticipating a major infusion of federal funding, 

especially for infrastructure projects, the Governor established task forces 

to identify “shovel-ready” projects and address obstacles to project 

implementation. Ten task forces were created—seven focused on specific 

types of infrastructure investment, such as transportation, energy, and 

information technology, and three focused on crosscutting issues like 

workforce mobilization and procurement. In conducting their work, the 

task forces were guided by several principles, including investing for the 

long term and limiting investments to those that would not add to the 

state’s operating budget. 

Although other program areas, such as Medicaid and education, likely will 

receive more funding than will infrastructure, the work of the task forces 

was influential. The task forces developed work plans for projects that 

could be implemented using the anticipated funding and were 

instrumental in the appointment of a director of infrastructure investment 

(a “recovery czar”) to coordinate and monitor state agencies’ and 

municipalities’ implementation of projects. The task forces also 

encouraged the creation of a central Web site to enhance transparency, 

called for the involvement of the oversight community in contract 

oversight to ensure accountability, and prompted the introduction of 

legislation (now being considered by the legislature) intended to ease 

Page 165 GAO-09-580 Recovery Act
Appendix X: Massachusetts 

some of the procurement and contracting processes that might delay quick 

implementation of construction projects. The task force efforts helped 

prepare the state to submit several certifications required under the 

Recovery Act to the federal government. In late February, the Governor 

certified that the state would request and use all funds provided by the act. 

Additional certifications for transportation and energy have also been 

submitted. 

Revenue from the state’s “rainy-day” fund,5

 a reserve fund built up during 

more favorable economic conditions to be used during difficult economic 

times, will give the commonwealth additional flexibility to avoid some cuts 

in fiscal year 2010. The commonwealth’s budget already calls for using 

about $925 million from the rainy-day fund in fiscal year 2009, and the 

Governor’s proposed 2010 budget calls for using about $489 million of the 

rainy-day funds. According to budget documents, the combination of funds 

made available as a result of the increased FMAP and rainy-day funds will 

help the state avoid cuts in several areas, including health care, education, 

and public safety. 

State documents suggest that officials are concerned about using one-time 

federal and rainy-day funds to make longer-term operational and program 

commitments that could require additional revenue in the future to avoid 

job and service cuts.6

 State officials note that using temporary funds, such 

as Recovery Act and rainy-day funds, make budgeting uncertain and 

require strategic fiscal management. 

 

5

Massachusetts officials refer to rainy-day funds as stabilization funds. However, to avoid 

confusion with the Recovery Act’s State Fiscal Stabilization Fund, we will use rainy-day 

funds. 

6

The Governor’s budget proposal for fiscal year 2010 includes several revenue 

enhancement proposals, including increased meals and hotel taxes and eliminating a sales 

tax exemption on alcohol, candy, and sweetened beverages. 

Page 166 GAO-09-580 Recovery Act
Appendix X: Massachusetts 

Massachusetts Has a 

System to Track Recovery 

Act Funds but Cannot 

Ensure Local Entities’ 

Ability to Meet Recovery 

Act Reporting 

Requirements 

The commonwealth is expanding the use of its existing accounting system 

to track all Recovery Act funds that will flow through the state 

government. New codes are being added to the existing system in order to 

segregate and track the Recovery Act funds. The Office of the Comptroller 

has issued guidance on the required use of these newly created account 

codes for all Recovery Act transactions and has stipulated that all the 

Recovery Act-funded contracts include provisions to segregate Recovery 

Act money. While these changes have been made, officials were still 

testing the system and developing reporting capabilities as of April 13, 

2009. 

The portion of Recovery Act funds going directly to recipients other than 

Massachusetts government agencies, such as independent state 

authorities, local governments, or other entities, will not be tracked 

through the state comptroller’s office. While state officials acknowledged 

that the commonwealth lacks authority to ensure adequate tracking of 

these funds, they are concerned about the ability of smaller entities to 

manage Recovery Act funds—particularly municipalities that traditionally 

do not receive federal funds and that are not familiar with Massachusetts’ 

tracking and procurement procedures, as well as recipients receiving 

significant increases in federal funds. In order to address this weakness, 

the administration introduced emergency legislation that, according to 

state officials, includes a provision requiring all entities within 

Massachusetts that receive Recovery Act money to provide information to 

the state on their use of Recovery Act funds. Alternatively, the two large 

nonstate government entities we spoke with to date—the city of Boston 

and the Massachusetts Bay Transportation Authority (MBTA, a quasiindependent authority responsible for metropolitan Boston’s transit 

system)—believe that their current systems, with some modifications, will 

allow them to meet Recovery Act requirements. For example, the city of 

Boston hosted the Democratic National Convention in 2004, and city 

officials said that their system was then capable of segregating and 

tracking a sudden influx of one-time funds. 

State Agencies Have Made 

Some Spending Decisions 

Some state programs have received actual allocations of federal Recovery 

Act funds, while for other state programs, officials have developed 

spending plans based on preliminary figures provided by federal 

departments. The U.S. Department of Transportation, through the Federal 

Transit Administration, published apportionment amounts for the Transit 

Page 167 GAO-09-580 Recovery Act
Appendix X: Massachusetts 

Capital Assistance and the Fixed Guidance Infrastructure Investment 

Programs on March 5, 2009.7

 The Massachusetts Executive Office of 

Transportation (EOT) and the MBTA have been able to develop spending 

plans with a degree of certainty and EOT has advertised requests for bids 

on 19 projects totaling about $62 million. Other program officials have had 

to develop plans with preliminary estimates. For example, as of mid-March 

2009, state officials from the Department of Elementary and Secondary 

Education said that local education officials reported that one of their 

biggest challenges was a lack of reliable information on federal Recovery 

Act allocations that they could use to plan their budgets. However, on 

April 1, 2009, Education announced the release of state allocations of 

ESEA Title I and IDEA funds, along with more detailed guidance for these 

programs. 

Some state and local officials said that while clear, specific guidance takes 

time to develop, the lack of guidance from federal agencies had limited 

their ability to make spending decisions. Officials from some of the entities 

we spoke with, including the state Department of Elementary and 

Secondary Education, the Department of Housing and Community 

Development, and the city of Boston, said they are comfortable making 

spending decisions with money slated to flow through pre-existing grant 

programs. However, the lack of specific guidance for federal Recovery Act 

funds for some programs has presented challenges, according to some 

state officials. An area of significant challenge for education officials 

concerns how to use federal Recovery Act funding to supplement state 

and local revenues for existing educational programs, rather than use 

these funds to supplant state and local revenue. State education officials 

said they anticipated that to prove funds have not been supplanted will be 

very challenging for local school districts and have requested additional 

guidance from the U.S. Department of Education to help them make better 

decisions about spending priorities. For example, state housing officials 

are seeking clarification from the U.S. Department of Housing and Urban 

Development (HUD) on whether the Tax Credit Assistance Program can 

be used to provide loans rather than grants to subrecipients, and state 

transportation officials are waiting for guidance on whether competitive 

grants can be used for “signature projects.” 

Some state agencies told us they anticipate they will be able to manage 

additional Recovery Act funding coming through well-established grant 

 

7

Federal Register / Vol. 74, No. 42 / Thursday, March 5, 2009 / Notices. 

Page 168 GAO-09-580 Recovery Act
Appendix X: Massachusetts 

programs with existing agency resources but, in some cases, will hire 

additional staff to manage Recovery Act programs. For example, the 

state’s Department of Housing and Community Development (DHCD) 

reported it is expecting to receive significant Recovery Act funds and has 

plans to hire staff to help manage the programs. DHCD has wellestablished methods for managing expenditures and accomplishments, so 

agency officials believe they can effectively administer Recovery Act funds 

using existing structures. MBTA officials told us that given the enhanced 

transparency and reporting requirements associated with an additional 

$230 million in project spending, they anticipate that managing these 

Recovery Act projects will present some new challenges and will require 

that they hire a project management firm. Finally, a Department of 

Elementary and Secondary Education official told us they anticipate a 

need to hire additional staff, for a limited term, to manage competitive 

grant programs funded under the Recovery Act. 

The commonwealth has entities responsible for monitoring, tracking, and 

overseeing financial expenditures. The comptroller, who is responsible for 

implementing accounting policies and practices, oversees fiscal 

management functions, including internal controls. The State Auditor 

audits the administration and expenditure of state funds, ands partners 

with an accounting firm to perform the state’s annual Single Audit—a 

comprehensive review of all state agencies’ accounts and activities. The 

state Inspector General, with a broad mandate to prevent fraud, waste, and 

abuse, conducts operational and management reviews and has authority to 

examine independent authorities and municipalities. The Attorney General 

also plays a role, including preventing and prosecuting fraud. Further, 

according to state officials, some state departments have internal audit 

groups that focus on programmatic issues. In addition to these entities, the 

commonwealth has laws that provide further safeguards. 

Plans for Safeguards 

and Controls Being 

Developed at State 

Level 

Potential Areas of 

Vulnerability with 

Massachusetts Recovery 

Act Funds 

Past experience has shown financial management vulnerability involving 

organizations that will receive funds under the Recovery Act. The Office of 

the Attorney General has documented improper Medicaid payments and 

has concerns regarding the funds from the Recovery Act going to the 

Medicaid program. They plan to take a risk-based approach, but are 

waiting for firm information on which programs and recipients will receive 

Recovery Act funds. The Inspector General stated that his office will need 

to emphasize oversight of larger procurement projects, which may be 

vulnerable. In addition, officials pointed to the multibillion-dollar cost 

overruns on a federally funded highway project in Boston (the “Big Dig”) 

Page 169 GAO-09-580 Recovery Act
Appendix X: Massachusetts 

as an example of what can go wrong when a large project lacks sufficient 

oversight. The Massachusetts fiscal year 2007 Single Audit report 

identified vulnerabilities that included insufficient monitoring of 

subrecipients of federal grants to the state. For example, the 

Massachusetts Department of Early Education and Care programs, which 

will receive Recovery Act funds, did not conduct any on-site monitoring of 

the Child Care Resource and Referral Agencies (subrecipients), which 

received approximately $11 million in child care development funds and 

$122 million in Temporary Assistance for Needy Families funds. Since that 

audit, the department has implemented numerous improvements and 

controls to address these issues. The State Auditor has also identified 

financial management concerns with nonprofit entities that receive federal 

funds and will receive additional funds under the Recovery Act. 

In addition, oversight officials noted some more general situations raising 

concerns. For example, some oversight officials identified new programs 

as potentially risky; however, new programs would have little impact on 

the fiscal year 2009 Single Audit report. New programs would probably be 

included on the fiscal year 2010 Single Audit report, which typically comes 

out some months after the end of the state’s fiscal year. Oversight officials 

also expressed concern about programs receiving large increases under 

the Recovery Act, and recipients that do not typically receive federal 

funds—and therefore may not have systems in place to track them—are 

also at risk. 

In order to better understand areas of potential vulnerability, the Governor 

asked all commonwealth agencies in late January 2009 to conduct selfassessments identifying existing oversight and accountability mechanisms. 

Most agencies submitted reports, which included varying levels of detail. 

The reports we reviewed showed that the agencies are generally 

comfortable with the mechanisms currently in place. One report expressed 

a need for additional resources to oversee any new funding. The selfassessments were shared with the State Auditor, Inspector General, and 

Comptroller’s offices. The State Auditor has provided comments to the 

Governor’s office, noting that while the self-assessments indicated existing 

control mechanisms in place to manage, account for, and monitor the 

spending of the Recovery Act funds, he expressed two areas of concern. 

He was concerned about tracking funds that bypass the state government 

and, based on past audits, about subgrantee monitoring. The Inspector 

General plans to provide comments on the needs assessments to the 

Governor’s office by the end of April. The Comptroller is using the 

assessments to monitor agencies’ controls over Recovery Act funds on an 

ongoing basis. 

Page 170 GAO-09-580 Recovery Act
Appendix X: Massachusetts 

While the commonwealth’s oversight community has come together to 

discuss issues such as avoiding areas of duplication and preventing 

oversight gaps, as a whole, it has yet to develop a coordinated plan 

describing which programs and departments it will focus on or how it will 

conduct critically needed oversight. Both the Inspector General and 

Attorney General recognize the need for training for local officials, 

specifically related to procurement. The Inspector General stated that his 

department would continue its training of local procurement officials and 

announced in its March 2009 Procurement Bulletin that his office should 

be contacted regarding any questions on procurement or Recovery Act 

expenditures. While the Inspector General identified the need for 

increased oversight, particularly related to procurements, oversight 

officials generally stated that once they determine the total distribution of 

Recovery Act money, they then would begin selecting areas for review. 

The Attorney General has convened a task force to coordinate on 

oversight issues with the federal and state oversight community. 

Plans for Oversight of 

Massachusetts’ Recovery 

Act Funds 

The state legislature will also provide oversight of the Recovery Act funds 

through the newly created Joint Committee on Federal Stimulus Oversight. 

This committee has already held three hearings with plans to hold more 

regarding the oversight of Recovery Act spending. According to committee 

members, the impetus for creating this committee was Massachusetts’ 

failure to control fraud, waste, and abuse in the federally funded “Big Dig” 

construction project. The purpose of the joint committee is to ensure 

compliance with federal regulations and to review current state laws, 

regulations, and policies to ensure they allow the commonwealth to access 

Recovery Act funding and streamline processes to quickly stimulate the 

economy. In addition to the co-chairmen having the capability to subpoena 

individuals, a co-chairman said that the Joint Committee has broad 

authority and its jurisdiction extends to wherever public federal, state, and 

local money is spent.8

Massachusetts’ administration has emphasized transparency of Recovery 

Act spending and identified the state recovery Web site as a transparency 

tool. In addition, the Web site has links to planning documents, guidance, 

and intended uses of Recovery Act money, and officials are planning to 

enhance the Web site with a goal of making it the central portal for all 

 

8

The Joint Committee’s jurisdiction covers wherever federal, state, and local money is 

spent within the commonwealth with the exception of the spending by the Massachusetts 

legislature. 

Page 171 GAO-09-580 Recovery Act
Appendix X: Massachusetts 

Recovery Act information and reporting. Their goal is to include the ability 

to track Recovery Act money by town and by project, as well as to include 

each project’s budget, schedule, awarded contracts (with contract details), 

and its on-time status. In addition, the public can send e-mails regarding 

stimulus issues to this site and the Recovery czar’s staff is responsible for 

replying. 

Availability of Resources 

for Oversight 

Several Massachusetts officials expressed concern that the Recovery Act 

did not provide funding specifically for state oversight activities, despite 

the importance of ensuring that Recovery Act funds are used appropriately 

and effectively. In addition, the task forces the Governor convened in 

December 2008 concluded that it is critical the Inspector General and 

State Auditor have resources to audit Recovery Act contracts and 

management of Recovery Act funds, as well as recommended that the 

Attorney General’s office should be provided with the resources to 

promptly and effectively pursue fraud and abuse. 

However, due to the present economic conditions, state officials said the 

Massachusetts oversight community is facing budget cuts of about 10 

percent at a time when increased oversight and accountability is critically 

needed. To illustrate the impact of the impending budget situation, the 

Inspector General told us that his department does not have the resources 

to conduct any additional oversight related to Recovery Act funds. This 

significantly impacts the Inspector General’s capacity to conduct oversight 

since the budget of the Inspector General’s office is almost entirely 

composed of salaries, and any cuts in funding would result in fewer staff 

available to conduct oversight. In addition, the State Auditor described 

how his office has already furloughed staff for 6 days and anticipates 

further layoffs before the end of fiscal year 2009. Similar to the Inspector 

General’s office, 94 percent of his department’s budget is for labor and any 

cuts in funding generally result in cuts in staff. 

Some of these vulnerabilities may be mitigated by emergency legislation 

that the Governor recently filed, which included a provision to allow the 

pooling of administrative costs. This new legislation may make some 

Recovery Act funds available to the audit community for oversight, as long 

as federal law permits. Meanwhile, officials stated they are moving 

forward with developing and implementing enhancements to the 

Massachusetts recovery Web site, yet they are doing so without any 

Recovery Act funds. One senior state official stated she did not believe the 

Recovery Act provided funding for any state-level centralized information 

technology planning or development but noted that the Recovery Act 

Page 172 GAO-09-580 Recovery Act
Appendix X: Massachusetts 

provided a considerable level of funding for information technology 

development at the program level. 

Although they are awaiting federal guidance on how to assess the impact 

of the Recovery Act, Massachusetts agencies are in the process of 

considering how to assess the number of jobs that will be created. For 

example, officials from DHCD are examining different methodologies for 

identifying job creation, while the city of Boston is using an economic 

forecasting model to evaluate job creation and other economic effects of 

projects. In addition, DHCD officials told us that they asked Tax Credit 

Assistance Program project managers to report estimates on the number 

of jobs, by trade, that will be needed to complete projects and are also 

looking for a reliable economic forecasting model to use for this reporting 

objective. DHCD officials also said they are waiting for guidance from 

HUD on how to calculate and document job creation for programs funded 

under the Neighborhood Stabilization Program. DHCD officials said they 

plan to use a pre-existing process developed for community action 

programs to collect information on job creation for projects funded by the 

Weatherization Program. MBTA officials said they feel confident they can 

estimate the number of new jobs created using Recovery Act funds; 

however, they are waiting for specific guidance from the U.S. Federal 

Transit Administration or the Office of Management and Budget on what 

to include in job creation calculations, as well as how to track indirect 

(jobs created to manufacture goods used in the project) and leveraged 

jobs (jobs created by new building projects that result from transportation 

improvements). MBTA officials also said they are looking to outsource 

some of the required oversight, including documenting job creation. 

Finally, state transportation officials are concerned that incentives may 

encourage contractors to overinflate the number of jobs created by their 

projects. They told us that, in the absence of specific guidance on how to 

account for job creation, some smaller contractors might overreport the 

number of jobs created. Furthermore, the cold weather conditions in the 

commonwealth can prohibit construction from continuing during the 

winter months. Officials suggested the pressure to show that the projects 

are contributing to the recovery may encourage some contractors to 

inflate the number of jobs created in some months when weather 

conditions decrease employment. 

Plans to Assess 

Impact of Recovery 

Act Funds Are in 

Initial Stages 

Page 173 GAO-09-580 Recovery Act
Appendix X: Massachusetts 

We provided the Governor of Massachusetts and representatives of 

oversight agencies with a draft of this appendix on April 17, 2009, and 

representatives from the Governor’s office and the oversight agencies 

responded that day. In general, they agreed with our draft and provided 

some clarifying information, which we incorporated. The officials also 

provided technical suggestions that were incorporated, as appropriate. 

Stanley J. Czerwinski, (202) 512-6806 or czerwinskis@gao.gov 

Denise de Bellerive Hunter, (617) 788-0575 or hunterd@gao.gov 

In addition to the contacts named above, Carol L. Patey, Assistant 

Director; Ramona L. Burton, analyst-in-charge; Kathleen M. Drennan; 

Salvatore F. Sorbello, Jr.; and Robert D. Yetvin made major contributions 

to this report. 

Massachusetts’s 

Comments on This 

Summary 

GAO Contacts 

Staff 

Acknowledgments 

Page 174 GAO-09-580 Recovery Act
Appendix XI: Michigan 

Page 175 GAO-09-580 

Appendix XI: Michigan 

Use of funds: In estimated 90 percent of fiscal year 2009 Recovery Act 

funding provided to states and localities nationwide will be for health, 

transportation, and education programs. The three largest programs in 

these categories are the Medicaid Federal Medical Assistance percentage 

(FMAP) awards, the State Fiscal Stabilization Fund, and highways. 

Overview 

9 Medicaid Federal Medical Assistance Percentage (FMAP) Funds 

• As of April 3, 2009, the Centers for Medicare & Medicaid Services (CMS) had made about $701 million in 

increased FMAP grant awards to Michigan. 

• From January 2008 to January 2009, the state’s Medicaid enrollment increased from 1,547,259 to 1,624,245 

with the highest share of increased enrollment attributable to two population groups: (1) children and 

families and (2) disabled individuals. 

• As of April 1, 2009, Michigan has drawn down about $463 million—which represents funds drawn down for 

two quarters—or 66.1 percent of its initial increased FMAP grant awards. 

• Officials plan to use funds made available as a result of the increased FMAP to cover increased caseloads, 

offset general fund shortfalls, ensure compliance with prompt payment provisions, maintain existing 

populations of Medicaid recipients, avoid eligibility restrictions, increase provider payments, maintain 

current levels of benefits, and avoid benefit cuts. 

9 Transportation—Highway Infrastructure Investment 

• Michigan was apportioned about $847 million for highway infrastructure investment on March 2, 2009, by 

the U.S. Department of Transportation. 

• As of April 16, 2009 the U.S. Department of Transportation had obligated $110.8 million for 27 Michigan 

projects. 

• As of April 13, 2009, the Michigan Department of Transportation had advertised 16 projects for competitive 

bid totaling more than $41 million. These projects included resurfacing I-196 in Grand Rapids and M-13 in 

Genesee County. 

9 U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) 

• Michigan was allocated about $1.1 billion from the U.S. Department of Education’s initial release of these 

funds on April 2, 2009. 

• Before receiving the funds, states are required to submit an application that provides several assurances to 

the Department of Education. These include assurances that they will meet maintenance of effort 

requirements (or that they will be able to comply with waiver provisions) and that they will implement 

strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing 

inequities in the distribution of highly qualified teachers, and improving the quality of state academic 

standards and assessments. Michigan plans to submit its application on or after May 15, 2009, once it 

completes its review of all program priorities for which it intends to use stabilization funds. 

• Michigan Department of Education officials told us they consulted with local education agencies to develop 

plans and establish priorities for the use of State Fiscal Stabilization Fund funds that were consistent with 

the state’s priorities, policies and programs, such as increasing support for the lowest performing schools.

 Recovery Act 
Appendix XI: Michigan 

Michigan is receiving additional Recovery Act funds under other 

programs, such as programs under Title I, Part A of the Elementary and 

Secondary Education Act of 1965 (ESEA) (commonly known as No Child 

Left Behind); the Individuals with Disabilities Education Act (IDEA), Part 

B; Federal Transit Administration Transit Grants; and the Edward Byrne 

Justice Assistance Grants. These are described in this appendix. 

Safeguarding and transparency: All of the state and local agency 

officials we interviewed indicated they plan to use existing systems to 

separately identify and track Recovery Act funding. State officials were 

confident that their existing processes, modified to incorporate specific 

Recovery Act codes, would be sufficient to allow them to separately 

account for funds as required by the act. However, officials were uncertain 

whether local entities have the capacity to similarly track federal funds 

that go directly to local entities rather than through the state. 

Michigan also plans to continue using existing internal controls and 

processes to provide assurances over Recovery Act spending. Michigan 

has established a new Recovery Office to, among other things, provide 

oversight and enhance transparency over the availability and use of funds 

and maintain a Web site on Michigan’s Recovery and Reinvestment Plan 

(www.michigan.gov/recovery). Michigan’s existing processes also include 

ongoing risk-based self-assessments of controls by major state agencies 

that are next due on May 1, 2009. However, these assessments are limited 

to state agencies. In addition, the state Auditor General has identified 

material weaknesses in two key departments that have received Recovery 

Act funds—Michigan’s Department of Human Services and Department of 

Community Health. The state Auditor General plans to continue working 

on a biennial basis, reviewing and reporting on about one-half of the state 

agencies each year. The state Auditor General’s oversight responsibilities 

do not include efforts to ensure accountability over federal funds going 

directly to localities. For example, the U.S. Department of Education’s 

Inspector General identified weak internal controls that resulted in 

problems in how the city of Detroit school district used federal funds for 

programs under Tile I of ESEA.1

 Specifically, its July 2008 report found 

that Detroit Public Schools, among other things, did not always properly 

support compensation charges against ESEA Title I funds. Detroit Public 

 

1

U.S. Department of Education, Office of Inspector General, The School District of the City 

of Detroit’s Use of Title I, Part A Funds Under the No Child Left Behind Act of 2001, EDOIG/A05H0010 (July 2008). 

Page 176 GAO-09-580 Recovery Act
Appendix XI: Michigan 

Schools officials told us that in the spring of 2009 they hired new staff to 

develop corrective action plans for addressing existing internal control 

weaknesses. 

Assessing the effects of spending: Michigan officials have some 

experience in measuring the impact of funds in creating jobs and 

promoting economic growth. The state plans to rely on experts in 

economic modeling. The state’s financial management system, however, is 

old and does not have the capability to track impacts, so the state will 

have to rely upon its agencies for this. State officials also told us that the 

state information technology group will implement a database system at 

the end of April 2009 that will support its financial management system in 

recording the impact of Recovery Act funds. 

Faced with the highest unemployment rate of all the states (as of February 

2009), heavy reliance on the deteriorating car manufacturing sector, and 

declining tax revenue, Michigan officials plan to use Recovery Act funds to 

address the state’s immediate fiscal needs as well as to help develop longterm capacity. From an employment peak in June 2000, Michigan had lost 

about 520,000 jobs as of December 2008. Unemployment sharply increased 

from 7.4 percent in February 2008 to 12 percent in February 2009, and 

several local communities had even higher rates. For example, since 

domestic auto manufacturing dominates Detroit’s economy, the 

unemployment levels in the city have been consistently higher than in the 

rest of the state. As of December 2008, the city’s jobless rate was 18.6 

percent and according to Detroit officials reached nearly 22.8 percent in 

March 2009. To help address these issues, prior to the enactment of the 

Recovery Act on February 17, 2009, the federal government provided $23.7 

billion to two auto companies and two financing companies operating in 

Michigan as part of the Troubled Asset Relief Program.2

Michigan Beginning to 

Use Recovery Act 

Funds 

Michigan has been experiencing declines in state revenues. In January 

2009, Michigan reported an expected budget gap of approximately $1.4 

billion for fiscal year 2010. In response, the Governor has proposed budget 

cuts for fiscal year 2010 of $670 million in key state programs such as 

public education, corrections, and community health; $232 million in 

 

2

U.S. Government Accountability Office, Troubled Asset Relief Program: Status of Efforts 

to Address Transparency and Accountability Issues, GAO-09-474T (Washington, D.C.: 

March 11, 2009). 

Page 177 GAO-09-580 Recovery Act
Appendix XI: Michigan 

revenue enhancements, such as tax increases and elimination of tax 

exemptions; and using funds made available as a result of $500 million in 

increased FMAP funds to offset the budget gap. 

In March 2009, Michigan’s legislature estimated that the state would 

receive approximately $7 billion in Recovery Act funding. These estimates 

show that the majority of Recovery Act funds would support education (36 

percent), Medicaid (32 percent), and transportation (14 percent), with 

smaller amounts of funding available for other programs (18 percent). 

Michigan has begun to use some of its Recovery Act funds, as follows. 

Increased Federal Medical Assistance Percentage Funds: Medicaid is 

a joint federal-state program that finances health care for certain 

categories of low-income individuals, including children, families, persons 

with disabilities, and persons who are elderly. The federal government 

matches state spending for Medicaid services according to a formula 

based on each state’s per capita income in relation to the national average 

per capita income. The amount of federal assistance states receive for 

Medicaid service expenditures is known as the Federal Medical Assistance 

Percentage (FMAP). Across states, the FMAP may range from 50 percent 

to no more than 83 percent, with poorer states receiving a higher federal 

matching rate than wealthier states. The Recovery Act provides eligible 

states with an increased FMAP for 27 months between October 1, 2008, 

and December 31, 2010.3

 On February 25, 2009, the Centers for Medicare & 

Medicaid Services (CMS) made increased FMAP grant awards to states, 

and states may retroactively claim reimbursement for expenditures that 

occurred prior to the effective date of the Recovery act.4

 Generally, for 

federal fiscal year 2009 through the first quarter of federal fiscal year 2011, 

the increased FMAP, which is calculated on a quarterly basis, provides for 

(1) the maintenance of states’ prior year FMAPs; (2) a general across-theboard increase of 6.2 percentage points in states’ FMAPs; and (3) a further 

increase to the FMAPs for those states that have a qualifying increase in 

unemployment rates. The increased FMAP available under the Recovery 

Act is for state expenditures for Medicaid services. However, the receipt of 

this increased FMAP may reduce the funds that states must use for their 

 

3

Recovery Act, div.B, title V. § 5001. 

4

Although the Recovery Act was enacted February 17, 2009, states generally may claim 

reimbursement for the increased FMAP for Medicaid service expenditures made on or after 

October 1, 2008. 

Page 178 GAO-09-580 Recovery Act
Appendix XI: Michigan 

Medicaid programs, and states have reported using these available funds 

for a variety of purposes. 

Under the Recovery Act, Michigan’s FMAP will increase to at least 69 

percent, up from 58 percent in 2008. From January 2008 to January 2009, 

the state’s Medicaid enrollment increased from 1,547,259 to 1,624,245, with 

the highest share of increased enrollment attributable to two population 

groups: (1) children and families and (2) disabled individuals. As of April 1, 

2009, Michigan has drawn down $463 million, 66.1 percent, of its awards to 

date.5

 Michigan officials indicated that they will use funds made available 

as a result of the increased FMAP to cover increased caseloads, offset 

general fund shortfalls, ensure compliance with prompt payment 

provisions, maintain existing populations of Medicaid recipients, avoid 

eligibility restrictions, increase provider payments, maintain current levels 

of benefits, and avoid benefit cuts. 

Transportation—Highway Infrastructure Investment: The Recovery 

Act provides additional funds for highway infrastructure investment using 

the rules and structure of the existing Federal-Aid Highway Surface 

Transportation Program, which apportions money to states to construct 

and maintain eligible highways and for other surface transportation 

projects. States must follow the requirements for the existing programs, 

and in addition, the governor must certify that the state will maintain its 

current level of transportation funding, and the governor or other 

appropriate chief executive must certify that the state or local government 

to which funds have been made available has completed all necessary 

legal reviews and determined that the projects are an appropriate use of 

taxpayer funds. Michigan has submitted these certifications. 

As of April 16, 2009, the U.S. Department of Transportation had obligated 

$110.8 million for 27 Michigan projects.6

 On March 31, 2009, the Governor 

signed state legislation authorizing the use of federal Recovery Act funds 

 

5

Michigan received increased FMAP grant awards of $700.5 million for the first three 

quarters of federal fiscal year 2009 

6

For federal-aid highway projects, the Federal Highway Administration of the U.S. 

Department of Transportation has interpreted the term obligation of funds to mean the 

federal government’s contractual commitment to pay for the federal share of a project. This 

commitment occurs at the time the federal government approves a project agreement and 

the project agreement is executed. 

Page 179 GAO-09-580 Recovery Act
Appendix XI: Michigan 

for transportation projects that are expected to create about 25,000 jobs.7

As of April 13, 2009, the Michigan Department of Transportation (MDOT) 

had advertised 16 projects totaling more than $41 million for competitive 

bidding. These projects included resurfacing I-196 in Grand Rapids and M13 in Genesee County. Michigan was apportioned about $982 million for 

transportation projects, including $847 million for highway infrastructure 

investment projects and $135 million for urban and rural transit projects. 

MDOT was apportioned about 75 percent of Recovery Act highway 

infrastructure investment funds and remaining funds will be suballocated 

to metropolitan, regional, and local organizations. 

MDOT identified 178 road and bridge projects that would, among other 

things, improve road pavement conditions on 1,300 lane miles of 

roadways, add lanes to four major roads to reduce congestion, and 

perform work on 112 bridges, of which 41 are structurally deficient. 

According to MDOT officials, the priority was to select shovel-ready 

projects that could be initiated and completed quickly. In Michigan, 

Recovery Act funds are being used primarily to fund transportation 

projects in fiscal year 2009 that were originally scheduled to begin in fiscal 

year 2010 or beyond, as well as some projects that had been identified but 

had no source of funding. MDOT officials told us they intend to complete 

selecting and approving specific road and bridge projects to be funded 

with Recovery Act money by May 1, 2009. 

U.S. Department of Education State Fiscal Stabilization Fund: The 

Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be 

administered by the U.S. Department of Education (Education). The SFSF 

provides funds to states to help avoid reductions in education and other 

essential public services. The initial award of SFSF funding requires each 

state to submit an application to Education that assures, among other 

things, it will take action to meet certain educational requirements, such 

as increasing teacher effectiveness and addressing inequities in the 

distribution of highly qualified teachers. 

Michigan’s initial SFSF allocation is $1.1 billion. The Recovery Act 

provided State Fiscal Stabilization Funds to increase funding for education 

over the next several years and avoid program cuts and teacher layoffs in 

fiscal year 2010. The amount of funding for each of the initiatives has not 

 

7

Michigan’s fiscal year 2008-2009 Supplemental Appropriations, Federal American 

Recovery and Reinvestment Act (Transportation), Public Act 3 of 2009. 

Page 180 GAO-09-580 Recovery Act
Appendix XI: Michigan 

yet been determined. Michigan plans to submit its application for SFSF 

funds on or after May 15, 2009, once the state completes its review of all 

program priorities for which it intends to use stabilization funds. Michigan 

Department of Education officials told us they consulted with local 

education agencies to develop plans and establish priorities for the use of 

SFSF funds that were consistent with the state’s priorities, policies, and 

programs, such as increasing support for the lowest performing schools. 

U.S Department of Education ESEA Title I and Individuals with 

Disabilities Education Act (IDEA) Funds: Michigan Department of 

Education officials told us that although the amount of funding for each of 

these two initiatives has not yet been determined they anticipate that 

Recovery Act funds for ESEA Title I ($390 million) and IDEA ($426 

million) will generally be used to support the same priorities that are 

funded in part by U.S. Department of Education funds that the state now 

receives. The state plans to use Recovery Act funds to support specified 

educational outcomes—reading, mathematics, and other learning 

proficiencies—and foster enhanced access to education programs for 

special needs students. Michigan’s Department of Education also intends 

to use Recovery Act funds to support professional development among 

teachers that can help sustain achievement of educational outcomes 

beyond the time limits of Recovery Act funding. 

U.S. Department of Justice Edward Byrne Memorial Justice 

Assistance Grant Program: Michigan plans to apply for $67 million in 

Recovery Act funds for crime control and prevention activities. Michigan 

Department of Community Health officials told us that about $41 million 

of these funds will support, among other things, state efforts to reduce the 

crime lab backlog, funding for multi-jurisdictional courts, and localities’ 

efforts regarding law enforcement programs, community policing, and 

local correctional resources. An additional $26 million in Recovery Act 

funds will go directly to localities to support efforts against drug-related 

and violent crime. On April 13, 2009, Michigan began accepting grant 

applications from local Michigan jurisdictions for Byrne Justice Assistance 

grants funding administered by the state and will continue to accept them 

until May 11, 2009. 

Page 181 GAO-09-580 Recovery Act
Appendix XI: Michigan 

All state and local agency officials we interviewed indicated that they plan 

to use their existing systems to tag and track Recovery Act funding, 

including increased FMAP funds. State officials were confident that their 

existing processes for receiving, coding, and monitoring federal funds 

could be used to separately account for the use of Recovery Act funds as 

required by the Act. For example, Michigan’s Department of Education has 

used the Michigan Electronic Grants System since 2001 to generate 

recipient reports on the use of ESEA Title I, IDEA, and State Fiscal 

Stabilization Funds. According to its officials, Michigan Department 

Education plans to continue to use the grants system for reporting on 

recipients’ use of Recovery Act funds by creating new accounting codes 

for Recovery Act funds. 

Michigan Is 

Augmenting Its 

Approach to 

Safeguarding and 

Transparency of 

Recovery Act Funds 

but Gaps Exist 

Although state government officials told us they believed that their 

departments have sufficient capabilities to segregate Recovery Act funds, 

many expressed less confidence in the capabilities of sub-recipients to 

separately account for the use of Recovery Act funds. State officials 

expressed concerns about the capacity of smaller agencies and 

organizations to separately track and monitor Recovery Act funds. For 

example, Detroit Public Schools officials told us that the school district 

has not had a clearly specified process for segregating funds from different 

funding streams and for how it intends to use Recovery Act funds. 

According to the officials, in the last several years, the district has 

commingled ESEA Title I funds with its general funds, making it difficult 

to track the use of ESEA Title I funds and show that they were used only 

for allowable expenditures. In addition, according to Detroit Public 

Schools officials, without improvements to its oversight of these funds, 

Detroit Public Schools may continue experiencing oversight challenges 

with respect to Recovery Act funds provided through ESEA Title I and 

IDEA funding streams. For example, according to a July 2008 report from 

the U.S. Department of Education’s Office of Inspector General, the 

Detroit Public Schools district, among other things, did not always 

properly support compensation expenses charged to ESEA Title I funds.8

District officials told us that in April 2009 they hired new staff to develop 

corrective action plans for addressing existing internal control 

weaknesses. 

 

8

U.S. Department of Education Office of Inspector General: The School District of the City 

of Detroit’s Use of Title 1. Part A Funds Under the No Child Left Behind Act of 2001, EDOIG/A05H0010, July 2008. 

Page 182 GAO-09-580 Recovery Act
Appendix XI: Michigan 

In anticipation of the opportunity to receive additional federal funding and 

the need to act quickly, Michigan began preparations before the Recovery 

Act was enacted. For example, the Governor established a working group 

of executive branch officials from Michigan state agencies and 

departments, known as Economic Recovery Coordinators (ERC), to plan 

for the use of anticipated Recovery Act funds. 

Safeguarding Recovery Act 

Funds 

On February 13, 2009, the Governor established a Recovery Office for 

coordination of all Recovery Act activities, including communication with 

stakeholders within and outside the state. The Recovery Office is 

responsible for helping develop priorities for the use of Recovery Act 

funds by the state consistent with the objectives of the Recovery Act and 

with the state’s priorities identified to fully maximize the impact of these 

federal funds.9

 Similarly, Detroit officials told us that they began planning 

in November 2008 for the receipt of Recovery Act funds and identified 

over 160 city projects that could be funded by working closely with city 

departments and community action organizations. Lansing Schools 

District officials told us that they began planning early for use of Recovery 

Act funding for the district’s 34 schools. The Recovery Office has also been 

working with state agencies to develop strategies for overseeing and 

tracking the use of Recovery Act funds to comply with requirements of the 

act and minimize fraud, waste, and abuse of funds and to help ensure 

consistent, timely, and accurate compliance with all reporting and 

certification requirements under the Recovery Act. Michigan is also 

maintaining a Web site on Michigan’s Recovery and Reinvestment Plan 

(www.michigan.gov/recovery). 

According to state officials, Recovery Act funds must be appropriated by 

the state legislature before the state is authorized to spend the money. In 

addition, the Michigan Senate created a special committee, known as the 

Senate Federal Stimulus Oversight subcommittee, to oversee Recovery Act 

funds. 

Michigan Department of Management and Budget officials told us that 

they are prepared to manage Recovery Act funds because they plan to use 

existing processes for purchasing goods and services. For example, 

Michigan will use existing processes to obtain competitive bids for 

 

9

Governor Granholm identified five priorities: (1) create new jobs and jumpstart Michigan’s 

economy; (2) train Michigan workers and educate Michigan students, (3) rebuild Michigan 

infrastructure, (4) provide assistance for struggling Michigan families, and (5) invest in 

energy efficiency and renewable energy technologies. 

Page 183 GAO-09-580 Recovery Act
Appendix XI: Michigan 

contracts awarded by state agencies under the Recovery Act in 

accordance with state law, which state officials described as requiring 

competitive bids (other than certain exceptions such as emergencies or 

imminent protection).10 In January 2009, Michigan created a 

prequalification program for vendors to provide an inventory of 

prequalified vendors ready to quickly respond to bids for work that will 

spend Recovery Act funds. As part of preparing to spend Recovery Act 

funds, Michigan Department of Management and Budget officials also told 

us they have been looking at ways to further streamline awarding 

contracts. Michigan also allows local units of government to join state 

contracts to leverage the state’s negotiating and purchasing power. 

Michigan will continue to use existing internal controls to provide 

assurances over Recovery Act spending, including ongoing selfassessments of controls by major state departments that are next due to 

the state Auditor General on May 1, 2009. The self-assessments include 

identification of internal controls and programmatic weaknesses and 

developing and tracking actions taken in response to corrective action 

plans. 

Michigan Using 

Existing Internal 

Controls 

The state Auditor General told us his office will include specific audit 

procedures to address Recovery Act funding as part of the planned 

procedures for its ongoing federal Single Audits of state departments 

which will start again in July 2009. However the state Auditor General 

does not yet have specific plans to audit Recovery Act funds. The state 

Auditor General’s Single Audit approach is to audit and report on 

individual state departments. Approximately one-half of Michigan’s 18 

departments are audited each year, with the audits covering 2 fiscal years 

of departmental activity. 

Recent state Auditor General Single Audit Act reports identified numerous 

material weaknesses in key state operations that are slated to receive 

significant amounts of Recovery Act funds. For example, the state Auditor 

General reported in August 2007 that, for fiscal years 2005 and 2006, 

Michigan’s Department of Human Services did not materially comply with 

federal program requirements regarding allowed or unallowed costs, 

subrecipient monitoring, and eligibility. The October 2008 Single Audit 

report on Michigan’s Department of Community Health stated that internal 

 

10See Management and Budget Act, Act 431 of 1984, sec. 261. 

Page 184 GAO-09-580 Recovery Act
Appendix XI: Michigan 

controls were not sufficient to ensure the accuracy of financial accounting 

and reporting and compliance with federal requirements for 10 of 11 major 

programs. 

The Michigan Auditor General’s oversight responsibilities do not include 

most subrecipients11 that receive federal funding, so any upfront 

safeguards to track or ensure accountability over Recovery Act funds 

going directly to localities have not been determined. Officials from 

Detroit’s Office of the Auditor General told us that they intend to audit the 

use of Recovery Act funds. The superintendent of the Lansing school 

district told us the district, along with all the other 840 local school 

districts in the state, contract with independent public accountants to 

perform annual financial statement audits. 

State Has Identified 

Staffing and Resource 

Constraints as a Significant 

Challenge in Monitoring 

the Use of Recovery Act 

Funds 

A lack of staff and uncertainty of funding available under the Recovery Act 

to oversee the use of federal funds may pose challenges for Michigan. 

Michigan officials reported that a hiring freeze may not allow some state 

agencies to hire staff to increase their Recovery Act oversight efforts. 

Officials with the state’s Departments of Community Health and Education 

and the Lansing School District are concerned about available 

administrative resources to cover increased oversight activities on the use 

of Recovery Act funds. For example, the state Department of Community 

Health said that because it has been downsizing for several years through 

attrition and early retirement, it does not have sufficient staff to cover its 

current responsibilities and that further reductions are planned for fiscal 

year 2010. However, state officials told us that they will take the actions 

necessary to ensure that state departments have the capacity to provide 

proper oversight and accountability for Recovery Act funds. 

Michigan Officials 

Concerned about the Lack 

of Federal Guidance 

Michigan officials we spoke with in March 2009 wanted additional federal 

guidance related to state responsibilities and reporting requirements under 

the Recovery Act and expressed concern about spending funds before 

they had received such guidance. For example, officials were unclear 

about the state’s responsibilities concerning tracking or reporting on funds 

that go directly to local entities, such as transportation funding going 

directly to localities for urban transit. In addition, Michigan Department of 

 

11Single Audits performed by the state Auditor General include audit procedures of 

subrecipients when the subrecipient is a state agency. 

Page 185 GAO-09-580 Recovery Act
Appendix XI: Michigan 

Education officials expressed concern about the lack of guidance from the 

U.S. Department of Education regarding several aspects of how to manage 

the receipt, allocation, use, and reporting of Recovery Act funds. In 

particular, state officials said they had not yet received guidance on 

tracking funds under IDEA, Part C and were concerned that recipients of 

grant funds might report information inconsistently. On April 1, 2009, the 

U.S. Department of Education issued additional guidance on the use of 

Recovery Act funds. 

Michigan may face challenges in assessing the impact of Recovery Act 

funds because the state’s financial management system is old and does not 

have the capability to track impacts, so the state will have to rely upon its 

agencies for this. Furthermore, state officials said they are aware of the 

requirement that the state measure the extent that certain Recovery Act 

funds create jobs and promote economic growth and have identified 

prospective participants to estimate the impact of Recovery Act funds. 

State officials also told us that the state information technology group will 

implement a database system at the end of April 2009 that will support its 

financial management system in recording the impact of Recovery Act 

funds. They told us that the Michigan Economic Development 

Corporation, universities in the state and other experts in economic 

modeling are expected to participate in prospective analysis supporting 

the potential impact of Recovery Act funds on a project basis. 

Additionally, the Department of Energy, Labor and Economic Growth and 

the state Treasurer will also be involved in analysis related to the impact 

of Recovery Act’s funds. 

Plans to Assess 

Impact of the 

Recovery Act Are 

Preliminary 

We provided the Governor of Michigan with a draft of this appendix on 

April 17, 2009. Michigan’s Recovery Czar responded for the Governor on 

April 20, 2009, stating that staff in the Michigan Governor’s office and the 

Michigan Economic Recovery Office have reviewed the draft appendix 

and, in general, agree with its overview of the state’s preparations for 

receiving and spending Recovery Act funding. These officials provided 

technical comments on the draft which were incorporated, as appropriate. 

Michigan’s Comments 

on This Summary 

Susan Ragland, (202) 512-8486 or raglands@gao.gov GAO Contacts 

Revae Moran, (202) 512-3863 or moranr@gao.gov 

Page 186 GAO-09-580 Recovery Act
Appendix XI: Michigan 

In addition to the contacts named above, Robert Owens, Assistant 

Director; Jeffrey Isaacs, Analyst-in-Charge; Manuel Buentello; Leland 

Cogliani; Anthony Patterson; and Mark Ward made major contributions to 

this report. 

Staff 

Acknowledgments 

Page 187 GAO-09-580 Recovery Act
Appendix XII: Mississippi 

Page 188 GAO-09-580 

Appendix XII: Mississippi 

Use of funds: An estimated 90 percent of Recovery Act funding provided 

to states and localities nationwide in fiscal year 2009 (through Sept. 30, 

2009) will be for health, transportation and education programs. The three 

largest programs in these categories are the Medicaid Federal Medical 

Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund, 

and highways. 

Overview 

9 Medicaid Federal Medical Assistance Percentage (FMAP) Funds

• As of April 1, 2009, Centers for Medicare and Medicaid Services (CMS) had made about $225.5 million in 

increased FMAP grant awards to Mississippi. 

• As of April 1, 2009, the state had drawn down $114.1 million, or just more than 50 percent of its initial 

increased FMAP grant awards. 

• State officials reported that they plan to use funds made available as a result of the increased FMAP to cover 

their increased Medicaid caseload and to offset expected state budget deficits due to lower general fund 

revenue collections. 

9 Transportation—Highway Infrastructure Investment 

• On March 2, 2009, the U.S. Department of Transportation apportioned Mississippi about $355 million for 

highway infrastructure investment. 

• As of April 16, 2009, the U.S. Department of Transportation had obligated approximately $137 million for 32 

Mississippi projects. 

• As of April 1, 2009, Mississippi had signed contracts for 10 projects totaling approximately $77 million. The 

Mississippi Department of Transportation (MDOT) used a competitive and transparent process to select 

projects. These projects include activities such as road construction and road maintenance. 

9 U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) 

• On April 2, 2009, the U.S. Department of Education allocated Mississippi about $321 million from the initial 

release of these funds. 

• Before receiving the funds, states are required to submit an application that provides several assurances to 

the Department of Education. These include assurances that they will meet maintenance of effort 

requirements or will be able to comply with waiver provisions and that they will implement strategies to 

meet certain educational requirements, including increasing teacher effectiveness, addressing inequities in 

the distribution of highly qualified teachers, and improving the quality of state academic standards and 

assessments. Mississippi plans to submit its application for state fiscal stabilization funds after it receives 

and reviews the final program guidance. 

• Mississippi expects to use these funds to help restore funding for elementary, secondary, and public higher 

education to prior levels in order to minimize reductions in education services in fiscal years 2009, 2010, and 

2011. The state does not foresee having leftover funds for additional subgrants to local education agencies.

 Recovery Act 
Appendix XII: Mississippi 

Mississippi is receiving additional Recovery Act dollars to fund other 

programs, including employment and training programs under the 

Workforce Investment Act, capital and management activities under the 

Public Housing Capital Fund, and gap financing for low-income housing 

tax credit projects under the Taxpayer Credit Assistance Program. The 

status of Mississippi’s plans for using these funds is described throughout 

this appendix. 

Safeguarding and transparency: The State Auditor’s office has taken 

steps to ensure accountability. For example, the office hosted a meeting 

with state agency heads to discuss accountability requirements and 

expectations, and the office plans to conduct training seminars on 

accounting for and controlling the use of Recovery Act funds. In addition, 

officials with the auditor’s office said Mississippi plans to add special 

accounting codes to the statewide accounting system in order to track the 

expenditure of Recovery Act funds. The state also plans to publicly report 

Recovery Act spending that state agencies receive directly. State officials 

noted that the statewide accounting system would not capture those funds 

that the federal government allocates directly to local and regional 

governmental organizations, nonprofit organizations, or higher education 

entities. According to the Governor’s office, the state is developing a 

framework that would require these entities to report Recovery Act 

revenues and expenses to a central website. 

Assessing the effects of spending: According to state officials, they are 

waiting for the federal government to provide more specific guidance for 

measuring job creation and retention. For example, the officials noted that 

the federal government’s Office of Management and Budget (OMB) should 

provide more guidance for estimating job creation and retention. 

Mississippi has begun to use some of its Recovery Act funds, as follows. 

Increased Federal Medical Assistance Percentage Funds: Medicaid is 

a joint federal-state program that finances health care for certain 

categories of low-income individuals, including children, families, persons 

with disabilities, and persons who are elderly. The federal government 

matches state spending for Medicaid services according to a formula 

based on each state’s per capita income in relation to the national average 

per capita income. The amount of federal assistance states receive for 

Medicaid service expenditures is known as the Federal Medical Assistance 

Percentage (FMAP). Across states, the FMAP may range from 50 percent 

to no more than 83 percent, with poorer states receiving a higher federal 

Mississippi Beginning 

to Use Recovery Act 

Funds 

Page 189 GAO-09-580 Recovery Act
Appendix XII: Mississippi 

matching rate than wealthier states. The Recovery Act provides eligible 

states with an increased FMAP for 27 months between October 1, 2008, 

and December 31, 2010.1

 On February 25, 2009, the Centers for Medicare & 

Medicaid Services (CMS) made increased FMAP grant awards to states, 

and states may retroactively claim reimbursement for expenditures that 

occurred prior to the effective date of the Recovery Act.2

 Generally, for 

federal fiscal year 2009 through the first quarter of federal fiscal year 2011, 

the increased FMAP, which is calculated on a quarterly basis, provides for 

(1) the maintenance of states’ prior year FMAPs; (2) a general across-theboard increase of 6.2 percentage points in states’ FMAPs; and (3) a further 

increase to the FMAPs for those states that have a qualifying increase in 

unemployment rates. The increased FMAP available under the Recovery 

Act is for state expenditures for Medicaid services. However, the receipt of 

the increased FMAP may reduce the funds that states must use for their 

Medicaid programs, and states have reported using these available funds 

for a variety of purposes. 

Under the Recovery Act, Mississippi’s FMAP will increase to 83.62 percent, 

an increase of 7.33 percentage points over its fiscal year 2008 FMAP. As of 

April 1, 2009, Mississippi had drawn down $114.1 million or just more than 

50 percent of its initial increased FMAP grant awards. Mississippi officials 

plan to use funds made available as a result of the increased FMAP to 

cover their increased Medicaid caseload and to offset expected state 

budget deficits due to lower general fund revenue collections, avoiding 

cuts in services. Mississippi officials indicated that simplifications to CMS 

expenditure reporting systems are needed to automatically generate the 

increased FMAP applicable to qualifying expenditures. Officials also 

reported a need for CMS guidance regarding programmatic changes that 

were made to its Family Planning Waiver since July 1, 2008, and whether 

these changes affect the state’s ability to draw down the increased FMAP. 

Transportation—Highway Infrastructure Investment: The Recovery 

Act provides additional funds for highway infrastructure investment using 

the rules and structure of the existing Federal-Aid Highway Surface 

Transportation program, which apportions money to states to construct 

and maintain eligible highways and for other surface transportation 

 

1

Recovery Act, div. B, title V, § 5001. 

2

Although the effective date of the Recovery Act was February 17, 2009, states generally 

may claim reimbursement for the increased FMAP for Medicaid service expenditures made 

on or after October 1, 2008. 

Page 190 GAO-09-580 Recovery Act
Appendix XII: Mississippi 

projects that could affect highways. States must follow the requirements 

for the existing programs, and in addition, the governor must certify that 

the state will maintain its current level of transportation spending, and the 

governor or other appropriate chief executive must certify that the state or 

local government to which funds have been made available has completed 

all necessary legal reviews and determined that the projects are an 

appropriate use of taxpayer funds. Mississippi’s Governor provided this 

certification in a letter dated March 17, 2009. The Governor noted that 

transportation spending authority in Mississippi is granted annually by the 

state Legislature to the Mississippi Department of Transportation (MDOT), 

which operates under the guidance of independently elected 

transportation commissioners. As such, MDOT’s Executive Director also 

provided this certification. 

As of April 1, 2009, MDOT had signed contracts for 10 projects totaling 

approximately $77 million.3

 The agency used a transparent and 

competitive process for awarding contracts for these projects. MDOT 

issued an advance notice on its Web site to inform contractors of the 

opportunity to bid on the projects. Furthermore, MDOT used cost as a key 

criterion for awarding contracts. MDOT awarded the contract to the 

lowest bid, provided that the lowest bid did not exceed the state’s cost 

estimate for the project by more than 10 percent. These projects include 

the expansion of State Route 19 in eastern Mississippi into a four-lane 

highway. This project fulfills part of MDOT’s 1987 Four-Lane Highway 

Program, which seeks to link every Mississippian to a four-lane highway 

within 30 miles or 30 minutes. In addition, MDOT plans to upgrade a 

section of a major road, US-78, which runs across northern Mississippi. An 

MDOT official anticipated the project would have major economic benefits 

for Mississippi. 

U.S. Department of Education State Fiscal Stabilization Fund: The 

Recovery Act created a State Fiscal Stabilization Fund (SFSF), to be 

administered by the U.S. Department of Education (Education). The SFSF 

provides funds to states to help avoid reductions in education and other 

essential public services. The initial award of SFSF funding requires each 

 

3

As of April 16, 2009, the U.S. Department of Transportation had obligated $137 million for 

32 Mississippi projects. For federal-aid highway projects, the Federal Highway 

Administration of the U.S. Department of Transportation has interpreted the term 

obligation of funds to mean the federal government’s contractual commitment to pay for 

the federal share of a project. This commitment occurs at the time the federal government 

approves a project agreement and the project agreement is executed. 

Page 191 GAO-09-580 Recovery Act
Appendix XII: Mississippi 

state to submit an application to Education that assures, among other 

things, it will take actions to meet certain educational requirements, such 

as increasing teacher effectiveness and addressing inequities in the 

distribution of highly qualified teachers. 

Mississippi’s initial SFSF allocation is about $321 million. The Recovery 

Act specifies that 81.8 percent is to be used for support of elementary, 

secondary and postsecondary education, and early childhood programs. 

The Recovery Act also authorizes the Governor to use 18.2 percent of 

these funds for “public safety and other government services,” which may 

include education. Mississippi’s Governor has not yet announced specific 

plans for the use of these other government services funds. According to 

state education officials, Mississippi will file its application for these funds 

after receiving and reviewing sufficient guidance. The funds will be 

appropriated to the state education agencies by the Mississippi State 

Legislature when it returns to session later this spring. The funding is 

expected to be used to stabilize education budgets in fiscal years 2009, 

2010, and 2011 to help avoid reductions in education services. Restoring 

funding in those years to required levels is expected to consume all of the 

stabilization funds to be received by the state. 

Mississippi Is Planning for 

Recovery Act Funding 

Mississippi began planning for how the state would provide oversight of 

Recovery Act funding in February 2009. Officials from the Governor’s 

Office said that the state did not establish a new office to provide 

statewide oversight of Recovery Act funding, in part because they did not 

believe that the act provided states with funds for administrative 

expenses—including additional staff. The Governor’s Director of Federal 

Policy is serving as the stimulus coordinator for the state with support 

from a loaned executive from a statewide business development 

association. The stimulus coordinator told us she met individually with 

state agency heads to discuss their plans for spending funds allocated 

under the Recovery Act. In late March 2009, the Governor submitted a 

letter certifying that Mississippi would request funds available under the 

Recovery Act and such funds will be used to create jobs and promote 

economic growth. The Governor added in the certification letter that the 

state would continue to examine the various guidelines and fund-specific 

requirements associated with the Recovery Act funds. In April 2009, the 

Governor hosted a Mississippi Stimulus Summit where state agency heads 

provided information on the detailed steps that were already being taken 

or were planned regarding the use of Recovery Act funds. Finally, the 

Governor established a state stimulus Web site (www.stimulus.ms.gov) to 

Page 192 GAO-09-580 Recovery Act
Appendix XII: Mississippi 

provide information to the public on the Recovery Act funding received by 

the state. 

Addressing State’s Fiscal 

Challenges Is Mississippi’s 

Goal for Using Recovery 

Act Funding 

Mississippi officials plan to use the anticipated $2.8 billion in Recovery Act 

funding to address fiscal challenges the state has experienced due to a 

weakened economy. State officials reported that Mississippi entered a 

recession in late 2008. One indicator of Mississippi’s weakened economy is 

the state’s unemployment rate, which was 8.7 percent in January 2009 

compared with 6.9 percent in June 2008. The state’s weakened economy 

has also resulted in lower-than-expected tax revenues for the state’s 

current fiscal year. According to the Governor, Mississippi’s Revenue 

Estimating Committee projected that the state’s fiscal year 2009 general 

fund revenue will fall $301 million, or 5.9 percent, short of expectations. In 

response to anticipated budget shortfalls, the Governor made two cuts to 

most state agency budgets. In November 2008, the Governor cut most 

agency budgets by 2 percent, or $42 million. In January 2009, the Governor 

cut state agencies’ budgets by an additional $158.3 million, bringing the 

total cuts to date for the fiscal year to $200 million. Each agency or 

department received a budget cut of up to 5 percent (see table 8).4

Although the Governor anticipated that Congress would pass a stimulus 

package, he ordered the cuts in agency budgets to comply with state law 

that requires a balanced budget for the fiscal year, which ends on June 30. 

 

4

According to Mississippi officials, under Mississippi law, the Governor may cut any 

department or agency by 5 percent of its appropriation; however, the Governor cannot cut 

any department or agency by more than 5 percent until every department and agency has 

been cut by 5 percent. 

Page 193 GAO-09-580 Recovery Act
Appendix XII: Mississippi 

Table 8: Budget Reductions for Selected State Agencies in Mississippi for Fiscal 

Year 2009 

Selected agency 

Appropriations for 

fiscal year 2009

Total 

budget cuts in 

fiscal year 2009 

Percentage 

change during 

fiscal year 2009 

Corrections $328,180,918 $16,409,046 -5.0

Highway Safety Patrol 48,440,661 2,422,033 -5.0

Judiciary and Justice 63,799,714 3,189,985 -5.0

Economic Development 25,748,751 1,287,438 -5.0

Higher Education 961,063,754 46,649,166 -4.9

Fiscal Affairs 72,724,225 3,577,428 -4.9

Hospitals and Hospital 

Schools 278,480,866 13,226,449 -4.7

Public Education 2,517,323,677 92,021,567 -3.7

Public Health 61,264,961 1,705,331 -2.8

Social Welfare 692,477,684 6,603,119 -1.0

Source: GAO analysis of Mississippi Department of Finance and Administration data. 

To mitigate the impact of economic fluctuations on state revenues, 

Mississippi has historically set aside 2 percent of projected revenues into a 

budget stabilization fund. In 2008, however, the state did not set aside any 

revenues for this fund, which made available an additional $100 million for 

Mississippi’s 2009 fiscal year budget. Going forward, Mississippi faces 

budgetary challenges for fiscal year 2010. According to the Governor, the 

state’s Revenue Estimating Committee projects that Mississippi’s revenues 

will be $402.7 million, or 7.9 percent, short of expectations. State officials 

anticipate that the recession will increase the demand for certain 

government services, including unemployment benefits, Medicaid, food 

stamps, and rental assistance. Some Mississippi officials believe that the 

state’s recession could continue through fiscal year 2012. 

Most of the Recovery Act funds that Mississippi will receive are directed 

toward education, Medicaid, and transportation programs (see fig. 9). 

According to the Governor’s office, state law provides for state agencies to 

escalate their spending plans to account for federal funds received under 

the Recovery Act. State officials also told us that the Legislature was 

considering adding further escalation language to the current fiscal year’s 

appropriations bills that would authorize state agencies to spend any 

Recovery Act funds received. The Legislature normally conducts its 

regular session between the beginning of January and the end of March. 

However, the Legislature recessed early during the 2009 regular session in 

Page 194 GAO-09-580 Recovery Act
Appendix XII: Mississippi 

part because of uncertainty regarding how the state’s portion of Recovery 

Act funds should be spent. The Legislature plans to reconvene in early May 

2009 to complete its work on the state’s fiscal year 2010 budget. 

Figure 9: Estimated Allocation of Mississippi’s Recovery Act Funding by Major 

Programs 

Source: GAO analysis of data provided by Mississippi Joint Committee on Performance Evaluation and Expenditure Review.

13%

14%

27%

Education

Fiscal Stabilization Fund: Government Services Funda

Medicaid

Transportation

Other programs

3%

46%

a

A portion of the Fiscal Stabilization Fund is allocated for the Government Services Fund. The 

Government Services Fund may be used for public safety and other government services, including 

assistance for elementary and secondary education and public institutions of higher education. 

Mississippi Has an 

Accounting System to 

Track Recovery Act 

Spending 

Officials with the State Auditor’s office told us that special accounting 

codes will be added to the Statewide Automated Accounting System 

(SAAS) in order to track the expenditure of Recovery Act funds. The state 

also plans to publicly report Recovery Act spending that state agencies 

receive directly. However, state officials noted that SAAS would not track 

Recovery Act funds allocated directly to local and regional governmental 

organizations, nonprofit organizations, or higher education entities. For 

example, cities with a population of more than 50,000 residents can apply 

directly to federal agencies for certain programs, such as Community 

Development Block Grants. In addition, Mississippi has 10 regional 

planning and development districts that may receive funding directly from 

federal agencies. Finally, Mississippi localities may receive Recovery Act 

funds directly from the Appalachian Regional Commission or Delta 

Regional Authority, federally chartered regional commissions charged 

Page 195 GAO-09-580 Recovery Act
Appendix XII: Mississippi 

with promoting economic development in certain parts of the state. 

According to the Governor’s office, the state is developing a framework 

that would require these entities to report Recovery Act revenues and 

expenses to a central website. 

Some State Agencies Have 

Made Spending Decisions 

for Recovery Act Funds 

A few state agencies have made spending decisions for Recovery Act fund 

apportionments received: 

• The Mississippi Department of Employment Security (MDES) received 

about $40.7 million in Recovery Act funding for adult, dislocated 

worker, and youth activity programs under the Workforce Investment 

Act. MDES officials told us they planned to use the youth activity 

funding to provide summer youth programs across the state. 

• The Jackson Public Housing Authority received a $1.1 million 

allocation to its Public Housing Capital Fund from the Department of 

Housing and Urban Development (HUD) for capital and management 

activities, including modernization and development of public housing 

projects. The officials told us they planned to use the Recovery Act 

allocation to fund projects already included in their 5-year Capital 

Fund Plan—for instance, one project will redevelop housing in 

Jackson’s North Midtown Community. 

• The Mississippi Home Corporation (MHC) was allocated 

approximately $21.9 million to provide additional gap financing to Low 

Income Housing Tax Credit (LIHTC) projects under the Taxpayer 

Credit Assistance Program (TCAP). MHC officials told us they had 

provided an initial notice to developers of LIHTC projects in the state 

about the additional funding provided under the Recovery Act for the 

TCAP but were waiting for HUD to issue final guidance before 

releasing details on their plans for administering the Recovery Act 

funding. 

State Auditor Coordinating 

Plans for Safeguards and 

Controls 

The State Auditor’s office has taken and plans to take a number of steps to 

establish accountability. For example, in March 2009 the office hosted a 

meeting with staff from state agencies that are expected to receive 

Recovery Act funds to discuss accountability requirements and 

expectations. The office is planning to conduct training seminar for local 

officials and others concerned about accounting for and controlling the 

use of Recovery Act funds. Overall, the State Auditor believes the state has 

adequate controls for the use of Recovery Act funds but is concerned that 

the funding of new programs and the significant increase in funding of 

Page 196 GAO-09-580 Recovery Act
Appendix XII: Mississippi 

current programs will stress the control system. In addition to the State 

Auditor, a legislative oversight committee and internal audit offices within 

each agency may provide oversight of Recovery Act funds. For example, 

the legislative committee staff in March 2009 said they began tracking the 

Recovery Act and the state’s Recovery Act-related legislation and funding 

provided to Mississippi. 

Mississippi’s most recent Single Audit Act findings highlight two material 

weaknesses in internal control over financial reporting at one state agency 

that will receive Recovery Act funds. In its Single Audit report for fiscal 

year 2008, the State Auditor found that the Mississippi Department of 

Employment Security did not record the tax liens receivable account and 

corresponding Unemployment Insurance Premiums revenue account on 

the department’s financial statements in accordance with generally 

accepted accounting principles. As a result, the State Auditor proposed, 

and management made an audit adjustment of, approximately $35.5 

million to properly state the department’s current year financial 

statements. In addition, the State Auditor found that the department’s 

internal controls over its tax lien receivable system were inadequate, and 

management proposed audit adjustments totaling approximately $6.4 

million to properly state the department’s tax lien receivables. The State 

Auditor also identified one material weakness in internal control over 

compliance at the Mississippi Department of Human Services for the 

department’s failure to verify and document compliance with the DavisBacon Act requirements for the Social Services Block Grant, which could 

result in questioned costs and funds due back to the federal granting 

agency. 

Resources for Conducting 

Oversight Are Limited 

State officials stated that the Recovery Act does not provide funding to 

oversight entities, but the federal government expects states to ensure 

accountability and transparency over expenditures. For example, officials 

from the State Auditor’s office told us they had experienced significant 

staff turnover in recent years and relied on less-experienced staff to 

conduct audit work. In addition, the Lieutenant Governor expressed 

concern about whether the State Auditor could be funded to conduct 

additional Recovery Act-related auditing responsibilities, as was done for 

Hurricane Katrina related oversight. Officials from the State Auditor’s 

office added that they normally charged the audit agency for the cost of 

audit services provided, but they were not sure whether Recovery Act 

funds could be used for this purpose. The State Auditor noted that the 

office would like to hire certified public accounting firms to conduct 

Recovery Act oversight work rather than increase staff. Further, the 

Page 197 GAO-09-580 Recovery Act
Appendix XII: Mississippi 

officials noted that OMB should provide guidance regarding state level 

oversight, auditing, and administrative costs—such as how costs should be 

paid for and with what funds. 

The legislative oversight committee also expressed concerns about the 

capabilities of the State Auditor’s office and some state agency internal 

audit functions. For example, in a recent report, the committee noted that 

low staffing levels and high turnover in the office’s Department of Audit’s 

Financial and Compliance Audit Division had resulted in a decreased 

experience level of audit staff and reduced institutional knowledge to use 

in forming auditor judgment.5

 In addition, the committee noted there were 

limitations in the internal audit functions of some state agencies—for 

instance, state law required 19 agencies to establish an internal audit 

function; 13 had done so as of December 2008. Further, the committee 

reviewed the internal audit functions of 8 agencies and found that most 

focused on reviewing agency programs rather than testing internal 

controls. Finally, the committee found that the Executive Director for 

these agencies reviewed and approved the plans for their internal audit 

function, but this could limit the internal auditor’s freedom to determine 

the internal controls tested and programs reviewed. 

Assessing the Impact of 

Recovery Act Funds 

Requires Clear Federal 

Guidance 

Officials from the State Auditor’s office recommended that the federal 

government provide specific guidance for reporting on the use of 

Recovery Act funds to support job creation or retention because the 

reliability of such estimates depends critically on using a solid 

methodology. Furthermore, the officials recommended that OMB provide 

a clear definition of time-limited, part-time, full-time, and permanent jobs. 

Another concern was how to report on jobs created from the use of funds 

for programs, such as unemployment, food stamps, and Medicaid. These 

funds make up a large portion of the Recovery Act funding, but, according 

to state officials, the purpose of these programs is not job creation and 

retention. 

The State Auditor’s office also expressed concerns about data reliability. 

For example, staff noted that standardization of data was lacking and the 

various decentralized reporting mechanisms, while certainly cheaper and 

 

5

Mississippi Joint Legislative Committee on Performance Evaluation and Expenditure 

Review, Report to the Mississippi Legislature #518, Enterprise Mississippi: A Vision for 

State Government (Jackson, Miss., Dec. 9, 2008.). 

Page 198 GAO-09-580 Recovery Act
Appendix XII: Mississippi 

less burdensome on state agencies, will not likely provide meaningful data 

on the impact of Recovery Act funds. Additionally, the staff noted that, if 

state agencies require their subrecipients to provide nonstandardized and 

nonuniform data, it will be difficult to identify trends at the state level. 

They also expressed concern that decentralized reporting would bypass 

the state-level efforts of accountability. Ultimately, they said state-level, 

centralized reporting using standardized and uniform data collection 

elements would be beneficial for state and federal oversight and would 

raise both the actual and perceived level of accountability. 

As an example of state efforts to assess the impact of Recovery Act funds, 

MDOT hired a contractor to conduct an economic impact analysis of 

projects MDOT had preselected to receive Recovery Act funding. 

According to one of the contractor’s staff, these projects were preselected 

on the basis that they were “shovel ready” during the first 90 days of the 

state receiving stimulus funds. The contractor used a forecasting model to 

measure the impact that an estimated $726 million in transportation 

stimulus funding would have on the state of Mississippi with regard to 

increased economic spending and the number of jobs from 2009 through 

2011.6

We provided the Governor of Mississippi with a draft of this appendix on 

April 17, 2009. The Director of Federal Policy, who serves as the stimulus 

coordinator, responded for the Governor on April 20, 2009. The official 

provided technical suggestions that were incorporated, as appropriate. 

Mississippi’s 

Comments on This 

Summary 

John K. Needham, (202) 512-5274 or needhamjk1@gao.gov GAO Contacts 

Norman J. Rabkin, (202) 512-9723 or rabkinn@gao.gov 

In addition to the contacts named above, Chris Keisling, assistant director; 

Marshall Hamlett, analyst-in-charge; David Adams; Michael O’Neill; Carrie 

Rogers, and Erin Stockdale made major contributions to this report. 

Staff 

Acknowledgments 

 

6

According to the contractor, the REMI model (Regional Economic Models Inc.) is a 

forecasting model that determines the economic impacts of transportation developments 

by identifying the interrelationships and ensuing impacts in five major sectors of the 

economy: output; production and labor supply; labor and capital demand; wages, costs and 

prices; and market share. 

Page 199 GAO-09-580 Recovery Act
Appendix XIII: New Jersey

Page 200 GAO-09-580 

Appendix XIII: New Jersey 

Use of funds: An estimated 90 percent of Recovery Act funding provided 

to states and localities nationwide in fiscal year 2009 (through Sept. 30, 

2009) will be for health, transportation and education programs. The three 

largest programs in these categories are the Medicaid Federal Medical 

Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund, 

and highways. 

Overview 

9 Medicaid Federal Medical Assistance Percentage (FMAP) Funds

• As of April 3, 2009, the Centers for Medicare & Medicaid Services (CMS) had made about $550 million in increased 

FMAP grant awards to New Jersey. As of April 1, 2009, the state has drawn down $362.2 million, which is almost 66 

percent of its awards to date. 

• Officials stated that the funds made available as a result of the increased FMAP allow the state to cover the increase in 

caseload and maintain current populations and benefits. In addition, these funds will help balance the state’s budget 

and allow the state to eliminate premiums for children in families with incomes less than 200 percent of the federal 

poverty level in New Jersey’s State Children’s Health Insurance Program. 

9 Transportation—Highway Infrastructure Investment 

• New Jersey was apportioned about $652 million for highway infrastructure investment on March 2, 2009, by the U.S. 

Department of Transportation. As of April 16, 2009, the U.S. Department of Transportation had obligated $280.8 million 

for 12 projects. Under the Recovery Act, highway funds are reimbursable, and New Jersey will receive funds after all or 

part of each project is completed. 

• As of April 16, 2009, the New Jersey Department of Transportation (NJDOT) had advertised competitive bids on 10 

projects totaling about $269.5 million. New Jersey has determined that it can meet Recovery Act requirements for 

obligating highway infrastructure investment funds. 

• These projects included road improvements, pavement and signal rehabilitation, bridge deck repairs, and major design 

elements for major projects. 

9 U.S. Department of Education State Fiscal Stabilization Fund (SFSF) 

• New Jersey was allocated about $891 million from the initial release of these funds on April 2, 2009, by the U.S. 

Department of Education. 

• Before receiving the funds, states are required to submit an application that provides several assurances to the 

Department of Education. These include assurances that they will meet maintenance of effort requirements (or that 

they will be able to comply with waiver provisions) and that they will implement strategies to meet certain educational 

requirements, including increasing teacher effectiveness, addressing inequities in the distribution of highly qualified 

teachers, and improving the quality of state academic standards and assessments. State officials estimated that most of 

the SFSF funds will have an impact on the state’s fiscal year 2010 budget, which will start on July 1, 2009. As of April 16, 

2009, New Jersey had not applied for SFSF funds. 

• State officials stated that, pending a New Jersey Supreme Court decision on the state’s new education funding formula, 

the SFSF funds for primary education would follow that formula. The state’s use of SFSF funds for higher education is 

unclear. State officials are currently trying to determine what portion of these funds will be allocated to higher 

education. New Jersey expects to make that determination in late April.

 Recovery Act 
Appendix XIII: New Jersey 

New Jersey is also receiving additional Recovery Act funds under other 

programs, such as transit capital assistance and fixed guideway 

modernization funds, Edward Byrne Memorial Justice Assistance Grants, 

and housing capital assistance. The status of plans for using these funds 

are described throughout this appendix. 

Safeguarding and transparency: New Jersey plans to use several 

entities to oversee its Recovery Act funds. The Governor has established a 

state Recovery Accountability Task Force to coordinate and review how 

state and local agencies use Recovery Act funds as well as provide 

guidance and best practices for project selection and internal controls, 

among other things. The state has several accountability agencies that will 

undertake different aspects of Recovery Act oversight. New Jersey’s 

agencies are adding capabilities to their accounting systems to track 

Recovery Act funds. Although New Jersey will publicly report the state’s 

Recovery Act spending, state officials said they might not be aware of all 

federal funds sent directly to other entities, such as public housing 

authorities. State officials have some concerns about the use of some 

Recovery Act funds, such as by independent local entities in the state, and 

they are developing some strategies to mitigate those risks. 

Assessing the effects of spending: New Jersey state agencies are in the 

early stages of developing plans to assess the effects of Recovery Act 

spending. Different state and local agencies will have different ways of 

collecting or estimating jobs created or retained. New Jersey is planning to 

develop a methodology to collect this data but is waiting to see what 

federal guidance requires. 

New Jersey has begun to use some of its Recovery Act funds, as follows. 

Increased Federal Medical Assistance Percentage Funds: Medicaid is 

a joint federal-state program that finances health care for certain 

categories of low-income individuals, including children, families, persons 

with disabilities, and persons who are elderly. The federal government 

matches state spending for Medicaid services according to a formula 

based on each state’s per capita income in relation to the national average 

per capita income. The amount of federal assistance states receive for 

Medicaid service expenditures is known as the Federal Medical Assistance 

Percentage (FMAP). Across states, the FMAP may range from 50 percent 

to no more than 83 percent, with poorer states receiving a higher federal 

matching rate than wealthier states. The Recovery Act provides eligible 

states with an increased FMAP for 27 months between October 1, 2008, 

New Jersey Beginning 

to Use Recovery Act 

Funds 

Page 201 GAO-09-580 Recovery Act
Appendix XIII: New Jersey 

and December 31, 2010.1 On February 25, 2009, the Centers for Medicare & 

Medicaid Services (CMS) made increased FMAP grant awards to states, 

and states may retroactively claim reimbursement for expenditures that 

occurred prior to the effective date of the Recovery Act.2

 Generally, for 

fiscal year 2009 through the first quarter of fiscal year 2011, the increased 

FMAP, which is calculated on a quarterly basis, provides for (1) the 

maintenance of states’ prior year FMAPs; (2) a general across-the-board 

increase of 6.2 percentage points in states’ FMAPs; and (3) a further 

increase to the FMAPs for those states that have a qualifying increase in 

unemployment rates. The increased FMAP available under the Recovery 

Act is for state expenditures for Medicaid services. However, the receipt of 

the increased FMAP may reduce the funds that states must use for their 

Medicaid programs, and states have reported using these available funds 

for a variety of purposes. 

As of April 1, 2009, New Jersey has drawn down $362.2 million in 

increased FMAP grant awards, which is almost 66 percent of its awards to 

date.3

 New Jersey officials reported that they plan to use funds made 

available as a result of the increased FMAP to offset state general fund 

deficits, cover the state’s increased Medicaid caseload and maintain 

current populations and benefits.4

 This funding will also be used to help 

ensure that the Medicaid prompt payment requirements are met.5

Additionally, state officials noted that the funds made available as a result 

of the increased FMAP are allowing them to eliminate premiums for 

children in families with incomes less than 200 percent of the Federal 

Poverty Level in New Jersey’s State Children’s Health Insurance Program 

 

1

Recovery Act, div. B, title V, § 5001. 

2

Although the effective date of the Recovery Act was February 17, 2009, states generally 

may claim reimbursement for the increased FMAP for Medicaid service expenditures made 

on or after October 1, 2008. 

3

As of April 3, 2009, New Jersey received increased FMAP grant awards of $549.8 million 

for the first three quarters of federal fiscal year 2009. 

4

From January 2008 to January 2009, the state’s Medicaid enrollment increased from 

750,529 to 771,156, with increased enrollment mostly attributable to two population groups: 

(1) children with families, and (2) individuals who are blind or disabled. 

5

Under the Recovery Act, to be eligible for the increased FMAP, states must comply with 

prompt pay requirements, which require states to pay 90 percent of clean claims from 

health care practitioners within 30 days of receipt and 99 percent of these claims within 90 

days of receipt. 42 U.S.C. § 1396(a)(37)(A); Recovery Act, div. B, title V, § 5001(f)(2). 

Page 202 GAO-09-580 Recovery Act
Appendix XIII: New Jersey 

(SCHIP).6 This will help the state retain children in SCHIP who would 

otherwise be terminated from the program for nonpayment of premiums. 

Transportation—Highway Infrastructure Investment: The Recovery 

Act provides additional funds for highway infrastructure investment using 

the rules and structure of the existing Federal-Aid Highway Surface 

Transportation Program, which apportions money to states to construct 

and maintain eligible highways and for other surface transportation 

projects that could affect highways. States must follow the requirements 

for the existing programs, and in addition, the governor must certify that 

the state will maintain its current level of highway spending and the 

governor or other appropriate chief executive must certify that the state or 

local government to which funds have been made available has completed 

all necessary legal reviews and determined that the projects are an 

appropriate use of taxpayer funds. New Jersey provided these 

certifications but noted that the state’s level of funding was based on the 

best information available at the time of the state’s certification.7

At the Governor’s direction, NJDOT had begun planning for a federal 

stimulus package for federal-aid eligible highway projects in November 

2008. NJDOT originally developed a list of highway projects worth about 

$1.4 billion, which was pared down to meet the actual apportioned 

amount. NJDOT selected 40 total projects that it could deliver as quickly 

as possible. As of April 16, the U.S. Department of Transportation had 

obligated $280.8 million for 12 New Jersey projects.8

 The projects that 

were selected concentrated mainly on replacing in-kind projects that 

require little or no environmental clearance or extensive design work, 

such as pavement and signal rehabilitation and highway bridge painting 

and deck replacement. Of the 40 projects selected, 5 are in the design 

stage, while the rest are in the construction or right-of-way acquisition 

phases. NJDOT staff indicated they were allocating over a third of their 

 

6

The annual income for a family of four at 200 percent of the Federal Poverty Level is 

$44,100. 

7

A number of states qualified their certifications in various ways. The legal effect of such 

qualifications is currently being examined by the U.S. Department of Transportation and 

has not been reviewed by GAO. 

8

For federal-aid highway projects, the Federal Highway Administration of the U.S. 

Department of Transportation has interpreted the term obligation of funds to mean the 

federal government’s contractual commitment to pay for the federal share of a project. This 

commitment occurs at the time the federal government approves a project agreement and 

the project agreement is executed. 

Page 203 GAO-09-580 Recovery Act
Appendix XIII: New Jersey 

Recovery Act transportation funding to 3 large projects, including one in 

an economically distressed area. As of April 16, 2009, 10 projects totaling 

about $269.5 million have been put out for bid through a competitive 

process. NJDOT officials estimate that Recovery Act funds will save the 

state about $100 million in interest charges over 12 years for one of the 

selected projects, as the state will not have to borrow to start and 

complete it. Not all of the selected projects were on the State 

Transportation Improvement Plan (STIP), but New Jersey, in consultation 

with the Federal Highway Administration, amended its STIP to include all 

of the selected projects. 

U.S. Department of Education State Fiscal Stabilization Fund: The 

Recovery Act created a State Fiscal Stabilization Fund (SFSF), to be 

administered by the U.S. Department of Education (Education). The SFSF 

provides funds to states to help avoid reductions in education and other 

essential public services. The initial award of SFSF funding requires each 

state to submit an application to Education that assures, among other 

things, it will take actions to meet certain educational requirements, such 

as increasing teacher effectiveness and addressing inequities in the 

distribution of highly qualified teachers. 

The state expects to receive $891.4 million in SFSF funds, about 82 percent 

of which is for education and about 18 percent of which is for the state to 

use for “public safety and other government services.” State officials said 

that, pending a New Jersey Supreme Court decision on the state’s new 

education funding formula, the SFSF funds for primary education would 

follow that formula. The state’s use of SFSF funds for higher education is 

unclear. The Governor’s Chief of Staff stated that New Jersey is currently 

trying to determine what portion of the SFSF education and other 

government services funds will be used for higher education and will not 

submit its application for SFSF funding until it completes this 

determination. New Jersey expects those determinations to be made 

sometime in April. The state expects that the receipt of stabilization funds 

will help balance its fiscal year 2009 budget and avoid layoffs or tax 

increases. 

New Jersey state education officials said in March that the lack of clear, 

specific guidance from Education limited their ability to provide guidance 

to local institutions. As a result, school district officials we interviewed in 

Newark and Trenton in late March stated that they are waiting for state 

officials to tell them what their allocations are for each of the federal 

Recovery Act education programs. The timing of the federal and state 

guidelines for these funds are important as the local schools districts are 

Page 204 GAO-09-580 Recovery Act
Appendix XIII: New Jersey 

currently planning their upcoming fiscal year budgets and would like to 

know how the Recovery Act funds would complement their upcoming 

school spending. On April 1, 2009, Education issued guidance to the states 

on how Recovery Act funds could be used for education. State officials 

are continuing to review the guidance and on April 16, 2009, issued 

guidance to local school districts outlining each district’s allocation of 

additional funds made available under the Recovery Act for programs 

authorized under Title I of the Elementary and Secondary Education Act 

and the Individuals with Disabilities Education Act. 

Transportation—Urban/Rural Transit Capital Assistance and Fixed 

Guideway Modernization Grants: New Jersey Transit (NJT), the 

primary public operator of bus and commuter rail transit lines in the state, 

was apportioned all of the Recovery Act funds for transit for New Jersey, 

which amounted to about $425 million in three pre-existing federal transit 

programs. NJT has selected 15 projects that will use Recovery Act funds, 

all of which were on their 20-year capital plan. About 70 percent of the 

funds are allocated to capacity expansion and improvement projects, with 

the remainder allocated to maintenance projects, as its regular funds are 

concentrated on safety, security and maintenance needs. According to NJT 

officials, NJT can move quickly to use these funds as the Federal Transit 

Administration (FTA), through its preaward authority, will reimburse the 

agency for funds expended for the selected projects, even though the 

funding for those projects has not yet been obligated by the FTA. The 

largest allocation of NJT’s Recovery Act funds ($130 million) will be used 

toward designing and undertaking some construction activity for new train 

tunnels under the Hudson River. The tunnels are expected to double the 

number of NJT trains going into and out of New York City. 

Housing and Urban Development—Housing Capital Assistance: 

HUD allocated approximately $104 million to 86 public housing authorities 

in New Jersey for capital and management activities, including 

modernization and development of public housing developments. Officials 

from the Newark Housing Authority (NHA), which is receiving an 

allocation of about $27.4 million, told us they planned to use the allocation 

to fund projects already included in their 5-year capital plan—including 

rehabbing 700 vacant units and 300 occupied units—which will generate 

income and additional HUD subsidies to NHA and provide new and 

improved affordable units for additional families. 

Page 205 GAO-09-580 Recovery Act
Appendix XIII: New Jersey 

Justice—Edward Byrne Memorial Justice Assistance Grants: State 

officials expect to receive a Recovery Act allocation of $48 million from 

the Byrne Justice Assistance Grant Program.9

 Local law enforcement 

officials stated that this program may provide for some additional facilities 

and other law enforcement equipment. For example, the Trenton Police 

Department is planning to use its Byrne Justice Assistance Grant funds on 

projects that will enhance its crime reduction efforts by sharing 

information with Mercer County’s Prosecutor’s Office and enhancing the 

department’s forensic crime analysis capabilities. In contrast, according to 

Newark’s Chief of Police, the amount of Byrne Justice Assistance Grants 

allocated to the Newark Police Department may be sufficient to provide 

some new equipment but not fund a major capital program. 

New Jersey’s Plans for 

Spending Recovery Act 

Funds Are Forming As 

Funds Are Being 

Distributed 

New Jersey revenues for fiscal year 2009 fell short of expectations by 

about $3 billion. As a result, New Jersey had to rebalance the state’s 

budget by cutting spending and taking personnel actions in January and 

February 2009 before the Recovery Act was enacted. In addition, as part of 

its actions in February, the state used $450 million of its $600 million 

surplus.10 New Jersey’s Office of Management and Budget is accounting 

for Recovery Act funds that come into state agencies, but there is 

concerted effort to independently aggregate estimates of total funding 

across state agencies.

no 

 

11 As of April 3, 2009, the state had received about 

$583.8 million in Recovery Act funds, mainly for increased FMAP grant 

awards and unemployment insurance. Other funds have been allocated but 

are not yet available, such as for some education and energy efficiency 

programs. 

9

The Byrne Justice Assistance Grant Program supports a broad range of activities to 

prevent and control crime and may be used for, among other things, equipment, supplies, 

training, personnel, and research and information systems for criminal justice efforts. 

10In March 2009, the governor presented a proposed budget for fiscal year 2010 along with 

additional actions to again rebalance the fiscal year 2009 budget. Those actions included 

an additional reduction in the state’s pension payment for fiscal year 2009, which allowed 

restoration of surplus in the current year which assisted in addressing a $7 billion deficit 

for fiscal year 2010. 

11New Jersey officials stated they are unable to estimate the total amount of Recovery Act 

funds that are coming into the state because some formula allocations have not yet been 

announced by federal agencies and some funding, such as increased FMAP funds, are 

subject to change based on future conditions. 

Page 206 GAO-09-580 Recovery Act
Appendix XIII: New Jersey 

Anticipating even less revenue in fiscal year 2010, which begins on July 1, 

2009, the Governor has proposed a $29.8 billion budget. According to the 

Governor, if New Jersey did nothing to curtail growth in state spending or 

adjust its mandatory obligations, the fiscal year 2010 budget would be 

about $36 billion, or $7 billion above anticipated revenues. In response to 

declining revenue, the Governor has proposed about $4 billion in cuts to 

programs, rebates, pension payments, and state worker personnel costs. In 

all, more than 850 line items in the budget have been cut. The largest cuts 

will come from scaling back state rebates of local property taxes by $500 

million and reducing state payments to the pension fund by $895 million. 

The Governor is also proposing to save $400 million in personnel costs 

through a wage freeze and furloughs for state employees, avoiding an 

otherwise anticipated layoff of up to 7,000 state workers. 

Some New Jersey officials began preparing for receipt of Recovery Act 

funds prior to passage of the Recovery Act. Anticipating federal stimulus 

spending for infrastructure, the Governor asked NJDOT to identify 

projects that could be ready for federal funding and quick implementation 

in November 2008. NJDOT officials identified about $1.4 billion in 

potential eligible projects but had to scale this list back to meet New 

Jersey’s eventual apportionment of Recovery Act transportation funds. 

The city of Newark also prepared a process with evaluative criteria for 

selecting local projects for Recovery Act funds before the Recovery Act 

was enacted. 

New Jersey officials stated that New Jersey’s plans for spending Recovery 

Act funds have been complicated by not having guidance from federal 

agencies immediately available and by preparations for the state’s 

upcoming fiscal year 2010 budget. For example, the state Department of 

Education could not determine how the state could distribute its 

allocation of Recovery Act education funds until the U.S. Department of 

Education released its guidance on April 1, 2009. Officials from the state’s 

Department of Community Affairs (DCA), which is responsible for housing 

and urban development programs in the state, stated that they lacked 

guidance from federal agencies for most of the programs that they 

administer, which hindered their preparation for use of those funds.12 The 

Governor’s Chief of Staff stated that some of the federal funds, especially 

the state’s allocation of the SFSF funds, will be disbursed to the state in its 

 

12DCA officials stated they did receive guidance from the U.S. Department of Energy on the 

weatherization program. 

Page 207 GAO-09-580 Recovery Act
Appendix XIII: New Jersey 

fiscal year 2010 budget, which is currently being debated by the state 

legislature. 

New Jersey officials have been and are planning to continue submitting 

certifications for the state’s use of Recovery Act funds. The Governor 

issued a certification memo to the Secretary of the U.S. Department of 

Transportation that the state would maintain its efforts with regard to 

state funding for the types of projects funded under the Recovery Act. 

Other local officials told us they would issue or had issued similar 

certifications for Recovery Act funds for which they are directly 

responsible. For example, NHA staff told us their Executive Director 

signed a certification letter for the Recovery Act funds that the NHA was 

responsible for. 

New Jersey Will Use 

Existing Resources for 

Recovery Act Oversight, 

but Lack of Additional 

State Funding May Hinder 

Its Efforts 

According to state officials, the Governor and executive branch agencies 

have primary responsibility for controlling the state’s receipt of Recovery 

Act funds, with legislative approval.13 To this end, the Governor has 

created the state Recovery Accountability Task Force, co-chaired by the 

Governor’s Chief of Staff and the state’s Comptroller and consisting of 

active and former state and federal officials. The task force will, among 

other things, monitor the distribution of Recovery Act funds in the state 

and promote the effective and efficient use of those funds. The task force 

has established a public Web site and will provide guidance for internal 

controls for complying with Recovery Act provisions. As part of the task 

force, the state Comptroller has responsibility for coordinating all of the 

oversight agencies in the state. These entities will have different roles in 

the state’s Recovery Act oversight efforts: 

• the state Auditor, who is appointed by the legislature and handles 

financial and some performance audits of state agencies; 

• the state Comptroller, who is generally responsible for performance 

audits at the state and local levels of government and reviews 

government contracts over $2 million; 

 

13As described by state officials, similar to the federal government, each year the Governor 

submits to the legislature a proposed budget. The legislature has the ultimate authority to 

adopt the budget act and appropriate funds, subject to gubernatorial line-item veto. State 

agency use of federal funds must be authorized in state appropriations. 

Page 208 GAO-09-580 Recovery Act
Appendix XIII: New Jersey 

• the state Inspector General, who is responsible for investigations of 

fraud related to state government; and 

• the internal audit offices that exist within most agencies, including the 

state Medicaid Inspector General and the contract compliance audit 

units within the Division of Purchase and Property (DPP) ad the 

Division of Property Management and Construction (DPMC). 

According to the state’s Comptroller, the legislature’s State Commission 

on Investigation, which is concerned with investigations on enforcement 

of state law, particularly regarding racketeering and organized crime, will 

also be among the agencies helping to ensure that the state’s public 

employees who administer Recovery Act funds do so effectively and in 

compliance with federal or state requirements. In addition, the state 

legislature, state agencies, and many local entities (e.g., housing 

authorities, school districts, and metropolitan planning organizations) also 

have a role in overseeing these funds. 

As described by state officials, Recovery Act funds must be used by state 

agencies pursuant to appropriation by the state legislature, and Recovery 

Act funds were appropriated in legislation enacted in March 2009.Under 

that legislation, the specific programs and activities conducted by those 

agencies with Recovery Act funds are also subject to approval by the 

legislature’s Joint Budget Oversight Committee. However, according to 

state officials, any Recovery Act funds directly received by local 

governments or other entities in the state would not be budgeted or 

appropriated by the state legislature. State officials describe New Jersey as 

a strong “home rule” state and its constitution as giving localities many 

rights and responsibilities for providing local services. Therefore, New 

Jersey has more than 1,900 cities, counties, towns, townships, and local 

authorities or taxing districts, including 86 housing authorities, 566 

municipal governments, and 616 school districts that can apply for, use, 

and potentially be held accountable for Recovery Act funds. 

The Governor’s Chief of Staff stated there is oversight of certain local 

activities at the state level. For example, state oversight of local public 

school districts has been enhanced in recent years in part through state 

Page 209 GAO-09-580 Recovery Act
Appendix XIII: New Jersey 

mandated limitations on compensation practices14 and proficiency targets 

for state assessments have been raised. Additionally, the state has a 

significant amount of oversight over the three districts that are under state 

control to review and control their budgets. The U.S. Department of 

Education and the county superintendent have the authority to review 

these school districts budgets, as well. Further, according to the 

Governor’s Chief of Staff, because the state already funds local school 

districts with $8.8 billion in state funds, ensuring accountability for the use 

of state funds by school districts is not a new challenge to the state 

oversight agencies. 

Many of the state and local agencies interviewed stated that their current 

accounting systems can track Recovery Act funds by program and project 

and can generate reports showing the use of those funds: 

• Both the Newark and Trenton Housing Authorities stated that they use 

the Line of Credit Control System (LOCCS) accounting system, which 

HUD uses to provide funds to public housing authorities. LOCCS 

includes special accounting codes under which housing authorities can 

track Recovery Act funds by program and by type of use. Housing 

authorities can also use LOCCS to generate the required reports back 

to HUD showing how they have used Recovery Act funds. 

• Both NJDOT and NJT stated that their accounting systems can track 

Recovery Act funds separately from their regular funds because they 

have created separate accounting codes to track these funds. 

Furthermore, most of the selected projects will be funded primarily 

with Recovery Act funds, making the process of tracking them easier. 

• DPP officials stated that their current accounting system will be able 

to account for and control the use of Recovery Act funds used for 

procurement because DPP will create special accounting codes for 

these funds. These officials stated that their accounting systems had 

the capability to track funds using special accounting codes and that 

 

14According to state officials, the state Department of Education has placed limitations on 

compensation and buyouts for high-level district administrators through a series of 

regulations and statutory changes. The Executive County Superintendent (a state 

employee) must review and approve, prior to district Board of Education approval, all 

employment contracts for the superintendent, deputy superintendent, assistant 

superintendent and business administrator, including new contracts, extensions, and 

renegotiations. There are specific state-imposed limitations on components of these 

contracts, like annuities, travel allowances, car allowances, and specific state limitations 

on buyout provisions in these contracts. 

Page 210 GAO-09-580 Recovery Act
Appendix XIII: New Jersey 

they were confident no special enhancements were needed to their 

accounting software, although they would monitor the accounting 

system to ensure it was functioning properly. DPP will also publicly 

advertise bids for projects funded with Recovery Act funds, include 

terms and conditions in each request for proposals and contract for 

these projects stating detailed reports required by the act, and will post 

contract award notices for Recovery Act funded projects. 

• To track increased FMAP funds, New Jersey has established a discrete 

identifier in the state accounting system. The state has begun the 

process of adjusting systems, so that the additional FMAP funds can be 

tracked and monitored by specific service category. Despite these 

adjustments, tracking of these funds will not be dramatically different 

from how the state tracks funds for their overall budget. Additionally, 

the state is monitoring increased FMAP funds and comparing them 

against actual expenditures. According to New Jersey officials, the 

state is also monitoring unemployment levels to anticipate and project 

future FMAP levels. 

New Jersey has not increased its number of state auditors or investigators, 

and there has not been an increase in funding specifically for Recovery Act 

oversight. Additionally, the state hiring freeze has not allowed many state 

agencies to increase their Recovery Act oversight efforts. For example, 

despite an increase of $469 million in Recovery Act funds for state 

highway projects, no additional staff will be hired to help with those tasks 

or those directly associated with the act, such as reporting on the number 

of jobs that the Recovery Act funds created. While NJDOT has committed 

to shift resources to meet any expanded need for internal Recovery Act 

oversight, currently one person is responsible for reviewing contractorreported payroll information for disadvantaged business enterprises, 

ensuring compliance with Davis-Bacon wage requirements, and job 

creation figures. 

Potential Areas of 

Vulnerability of New 

Jersey Recovery Act Funds 

In New Jersey’s fiscal year 2007 Single Audit report, the independent 

auditor identified 42 significant control deficiencies related to compliance 

with internal controls requirements over major federal programs, 33 of 

which were considered to be material. Twenty-seven of the significant 

control deficiencies pertained to compliance with requirements for several 

major federal programs that the state administers—including Medicaid 

programs and Community Services Block Grants—through which the 

Recovery Act funds will flow. New Jersey has also faced challenges with 

internal controls with state entities in the recent past. For example, in 

Page 211 GAO-09-580 Recovery Act
Appendix XIII: New Jersey 

2005, the state Inspector General’s review of the now-dissolved School 

Construction Corporation, which was responsible for more than $8.66 

billion in school construction funds, found the authority had “weak 

financial controls, glaring internal control deficiencies and lax or nonexistent oversight and accountability” after it had disbursed $4.3 billion in 

contracts and approved approximately $540 million in changes to those 

contracts. In its place, in 2007, the state created a Schools Development 

Authority with a completely different management and accountability 

structure. 

State officials noted that certain towns and cities, as well as regional 

planning organizations, can apply for and directly receive federal recovery 

funds under the terms of the Recovery Act. According to the state 

Inspector General, the risk for waste, fraud, and abuse increases the 

farther removed an organization is from state government controls. While 

some state officials said they have statewide investigative authority, they 

would not be able to readily track the funding going directly to local and 

regional government organizations and nonprofits as a result of the 

funding delivery and reporting requirements set up in the Recovery Act. In 

addition, staff from the state Auditor’s office noted that some smaller 

cities and towns in New Jersey are not used to implementing guidance 

from the state or federal government on how they are using program 

funds, which could result in the localities reporting using funds for 

ineligible purposes. However, state Department of Education officials 

stated that although the sheer number of school districts in the state raises 

concerns, sufficient internal controls (state audits, Single Audits, state 

oversight, etc.) exist to prevent most instances of fraud and other illegal 

uses of funds. 

As for state agencies, the Governor’s Chief of Staff stated that the highest 

risk is associated with those agencies that will be responsible for 

managing significantly more money than ever before, compared with their 

normal budgets. While NJDOT officials stated they could accommodate 

about five times more Recovery Act funds than was received by New 

Jersey, other state officials stated that they were quickly developing plans 

to accommodate the influx of Recovery Act funds. For example, the 

Department of Community Affairs is responsible for implementing the 

state’s allocation of $118.6 million in Recovery Act weatherization funds, 

which is about double the normal amount. DCA officials stated that to 

avoid losing any of the state’s allocation of weatherization funds, they 

were making contingency plans to redistribute any unused funds to other 

possible recipients under the weatherization program. According to the 

Governor’s Chief of Staff, the state is trying to be rigorous about how these 

Page 212 GAO-09-580 Recovery Act
Appendix XIII: New Jersey 

programs are being designed and how they are using the funds. For 

example, state officials are emulating the federal oversight effort, in part 

by trying to build internal controls at the outset of the process and to use 

merit-based selection criteria for Recovery Act projects. The state 

Inspector General, in coordination with the New Jersey Recovery 

Accountability Task Force, will be conducting training at New Jersey 

government agencies concerning Recovery Act related internal control 

issues. As of April 17, the Inspector General hopes to present the first 

trainings by mid-May. 

Plans to Assess Impact of 

Recovery Act Funds Are in 

Initial Stages and Vary 

across State and Local 

Agencies 

The Governor’s Chief of Staff stated that different state agencies are 

planning to evaluate the impact of Recovery Act funds. Assessing the 

impact of the increased FMAP funds will involve the extent to which the 

Medicaid program is able to accommodate additional applicants as a result 

of these funds. A New Jersey official noted that the state will have 

benchmark numbers on how many additional people are served and that 

this approach is no different from how the state would currently report 

impact. The state Auditor and the state Comptroller have also committed 

to carrying out audits and assessments of the impact of Recovery Act 

funds. 

Officials we interviewed at New Jersey state agencies have different ways 

of either collecting or estimating data on the number of jobs created or 

retained as a result of Recovery Act funds. For example, the NHA will use 

payroll data to keep track of the exact number of union tradesmen and 

housing authority residents employed to turn damaged vacant units into 

rentable ones. In contrast, NJT is using an academic study that examined 

job creation from transportation investment to estimate the number of 

jobs created by contractors on its Recovery Act-funded construction 

projects.15 Finally, officials stated that both DPP and DPMC both have 

methodology and mechanisms in place to track jobs created and 

maintained for goods and services procured under Recovery Act 

contracts. 

 

15The study estimated that for every $1 million of transportation infrastructure investment, 

11 jobs are created, 70 percent of them are directly related to the investment, and 30 

percent are indirectly related (Rutgers University Edward J. Bloustein School of Planning 

and Public Policy, “Economic Impacts of Planned Transportation Investments in New 

Jersey,” New Brunswick, New Jersey, April 2008). 

Page 213 GAO-09-580 Recovery Act
Appendix XIII: New Jersey 

We provided the Governor of New Jersey with a draft of this appendix on 

April 17, 2009. The Governor’s Chief of Staff responded for the Governor 

on April 20, 2009. In general, the Chief of Staff substantially agreed with 

the draft and provided technical comments that were incorporated, as 

appropriate. 

David Wise, (202) 512-2834 or wised@gao.gov 

Gene Aloise, (202) 512-6870 or aloisee@gao.gov 

New Jersey’s 

Comments on this 

Summary 

GAO Contacts 

In addition to the contacts names above, Raymond Sendejas, Assistant 

Director; Greg Hanna, analyst-in-charge; Jeremy Cox; Colin Fallon; 

Tarunkant Mithani; and Cheri Truett made major contributions to this 

report. 

Staff 

Acknowledgments 

Page 214 GAO-09-580 Recovery Act
Appendix XIV: New York

Page 215 GAO-09-580 

Use of funds: An estimated 90 percent of fiscal year 2009 Recovery Act 

funding provided to states and localities will be for health, transportation 

and education programs. The three largest funding categories are the 

Medicaid increased Federal Medical Assistance Percentage (FMAP) grant 

awards, the State Fiscal Stabilization Fund, and highways. 

9 Medicaid Federal Medical Assistance Percentage (FMAP) Funds

• As of April 13, 2009, the Centers for Medicare & Medicaid Services (CMS) had made about $3.14 billion in 

increased FMAP grant awards to New York. 

• As of April 13, 2009, New York had drawn down about $1.74 billion, or 55 percent of its initial increased 

FMAP grant awards. 

• Nearly $1.3 billion of the funds made available as a result of the increased FMAP were used to close the 

state’s budget deficit for the fiscal year ending on March 31, 2009, or applied to lower the deficit for the 

current fiscal year. In addition, $440 million was returned to the counties for their contributions towards the 

non-federal share of Medicaid expenditures that qualified for the increased FMAP. 

9 Transportation—Highway Infrastructure Investment 

• New York was apportioned about $1.12 billion for highway infrastructure investment on March 2, 2009, by 

the U.S. Department of Transportation. 

• As of April 16, 2009, the U.S. Department of Transportation had obligated about $276.5 million for 108 

projects to the New York State Department of Transportation. New York will request reimbursement from 

the U.S. Department of Transportation as the state makes payments to contractors. 

• As of April 13, 2009, the New York State Department of Transportation had advertised for bids on 38 

projects. Work on all of these projects is expected to begin this spring. 

• The state will target Recovery Act transportation funds to infrastructure rehabilitation, including preventive 

maintenance and reconstruction, such as bridge repairs and replacement, drainage improvements, repaving 

and roadway construction. State officials emphasized that these projects extend the life of infrastructure 

and can be contracted for and completed relatively easily in the 3-year time frame required by the act. Some 

Recovery Act funds will go to more typical “shovel-ready” highway construction projects for which there 

were insufficient funds. 

• By the end of April 2009, New York expects to have a complete list of transportation projects that Recovery 

Act funds will support. 

9 U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) 

• As of April 13, 2009, New York had been allocated about $2.0 billion from the initial release of these funds by 

the U.S. Department of Education. 

• Before receiving the funds, states are required to submit an application that provides several assurances to 

the Department of Education. These include assurances that the states will meet maintenance-of-effort 

requirements (or that they will be able to comply with waiver provisions) and that they will implement 

strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing 

inequities in the distribution of highly qualified teachers, and improving the quality of state academic 

standards and assessments. As of April 13, 2009, New York had not submitted its application for these funds. 

• New York plans to use the majority of Fiscal Stabilization funding to support K-12 education costs for the 

2009-2010 and 2010-2011 school years beginning July 1, 2009. New York education officials told us that 

most of the funds will be used to offset expected budget cuts throughout the school system that were 

caused by the downturn in the economy and in state revenues.

Overview 

Appendix XIV: New York 

 Recovery Act 
Appendix XIV: New York 

New York is also receiving additional Recovery Act funds under other 

programs, such as programs under Title I, Part A, of the Elementary and 

Secondary Education Act (ESEA) (commonly known as No Child Left 

Behind), and the Individuals with Disabilities Education Act, Part B 

(IDEA). These are described throughout this appendix. Overall, New York 

expects to receive about $26.5 billion in Recovery Act funds plus possible 

additional discretionary program funds over the next 3 years (fiscal years 

2009-2011). 

Safeguarding and transparency: New York plans to track and monitor 

Recovery Act funds mostly through its existing internal control, audit, and 

accounting systems, although the new Recovery Cabinet and other state 

institutions have initiated several steps to coordinate the oversight of 

Recovery Act projects. For example, the Office of the State Comptroller 

(OSC) is using its accounting system to tag and track these funds, while 

the New York State Department of Transportation (NYSDOT) is 

conducting a federal-aid risk assessment to focus its internal and contract 

audit resources on projects and contracts that may be most vulnerable to 

fraud, waste, and abuse. New York officials, however, expressed concerns 

about monitoring Recovery Act funds that do not pass through state 

offices but flow directly from federal agencies to local agencies or 

authorities. For example, the Metropolitan Transportation Authority, 

which provides transportation services for the New York City 

metropolitan area, expects to receive directly about $1 billion in federal 

transit funds under the Recovery Act. 

Assessing the effects of spending: Officials have taken some initial 

steps to meet the Recovery Act’s reporting requirements, but generally 

they are awaiting further federal guidance. Officials throughout the state 

government expressed concerns about how to consistently report on the 

impact of Recovery Act funds. 

New York has begun to use some of its Recovery Act funds, as follows: 

Increased Federal Medical Assistance Percentage: Medicaid is a joint 

federal-state program that finances health care for certain categories of 

low-income individuals, including children, families, persons with 

disabilities, and persons who are elderly. The federal government matches 

state spending for Medicaid services according to a formula based on each 

state’s per capita income in relation to the national average per capita 

income. The amount of federal assistance states receive for Medicaid 

service expenditures is known as the Federal Medical Assistance 

New York Beginning 

to Use Recovery Act 

Funds 

Page 216 GAO-09-580 Recovery Act
Appendix XIV: New York 

Percentage (FMAP). Across states, the FMAP may range from 50 percent 

to no more than 83 percent, with poorer states receiving a higher federal 

matching rate than wealthier states. The Recovery Act provides eligible 

states with an increased FMAP for 27 months between October 1, 2008, 

and December 31, 2010.1

 On February 25, 2009, the Centers for Medicare & 

Medicaid Services (CMS) made increased FMAP grant awards to states, 

and states may retroactively claim reimbursement for expenditures that 

occurred prior to the effective date of the Recovery Act.2

Generally, for federal fiscal year 2009 through the first quarter of federal 

fiscal year 2011, the increased FMAP, which is calculated on a quarterly 

basis, provides for (1) the maintenance of states’ prior year FMAPs; (2) a 

general across-the-board increase of 6.2 percentage points in states’ 

FMAPs; and (3) a further increase to FMAPs for those states that have a 

qualifying increase in unemployment rates. The increased FMAP available 

under the Recovery Act is for state expenditures for Medicaid services. 

However, the receipt of the increased FMAP may reduce the funds that 

states must use for their Medicaid programs, and states have reported 

using these available funds for a variety of purposes. For the second 

quarter of fiscal year 2009, New York’s FMAP was 58.78 percent, an 

increase of 8.78 percentage points over its fiscal year 2008 FMAP. 

New York expects to receive about $11 billion in federal Medicaid funds as 

a result of the increase in its FMAP. As of April 13, 2009, CMS had made 

about $3.14 billion in increased FMAP grant awards to New York and the 

state had drawn down about $1.74 billion of its grant awards. Nearly $1.3 

billion of the funds made available as a result of the increased FMAP was 

used to close the state’s budget deficit for the state fiscal year ending on 

March 31, 2009, while $440 million was returned to the counties for their 

contributions towards the non-federal share of Medicaid expenditures 

eligible for the increased FMAP. 

New York initially plans to use funds made available as a result of the 

increased FMAP to help address budget deficits. According to the 

Governor’s office, New York State has the highest Medicaid cost per capita 

and, unlike most states, requires local governmental entities to contribute 

 

1

Recovery Act, div. B, title V, § 5001. 

2

Although the Recovery Act was enacted February 17, 2009, states generally may claim 

reimbursement for the increased FMAP for Medicaid service expenditures made on or after 

October 1, 2008. 

Page 217 GAO-09-580 Recovery Act
Appendix XIV: New York 

towards the nonfederal share of Medicaid expenditures. The state’s 

counties provide this local share. According to state officials, in 2006, in 

order to control Medicaid spending at the local level, the state instituted a 

cap on local Medicaid expenditures that constituted about 33 percent of 

the nonfederal share of expenditures at the time. This cap, unique to New 

York, basically limits the annual increase in a locality’s Medicaid 

expenditures to 3 percent of what it spent in 2005. The result has been that 

the localities’ percentage share of Medicaid expenditures has slightly 

declined each year since 2006. 

The 2009-2010 enacted state budget plans to use nearly half of the 

enhanced FMAP funding expected to be received through March 31, 2010 

on (1) health care to avoid certain difficult provider reimbursement cuts, 

and (2) other savings actions proposed by the Governor in his initial 

budget proposal in December 2008. These funds will also help pay for 

unanticipated rising Medicaid costs, primarily driven by rising caseloads 

resulting from the current economic downturn. In addition, the FMAP 

funds (1) helped avoid proposed cuts to important human services and 

mental hygiene programs, (2) were used to maintain revenue sharing 

funding for New York City, and (3) avoided several proposed tax increases 

that would have impacted middle class families and small businesses. 

Transportation—Highway Infrastructure Investment: The Recovery 

Act provides additional funds for highway infrastructure investment using 

the rules and structure of the existing federal-aid highway Surface 

Transportation Program, through which money is apportioned to states for 

the construction and maintenance of eligible highways and for other 

surface transportation projects. States must follow the requirements for 

the existing programs, and in addition, the governor must certify that the 

state will maintain its current level of transportation spending, and the 

governor or other appropriate chief executive must certify that the state or 

local government to which funds have been made available has completed 

all necessary legal reviews and determined that the projects are an 

appropriate use of taxpayer funds. 

Page 218 GAO-09-580 Recovery Act
Appendix XIV: New York 

As of April 16, 2009, the Federal Highway Administration had obligated 

about $276.5 million to New York State for 108 transportation projects.3

The state has been able to move quickly on these projects largely because 

NYSDOT, as required by federal surface transportation legislation, has a 

planning mechanism that routinely identifies needed transportation 

projects and performs preconstruction activities, such as obtaining 

required environmental permits. A NYSDOT official told us that as of April 

13, 2009, 38 projects approved in March 2009 had been advertised for bids 

for contracts. 

In late 2008, NYSDOT began preparing to manage potential stimulus 

funding in transportation programs. NYSDOT, which oversees over 

113,000 miles of highway, 16,000 bridges, and more than 130 transit 

operators, initially established a working group that began reviewing or 

“scrubbing” core projects in the state’s transportation improvement plan 

(STIP) in late 2008 to make sure projects would be fully permitted and 

“shovel ready,” should funding be made available. Because of an 

approximately 8 percent per year increase in construction costs during the 

last 3 years and the state’s declining fiscal position, New York has a large 

backlog of planned transportation projects. As of April 16, 2009, the 

Governor had certified that 108 projects met the objectives of the act and 

that the state will maintain its planned level of effort within its 

transportation program. 

To meet the act’s objectives—funding projects that can be started quickly 

and have the desired economic impact in terms of jobs and local 

benefits—the state will target most state transportation funds to 

infrastructure rehabilitation, including preventive maintenance and 

reconstruction, such as bridge repairs and replacement, drainage 

improvement, repaving, and roadway reconstruction. State officials 

emphasized that these projects extend the life of infrastructure and can be 

contracted for and completed relatively easily in the 3-year time frame 

required by the act. The state will also target some Recovery Act highway 

dollars to more typical “shovel ready” highway construction projects for 

which there are insufficient funds. By the end of April 2009, NYSDOT 

expects to have a complete list of projects that Recovery Act funds will 

 

3

For federal-aid highway projects, the Federal Highway Administration of the U.S. 

Department of Transportation has interpreted the term obligation of funds to mean the 

federal government’s contractual commitment to pay for the federal share of a project. This 

commitment occurs at the time the federal government approves a project agreement and 

the project agreement is executed. 

Page 219 GAO-09-580 Recovery Act
Appendix XIV: New York 

support. NYSDOT officials noted that the list of projects would be fluid 

depending on bid results, budget overruns, and the ability of localities to 

start and complete planned projects within expected time frames. 

Consistent with the Governor’s goal of leveraging the impact of Recovery 

Act funds, NYSDOT has also begun working with rural public 

transportation systems to identify eligible Federal Transit Administration 

activities. Recovery Act transit funds will be used to replace a significant 

number of vehicles that currently exceed their federally rated service life 

with new cleaner-fuel buses that comply with the Americans with 

Disabilities Act. NYSDOT will use a statewide bus contract to procure the 

majority of these new vehicles. This cooperative effort would also allow 

the communities to take advantage of the state’s procurement expertise 

and presumably lower overall procurement costs. 

U.S. Department of Education State Fiscal Stabilization Fund: The 

Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be 

administered by the U.S. Department of Education (Education). SFSF is 

intended to help avoid reductions in education and other essential public 

services. The initial award of SFSF funding requires each state to submit 

an application to Education that assures it will take actions to meet certain 

educational requirements, such as increasing teacher effectiveness and 

addressing inequities in the distribution of highly qualified teachers. As of 

April 13, 2009, New York’s SFSF allocation was about $2.0 billion; 

however, the state had not drawn down any of this amount. The state has 

not applied for these funds and they will not be allocated to public entities 

such as K-12 school districts and public higher education institutions until 

the school year begins on July 1, 2009. The Governor’s office said that this 

application is expected to be submitted soon. 

The New York State Education Department (NYSED), which has an annual 

budget of about $30 billion, expects to receive about $5 billion in Recovery 

Act funds. About half of the amount—approximately $2.5 billion—is 

expected to be provided through SFSF. These funds can be used to help 

avert elementary, secondary, and higher education reductions, such as the 

loss of teachers. NYSED officials told us that they believe most of these 

funds will be used to offset expected budget cuts throughout school 

systems that were caused by the downturn in the economy and in state 

revenues. State officials also have discretion over an additional 18 percent 

of the stabilization funds–approximately $549 million--and can use this 

portion for a wide range of government services, including school 

modernization. 

Page 220 GAO-09-580 Recovery Act
Appendix XIV: New York 

As of April 13, 2009, New York had also been allocated an additional $1.7 

billion in Recovery Act funds for programs under Title I, Part A of the 

Elementary and Secondary Education Act of 1965 (ESEA), as amended by 

the No Child Left Behind Act, and the Individuals with Disabilities 

Education Act (IDEA). 

New York Has Established 

a Recovery Cabinet to 

Manage Recovery Act 

Funds 

The key New York institutions involved in managing Recovery Act funds 

are the governor’s office, the state program departments and agencies, and 

OSC. In addition, localities, transit, or housing authorities will play a role 

in managing some Recovery Act funds that do not pass through state 

offices. Because of the timing of New York’s annual fiscal year and the 

February 17, 2009, enactment of the Recovery Act, the state had to quickly 

incorporate Recovery Act funding into the budget for the fiscal year 

beginning April 1, 2009. New York’s Governor, in anticipation of the 

Recovery Act, established a Recovery Cabinet in February 2009. The 

Recovery Cabinet is led by the Governor’s Senior Advisor for 

Transportation and Infrastructure. All state agencies and many state 

authorities are represented on the cabinet, which is charged with 

coordinating and managing Recovery Act funding throughout the state. 

Similarly, New York City officials developed a City Hall Working Group 

comprising city management and individuals from the relevant agencies 

that are planning to receive Recovery Act funding to coordinate and 

manage the funding. 

While over 50 percent of Recovery Act funding, such as most education 

program funding, is formula driven and directed to specific localities in the 

state, other funds may be allocated by the state, such as discretionary 

funds for rail projects. A Recovery Cabinet committee is making such 

funding decisions in a “situation room” that works with the relevant state 

departments to disburse recovery funds in a manner that seeks to 

maximize the act’s objectives and address the political need to spread 

money throughout the state. More specifically, the cabinet expects to 

leverage Recovery Act funding in transportation and other areas to 

maximize the economic impact of the funds. The cabinet also established 

other working groups to address communication and coordination 

objectives, including one group that is working on Recovery Act reporting 

requirements. State officials expressed concerns about the Recovery Act’s 

requirements for reporting 10 days after the quarter ends. The officials said 

that this is a potential area of noncompliance for New York, particularly 

because the state does not have a strong track record on reporting 

compliance. Furthermore, state officials expressed concerns about how 

Page 221 GAO-09-580 Recovery Act
Appendix XIV: New York 

Recovery Act administrative and monitoring costs might strain existing 

financial and human resources. 

The Recovery Cabinet also serves as a focal point of contact for counties 

and other localities throughout the state—informing them of the types of 

projects that could be eligible for stimulus funding and soliciting ideas and 

proposals for such funding. In addition, New York established an 

economic recovery Web site in February 2009—www.recovery.ny.gov. By 

using the Web site, New Yorkers have been able to enter their project 

ideas directly into a project database and track Recovery Act funding and 

its impact. This database currently contains over 16,000 project ideas. 

Other key players in New York’s management of Recovery Act funds 

include OSC, an independently elected office that is charged with issuing 

the state’s internal control standards, managing the central accounting 

system, and directing internal audits throughout the state’s departments 

and agencies, among other responsibilities. OSC will be responsible for 

tracking and monitoring the progress of Recovery Act funding and 

ensuring that the funding meets established internal controls. 

State authorities and metropolitan planning organizations that are not 

directly managed by the Governor are also key players in the delivery of 

New York State services and are therefore central to the management of 

some Recovery Act funds. For example, the Metropolitan Transportation 

Authority will manage about $1 billion of Recovery Act funds. 

The primary responsibility for ensuring the transparency and 

accountability of Recovery Act funds rests with the executive branch, led 

by the governor. For the most part, New York plans to track and monitor 

Recovery Act funding using existing internal control, audit, and accounting 

systems. For example, OSC plans to use its existing Central Accounting 

System to tag and track Recovery Act funds as they are disbursed. 

Individual state agencies are also planning to use their existing 

management systems to monitor Recovery Act spending. For example, 

NYSDOT is conducting a federal-aid risk assessment to help its Internal 

Audit and Contract Audit Bureaus target their resources to the most 

vulnerable programs and projects. However, state officials have several 

oversight concerns, including monitoring Recovery Act funds that do not 

pass through state agencies and the ability of some local authorities that 

may not have experience managing federal programs to oversee large 

infusions of new funding. Finally, many officials throughout the state are 

New York Plans to 

Oversee and 

Safeguard Recovery 

Act Funds Using 

Existing Control 

Mechanisms Where 

Possible 

Page 222 GAO-09-580 Recovery Act
Appendix XIV: New York 

concerned about their ability to consistently report on the impact of 

Recovery Act funding. 

New York Will Use 

Existing Control Structure 

Several New York government entities are responsible for the 

management, implementation, and oversight of internal controls and for 

safeguarding taxpayers’ money. These entities include OSC, individual 

state agencies, and the governor’s office. For example, 

• OSC is responsible for the state’s Central Accounting System, 

disburses funds, and audits state agencies and authorities, among 

other responsibilities. 

• Each large state agency, such as NYSDOT, has a director of internal 

audit,4

 as well as an internal control officer5 who reports to the head of 

the agency, coordinates internal control activities, and helps ensure 

internal control program compliance. 

• The head of each state agency and public authority must annually 

certify compliance with the State’s Internal Control Act. 

• Each state agency operates its own financial management and 

reporting system and has its own procurement officer. However, OSC 

must review and approve all contracts over $50,000. 

The governor’s office, in addition to overseeing state agencies, is 

responsible for conducting an annual audit of federal funds known as the 

Single Audit. New York’s Single Audit for the year ending March 31, 2008, 

disclosed a number of material weaknesses involving the major federal 

programs. For example, the Single Audit found the following: 

• OSC’s procedures, through which OSC identified approximately $49.8 

million in potential overpaid Medicaid claims, were adequate. The 

Department of Health and the Office of the Medicaid Inspector General 

have initiated recovery of those claims that they determined are 

 

4

The agency’s director of internal audit reviews the operations of the agency to provide 

reasonable assurance of conformance with management policies and the effectiveness of 

internal controls. The internal auditor must maintain independence from the activities that 

are audited. 

5

The internal control officer assists the agency head and agency management and has 

responsibility for implementing, maintaining, and reviewing the agency’s system of internal 

control. 

Page 223 GAO-09-580 Recovery Act
Appendix XIV: New York 

appropriate for recovery. OSC had also identified about $17 million in 

potential overpaid claims in 2007. State officials told us, however, that 

many of the instances of potential Medicaid overpayments were 

without basis and were, in fact, made consistent with federal 

requirements. 

• NYSDOT did not adequately document audit extensions that it granted 

subrecipients. Furthermore, the department did not have a sanction 

policy in effect for subrecipients that were not in compliance with 

audit requirements. Effective August 2008, NYSDOT established a 

formal sanctioning policy. 

• The Housing Trust Fund Corporation did not have procedures in place 

to adequately monitor the compliance requirements of the Single Audit 

Act, as amended, and OMB’s implementing guidance in OMB Circular 

No. A-133, for grant subrecipients. 

• Several programs, including Temporary Assistance for Needy Families, 

the Child Care and Development Block Grant, and the Office of 

Children and Family Services, did not adequately complete forms 

documenting the transfer of funds awarded by the federal government. 

• The Department of Education’s Vocational Rehabilitation Services 

program had not determined individuals’ eligibility for the program 

services within a reasonable period of time. 

The Single Audit did not provide 10 federal programs, including the 

Medical Assistance, Low-Income Home Energy Assistance, and Food 

Stamp Cluster Programs, an unqualified opinion because of various 

findings, including cost allocation plans that were not approved by the 

federal government. New York also received an unqualified opinion on 

OSC’s comprehensive annual financial statements for the state fiscal year 

that ended March 31, 2008.6

 The audit reported control deficiencies but 

disclosed no instances of noncompliance that would be material to the 

basic financial statements. 

As noted above, the state will separately account for Recovery Act 

expenditures on the Central Accounting System to make tracking the 

funds easier. However, according to a state comptroller official, agencies 

 

6

For an unqualified opinion, the auditor expresses the opinion that the financial statements 

present fairly, in all material respects, the financial position, results of operations, and cash 

flows of the entity in conformity with generally accepted accounting principles. 

Page 224 GAO-09-580 Recovery Act
Appendix XIV: New York 

may rely on multiple databases for handling transactional and 

performance data, making data reliability difficult to ascertain. According 

to this official, state agencies vary in their capabilities, and the 

independent financial management systems that operate distinctly from 

the Central Accounting System have varying degrees of sophistication and 

accessibility. 

The Governor Plans to 

Implement Several Internal 

Control Initiatives for 

Recovery Act Funding 

In addition to existing control systems, the Governor’s office has planned 

several new initiatives for ensuring accountability of Recovery Act funds. 

First, drawing on past efforts of New York state agencies and the New 

York State Internal Control Association to improve the state’s internal 

controls, transparency, and data integrity, the Recovery Cabinet plans to 

establish a working group on internal controls. This working group will be 

made up of internal control officers from major agencies in the cabinet 

and will meet regularly to provide additional guidance to those agencies 

receiving and or administering Recovery Act funds. Second, the 

Governor’s office plans to hire a consultant to review the state’s 

management infrastructure and capabilities to achieve accountability, 

effective internal controls, compliance, and reliable reporting under the 

Recovery Act. Third, the Director of State Operations provided initial 

guidance to the state agencies and authorities on the Recovery Act 

accountability and transparency requirements. According to state officials, 

all agencies and departments that expect to receive Recovery Act funds 

have been asked to review and report on their practices for fraud 

prevention, contract management, and grants accountability to assess 

their current vulnerabilities and to ensure that the state is prepared to 

meet the Recovery Act requirements. Finally, the state plans to coordinate 

fraud prevention training sessions. 

Office of the State 

Comptroller Issued 

Guidance for Safeguarding 

Recovery Act Funds 

On March 23, 2009, OSC issued accounting bulletins and procurement and 

disbursement guidelines to state agencies on using Recovery Act funds. 

Included in these guidelines are instructions to agencies on using a 

designated revenue code to account for all federal grant moneys received 

and a designated accounting code to process and report payments 

financed with Recovery Act funds. According to OSC, it intends to closely 

scrutinize contracts and monitor payments charged to Recovery Act 

appropriations to ensure adequate accountability, compliance, and 

effective and efficient use of Recovery Act funds. In addition, OSC says it 

plans to post the Recovery Act data that will flow through the central 

accounting system to Open Book, the Web site that provides transparency 

for contracts, expenditures, and local government funds. Furthermore, 

Page 225 GAO-09-580 Recovery Act
Appendix XIV: New York 

OSC says that it will continue to advise and provide technical assistance to 

local governments as the requirements of the Recovery Act become 

clearer. 

Examples of State 

Agencies’ Planned 

Oversight and Reporting of 

Recovery Act Funds 

Guided by the Recovery Cabinet working groups, state agencies are 

planning to implement various types of oversight and reporting 

mechanisms to comply with the Recovery Act. For example: 

• NYSDOT is relying heavily on existing program oversight controls, 

such as normal highway project procurement requirements, to manage 

and control Recovery Act spending. In addition to those oversight 

controls, as described above, NYSDOT is conducting a risk assessment 

of federal-aid projects to direct future internal audit and contract 

reviews. NYSDOT officials said that special emphasis will be placed on 

high-risk areas, such as projects developed by local public agencies, 

and that a formal plan for overseeing Recovery Act subrecipients will 

include training, technical assistance, and regular reviews of 

subrecipients’ documents and processes. With regard to reporting, 

NYSDOT is developing a dataset that is expected to contain all data 

elements required to fully meet state reporting requirements. NYSDOT 

is also putting a reporting requirement in existing recovery project 

contracts alerting contractors that they are responsible for meeting all 

Recovery Act reporting requirements. 

• NYSED officials said that they have been meeting with OSC to ensure 

proper accounting codes are used in tracking and reporting Recovery 

Act funds. However, officials are concerned that once the funds reach 

localities, the funds may lose their accounting codes and get rolled up 

with other state and federal funds. In addition, state education officials 

said that they have established a waste, fraud, and abuse work team to 

examine risks and identify areas of concern associated with Recovery 

Act funds. The officials said that the biggest challenge that they 

foresee is district reporting at the school level. According to the 

officials, risk assessments for schools with higher spending per 

student will need to be developed. 

• Division of Housing and Community Renewal officials said that they 

are fairly confident that they can modify the division’s existing 

accounting and reporting systems to meet Recovery Act requirements. 

However, housing officials are concerned about the potential for fraud, 

waste, and abuse in the weatherization program. This concern results 

from the huge increase (over 600 percent) in funding New York will 

get, rule changes, the acceleration of the expenditure time line, and the 

Page 226 GAO-09-580 Recovery Act
Appendix XIV: New York 

need to hire subcontractors, many of which will be new to the 

program. Specifically, New York State expects to receive $395 million 

in additional weatherization funds from the Recovery Act, compared 

with a little over $60 million allocated to the program in the previous 

state fiscal year. In addition, the Recovery Act increased the maximum 

amount that can be spent for each housing unit qualifying for the 

program from $2,500 to $6,500. Officials said they are concerned about 

their ability to effectively manage the program, given the major funding 

and program changes caused by the Recovery Act, when their existing 

staff is already stretched. Housing officials said that they are assessing 

the risk to the weatherization program. 

• According to New York officials, increased FMAP grant awards are 

segregated from other Medicaid funds received by the state. These 

funds have received a distinct code to identify them as part of the 

funding received from the Recovery Act in OSC’s Central Accounting 

System. Additionally, the increased FMAP grant awards received by 

the state and local governments are tracked separately in the 

accounting system. OSC has instructed localities to maintain a 

separate account for FMAP funds. As of April 13, 2009, the comptroller 

had not disclosed plans for auditing the increased FMAP funds. 

Plans to Assess Impact Are 

Still Being Developed 

State transportation, education, and housing agency officials are just 

beginning to consider plans to assess the impact of Recovery Act funds. 

They are generally waiting for the Office of Management and Budget to 

provide guidance or methods to help in assessing impact, such as job 

retention and creation, increases in tax revenues, and savings from 

weatherization or other energy projects. For instance, state housing 

officials said that they typically track dollars and that they will require 

additional guidance from the Department of Housing and Urban 

Development on how to track job creation. State education officials said 

that it would be difficult to isolate the impact of Recovery Act funds on 

student achievement from the impact of other initiatives the state is 

undertaking. State officials also expressed concerns about how to 

consistently measure the impact of funding, such as how to count job 

creation and how to track the ripple effect of funding. 

New York City officials said that it will be a challenge, absent additional 

guidance, to account for the impact of Recovery Act funds on programs 

funded by multiple streams of money, such as counting the number of new 

beds at a homeless shelter or the number of additional children in the 

city’s child care program. New York City is developing an online database 

that will describe the use of Recovery Act funds down to the program 

Page 227 GAO-09-580 Recovery Act
Appendix XIV: New York 

level. Officials said that the purpose of the database is to provide 

transparency for New York City residents and to fulfill future reporting 

requirements. The database is expected to provide such details on a 

Recovery Act-funded program as the number of additional beds at a 

homeless shelter. However, New York City officials said that it is difficult 

to begin planning how to assess impact until they know what measures 

will be called for by federal reporting guidelines. Furthermore, New York 

City officials recommended relaxing the reporting deadlines and 

requirements for the first quarter after Recovery Act funds are received so 

states and localities have more time to understand new guidance. 

We provided the Governor of New York with a draft of this appendix on 

April 17, 2009. The Senior Advisor for Transportation and Infrastructure 

responded for the Governor on April 20, 2009 by providing technical 

suggestions that were incorporated, as appropriate. 

Susan Fleming, (202) 512-4431, or flemings@gao.gov 

Dave Maurer, (202) 512-9627, or maurerd@gao.gov 

In addition to the contacts named above, Ronald Stouffer, Assistant 

Director; Barbara Shields, analyst-in-charge; Jeremiah Donoghue, Colin 

Fallon, Summer Pachman, Frank Putallaz, Jeremy Rothgerber, and Cheri 

Truett made major contributions to this report. 

New York’s 

Comments on This 

Summary 

GAO Contacts 

Staff 

Acknowledgments 

Page 228 GAO-09-580 Recovery Act
Appendix XV: North Carolina 

Page 229 GAO-09-580 

Appendix XV: North Carolina 

Use of funds: An estimated 90 percent of Recovery Act funding provided 

to states and localities nationwide in fiscal year 2009 (through Sept. 30, 

2009) will be for health, transportation and education programs. The three 

largest programs in these categories are the Medicaid Federal Medical 

Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund, 

and highways. 

Overview 

9 Medicaid Federal Medical Assistance Percentage (FMAP) Funds 

• As of April 3, 2009, Centers for Medicare & Medicaid Services (CMS) had made about $657 million in 

increased FMAP grant awards to North Carolina. 

• As of April 1, 2009, North Carolina had drawn down $414.6 million in increased FMAP grant awards, or 63 

percent of its awards to date. 

• North Carolina officials reported that they plan to use funds made available as a result of the increased FMAP 

to maintain current populations and benefits and to offset the state’s general fund deficit. 

9 Transportation—Highway Infrastructure Investment 

• North Carolina was apportioned about $736 million for infrastructure investment on March 2, 2009, by the 

U.S. Department of Transportation. 

• As of April 16, 2009, the U.S. Department of Transportation had obligated about $165 million for 53 projects in 

North Carolina. 

• As of April 16, 2009 the North Carolina Department of Transportation had selected 138 projects estimated to 

utilize about 90 percent of its allocated Recovery Act funds. 

• These projects include activities such as repaving highways and replacing bridges. 

• North Carolina Department of Transportation officials told us they identified these projects based on 

Recovery Act criteria that priority is to be given to projects that are anticipated for completion within a 3-year 

time frame and that are located in economically distressed areas. 

9 U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) 

• North Carolina was allocated about $952 million from the initial release of these funds on April 2, 2009, by the 

U.S. Department of Education. 

• Before receiving the funds, states are required to submit an application that provides several assurances to 

the Department of Education. These include assurances that they will meet maintenance of effort 

requirements (or that they will be able to comply with waiver provisions) and that they will implement 

strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing 

inequities in the distribution of highly qualified teachers, and improving the quality of state academic 

standards and assessments. North Carolina officials said that they would apply for fiscal stabilization funds 

by the end of April 2009. 

• The state had not yet determined how fiscal stabilization funds will be used. 

 Recovery Act 
Appendix XV: North Carolina 

North Carolina is also receiving additional Recovery Act funds under other 

programs, such as Edward Byrne Memorial Justice Assistance Grant 

program to improve the functioning of the criminal justice system; the Tax 

Credit Assistance Program for low-income housing; and Workforce 

Investment Act Youth, Adult, and Dislocated Worker Programs that 

provide employment and training services. The status of state plans for 

using these funds is described throughout this appendix. 

Safeguarding and transparency: The state has set up the Office of 

Economic Recovery and Investment (OERI) to help agencies track, 

monitor, and report on Recovery Act funds, and the North Carolina Senate 

and House of Representatives have established committees to provide 

legislative oversight of these funds. In addition, the state has a number of 

initiatives under way that will improve accountability and transparency for 

Recovery Act funds, and the state will track Recovery Act funds separately 

to ensure accountability for those funds. North Carolina officials identified 

several potential concerns about the safeguarding of funds. For example, 

several officials said that they were concerned about whether there were 

enough staff members to meet additional management and oversight 

responsibilities under the Recovery Act. 

Assessing the effects of spending: North Carolina agencies are in the 

early stages of developing plans to assess the impact of Recovery Act 

expenditures. According to state officials, they have been awaiting 

guidance from the federal government, particularly related to measuring 

job creation. 

North Carolina has begun to use some of its Recovery Act funds, as 

follows: 

Increased Federal Medical Assistance Percentage Funds: Medicaid is 

a joint federal-state program that finances health care for certain 

categories of low-income individuals, including children, families, persons 

with disabilities, and persons who are elderly. The federal government 

matches state spending for Medicaid services according to a formula 

based on each state’s per capita income in relation to the national average 

per capita income. The amount of federal assistance states receive for 

Medicaid service expenditures is known as the Federal Medical Assistance 

Percentage (FMAP). Across states, the FMAP may range from 50 percent 

to no more than 83 percent, with poorer states receiving a higher federal 

matching rate than wealthier states. The Recovery Act provides eligible 

states with an increased FMAP for 27 months between October 1, 2008, 

North Carolina 

Beginning to Use 

Recovery Act Funds 

Page 230 GAO-09-580 Recovery Act
Appendix XV: North Carolina 

and December 31, 2010.1 On February 25, 2009, the Centers for Medicare & 

Medicaid Services (CMS) made increased FMAP grant awards to states, 

and states may retroactively claim reimbursement for expenditures that 

occurred prior to the effective date of the Recovery Act.2

 Generally, for 

federal fiscal year 2009 through the first quarter of federal fiscal year 2011, 

the increased FMAP, which is calculated on a quarterly basis, provides for 

(1) the maintenance of states’ prior year FMAPs, (2) a general across-theboard increase of 6.2 percentage points in states’ FMAPs, and (3) a further 

increase to the FMAPs for those states that have a qualifying increase in 

unemployment rates. The increased FMAP available under the Recovery 

Act are for state expenditures for Medicaid services. However, the receipt 

of the increased FMAP may reduce the funds that states must use for their 

Medicaid programs, and states have reported using these available funds 

for a variety of purposes. 

As of April 1, 2009, North Carolina had drawn down $414.6 million in 

increased FMAP grant awards, or 63 percent of its awards to date.3

 North 

Carolina officials reported that they plan to use funds made available as a 

result of the increased FMAP to maintain current populations and benefits 

and to offset the state’s general fund deficit. The state has received 

guidance on the requirements for reporting Medicaid expenditures under 

the Recovery Act. However, the state would like additional guidance on 

other types of reporting requirements, such as performance information. 

Transportation – Highway Infrastructure Investment: The Recovery 

Act provides additional funds for highway infrastructure investment using 

the rules and structure of the existing Federal-Aid Highway Surface 

Transportation Program which apportions money to states to construct 

and maintain eligible highways and for other surface transportation 

projects. States must follow the requirements for the existing programs, 

and in addition, the governor must certify that the state will maintain its 

current level of transportation spending, and the governor or other 

appropriate chief executive must certify that the state or local government 

to which funds have been made available has completed all necessary 

 

1

Recovery Act, div. B, Title V, § 5001. 

2

Although the Recovery Act was enacted February 17, 2009, states generally may claim 

reimbursement for the increased FMAP for Medicaid service expenditures made on or after 

October 1, 2008. 

3

North Carolina received increased FMAP grant award of $657.1 million for the first three 

quarters of federal fiscal year 2009. 

Page 231 GAO-09-580 Recovery Act
Appendix XV: North Carolina 

legal reviews and determined that the projects are an appropriate use of 

taxpayer funds. North Carolina provided these certifications, but 

conditioned the level of funding from state sources for the Recovery Act 

covered programs on future revenue collections in the state.4

The North Carolina Department of Transportation (NCDOT) was 

apportioned about $736 million in Recovery Act funds for highways and 

bridges. As of April 16, 2009, the U.S. Department of Transportation had 

obligated about $165 million for 53 projects in North Carolina.5

 The 

department has plans to award 70 contracts for Recovery Act projects 

between March and June, which are estimated to cost $466 million. 

NCDOT officials told us that they identified these projects based on 

Recovery Act direction that priority is to be given to projects that are 

anticipated to be completed within a 3-year time frame and that are 

located in economically distressed areas. Projects were also evaluated 

based on several criteria, including alignment with long-range investment 

plans and considerations about geographical diversity and economic 

impact.6

 Based on the estimated costs of the initially selected projects, 

about one-third of costs are for projects not located in economically 

distressed areas, according to state officials. 

U.S. Department of Education State Fiscal Stabilization Fund: The 

Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be 

administered by the U.S. Department of Education (Education). The SFSF 

provides funds to states to help avoid reductions in education and other 

essential public services. The initial award of SFSF funding requires each 

state to submit an application to Education that assures it will take action 

to meet certain educational requirements such as increasing teacher 

effectiveness and addressing inequities in the distribution of highly 

 

4

A number of states qualified their certifications in various ways. The legal effect of such 

qualifications is currently being examined by the Department of Transportation and has not 

been reviewed by GAO. 

5

For federal-aid highway projects, the Federal Highway Administration of the U.S. 

Department of Transportation has interpreted the term obligation of funds to mean the 

federal government’s contractual commitment to pay for the federal share of a project. This 

commitment occurs at the time the federal government approves a project agreement and 

the project agreement is executed. 

6

Projects selected were evaluated based on several other criteria, including a state equity 

formula (North Carolina G.S. 136-17.2A) that creates a target value for programming future 

expenditures in various regions of the state. The formula is applied only to non-exempt 

highways funds and not transit and rail programs. 

Page 232 GAO-09-580 Recovery Act
Appendix XV: North Carolina 

qualified teachers. North Carolina officials said that they would apply for 

fiscal stabilization funds by the end of April 2009. 

The state has been allocated $952 million under the SFSF program. 

Officials from the state education agency, the North Carolina Department 

of Public Instruction, said that 81.8 percent of the SFSF would be 

distributed to school districts and institutions of higher education in 

accordance with Recovery Act requirements. State officials are in the 

process of determining how to calculate the relative amount of funding 

that school districts and public institutions of higher education would 

receive. Regarding the other 18.2 percent of SFSF, state officials said that 

a decision had not yet been made about how these funds would be 

allocated. State officials have emphasized in their communications with 

school districts that funds should be used for short-term investments with 

potential for long-term programmatic gains, echoing federal guidance. 

U.S. Department of Justice Edward Byrne Memorial Justice 

Assistance Grant Program: The Edward Byrne Memorial Justice 

Assistance Grant Program (Byrne Grant Program) was established to 

streamline justice funding and grant administration, and allows states, 

tribes, and local governments to support a broad range of activities to 

prevent and control crime based on their own local needs and conditions. 

According to officials of the North Carolina Governor’s Crime 

Commission, the office expects to receive an allocation of $34.5 million 

through the Byrne Grant Program. The Governor’s Crime Commission is 

allowed to use 10 percent of that total, or about $3.5 million, for 

administrative purposes. This leaves a balance of $31 million. Of this 

amount, 42.4 percent, or $13.2 million, must be passed through by formula 

to local governments and the remainder of $17.9 million will go to other 

state agencies and institutions. North Carolina officials for the Byrne 

Grant Program are planning to fund programs based on the state’s list of 

program priorities, which include programs such as the Criminal Justice 

System Improvement, Crime Victims’ Services, Juvenile Justice Planning, 

and North Carolina Gang Prevention Initiative. Also, the localities within 

the state will receive $21.9 million, which will be awarded by the U.S. 

Department of Justice. 

Tax Credit Assistance Program and the Low Income Housing Tax 

Credit (LIHTC) Exchange Program: The Tax Credit Assistance 

Program provides grant funding for capital investment in Low Income 

Housing Tax Credit (LIHTC) projects using a formula-based allocation to 

state housing credit allocation agencies. The LIHTC Exchange program 

provides grants for housing projects in lieu of LIHTC allocations. The 

Page 233 GAO-09-580 Recovery Act
Appendix XV: North Carolina 

housing credit agencies in each state distribute these funds competitively 

and according to their qualified allocation plan. According to officials with 

the North Carolina Housing Finance Agency (NCHFA), the state has 

identified potential projects for the Tax Credit Assistance Program 

(TCAP), focusing initially on 40 to 50 tax credit projects that were stalled 

due to a lack of financing from other sources. NCHFA officials said they 

are waiting on guidance from the U.S. Department of Housing and Urban 

Development and Department of the Treasury before they begin the 

application process for developers. NCHFA officials said that 

environmental review requirements could pose a challenge to meeting 

federal timelines for making awards, but that they would not know for 

certain until final federal guidance has been issued. 

Workforce Investment Act Youth, Adult, and Dislocated Worker 

Programs: The Workforce Investment Act (WIA) provides funds for 

employment and training services to youth, adults, and dislocated 

workers. North Carolina was allocated nearly $80 million through these 

WIA programs under the Recovery Act. The North Carolina Department of 

Commerce (DOC) has been working with local workforce development 

boards since January to help them plan and prioritize the use of these 

Recovery Act funds. The state has communicated these priorities to the 

local workforce development boards: (1) increasing the number of people 

served and trained, (2) targeting programs toward underserved 

populations, including those receiving public assistance, (3) implementing 

a statewide summer youth employment program, and (4) increasing 

support services, such as child care and transportation. As necessary, the 

department has worked with other state departments to coordinate 

efforts. For example, DOC has coordinated with the state community 

college system to create short-term course offerings in 12 high-growth 

occupations that lead to certificates at each of the 58 state community 

colleges. DOC officials are also developing plans to use state-level funds 

received under the Recovery Act, and anticipate using those funds to help 

conduct outreach to inform the public of available programs and services 

funded through the Recovery Act. 

Background Information 

on North Carolina 

Federal funding plays an important role in North Carolina’s state budget, 

with the state receiving a total of about $12 billion for fiscal years 2007-

2008, which accounted for about one-quarter of the total state budget of 

about $41 billion. Health and Human services, at about $16 billion, and 

education, at about $15 billion, were the two largest categories of state 

spending, together accounting for more than 70 percent of the state 

budget. Federal funds accounted for more than half of total state spending 

Page 234 GAO-09-580 Recovery Act
Appendix XV: North Carolina 

on health and human services, and about 10 percent of state spending on 

education. 

North Carolina is expecting to receive an estimated $6.1 billion of the 

Recovery Act funding going to states. North Carolina’s fiscal situation is 

not unlike many other states. In the midst of its economic crisis, the 

Governor’s proposed biennial budget contains $2.6 billion in spending 

reductions and $1.3 billion in revenue increases, and proposes to use $2.9 

billion of federal recovery funds to support education and other missioncritical services over the biennium. The Governor’s budget proposal 

indicated that most programs face reduced or level funding, but 

recommended continued focus on growing North Carolina’s economy, 

improving public education, keeping higher education accessible and 

affordable, and protecting the state’s most vulnerable citizens. 

North Carolina, after 3 consecutive years of growth, suffered a significant 

economic decline in 2008. As reported in the Governor’s budget proposal, 

the state lost over 120,000 jobs—a nearly 3 percent decline—in 2008, 

pushing its unemployment rate up to about 10 percent. Job losses were 

particularly steep in the manufacturing sector, but the state reported that 

its housing sector, while also suffering a decline, was less affected by the 

housing downturn than other states. The Governor’s budget proposal 

projects the economy to continue its decline, but to stabilize in 2010 and 

begin to grow in 2011. In general, the state projects economic performance 

to outpace the U.S. average. 

The North Carolina state government operates on a biennial budget cycle, 

which begins on July 1 of odd-numbered years. The North Carolina 

constitution requires the Governor to submit a balanced budget, and state 

statute requires the General Assembly to pass a balanced budget, 

according to the National Association of State Budget Officers. North 

Carolina’s General Assembly must pass an appropriations bill in order for 

state agencies to disburse federal funds, according to state officials, 

according to NASBO. 

North Carolina’s Governor, Beverly Perdue, took office in January of 2009. 

The Governor is supported by a 10-person cabinet that she appoints, and 

in February 2009, she established the Office of Economic Recovery and 

Investment (OERI) to oversee the state’s implementation of the Recovery 

Act. Several other key state-level executive positions, including the 

Page 235 GAO-09-580 Recovery Act
Appendix XV: North Carolina 

Treasurer and the Superintendent of Public Instruction,7 are selected 

through statewide elections. Also, the State Auditor, who is responsible for 

providing independent evaluations and audits of state agencies and 

programs, is selected by statewide election. North Carolina has a 

bicameral General Assembly, with members of both the House and Senate 

being elected to 2-year terms. The General Assembly typically meets for a 

full session in odd-numbered years and a shorter session in evennumbered years. There is no concluding date for either session, according 

to state officials. 

North Carolina’s Planning 

Process Is Being Led by 

the Newly Created Office 

of Economic Recovery and 

Investment 

On February 17, 2009—the same day the Recovery Act was enacted—

Governor Perdue created the OERI to oversee North Carolina’s handling 

of federal stimulus funds as well as state-level economic recovery 

initiatives. OERI’s responsibilities include, among other things, 

coordinating state efforts to track and report on Recovery Act funds and 

maximizing the state’s use of Recovery Act funds. Another of OERI’s major 

responsibilities is to provide guidance to state departments and localities 

on how to monitor, track, and report the use of Recovery Act funds. On 

March 30, 2009, the state issued a memorandum on budgeting and 

accounting for Recovery Act funds. This memorandum is the first of what 

is anticipated to be a continuing series of information and directives to 

ensure that state agencies and subrecipients comply with federal and state 

requirements. Specifically, this memorandum provides guidance requiring 

that Recovery Act funds may not be commingled with other funds and that 

Recovery Act expenditures will require review and approval by the Office 

of State Budget and Management (OSBM). In addition, OERI has 

established two management directives requiring agencies to make weekly 

reports on Recovery Act funds, and to submit grant applications to OERI 

for review. 

Also, OERI is creating several working groups to coordinate state 

implementation of Recovery Act programs and requirements. Specifically, 

working groups from OERI and OSBM are being established for each 

recipient agency and grant program to ensure close coordination, clear 

establishment of operating procedures, and improved communications. 

According to OERI’s Director, three working groups for education, 

housing and homelessness, and health information technology, have been 

established, and more are planned. OERI has also developed a senior state 

 

7

The Chief Executive Officer of the State Board of Education is appointed by the Governor. 

Page 236 GAO-09-580 Recovery Act
Appendix XV: North Carolina 

management team with representatives from state agencies to exchange 

information and facilitate Recovery Act implementation. 

Governor Perdue’s budget proposal, which according to state documents 

incorporated an anticipated $6.1 billion in Recovery Act formula funds, is 

currently being considered and reviewed by the General Assembly. In an 

effort to monitor and oversee these Recovery Act funds, the North 

Carolina Senate established the Select Committee on Economic Recovery. 

According to the committee’s Chairman, the new committee was 

established to have legislative review of how the Recovery Act funds will 

be used and the effect the funds may have on the state’s budget. The North 

Carolina House of Representatives has established a similar committee. 

As North Carolina prepares for the receipt, tracking, monitoring, and 

reporting of Recovery Act funds, it currently faces a number of known 

financial management challenges and other risks. For example, North 

Carolina’s 2007 Single Audit report had 18 findings for material 

weaknesses and material noncompliance related to issues with federal 

program compliance for the North Carolina Departments of Health and 

Human Services (16) and Crime Control and Public Safety (2). Five of the 

18 findings were related to insufficient subrecipient monitoring. The state 

auditor’s office also noted that single audit findings have consistently 

found issues related to subrecipient monitoring by state agencies. 

Insufficient subrecipient monitoring and other deficiencies such as these 

may leave Recovery Act funds vulnerable to fraud, waste, and abuse. 

Plans for Safeguards 

and Controls Being 

Developed at the 

State Level and at 

State Agencies 

Administering Federal 

Programs 

In addition to single audit findings, some state officials identified 

challenges for state agencies responsible for overseeing Recovery Act 

funds. For example, several state officials said they were concerned about 

the adequacy of staff and funds needed to meet additional management 

and oversight responsibilities under the Recovery Act. In particular, 

officials with the Department of Public Instruction noted that it would be 

difficult to add staff to take on anticipated additional monitoring and 

reporting requirements. State officials told us they will explore the 

possibility of receiving a waiver from the U.S. Department of Education 

that would allow the state to set aside additional Recovery Act funds 

under Title I, Part A of the Elementary and Secondary Education Act of 

Page 237 GAO-09-580 Recovery Act
Appendix XV: North Carolina 

1965 (ESEA, commonly known as No Child Left Behind).8 However, 

officials in other agencies, such as the North Carolina Department of 

Commerce, which administers Workforce Investment Act funds, felt that 

they would be able to absorb additional responsibilities with current staff 

and resources. State officials also identified programs that were receiving 

a significant increase in program funding as a risk. For example, several 

officials noted that the weatherization program is receiving a substantial 

increase in funding. Finally, state officials told us that state agency 

guidance and communications with local governments are areas that will 

bear watching, as ensuring that local governments understand how to 

properly account for and segregate federal and state funds will be critical. 

Plans for Oversight of 

North Carolina’s Recovery 

Act Funds 

Within the state of North Carolina, a variety of efforts are under way to 

establish new safeguards over Recovery Act funds, including some that 

will build on current systems and recent initiatives. For example, officials 

at North Carolina’s OSC and OSBM told us that several state agency 

accounting systems will need to be modified to track Recovery Act funds 

as required by the Recovery Act. OSBM officials told us that they have 

been waiting for Office of Management and Budget (OMB) guidance on the 

reporting requirements, which was released by OMB on April 3, 2009. 

These officials have not identified any state agency accounting systems 

that are incapable of adding a unique identifier code to separately track 

Recovery Act funds, but said that nearly all systems will need some 

modifications. A bigger concern is that Recovery Act reporting time 

frames may not be aligned to the state departments’ normal accounting 

cycles, which may delay the departments’ ability to provide monthly or 

quarterly reports to OSBM and OERI. 

North Carolina officials also told us that they plan to build on recent 

statewide transparency and accountability initiatives to help meet 

reporting and oversight requirements. For example, the state plans to use 

its Web site, www.NCOpenBook.gov, to include information on contracts 

and grants awarded with Recovery Act funds. In addition, North Carolina 

has created another Web site, www.NCrecovery.gov, designed to maintain 

a record of how Recovery Act funds are being spent in a way that is 

transparent and accountable. Although still under development, plans for 

 

8

In ESEA Title I guidance released by the Department of Education on April 1, 2009, the 

department noted that it would propose regulations adjusting state administrative 

expenditure caps in order to help states defray the costs of data collection requirements in 

the Recovery Act. 

Page 238 GAO-09-580 Recovery Act
Appendix XV: North Carolina 

this Web site include the ability to provide additional information about 

how funds will be distributed, information on how to apply for funds or 

contracts, a mechanism to track spending on individual projects, and 

estimates of the economic impact and jobs created. Additionally, OSBM, in 

consultation with the state Department of Administration, Division of 

Purchase and Contract, is reviewing a statewide procurement process to 

streamline the process and identify any areas that need to be improved. 

The results of this review may indicate either systemic statewide or 

individual agency needs related to the Recovery Act. Finally, the OSC is 

phasing in a statewide internal control program called EAGLE (Enhancing 

Accountability in Government through Leadership and Education), which 

is intended to establish adequate internal controls and increase fiscal 

accountability. Under the EAGLE program, each agency will be required to 

perform an annual assessment of internal controls over financial reporting 

and identify risks. 

North Carolina’s State Auditor told us that, given current staffing levels, 

her office will conduct as many oversight reviews and audits of Recovery 

Act funds as they can. In order to handle the new Recovery Act work, it 

will be necessary to cut back on some of the other fiscal control audits. 

The State Auditor told us that she uses a risk-based approach to auditing 

and plans to focus the State Auditor’s Recovery Act work on subrecipient 

monitoring and on how the Recovery Act funds are being segregated from 

other federal funds coming through traditional funding streams. The State 

Auditor’s office also noted that OMB and other federal agency guidance 

may identify areas that may merit closer scrutiny. 

State officials across agencies told us that that the state Office of 

Economic Recovery and Investment was developing guidance on the 

Recovery Act reporting requirements, but that the state has not yet begun 

assessing the effects of Recovery Act funds. The state provided localities 

with guidance on a number of Recovery Act-related topics on March 30, 

2009, but the guidance has not yet specifically addressed Recovery Act 

reporting requirements. State officials told us that they needed federal 

guidance about how to assess the effects of Recovery Act funds before 

they can release state guidance. For example, the state’s Chief 

Procurement Officer said that the state needs guidance about how to 

measure specific reporting requirements such as jobs created and jobs 

saved. 

Plans to Assess 

Impact of Recovery 

Act Funds Are Just 

Being Developed 

Page 239 GAO-09-580 Recovery Act
Appendix XV: North Carolina 

We provided the Governor of North Carolina with a draft of this appendix 

on April 17, 2009. The Director of OERI responded for the Governor on 

April 20, 2009. In general, the comments were either technical or were 

status updates. The official also provided technical suggestions that were 

incorporated, as appropriate. 

Cornelia Ashby, (202) 512-8403 or ashbyc@gao.gov 

Terrell Dorn, (202) 512-6923 or dornt@gao.gov 

In addition to the contacts named above, Bryon Gordon, Assistant 

Director; Scott Spicer, analyst-in-charge; Carleen Bennett; George Depaoli; 

Bonnie Derby; Leslie Locke; Stephanie Moriarty; and Anthony Patterson 

made major contributions to this report. 

North Carolina’s 

Comments on This 

Summary 

GAO Contacts 

Staff 

Acknowledgments 

Page 240 GAO-09-580 Recovery Act
Appendix XVI: Ohio 

Page 241 GAO-09-580 

Appendix XVI: Ohio 

Use of funds: An estimated 90 percent of Recovery Act funding provided 

to states and localities nationwide in fiscal year 2009 (through Sept. 30, 

2009) will be for health, transportation and education programs. The three 

largest programs in these categories are the Medicaid Federal Medical 

Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund, 

and highways. 

Overview 

9 Medicaid Federal Medical Assistance Percentage (FMAP) Funds

• As of April 3, 2009, the Centers for Medicare & Medicaid Services (CMS) had made about $760 million in 

increased FMAP grant awards to Ohio. 

• As of April 1, 2009, Ohio has drawn down about $420.6 million, or 55.3 percent of its initial increased FMAP 

grant awards. 

• Ohio officials indicated that they will use Recovery Act funds made available as a result of the increased 

FMAP to cover increased caseloads, offset general fund shortfalls due to state budget deficits, ensure 

compliance with prompt payment provisions, maintain existing populations, avoid eligibility restrictions, 

increase provider payments, and maintain and increase current levels of benefits. 

9 Transportation—Highway Infrastructure Investment 

• Ohio was apportioned about $935.7 million for highway infrastructure investment on March 2, 2009 by the 

U.S. Department of Transportation. 

• Of the $935.7 million, about $774.2 million was apportioned to the Ohio Department of Transportation 

(ODOT). 

• On March 26, 2009, ODOT announced that it will fund 149 projects with $774.2 million in Recovery Act 

funding. According to ODOT officials, they are currently meeting with all project sponsors and performing 

detailed reviews of project documentation, confirming federal eligibility, assessing project delivery, and 

establishing project schedules. 

• As of April 16, 2009, the U.S. Department of Transportation had not obligated any Recovery Act funds for 

Ohio projects.

• ODOT expects to begin advertising for bids during the week of April 20, 2009. 

9 U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) 

• Ohio was allocated $1,198,882 from the initial release of these funds on April 2, 2009, by the U.S. Department 

of Education. 

• As of April 17, 2009, Recovery Act funds for education and some child care programs had not been 

appropriated by the legislature. Officials with the Governor’s office and Ohio’s Office of Budget and 

Management (OBM) said these funds would be included in the budget for state fiscal years 2010-2011 and 

must pass by June 30, 2009. 

• Before receiving the funds, states are required to submit an application that provides several assurances to 

the Department of Education. These include assurances that they will meet maintenance of effort 

requirements (or that they will be able to comply with waiver provisions) and that they will implement 

strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing 

inequities in the distribution of highly qualified teachers, and improving the quality of state academic 

standards and assessments. 

• State officials said that they intend to apply for State Fiscal Stabilization Funds sometime in the future.

 Recovery Act 
Appendix XVI: Ohio 

The state of Ohio expects to receive a total of $8.2 billion from the 

Recovery Act over the next 3 years (fiscal years 2009-2011). In addition to 

the funding described above, Ohio is also receiving Recovery Act funds 

under other programs, such as programs under Title I, Part A of the 

Elementary and Secondary Education Act (ESEA) (commonly known as 

No Child Left Behind); programs under the Individuals with Disabilities 

Education Act (IDEA); and two programs of the U.S. Department of 

Agriculture—one for administration of the Temporary Food Assistance 

Program and one for competitive equipment grants targeted to low-income 

districts from the National School Lunch Program. The status of plans for 

using some of these funds is described in this appendix. 

Before passage of the Recovery Act, Ohio created a Web site at 

Recovery.Ohio.gov, which represents the state’s effort to create an open, 

transparent, and equitable process for allocating Recovery Act funds. 

Through the Web site, the state has encouraged proposals for uses of 

Recovery Act funds, and as of April 8, 2009, individuals and organizations 

from across Ohio have submitted over 23,000 proposals. While still 

receiving proposals, new submissions to the Web site have dropped in 

number dramatically, as guidance from federal agencies has clarified 

details about funding opportunities. By mid-April, approximately 26 state 

agencies with programmatic expertise had sorted the 23,000 submissions 

for response. Ohio regularly updates its Web site to provide timetables 

and information on applying for funds from state and federal agencies. 

State agencies are beginning to identify specific projects to fund. On April 

1, 2009, the Governor signed House Bill 2. As described by state officials, 

the bill appropriates $1.9 billion in Recovery Act resources for 11 state 

agencies. According to state officials, additional appropriations are needed 

to spend Recovery Act funds for education and some child care programs, 

including Ohio’s share of the State Fiscal Stabilization Fund. According to 

state officials, these appropriations are included in House Bill 1, which is 

part of the state’s biennial budget and must be approved by June 30. As of 

April 1, 2009, 

• The Ohio Department of Public Safety received about 730 proposals 

for Edward Byrne Memorial Justice Assistance Grant projects through 

the Ohio Recovery Web site. Applications for the state-administered 

funds are due on May 1, 2009; the department issued its request for 

proposals with caveats that specific reporting requirements are 

forthcoming from OMB and the U.S. Department of Justice. 

Page 242 GAO-09-580 Recovery Act
Appendix XVI: Ohio 

• The Ohio Department of Job and Family Services (ODJFS) plans to 

allocate Workforce Investment Act (WIA) funds directly to local area 

workforce boards, and ODJFS provided these boards with estimates 

early so they could begin the planning process. Before funds were 

appropriated, some local areas began their efforts to procure providers 

for youth programs, particularly for work sites. 

Safeguarding and transparency: Ohio is planning to use existing 

systems and safeguards to track Recovery Act funds, but reliance on 

subrecipients to provide data for enhanced reporting requirements may 

present challenges. For example, the fiscal year 2007 single state audit 

identified material weaknesses with a number of the systems that Ohio’s 

Department of Jobs and Family Services uses to record and process 

eligibility and financial information for all their major federal programs. 

Moreover, officials with the Columbus Metropolitan Housing Authority 

(CMHA) noted limitations in how far they could reasonably be expected to 

track Recovery Act funds. They said they could track Recovery Act dollars 

to specific projects but could not systematically track funds spent by 

subcontractors on materials and labor. 

Assessing the effects of spending: Ohio continues to explore ways to 

assess the impact of Recovery Act funds, but officials anticipate 

challenges. Specifically, in the absence of guidance on the types of data to 

collect, funding could be released before state officials have determined 

reporting requirements. Moreover, Ohio officials are concerned that, 

without uniform reporting requirements, each state will develop their own 

methodologies for assessing the impact of the federal stimulus, eliminating 

any possibility of making assessments that are comparable nationwide. 

Ohio has begun to use some of its Recovery Act funds, as follows: 

Increased Federal Medical Assistance Percentage (FMAP) Funds:

Medicaid is a joint federal-state program that finances health care for 

certain categories of low-income individuals, including children, families, 

persons with disabilities, and persons who are elderly. The federal 

government matches state spending for Medicaid services according to a 

formula based on each state’s per capita income in relation to the national 

average per capita income. The amount of federal assistance states receive 

for Medicaid service expenditures is known as the Federal Medical 

Assistance Percentage (FMAP). Across states, the FMAP may range from 

50 to no more than 83 percent, with poorer states receiving a higher 

Ohio Beginning to Use 

Recovery Act Funds 

Page 243 GAO-09-580 Recovery Act
Appendix XVI: Ohio 

federal matching rate than wealthier states. The Recovery Act provides 

eligible states with an increased FMAP for 27 months between October 1, 

2008, and December 31, 2010.1

 On February 25, 2009, the Centers for 

Medicare & Medicaid Services (CMS) made increased FMAP grant awards 

to states, and states may retroactively claim reimbursement for 

expenditures that occurred prior to the effective date of the Recovery 

Act.2

 Generally, for fiscal year 2009 through the first quarter of fiscal year 

2011, the increased FMAP, which is calculated on a quarterly basis, 

provides for (1) the maintenance of states’ prior year FMAPs; (2) a genera

across-the-board increase of 6.2 percentage points in states’ FMAPs; and 

(3) a further increase to the FMAPs for those states that have a qualifying

increase in unemployment rates. The increased FMAP available under the

Recovery Act is for state expenditures for Medicaid services. However, the 

receipt of this increased FMAP may reduce the funds that states must use

for their Medicaid programs, and states have reported using these 

available funds for a varie

l 

ty of purposes. 

 

Ohio began the planning process to spend these funds before the 

enactment of the Recovery Act. In December 2008, to mitigate a budget 

revision3

 resulting from a 3.3 percent drop in estimated state tax revenues, 

the Governor’s office assumed that additional federal assistance would be 

forthcoming. By including funds made available as a result of the 

increased FMAP in the assumptions used to revise the budget, cuts to state 

agency budgets and services were less severe. As of April 1, 2009, Ohio has 

drawn $420.6 million in Medicaid Recovery Act funds or 55.3 percent of its 

initial FMAP funds. Ohio officials indicated that as of March 31, 2009, they 

will use Recovery Act funds to cover increased caseloads, offset general 

fund shortfalls due to state budget deficits, ensure compliance with 

1

Recovery Act, div. B, title V. 

2

Although the Recovery Act was enacted February 17, 2009, states generally may claim 

reimbursement for the increased FMAP for Medicaid service expenditures made on or after 

October 1, 2008. 

3

According to state officials, the Ohio constitution requires the state to have a balanced 

budget. Ohio’s biennial budget covers two separate fiscal years which each begin on July 1 

and end on June 30 of the following year. Separate budget bills are prepared for the state’s 

General Revenue Fund and another for transportation and public safety activities. Because 

Ohio may not carry a deficit, the state must revise its budget whenever revenue estimates 

decline. Since enactment of its current budget for fiscal years 2008-2009, the Governor has 

made three downward revisions totaling over $1.9 billion—or about 9.5 percent of the fiscal 

year 2009 State-only General Revenue Fund budget. These actions resulted in statewide 

cuts to agency and departmental budgets. 

Page 244 GAO-09-580 Recovery Act
Appendix XVI: Ohio 

prompt payment provisions, maintain existing populations, avoid eligibility 

restrictions, increase provider payments, and maintain and increase 

current levels of benefits. 

Transportation—Highway Infrastructure Investment: The Recovery 

Act provides additional funds for highway infrastructure investment using 

the rules and structure of the existing Federal-Aid Highway Surface 

Transportation Program, which apportions money to states to construct 

and maintain eligible highways and for other surface transportation 

projects. States must follow the requirements for the existing programs, 

and in addition, the governor must certify that the state will maintain its 

current level of transportation spending, and the governor or other 

appropriate chief executive must certify that the state or local government 

to which funds have been made available has completed all necessary 

legal reviews and determined that the projects are an appropriate use of 

taxpayer funds. Ohio provided this certification, but conditioned it, noting 

that future highway spending would depend on: the state’s collection of 

transportation revenues, state budgeting levels, ability to sell bonds, 

construction inflation, pending state legislation and the solvency of the 

federal highway trust fund.4

On March 26, 2009, the Governor announced that Ohio will fund 149 

projects with $774.2 million in Recovery Act funding. At least 113 of these 

projects, costing $605.5 million, involve roadway repaving and bridge 

repair. Specific roadway projects range from $200 million, for the 

Cleveland Innerbelt Bridge in Cuyahoga County, to $50,000, for pavement 

markings in Belmont County. The remaining transportation funds, nearly 

$170.0 million, are to be spent for railroad, maritime, intermodal, and 

engineering projects. ODOT officials told us that they are currently 

meeting with all project sponsors and performing detailed reviews of 

project documentation, confirming federal eligibility, assessing project 

delivery, and establishing project schedules. ODOT expects to begin 

advertising for bids during the week of April 20, 2009. In addition to the 

more than $774 million apportioned to ODOT, another $161.5 million was 

directly suballocated to Ohio’s eight major metropolitan planning 

organizations in Akron, Canton, Cincinnati, Cleveland, Columbus, Dayton, 

Toledo, and Youngstown. As of April 16, 2009, the U.S. Department of 

 

4

A number of states qualified their certifications in various ways. The legal effect of such 

qualifications is currently being examined by the U.S. Department of Transportation and 

has not been reviewed by GAO. 

Page 245 GAO-09-580 Recovery Act
Appendix XVI: Ohio 

Transportation had not obligated any Recovery Act funds for Ohio 

projects.5

U.S. Department of Education State Fiscal Stabilization Fund: The 

Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be 

administered by the U.S. Department of Education (Education). The SFSF 

provides funds to states to help avoid reductions in education and other 

essential public services. The initial award of SFSF funding requires each 

state to submit an application to Education that assures, among other 

things, it will take actions to meet certain educational requirements such 

as increasing teacher effectiveness and addressing inequities in the 

distribution of highly qualified teachers. 

Ohio’s initial SFSF allocation is $1,198,882. According to state officials, the 

Ohio legislature has not passed the appropriations bills for Recovery Actfunded education programs and some child care programs. Those funds 

are expected to be appropriated, along with the rest of the state budget, by 

June 30, 2009. State officials said that they intend to apply for the State 

Fiscal Stabilization Funds sometime in the future. 

To provide guidance on key Recovery Act requirements and assure that 

the state is maximizing its access to and use of Recovery Act funds, a 

number of statewide teams have formed to aid the planning process. The 

Governor’s office organized a team of policy advisors, information 

technology specialists, and agency program staff to work on the 

application, program administration, reporting, and accountability related 

to the Recovery Act funds. This team is to ensure coordination with other 

offices, state agencies, or federal government entities and will work to 

ensure that Ohio appropriately applies for Recovery Act funding for which 

the state is eligible. In addition to the Governor’s teams, Ohio’s Office of 

Budget and Management (OBM) mandated that state agencies establish 

Recovery Act teams and recommended including fiscal, program, and 

compliance staff. The Governor also appointed an Infrastructure Czar to 

advise on the creation of an open, transparent process and to assist the 

state’s leaders in the strategic use of infrastructure dollars. As the 

infrastructure awards moved toward completion, state officials said he has 

 

5

For federal-aid highway projects, the Federal Highway Administration of the U.S. 

Department of Transportation has interpreted the term obligation of funds to mean the 

federal government’s contractual commitment to pay for the federal share of a project. This 

commitment occurs at the time the federal government approves a project agreement and 

the project agreement is executed. 

Page 246 GAO-09-580 Recovery Act
Appendix XVI: Ohio 

turned his attention to assisting in competitive grant opportunities for 

entities in Ohio, including state agencies. The Czar will head a process for 

determining the most efficient and effective distribution of Recovery Act 

funds for competitive projects. 

The Ohio OBM will have primary responsibility for collecting and 

presenting financial data from state agencies through its Ohio 

Administrative Knowledge System (OAKS).6

 OBM has issued guidance to 

state agencies on Recovery Act reporting requirements and risk 

management and accountability responsibilities. To ensure that Recovery 

Act funds are segregated from other program funds and accounted for 

separately, OBM will create a centralized system to report all accounting 

data through OAKS. To facilitate tracking, OBM assigns an OAKS program 

number (for both revenues and expenses) unique to Recovery Act funds. 

OBM plans to develop a series of program reports that state agencies can 

use to regularly monitor Recovery Act revenues and spending metrics to 

ensure the agency is in compliance. 

Although OAKS will allow the state to tag Recovery Act funding, in many 

cases the state agencies will rely on grantees and contractors to track the 

funds to the end use. Because the state intends to code each Recovery Act 

funding stream separately, and because these recipients typically manage 

more than one funding stream at a time, state officials said that the 

recipients should be able to track Recovery Act funds and other funding 

sources separately. 

Ohio Is Planning to 

Use Existing Systems 

and Safeguards to 

Track Recovery Act 

Funds, But Reliance 

on Subrecipients to 

Provide Data for 

Enhanced Reporting 

Requirements Could 

Present Challenges 

However, some state departments may not be able to rely on data from a 

number of the complex information systems they use. For example, the 

fiscal year 2007 single state audit identified material weaknesses with a 

number of the systems that ODJFS uses to record and process eligibility 

and financial information for all their major federal programs. Auditors 

found that without sufficient, experienced internal personnel possessing 

the appropriate technical skills to independently analyze, evaluate, and 

 

6

Ohio’s fiscal year 2007 single audit report had a clean opinion on financial statements and 

did not identify any material weaknesses. In addition, on October 10, 2008, the Ohio 

Auditor of State issued a SAS 70 report on OAKS. While the Auditor noted numerous 

exceptions in the tests of operating effectiveness in the general control areas of program 

change and IT security, the Auditor opined that the state provided reasonable assurances 

that its controls (relevant to a user agency’s internal controls) relating to financial 

statements, payroll, warrant writing, and electronic fund transfers (EFT) could be relied 

on, were suitably designed, and had been placed in operation as of June 30, 2008. 

Page 247 GAO-09-580 Recovery Act
Appendix XVI: Ohio 

test these complex information systems, ODJFS management may not be 

reasonably assured these systems are processing transactions accurately. 

In its response, ODJFS replied that it did not have the resources to create 

a separate independent office, but said that it had protocols in place to 

provide some assurances that its systems were processing transactions 

accurately. State officials said they are aware of the weakness listed and 

are taking action to remedy it. Further, OBM has instructed its own 

internal audit office to provide additional resources to assist the agency. 

Moreover, state and local officials we talked to raised some concerns 

about the ability of some localities to track Recovery Act funds to their 

end use. Specifically, they raised concerns about the capacity of grantees 

and contractors to track funds spent by subrecipients. For example, 

officials with the Ohio Department of Education said that they can track 

Recovery Act funds to school districts and charter schools, but they have 

to rely on the recipients’ financial systems to be able to track funds 

beyond that. An official with the Columbus City Schools said that its 

accounting system might be challenged to meet enhanced reporting 

requirements. While they could provide assurances that Recovery Act 

funds were spent in accordance with program requirements, they could 

not report systemwide how each federal Recovery Act dollar was spent. 

Officials with the Columbus Metropolitan Housing Authority (CMHA) also 

noted limitations in how far they could reasonably be expected to track 

Recovery Act funds. They said they could track Recovery Act dollars to 

specific projects but could not systematically track funds spent by 

subcontractors on materials and labor. These officials added, however, 

that if they required the contractors to collect this information from their 

subcontractors, they would be able to report back with great detail. Still, 

without guidance from the federal government on specific reporting 

requirements, they were hesitant to burden their contractors with 

collecting the data. 

On March 27, 2009, OBM directed state agencies to put in place risk 

management strategies for programs receiving Recovery Act funds. The 

guidance stresses the importance of having risk mitigation strategies in 

place that assure (1) management controls are operating to identify and 

prevent wasteful spending and minimize fraud, waste, and abuse; (2) 

adequate program monitoring by qualified personnel occurs; (3) awards 

are competed; (4) revenues and expenses are accurately reported; and (5) 

cost overruns and improper payments are minimized. 

To ensure that existing safeguards are followed, OBM’s Office of Internal 

Audit (OIA) plans to (1) provide training and education to state agency 

Page 248 GAO-09-580 Recovery Act
Appendix XVI: Ohio 

personnel, (2) assess the adequacy and effectiveness of the current 

internal control framework, (3) test whether state agencies adhere to the 

current framework, and (4) coordinate multiagency reviews with both 

federal and state officials. According to OIA officials, pursuant to its 

statutory implementation plans, OIA will increase its internal audit staff 

from 9 (current) to 33 by transferring internal audit personnel from other 

state agencies and hiring new staff by July 2009. OBM officials said that 

the increase in OIA staff will help provide the needed resources to 

implement its objectives and ensure that current safeguards are in place 

and followed as the state manages it Recovery Act-funded programs. 

Separately, both the Ohio State Auditor’s office and the Ohio Office of 

Inspector General are to provide independent reviews of the use of 

Recovery Act funds. The Ohio State Auditor’s office has created a Webbased database for all state agencies and local governments to report on 

Recovery Act funding and project expenditure activity. This database will 

also allow for public viewing of Recovery Act funds activity in the future. 

The State Auditor plans to use this information in helping assess risks and 

determine which programs to test as part of its single audit requirements. 

In addition, the State Auditor’s office plans to conduct interim audit work 

over controls and compliance at various state agencies and local 

governments. According to state officials, as part of House Bill 2, the Ohio 

General Assembly created in the Office of Inspector General the position 

of Deputy Inspector General for funds received through the Recovery Act. 

The Deputy Inspector General is charged with monitoring state agency 

distribution of Recovery Act funds, conducting a program of random 

reviews of the processing of contracts associated with Recovery Act 

projects, and investigating all wrongful acts or omissions committed by 

officers, employees, or contractors. 

OBM officials said that the emphasis on measuring the impact of certain 

Recovery Act funding has focused, thus far, on job creation; however, they 

noted that there are other goals of the Recovery Act. They argued that 

without comprehensive reporting guidance, states will struggle to assess 

impact on some of these other outcomes. States will not be able to go back 

later in the process to assess the impact of the Recovery Act on these 

other outcomes if they do not have guidance on what data to collect. 

Ohio Is Exploring 

Ways to Assess 

Impact of Recovery 

Act Funds, but 

Officials Anticipate 

Challenges While some state agencies have identified options for reporting on job 

creation, there are concerns about the soundness of some of the 

methodologies. The Ohio Department of Transportation, for example, 

identified a study from 1979 which projects how many jobs will be created 

Page 249 GAO-09-580 Recovery Act
Appendix XVI: Ohio 

by a given expenditure. Other models have also been identified; however, 

in the absence of uniform guidance from the federal government, Ohio 

officials are concerned that states and localities will use a variety of 

methods that will ultimately not be comparable and will make nationwide 

assessment of the Recovery Act difficult. 

We provided the Governor of Ohio with a draft of this appendix on April 

17, 2009. The Chief Legal Council for OBM responded for the Governor on 

April 20, 2009. In general, the comments were either technical or were 

status updates. The Auditor of State also reviewed the draft and provided 

technical suggestions. We incorporated these comments, as appropriate. 

Ohio’s Comments on 

This Summary 

Cynthia M. Fagnoni, (202) 512-7202 or fagnonic@gao.gov GAO Contacts 

David M. Trimble, (202) 512-9338 or trimbled@gao.gov 

In addition to the contacts named above, Bill J. Keller, Assistant Director; 

Sanford F. Reigle, Analyst-in-Charge; Matthew Drerup; Laura Jezewski; 

Myra Watts-Butler; Lindsay Welter; Charles Willson; and Doris Yanger 

made major contributions to this report. 

Staff 

Acknowledgments 

Page 250 GAO-09-580 Recovery Act
Appendix XVII: Pennsylvania

Page 251 GAO-09-580 

Use of funds: An estimated 90 percent of Recovery Act funding provided to 

states and localities nationwide in fiscal year 2009 (through Sept. 30, 2009) will 

be for health, transportation and education programs. The three largest funding 

categories are the Medicaid increased Federal Medical Assistance Percentage 

(FMAP) grant awards, the State Fiscal Stabilization Fund, and highways.

9 Medicaid Federal Medical Assistance Percentage (FMAP) Funds

• As of April 3, 2009, Centers for Medicare & Medicaid Services (CMS) had made about $1 billion in increased 

FMAP grant awards to Pennsylvania. 

• As of April 3, 2009, Pennsylvania has drawn down about $330.8 million, or nearly 32 percent of its initial 

increased FMAP grant awards. 

• Officials plan to use funds made available as a result of the increased FMAP grant awards to help cover the 

state’s increased Medicaid caseload, ensure prompt claims payments, and to offset Pennsylvania’s general 

fund budget deficit. 

9 Transportation—Highway Infrastructure Investment 

• Pennsylvania was apportioned about $1.0 billion for highway infrastructure investment on March 2, 2009, by 

the U.S. Department of Transportation. 

• As of April 16, 2009, the U.S. Department of Transportation had obligated $308.6 million for 108 

Pennsylvania projects. 

• As of April 16, 2009, the Pennsylvania Department of Transportation had advertised competitive bids on 97 

projects totaling about $260 million, and the earliest contract was awarded on March 20, 2009. 

• These projects include activities such as highway repaving as well as bridge replacement and painting. 

• Pennsylvania will request reimbursement from the U.S. Department of Transportation as the state makes 

payments to contractors. 

9 U.S. Department of Education State Fiscal Stabilization Fund (Initial Release) 

• Pennsylvania was allocated about $1.3 billion from the initial release of these funds on April 2, 2009, by the 

U.S. Department of Education. 

• Before receiving the funds, states are required to submit an application that provides several assurances to 

the Department of Education. These include assurances that they will meet maintenance of effort 

requirements (or that they will be able to comply with waiver provisions) and that they will implement 

strategies to meet certain educational requirements, including increased teacher effectiveness, addressing 

inequities in the distribution of highly qualified teachers, and improving the quality of state academic 

standards and assessments. Pennsylvania plans to submit its application by April 25, 2009. 

• The Governor plans to use the funds to increase state funding for school districts and restore state funding 

for public colleges. The Governor also plans to use some funds to pay operating costs for the Department of 

Corrections.

Overview 

Appendix XVII: Pennsylvania 

 Recovery Act 
Appendix XVII: Pennsylvania 

Pennsylvania is receiving additional Recovery Act funds under other 

programs, such as programs under Title I, Part A of the Elementary and 

Secondary Education Act of 1965 (ESEA) (commonly known as No Child 

Left Behind); programs under the Individuals with Disabilities Education 

Act (IDEA); Transit Capital Assistance and the Fixed Guideway 

Infrastructure Investment Programs; Workforce Investment Act; the U.S. 

Department of Housing and Urban Development Neighborhood 

Stabilization Program; the U.S. Department of Justice Edward Byrne 

Memorial Justice Assistance Grants; and the U.S. Department of Energy 

Weatherization Assistance Program. Plans to use these funds are 

described throughout this appendix. 

Safeguarding and transparency: On March 4, 2009, the Governor named 

the Secretary of General Services as the state’s Chief Implementation 

Officer responsible for the effective and efficient delivery of all Recovery 

Act-funded initiatives and projects. Additionally, the Governor set up a 

Recovery Management Committee to report to him on the progress of 

recovery efforts. According to the Chief Implementation Officer, this body 

meets regularly to discuss the status of the program, troubleshoot areas of 

concern, and report to the Governor on the progress of recovery efforts. In 

addition, Pennsylvania officials said they would use their existing 

integrated accounting system to track Recovery Act funds flowing through 

the state government. Although Pennsylvania has plans to publicly report 

its Recovery Act spending through a Web site (www.recovery.pa.gov), 

officials have said that the state may not be aware of all Recovery Act 

funds sent directly by the federal agencies to municipalities and 

independent authorities. In late March 2009, the Governor appointed a 

Chief Accountability Officer who will be responsible for reporting on 

Pennsylvania’s use of Recovery Act funds. Pennsylvania plans to conduct 

several risk assessments for Recovery Act programs by June 2009. 

Pennsylvania’s Auditor General also anticipates work auditing and 

investigating Recovery Act funds received by state and local agencies. 

Assessing the effects of spending: Pennsylvania state departments are 

in the early stages of developing plans to assess the effects of Recovery 

Act spending. According to state officials, they are awaiting further 

guidance from the federal government, particularly related to measuring 

job creation. 

Page 252 GAO-09-580 Recovery Act
Appendix XVII: Pennsylvania 

Pennsylvania has begun to use some of its Recovery Act funds, as follows: 

Increased Federal Medical Assistance Percentage Funds: Medicaid is 

a joint federal-state program that finances health care for certain 

categories of low-income individuals, including children, families, persons 

with disabilities, and persons who are elderly. The federal government 

matches state spending for Medicaid services according to a formula 

based on each state’s per capita income in relation to the national average 

per capita income. The amount of federal assistance states receive for 

Medicaid service expenditures is known as the Federal Medical Assistance 

Percentage (FMAP). Across states, the FMAP may range from 50 percent 

to no more than 83 percent, with poorer states receiving a higher federal 

matching rate than wealthier states. The Recovery Act provides eligible 

states with an increased FMAP for 27 months between October 1, 2008, 

and December 31, 2010.1

 On February 25, 2009, the Centers for Medicare & 

Medicaid Services (CMS) made increased FMAP grant awards to states, 

and states may retroactively claim reimbursement for expenditures that 

occurred prior to the effective date of the Recovery Act.2

 Generally, for 

federal fiscal year 2009 through the first quarter of federal fiscal year 2011, 

the increased FMAP, which is calculated on a quarterly basis, provides for 

(1) the maintenance of states’ prior year FMAPs; (2) a general across-theboard increase of 6.2 percentage points in states’ FMAPs; and (3) a further 

increase to the FMAPs for those states that have a qualifying increase in 

unemployment rates. The increased FMAP available under the Recovery 

Act is for state expenditures for Medicaid services. However, the receipt of 

this increased FMAP may reduce the funds that states must use for their 

Medicaid programs, and states have reported using these available funds 

for a variety of purposes. 

Pennsylvania 

Beginning to Use 

Recovery Act Funds 

As of April 1, 2009, Pennsylvania has drawn down $330.8 million in 

increased FMAP grant awards, which is almost 32 percent of its awards to 

date.3

 Pennsylvania officials reported that they plan to use funds made 

available as a result of the increased FMAP to cover the state’s increased 

Medicaid caseload and maintain current populations and benefits. State 

 

1

Recovery Act, div. B, title V, § 5001. 

2

Although the Recovery Act was enacted February 17, 2009, states generally may claim 

reimbursement for the increased FMAP for Medicaid service expenditures made on or after 

October 1, 2008. 

3

Pennsylvania received increased FMAP grant awards of $1.04 billion for the first three 

quarters of federal fiscal year 2009. 

Page 253 GAO-09-580 Recovery Act
Appendix XVII: Pennsylvania 

officials also noted that such funds are allowing them to forgo reductions 

that they otherwise would have had to make because state funding 

streams are smaller this year. For example, Pennsylvania officials 

indicated that the state's share for Medicaid expenditures is 20 percent of 

their state revenues; thus this funding fluctuates as the economy rises and 

falls. Funding made available as a result of the increased FMAP will also 

be used to offset the state’s general fund deficit and to help ensure that the 

Medicaid prompt payment requirements are met.4

 Pennsylvania officials 

noted that early notification from CMS regarding any reporting forms that 

the state will be required to complete would be beneficial to ensure that 

the state’s accounting systems are properly aligned to produce needed 

reports. 

Transportation—Highway Infrastructure Investment: The Recovery 

Act provides additional funds for highway infrastructure investment using 

the rules and structure of the existing Federal-Aid Highway Surface 

Transportation Program, which apportions money to states to construct 

and maintain eligible highways and other surface transportation projects. 

States must follow the requirements for the existing program, and in 

addition, the governor must certify that the state will maintain its current 

level of transportation spending, and the governor or other appropriate 

chief executive must certify that the state or local government to which 

funds have been made available has completed all necessary legal reviews 

and determined that the projects are an appropriate use of taxpayer funds. 

Pennsylvania provided the first of these certifications but noted that the 

state’s level of funding was based on “planned non-bound state 

expenditures” (sic) and represented the best information available at the 

time of the state’s certification.5

As of April 16, 2009, the U.S. Department of Transportation had obligated 

$308.6 million for 108 Pennsylvania projects.6

 As of April 16, 2009, the 

 

4

To be eligible for the increased FMAP, states must comply with prompt pay requirements, 

which require states to pay 90 percent of clean claims from health care practitioners within 

30 days of receipt and 99 percent of these claims within 90 days of receipt. 

5

A number of states qualified their certifications in various ways. The legal effect of such 

qualifications is currently being examined by the U..S. Department of Transportation and 

has not been reviewed by GAO. 

6

For federal-aid highway projects, the Federal Highway Administration of the U.S. 

Department of Transportation has interpreted the term “obligation of funds” to mean the 

federal government’s contractual commitment to pay for the federal share of a project. The 

commitment occurs at the time the federal government approves a project agreement and 

the project agreement is executed. 

Page 254 GAO-09-580 Recovery Act
Appendix XVII: Pennsylvania 

Pennsylvania Department of Transportation (PennDOT) had advertised 97 

projects for competitive bid totaling about $260 million. These projects 

included highway repaving as well as bridge replacement and painting. 

Pennsylvania will request reimbursement from the U.S. Department of 

Transportation as the state makes payments to contractors. 

U.S. Department of Education State Fiscal Stabilization Fund: The 

Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be 

administered by the U.S. Department of Education (Education). The SFSF 

provides funds to states to help avoid reductions in education and other 

essential public services. The initial award of SFSF funding requires each 

state to submit an application to Education that assures, among other 

things, it will take actions to meet certain educational requirements such 

as increasing teacher effectiveness and addressing inequities in the 

distribution of highly qualified teachers. 

Pennsylvania’s initial SFSF allocation is $1.3 billion. According to the 

Chief Implementation Officer, Pennsylvania plans to file its application for 

these monies by April 25, 2009. According to the Governor’s proposal, $418 

million in SFSF will support state funding to elementary and secondary 

schools and $317 million to improve basic programs operated by local 

educational agencies in state fiscal year 2010. Similarly, $44 million will 

help restore state funding for higher education. The Governor proposes to 

spend $173 million on Department of Corrections operations in state fiscal 

year 2009 and reserve $324 million for appropriation in fiscal year 2010. 

Some State Agencies and 

Localities Have Started 

Planning and in Some 

Cases Made Decisions for 

Using Recovery Act Funds 

Faced with declining revenue projections since fiscal year 2008, 

Pennsylvania officials believe that federal funds are critical to help 

alleviate the immediate fiscal pressure and help balance the state budget. 

Based on February 2009 projections, Pennsylvania faces a $2.3 billion 

shortfall in fiscal year 2009, largely because of lower-than-expected 

revenues. Since September 2008, the Governor has cut state spending by 

more than $500 million, imposed a state hiring freeze, and banned out-ofstate travel and new vehicle purchases. Pennsylvania plans to draw $250 

million from the state rainy day fund—one-third of the current balance—

to help avoid further cuts in fiscal year 2009.7

 According to Pennsylvania’s 

 

7

Other actions to address the current shortfall include cuts in the enacted budgets for the 

legislature and independent agencies as well as increased revenue from natural gas drilling 

leases. 

Page 255 GAO-09-580 Recovery Act
Appendix XVII: Pennsylvania 

Secretary of the Budget, state revenues continue to decline and this may 

necessitate using even more rainy day funds during the current fiscal year. 

For fiscal year 2010, the Governor proposes to draw $375 million from the 

rainy day fund. The Governor’s budget proposal for fiscal year 2010, 

among other things, includes program cuts, layoffs, and reduced 

contributions for employees’ health care. According to budget documents, 

federal fiscal relief would be used to prevent even deeper cuts throughout 

the budget. As part of the budget process, the Pennsylvania General 

Assembly generally must appropriate federal funds, including Recovery 

Act amounts. 

The Governor’s office and state agencies have begun planning for the use 

of Recovery Act funds in Pennsylvania. As noted previously, in March 

2009, the Governor named a Chief Implementation Officer who is 

responsible for the effective and efficient delivery of all Recovery Actfunded initiatives and projects. According to the Chief Implementation 

Officer, the Recovery Management Committee meets regularly to discuss 

the status of the program, troubleshoot areas of concern, and report to the 

Governor on the progress of recovery efforts.8

 Pennsylvania plans to apply 

for competitive grants available under the Recovery Act, and the 

Governor’s Secretary for Planning and Policy is coordinating this strategy. 

Some state programs have received federal Recovery Act funds, and in 

some cases they have made funding decisions. For example, the U.S. 

Department of Transportation, through the Federal Highway 

Administration and the Federal Transit Administration, published final 

apportionments for the federal-aid highway program and Transit Capital 

Assistance and the Fixed Guideway Infrastructure Investment Programs 

March 2 and March 5, 2009, respectively.9

 PennDOT officials said that they 

have been working closely with metropolitan and rural transportation 

planning organizations to develop spending plans. On March 17, 2009, 

PennDOT released its final list of 241 highway and bridge projects to be 

 

8

The Recovery Management Committee is composed of: the Governor’s Chief-of-Staff, the 

Chief Implementation Officer, the Chief Accountability Officer, the Secretary of Budget, 

Secretary of Policy, Secretary of Administration, Secretary of Legislative Affairs, and the 

Communications Director as well as other senior members of the Governor’s 

administration. 

9

74 Fed. Reg. 9630 (March 5, 2009). 

Page 256 GAO-09-580 Recovery Act
Appendix XVII: Pennsylvania 

funded by the $1.0 billion Recovery Act investment in highways.10 Youth 

activities under the Workforce Investment Act have also received a 

funding allocation, and local Workforce Investment Boards must quickly 

establish summer youth programs for the Recovery Act Funding.11

According to local officials in the Harrisburg region, planning challenges 

include identifying eligible youth (some of whom are out of school and 

difficult to locate), identifying employment opportunities that fit the 

requirements of the Recovery Act and the Workforce Investment Act, and 

performing required background checks on staff before the summer 

program begins. 

The Pennsylvania Department of Education estimated allocations for their 

school districts while waiting for their final Recovery Act allocations. The 

Recovery Act funding will not be available to schools until the state 

General Assembly appropriates the funds. 

Some Programs Are 

Waiting for Clear Recovery 

Act Guidance and Some 

Have Questions about 

Using Funds for 

Administrative Purposes 

Program officials with whom we spoke provided varying levels of 

satisfaction with the guidance they had received from federal agencies, but 

some agencies were waiting for federal guidance to make spending and 

programmatic decisions. Officials from PennDOT stated that they have 

received guidance and have been able to administer Recovery Act funds. 

For the two new low-income housing tax credit financing programs 

created under the Recovery Act, the Pennsylvania Housing Finance 

Authority received initial information from the U.S. Department of 

Housing and Urban Development but no information from the U.S. 

Department of the Treasury; the housing finance agency is waiting for 

formal guidance before releasing implementation plans. Pennsylvania 

Department of Education officials also stated that although they received 

guidance on April 1, 2009, from the U.S. Department of Education on 

Recovery Act funds, they are concerned about certain provisions, such as 

 

10PennDOT is also finalizing a list of transit projects to be funded from Recovery Act 

money. Of the approximately $415 million in Recovery Act money apportioned by the 

Federal Transit Administration to Pennsylvania for transit capital assistance and fixed 

guideway infrastructure investment, about $48 million (11.5 percent) will flow through the 

state to small urban (less than 200,000 population) and nonurbanized areas (less than 

50,000 population). The remainder (about $367 million) will go to large (over 200,000 

population) areas directly. 

11According to the U.S. Department of Labor guidance, the period of “summer” will be from 

May 1 through September 30 for purposes of the Recovery Act funds. 

Page 257 GAO-09-580 Recovery Act
Appendix XVII: Pennsylvania 

the maintenance of effort provision, and are anticipating additional 

guidance. 

Some agency officials were unclear about whether Recovery Act funds 

could be used to fund administrative costs. Even though a good portion of 

the Recovery Act funds is flowing through established grant programs, 

some state agency officials were concerned about paying for the increased 

administrative costs associated with program implementation, including 

increased reporting and tracking requirements. For example, 

• Pennsylvania Department of Education officials were unclear if 

Recovery Act funds could be spent on state administrative costs and 

anticipated applying to the U.S. Department of Education for a waiver 

for these costs. State department officials were specifically concerned 

that they might need to build an entirely new reporting system to 

evaluate teachers and principals to meet Recovery Act requirements. 

• Pennsylvania Department of Community and Economic Development 

officials said they had not received guidance from the U.S. Department 

of Housing and Urban Development about implementation of the 

Recovery Act portion of the Neighborhood Stabilization Program,12 and 

were unsure of how much Recovery Act funds could be used for 

administrative purposes. 

• PennDOT officials told us that, in some instances, non-Recovery Act 

funds were used to pay administrative costs for Recovery Act 

initiatives. This was the case in hiring two consultants to assess 

potential transit projects for Recovery Act funding. 

 

12The Neighborhood Stabilization Program was originally created in July 2008 by the 

Housing and Emergency Recovery Act of 2008 and was in the process of implementation 

when the Recovery Act increased program funding and made some of the funding subject 

to a competitive process to receive grants. 

Page 258 GAO-09-580 Recovery Act
Appendix XVII: Pennsylvania 

Pennsylvania has entities responsible for tracking, monitoring, and 

overseeing financial expenditures. The Office of the Budget oversees the 

state’s uniform accounting, payroll, and financial reporting systems. 

Pennsylvania is reorganizing and centralizing its internal audit and 

comptroller functions within the Governor’s Office of the Budget.13 The 

state’s elected Treasurer has a pre-audit function to review disbursements 

to be paid out by state agencies prior to payment. The state Inspector 

General—who works for the Governor—is charged with investigating 

fraud, waste, abuse, and mismanagement. The state’s elected Auditor 

General, who is responsible for ensuring that all state money is spent 

legally and properly, performs performance audits, financial audits, and 

investigations of state and local government entities. The Auditor General 

also partners with an accounting firm to perform Pennsylvania’s annual 

single audit of the federal money that Pennsylvania receives to ensure the 

funds are spent according to federal laws and guidelines. 

Pennsylvania 

Developing Plans for 

Safeguards and 

Controls 

Pennsylvania Has System 

to Track Recovery Act 

Funds, but Will Rely on 

Subrecipients to Meet 

Reporting Requirements at 

Local Level 

Pennsylvania will use its existing accounting system to track Recovery Act 

funds and state officials are confident that it will adequately identify 

Recovery Act funds received and how they are used. Pennsylvania has an 

enterprise resource planning14 (ERP) system that is used by all state 

agencies to account for federal and state funding. The integrated 

accounting system will be used to track Recovery Act funds. To 

accommodate the Recovery Act, on March 10, 2009, Pennsylvania’s Office 

of the Budget issued an administrative circular to all agencies under the 

Governor’s jurisdiction describing the specific accounting codes they must 

use to separately identify the expenditure of Recovery Act funds. 

Individual agencies are also taking action to ensure that Recovery Act 

funds are tracked separately. For example, PennDOT issued an 

administrative circular in March 2009 that established specific Recovery 

Act program codes to track highway and bridge construction spending. 

The department also established four new funds to account for Recovery 

Act fund reimbursements to local governments. 

 

13According to the Secretary for Budget, the new reorganization will be completed in May 

2009. 

14An ERP solution is an automated system using commercial off-the-shelf software and 

consisting of multiple, integrated functional modules that perform a variety of tasks such 

as accounts payable, general ledger accounting, and grant management. 

Page 259 GAO-09-580 Recovery Act
Appendix XVII: Pennsylvania 

Pennsylvania officials said that the state will rely on subrecipients to meet 

reporting requirements at the local level. Recipients and subrecipients can 

be local governments or other entities such as transit agencies. For 

example, about $367 million in Recovery Act money for transit capital 

assistance and fixed guideway infrastructure investment was apportioned 

directly to areas such as Philadelphia, Pittsburgh, and Allentown. State 

officials also told us that the state would not track or report Recovery Act 

funds that go straight from the federal government to localities and other 

entities, such as public housing authorities. 

Past Audits Have Identified 

Vulnerabilities, and 

Pennsylvania Plans to 

Identify and Assess Risks 

Associated with Recovery 

Act Funds 

Past audits have identified vulnerabilities in Pennsylvania’s financial 

reporting and noncompliance with requirements for federal money. 

Pennsylvania’s fiscal year 2007 single audit report had an unqualified 

opinion on financial reporting, but auditors found material weaknesses in 

the accounting controls. For example, auditors found weaknesses in 

segregating duties among staff and monitoring user activities to reduce the 

risk of inappropriate changes to accounting data or misappropriation of 

assets. Pennsylvania’s Secretary of the Budget told us that to mitigate this 

risk, internal auditors now are to work closely with the Office of 

Administration and the Office of Information Technology on all new 

system changes to ensure internal controls are built into the application. 

The single audit scope was limited in that auditors could not obtain key 

documentation needed to check compliance with procurement regulations 

for competitively bid contracts for goods and services. The Secretary of 

the Budget told us that, beginning in January 2009 under Pennsylvania’s 

Right to Know law, information related to losing bids and scoring by 

participants of the procurement committees will now be available for 

audit purposes. 

In 2007, Pennsylvania had a qualified opinion due to noncompliance with 

major federal programs. For example, auditors identified 13 weaknesses in 

which state agencies, such as the Department of Community and 

Economic Development, did not adequately monitor subrecipients or 

failed to document procedures for performing on-site monitoring for 

subrecipients or subgrantees. It is important to correct these weaknesses 

for Pennsylvania to be able to provide reasonable assurance that its 

subrecipients comply with requirements for Recovery Act funding, when 

appropriate. Pennsylvania’s Secretary of the Budget told us that the Office 

of Budget monitors the agencies’ corrective action plans and provides 

additional program monitoring and training for agency program staff as 

appropriate. As of April 2009, the Office of the Budget’s auditors were 

Page 260 GAO-09-580 Recovery Act
Appendix XVII: Pennsylvania 

reviewing the status of implementing corrective action plans for past 

single audit findings. 

Pennsylvania officials also cited potential risks, based on experience with 

existing structures, with programs receiving Recovery Act funding. 

Pennsylvania’s Governor told us that he is concerned that school districts 

may use Recovery Act funds to start or expand education programs that 

are fiscally unsustainable when the federal funds expire. Several 

Pennsylvania officials, including the Governor, were specifically 

concerned about the Weatherization Assistance Program. Under the 

Recovery Act, the program is receiving a significant increase in funding 

and will make substantial use of contractors to weatherize properties. A 

2007 Pennsylvania Auditor General report found that the program had, 

among other things, weak internal controls, weaknesses in contracting, 

and inconsistent verification and inspection of subcontractor work.15

According to the Chief Implementation Officer, Pennsylvania plans to 

conduct several risk assessments by June 2009, including assessments of 

potential contractor capacity challenges for transportation projects and 

the capacity of current weatherization providers and contractors. The 

Office of Chief Counsel is reviewing all construction contracts and grants 

to ensure compliance with the Recovery Act requirements as well as 

guidance issued by the U.S. Office of Management and Budget (OMB) and 

federal agencies. According to Pennsylvania’s Secretary of the Budget, the 

new Bureau of Audits within the Office of the Budget will develop a riskbased approach for Recovery Act audits with measurable criteria and 

develop a matrix of risks for each Recovery Act program by the end of 

June 2009. 

Plans for Oversight and 

Transparency of 

Pennsylvania’s Recovery 

Act Funds 

Pennsylvania has established structures to oversee Recovery Act funds 

and provide transparency to the public. On March 31, 2009, the Governor 

appointed a Chief Accountability Officer who will be responsible for 

reporting on Pennsylvania’s use of Recovery Act funds and working with 

the Office of Budget to ensure funds are spent in accordance with 

 

15Pennsylvania Auditor General, A Special Performance Audit of the Department of 

Community and Economic Development’s Weatherization Assistance Program, August 

2007. 

Page 261 GAO-09-580 Recovery Act
Appendix XVII: Pennsylvania 

Recovery Act requirements.16 To serve as a portal for transparency of state 

Recovery Act spending, Pennsylvania also established a Web site 

(www.recovery.pa.gov) that makes available updates on funding and 

solicits public input on funding use. The Chief Accountability Officer will 

be responsible for identifying ways to present visual evidence, such as 

photographs and mapping, to help citizens track Recovery Act projects in 

Pennsylvania. 

A new Pennsylvania Stimulus Oversight Commission was created by the 

Governor—by executive order on March 27, 2009—after outreach to the 

Pennsylvania congressional delegation, the state legislature, and others. In 

addition to the Chief Accountability Officer, the commission is composed 

of the Governor, the Recovery Act Chief Implementation Officer, four 

representatives selected by Pennsylvania’s congressional delegation, 

members of each of the four caucuses in Pennsylvania’s General 

Assembly, and representatives from the Pennsylvania Chamber of 

Business and Industry, United Way of Pennsylvania, and Pennsylvania 

AFL-CIO. The commission was established to, among other things, 

monitor Pennsylvania’s efforts to ensure compliance with the Recovery 

Act and to review the state’s approach to allocating and disbursing funds, 

tracking funds, transparency, performance, and grants management and 

oversight. The commission met for the first time on March 31, 2009, and 

has not announced its oversight plans; the next commission meeting will 

be on April 23, 2009. 

Other state offices are generally not expecting new staff or resources for 

Recovery Act oversight. The Auditor General anticipates work auditing 

and investigating Recovery Act funds received by state and local agencies. 

For example, the Auditor General will audit Recovery Act funds during the 

annual single audit and will initiate additional compliance audits for 

Recovery Act programs. The Auditor General observed that the Recovery 

Act did not provide funding for his office to undertake work related to the 

act. In addition, officials of the Auditor General's office have different 

views about what authority they have to audit federal money that flows 

directly to localities, such as housing authorities and municipalities. 

Pennsylvania is also in the process of reorganizing and centralizing its 

internal audit and comptroller functions within the Governor’s Office of 

 

16The Chief Accountability Officer also will chair a new Governor’s Working Group for 

Stimulus Accountability that includes the Chief Implementation Officer and senior state 

officials. In addition, the Chief Accountability Officer also serves on the Governor’s 

Recovery Management Committee. 

Page 262 GAO-09-580 Recovery Act
Appendix XVII: Pennsylvania 

the Budget. According to the Secretary of Budget, the Bureau of Audits is 

not expected to dramatically change audit responsibilities in the state but 

rather provide a more focused, risk-based approach, particularly for 

Recovery Act funding. This office is expected to employ 95 people, about 

70 of whom will be field auditors. The remaining staff will be responsible, 

among other things, for subrecipient desk reviews and agency risk 

assessments. 

The number of staff devoted to program oversight, and implementation in 

some state agencies has been affected by the state’s hiring freeze. For 

example, Workforce Investment Act program officials said monitoring 

efforts will need to increase under the Recovery Act and they have applied 

to the Governor for a waiver to hire additional staff. Department of 

Community and Economic Development officials told us that they have 

requested to hire 12 people, 3 or 4 of whom will be devoted to Recovery 

Act work related to the Neighborhood Stabilization Program. The 

Pennsylvania Commission on Crime and Delinquency, which administers 

the Edward Byrne Memorial Justice Assistance Grants, is trying to 

maximize the use of its existing staff and sought advice from the U.S. 

Department of Justice Inspector General; the latter will give a 

presentation, share checklists, and train program staff in monitoring 

subrecipients. PennDOT officials told us that they meet weekly to oversee 

the highway and bridge program funded through the Recovery Act. These 

meetings cover such things as the status of obligating program funds and 

potential problems. The department also has a special “war room” that 

tracks each project in each state district. 

Agency officials stated that, although they are emphasizing the planning 

and allocating of Recovery Act funds quickly, they are aware of 

requirements to assess the economic and other impacts of these funds. 

The new Chief Accountability Officer will be responsible for developing 

and using performance measures to demonstrate outcomes associated 

with Recovery Act spending and projects. Some agency officials with 

whom we met—at the Pennsylvania Department of Education and the 

Department for Community and Economic Development—are generally 

waiting for additional guidance from the federal government on 

performance measures, especially on how to measure and report jobs 

created and sustained. 

Plans to Assess 

Impact of Recovery 

Act Funds Depend on 

Federal Guidance 

Page 263 GAO-09-580 Recovery Act
Appendix XVII: Pennsylvania 

We provided the Governor of Pennsylvania with a draft of this appendix 

on April 17, 2009. The Chief Implementation Officer and the Secretary of 

the Budget responded for the Governor on April 20, 2009. These officials 

provided clarifying and technical comments that we incorporated where 

appropriate. We also provided the Auditor General's staff with portions of 

the draft that addressed the Auditor General's past work and plans related 

to Recovery Act funding. We incorporated those technical comments as 

appropriate. 

Phillip Herr, (202) 512-2834 or herrp@gao.gov 

Mark Gaffigan, (202) 512-3168 or gaffiganm@gao.gov 

In addition to the contacts named above, MaryLynn Sergent, Assistant 

Director; Richard Jorgenson, Analyst-in-Charge; Andrea E. Richardson; 

George A. Taylor, Jr.; Laurie F. Thurber; and Lindsay Welter made major 

contributions to this report. 

Pennsylvania’s 

Comments on This 

Summary 

GAO Contacts 

Staff 

Acknowledgments 

Page 264 GAO-09-580 Recovery Act
Appendix XVIII: Texas Appendix XVIII: Texas 

Use of funds: An estimated 90 percent of fiscal year 2009 Recovery Act 

funding provided to states and localities will be for health, transportation, 

and education programs. The three largest programs in these categories 

are the Medicaid Federal Medical Assistance Percentage (FMAP) awards, 

the State Fiscal Stabilization Fund, and highways. 

Overview 

9 Medicaid Federal Medical Assistance Percentage (FMAP) Funds

• As of April 3, 2009, the Centers for Medicare & Medicaid Services (CMS) had made approximately $1.45 

billion in increased FMAP grant awards to Texas. 

• As of April 1, 2009, the state has drawn down about $665.7 million, or 46 percent, of its initial increased 

FMAP grant awards. 

• Texas officials noted that the funds made available as a result of the increased FMAP will allow the state to 

maintain the program’s level of service and eligibility standards in fiscal year 2009. 

9 Transportation—Highway Infrastructure Investment 

• Texas was apportioned about $2.25 billion for highway infrastructure investments on March 2, 2009, by the 

U.S. Department of Transportation. 

• As of April 16, 2009, the U.S. Department of Transportation had obligated $533.7 million for 159 projects in 

Texas. 

• According to Texas Department of Transportation officials, the department is scheduled to receive bids in 

April 2009 on 137 contracts that would total approximately $400 million in Recovery Act funds. 

• Texas will request reimbursement from the U.S. Department of Transportation as the state makes payments 

to contractors. 

9 U.S. Department of Education State Fiscal Stabilization Fund 

• Texas was allocated about $2.66 billion from the initial release of these funds on April 2, 2009, by the U.S. 

Department of Education. 

• Before receiving the funds, states are required to submit an application that provides several assurances to 

the Department of Education. These include assurances that they will meet maintenance of effort 

requirements (or that they will be able to comply with waiver provisions) and that they will implement 

strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing 

inequities in the distribution of highly qualified teachers, and improving the quality of state academic 

standards and assessments. According to Texas officials, the state’s application likely would not be 

submitted before the state legislature (which is in session until June 1, 2009) has finalized an appropriation 

for public and higher education. 

• Texas officials indicated that the state plans to use its allocated federal funds to assist in continuing the 

historical levels of support for elementary, secondary, and higher education in the state. Education Agency 

officials said funds could be used, for example, to support efforts related to assessing school performance, 

teacher incentives, and teacher equity. Higher education officials anticipate using the funds to mitigate 

tuition and fee increases; support modernization, repair, and renovation of facilities; and provide incentive 

funding based on degrees awarded.

Page 265 GAO-09-580 Recovery Act 
Appendix XVIII: Texas 

Texas is receiving additional Recovery Act funds under other programs, 

such as programs under Title I, Part A of the Elementary and Secondary 

Education Act (ESEA), commonly known as No Child Left Behind; 

programs under the Individuals with Disabilities Education Act (IDEA); 

two programs of the U.S. Department of Agriculture—one for the 

administration of the Temporary Food Assistance Program and one for 

competitive equipment grants targeted to low income districts from the 

National School Lunch program; housing programs, including 

weatherization assistance; and justice assistance grants. The status of 

plans for using selected funds is discussed throughout this appendix. 

Safeguarding and transparency: To help ensure accountability and 

transparency, the Texas legislature’s forthcoming general appropriations 

act—expected to be passed by June 2009 to function as the state’s fiscal 

2010-2011 biennium budget—will have a provision for tracking Recovery 

Act funds allocated to the state, according to the executive and legislative 

branch officials we contacted in Texas. To provide additional 

accountability and transparency, the Comptroller of Public Accounts has 

established a centralized budget account (with a unique funding code) for 

Recovery Act funds and has also established a Web page, 

www.window.state.tx.us/recovery, with links to www.recovery.gov/. To 

further help ensure accountability and transparency, Texas officials 

suggested that federal authorities provide concurrent notification to the 

state’s key stakeholders—particularly the Office of the Governor, the 

Comptroller of Public Accounts, the State Auditor’s Office, and the 

Legislative Budget Board1

—when Recovery Act funds are periodically 

distributed to Texas agencies and/or localities. Also, Texas officials told us 

that despite U.S. Office of Management and Budget (OMB) guidance, the 

increased FMAP funds the state has received through the Recovery Act, to 

date, have not been separately identified by the federal government. 

Assessing the effects of spending: Texas officials commented that—

under the state’s performance-based budgeting process—agencies already 

have measures in place for assessing the performance of programs. 

Officials also believe that the state’s current monitoring and control 

 

1

According to state officials, the Legislative Budget Board is a permanent joint committee 

of the Texas legislature that develops budget and policy recommendations for legislative 

appropriations for all agencies of state government, as well as completes fiscal analyses for 

proposed legislation. The lieutenant governor and House speaker serve as co-chairs of the 

board. Other members include the chairs of the House Appropriations Committee and the 

Senate Finance Committee. See www.lbb.state.tx.us. 

Page 266 GAO-09-580 Recovery Act
Appendix XVIII: Texas 

processes and procedures are adequate to administer initiatives funded 

under the Recovery Act. The officials recognized, however, that some 

adjustments to performance measures may be needed for assessing the 

impact of Recovery Act funds. 

Texas has begun to use some of its Recovery Act funds, as follows: Texas Beginning to 

Use Recovery Act 

Funds 

Increased Federal Medical Assistance Percentage Funds: Medicaid is 

a joint federal-state program that finances health care for certain 

categories of low-income individuals, including children, families, persons 

with disabilities, and persons who are elderly. The federal government 

matches state spending for Medicaid services according to a formula 

based on each state’s per capita income in relation to the national average 

per capita income. The amount of federal assistance states receive for 

Medicaid service expenditures is known as the Federal Medical Assistance 

Percentage (FMAP). Across states, the FMAP may range from 50 to no 

more than 83 percent, with poorer states receiving a higher federal 

matching rate than wealthier states. The Recovery Act provides eligible 

states with an increased FMAP for 27 months between October 1, 2008, 

and December 31, 2010.2

 On February 25, 2009, the Centers for Medicare & 

Medicaid Services (CMS) made increased FMAP grant awards to states, 

and states may retroactively claim reimbursement for expenditures that 

occurred prior to the effective date of the Recovery Act.3

 Generally, for 

federal fiscal year 2009 through the first quarter of federal fiscal year 2011, 

the increased FMAP, which is calculated on a quarterly basis, provides for 

(1) the maintenance of states’ prior year FMAPs, (2) a general across-theboard increase of 6.2 percentage points in states’ FMAPs, and (3) a further 

increase to the FMAPs for those states that have a qualifying increase in 

unemployment rates. The increased FMAP available under the Recovery 

Act is for state expenditures for Medicaid services. However, the receipt of 

the increased FMAP may reduce the funds that states must use for their 

Medicaid programs, and states have reported using these available funds 

for a variety of purposes. 

 

2

Recovery Act, div. B. title V.§ 5001. 

3

Although the Recovery Act was enacted February 17, 2009, states generally may claim 

reimbursement for the increased FMAP for Medicaid service expenditures made on or after 

October 1, 2008. 

Page 267 GAO-09-580 Recovery Act
Appendix XVIII: Texas 

As of April 1, 2009, Texas had drawn down $665,665,000, or 46 percent, of 

its initial increased FMAP grant awards of $1,448,824,000 in FMAP funds. 

Texas officials commented that the funds made available as a result of the 

increased FMAP will allow the state to maintain the program’s level of 

service and eligibility standards and cover increased caseloads, among 

other uses. Texas officials indicated that guidance from CMS is needed 

regarding whether certain programmatic changes being considered by 

Texas, such as a possible extension of the program’s eligibility period, 

would affect the state’s eligibility for increased FMAP funds. 

Transportation—Highway Infrastructure Investment: The Recovery 

Act provides additional funds for highway infrastructure investment using 

the rules and structure of the existing Federal-Aid Highway Surface 

Transportation Program, which apportions money to states to construct 

and maintain eligible highways and for other surface transportation 

projects. States must follow the requirements for the existing programs, 

and in addition, the governor must certify that the state will maintain its 

current level of transportation spending, and the governor or other 

appropriate chief executive must certify that the state or local government 

to which funds have been made available has completed all necessary 

legal reviews and determined that the projects are an appropriate use of 

taxpayer funds. Texas provided this certification but noted that the state’s 

level of funding was based on the best information available at the time of 

the state’s certification.4

Texas was apportioned about $2.25 billion of Recovery Act funds for 

highway infrastructure investments on March 2, 2009, by the U.S. 

Department of Transportation. As of April 16, 2009, the U.S. Department of 

Transportation had obligated $533.7 million of Recovery Act funds for 159 

projects in Texas.5

 According to Texas Department of Transportation 

officials, the department is scheduled to receive bids in April 2009 on 137 

contracts that would total approximately $400 million in Recovery Act 

 

4

A number of states qualified their certifications in various ways. The legal effect of such 

qualifications is currently being examined by the U.S. Department of Transportation and 

has not been reviewed by GAO. 

5

For federal-aid highway projects, the Federal Highway Administration of the U.S. 

Department of Transportation has interpreted the term obligation of funds to mean the 

federal government’s contractual commitment to pay for the federal share of a project. This 

commitment occurs at the time the federal government approves a project agreement and 

the project agreement is executed. 

Page 268 GAO-09-580 Recovery Act
Appendix XVIII: Texas 

funds. Texas will request reimbursement from the U.S. Department of 

Transportation as the state makes payments to contractors. 

U.S. Department of Education State Fiscal Stabilization Fund: The 

Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be 

administered by the U.S. Department of Education (Education). The SFSF 

provides funds to states to help avoid reductions in education and other 

essential public services. The initial award of SFSF funding requires each 

state to submit an application to Education that assures, among other 

things, it will take actions to meet certain educational requirements such 

as increasing teacher effectiveness and addressing inequities in the 

distribution of highly qualified teachers. 

Texas’ initial SFSF allocation is $2,662,203,000. According to Texas 

officials, the state generally plans to use its SFSF allocation to assist in 

continuing the historical levels of support for elementary, secondary, and 

higher education in the state. In April 2009, officials from the Office of the 

Governor informed us that the state was in the process of preparing its 

application for submission to the U.S. Department of Education—and that 

the application would reflect the fact that providing funding for public 

education is a priority in the state. The officials noted that the state’s 

application likely would not be submitted until the state legislature (which 

is in session until June 1, 2009) has finalized an appropriation for 

elementary, secondary, and higher education. Also, the officials 

commented that the state was awaiting further federal guidance on the 

appropriate use of Recovery Act funds. Generally, however, Texas 

Education Agency officials said that the federal funds could be used, for 

example, to support efforts related to high-quality assessment 

performance in schools, teacher incentives, and teacher equity. Also, 

according to the Texas Higher Education Coordinating Board, public 

institutions of higher education in Texas anticipate expending Recovery 

Act funds for three purposes—mitigating tuition and fee increases; 

supporting modernization, repair, and renovation of facilities; and 

providing incentive funding based on degrees awarded. To provide 

tracking and oversight of the Recovery Act funds, board officials 

commented that existing systems for implementing policies for 

accountability, internal controls, compliance, and reporting would be 

leveraged to the maximum extent possible to avoid the administrative 

burden associated with creating a completely new system. These officials 

explained that the proposed uses of the Recovery Act funds are not 

dissimilar to other well-established programs within the agency. 

Page 269 GAO-09-580 Recovery Act
Appendix XVIII: Texas 

Overall, throughout the multiyear time frame covered by the Recovery Act, 

Texas’ share of the total federal funds is estimated to be more than $15 

billion for supporting a variety of program areas, such as health and 

human services, state fiscal stabilization, transportation, and education. 

(See table 9.) 

Table 9: Estimated Allocations by Program Areas of Federal Recovery Act Funds in Texas (as of March 2009) 

Estimated federal Recovery Act funds 

(through fiscal year 2011) 

Program areas Amount (in billions) Percentage of total

Health and human services: Of the $4.5 billion, a large majority ($4.2 billion) is an 

increase in the Federal Medical Assistance Percentage funds. $4.5 29 

State fiscal stabilization funds: Of the $4.0 billion, about 82 percent ($3.3 billion) is 

to be used to support elementary, secondary, and higher education (e.g., for the 

purposes of modernization, renovation, and repair). The other 18 percent of the 

funds may be used, at the discretion of the governor, for education, public safety, 

and other government services. 4.0 26 

Transportation: Of the $2.8 billion, a large majority ($2.3 billion) is to be allocated 

for highway and bridge construction. 2.8 18 

Education: Of the $2.3 billion, a large majority involves two formula grant 

programs—grants to local educational agencies ($1.2 billion) and special education 

grants to assist individuals with disabilities ($1.0 billion). 2.3 15 

Housing and infrastructure: Of the $1.2 billion, the largest component ($327 million) 

is the weatherization assistance program to provide energy-related improvements 

to homes and educate residents about energy conservation. 1.2 8 

Other: Program areas include, for example, Edward Byrne Memorial Justice 

Assistance Grants ($147.5 million) and child care and development block grants 

($214.9 million). 0.6 4 

Total $15.4 100% 

Source: GAO summary based on review of Texas Legislative Budget Board data and interviews with agency officials. 

Note: The amounts of Recovery Act funds shown in the table are anticipated to flow to or through 

Texas agencies. As such, Texas plans to include these Recovery Act funds in the state’s budgetsetting process, as discussed below. However, additional amounts of other Recovery Act funds (not 

yet quantified) are anticipated to flow directly to localities within the state. 

In his letter certifying acceptance of federal Recovery Act funds, the Texas 

Governor voiced opposition to “using these funds to expand existing 

government programs, burdening the state with ongoing expenditures long 

after the funding has dried up.”6

 Similarly, during our review in Texas, 

legislative branch officials generally acknowledged that most of the 

 

6

State certification letter, dated February 18, 2009, from Governor Rick Perry, State of 

Texas, to President Barack Obama. 

Page 270 GAO-09-580 Recovery Act
Appendix XVIII: Texas 

federal Recovery Act funds appear to be one time in nature and that the 

state must avoid spending the funds for ongoing projects that would result 

in unsustainable future costs to the state’s budget. An illustration of such 

avoidance involves unemployment insurance. While the Texas Governor 

accepted some Recovery Act funds for unemployment insurance, he did 

not request Unemployment Insurance Modernization funds because the 

Governor believed that receiving those funds would place additional tax 

burdens on businesses, which would impede job creation and hamper the 

economy.7

Even though Texas generally continues to fare better economically than 

most states, nearly all available data suggest that the Texas economy is in 

recession, according to the Federal Reserve Bank in Dallas. In January 

2009, the Office of the Comptroller of Public Accounts reported that the 

state’s fiscal 2010-2011 biennium budget will have $9 billion less in revenue 

than the current biennium budget. For perspective, officials with the 

Governor’s office told us that the $9 billion represents a 5 percent 

adjustment to the budget. 

In January 2009, anticipating that Texas faced a likely budget shortfall, the 

co-chairs of the state’s Legislative Budget Board requested that state 

agencies look for ways to reduce fiscal year 2009 expenditures by 2.5 

percent. The co-chairs further noted that the state legislature should 

prudently plan on having a reasonable reserve in the state’s economic 

stabilization fund8

 so that the state does not face a large deficit in the next 

biennium, ending August 31, 2011. In response to the co-chairs’ request for 

ways to reduce spending in fiscal year 2009, state agencies identified 

approximately $396 million in potential budget reductions based on hiring 

freezes, reduced services, delayed capital purchases, and other costcutting efforts. At the time of their request, the co-chairs noted that the 

Recovery Act—which was being debated in Washington, D.C.—could not 

 

7

According to the Texas Comptroller of Public Accounts Web site, in order to accept 

Unemployment Insurance Modernization Funds under the Recovery Act the state would be 

required to change its eligibility standards to expand benefits to additional categories of 

workers. State officials described a recently introduced, but not enacted, bill in the Texas 

legislature to propose changes to the eligibility standards. On April 20, 2009, the Texas 

Senate voted in favor of the bill. According to those officials, if the House of 

Representatives also votes in favor of the bill, the governor has the option of vetoing the 

bill. 

8

The state’s economic stabilization fund is commonly referred to as the “rainy day fund.” 

The fund balance, according to Legislative Budget Board estimates, is expected to reach 

$9.1 billion by 2011. 

Page 271 GAO-09-580 Recovery Act
Appendix XVIII: Texas 

responsibly be factored into the state’s budget process because many 

details were not known. 

In discussions with our review team in March 2009, representatives of the 

Office of the Lieutenant Governor commented that because of Recovery 

Act funds, state agencies were not required to implement the 2.5 percent 

spending reductions anticipated for state fiscal year 2009 and, further, the 

state did not have to tap into its rainy day fund. The representatives told us 

that absent the availability of Recovery Act funds, state agencies likely 

would have been asked to make cuts of about 10 percent for the fiscal 

2010-2011 biennium budget, in addition to the state drawing upon the rainy 

day fund. 

On the other hand, officials representing the Office of the Governor 

commented that budget deficit situations do not necessarily result in the 

state using its rainy day fund. The officials stressed that—to meet the 

requirement to pass a balanced budget—a variety of other solutions could 

be considered, such as budget reallocations among state agencies and 

programs, as well as spending cuts. As an example, these officials noted 

that even though the state’s overall budget was reduced in 2003, the state 

raised education spending by $1 billion that year. Additionally, the officials 

explained that use of the rainy day fund is not an option readily available 

because it requires approval by two-thirds of the state legislature. 

Texas is taking various steps to help ensure accountability and 

transparency and address areas of vulnerability potentially associated with 

Recovery Act spending. 

Texas Is Taking Steps 

to Help Ensure 

Accountability and 

Transparency and 

Address Potential 

Areas of Vulnerability 

Steps to Help Ensure 

Accountability and 

Transparency 

Texas officials noted that Recovery Act funding will flow generally 

through existing federal-state agency partnerships or programs. Thus, to 

the extent possible, the state plans to use existing systems, processes, or 

mechanisms to provide Recovery Act funding accountability and 

transparency, according to the executive and legislative branch officials 

we contacted in Texas. In further reference to accountability and 

transparency, oversight of federal Recovery Act funds in Texas involves 

various stakeholders, including the Office of the Governor, the State 

Page 272 GAO-09-580 Recovery Act
Appendix XVIII: Texas 

Auditor’s Office, and the Office of the Comptroller of Public Accounts as 

well as two entities established within the Texas legislature specifically for 

this purpose—the House Select Committee on Federal Economic 

Stabilization Funding9

 and the House Appropriations’ Subcommittee on 

Stimulus. Also, according to executive and legislative branch officials in 

Texas, the state plans to ensure that the forthcoming biennial general 

appropriations bill has a provision designed to specifically facilitate the 

tracking of federal Recovery Act funds distributed to Texas—that is, the 

act will have a separate section (“article”) that identifies, by applicable 

state agency, Recovery Act funds allocated to Texas.10 At the time of our 

study in April 2009, the Texas legislature was in session (81st regular 

session) and had not finished its work to complete and submit to the 

Governor a general appropriations bill for the state’s fiscal 2010-2011 

biennium (Sept. 1, 2009, through Aug. 31, 2011).11

To further facilitate tracking, in March 2009, the Office of the Comptroller 

of Public Accounts established a centralized budget account for federal 

 

9

See www.txstimulusfund.com. The committee chair has been holding hearings with state 

agencies and asking about the resources they have or need; how the Recovery Act funds 

will be disbursed; and what policies, procedures, and internal controls are in place for the 

funds. 

10Essentially, as described by state officials, the Texas legislature will use the state’s 

general appropriations bill to appropriate federal Recovery Act funds for the fiscal 2010-

2011 biennium (Sept. 1, 2009, through Aug. 31, 2011). Any Recovery Act funds received 

earlier (i.e., funds received in fiscal year 2009) will not be included in the general 

appropriations bill. In Texas, according to state officials, the general appropriations bill 

functions as the state’s budget by allocating resources and setting performance targets 

based on the strategies identified by agencies in their respective strategic plans. Under 

Texas law, the governor is the state’s chief budget officer, but the state legislature and the 

Legislative Budget Board have a large role in the state’s budget process. By constitutional 

mandate, Texas operates under budgets set for 2-year periods. Both the governor and the 

Legislative Budget Board develop budget recommendations and submit budget proposals 

to the legislature, which adopts a budget (general appropriations bill) for the 2-year period. 

The state legislature in constitutionally required to pass a balanced budget, and the 

governor is constitutionally required to sign a balanced budget. 

11According to state officials, the legislature meets in regular session for 140 days in oddnumbered years. The 81st regular session began January 13, 2009, and extends to June 1, 

2009. The House and Senate generally take turns originating the general appropriations bill 

and chairing the budget conference committee. Both chambers work on the budget and 

hold hearings simultaneously. After the general appropriations bill has been approved by 

both chambers of the legislature, it must be certified by the Comptroller of Public 

Accounts; thereafter, it is submitted to the governor for approval. The governor has line 

item veto power, which allows the governor to veto specific appropriations rather than 

vetoing the entire bill. A veto may be overridden by a two-thirds vote in each chamber of 

the legislature. 

Page 273 GAO-09-580 Recovery Act
Appendix XVIII: Texas 

Recovery Act funds, with a unique funding code (0369).12 In turn, 

according to Texas officials, state agencies are modifying their financial 

systems to enable tracking of Recovery Act funds. Also, after the Recovery 

Act passed, the Office of the Governor began hosting regularly scheduled 

meetings (twice weekly) of a Stimulus Working Group comprising 

representatives of major state agencies to help ensure statewide 

communication of the need for accountability and transparency regarding 

Recovery Act funds.13 Similarly, a periodic forum of the internal audit staff 

of Texas state agencies serves as another means of statewide 

communication.14 Also, in March 2009, the Office of the Comptroller of 

Public Accounts scheduled training regarding federal awards and financial 

statements—training that included representatives from the Office of the 

Governor to discuss Recovery Act funds. Further, the Comptroller’s Office 

plans to hire 5 to 10 additional staff to help account for Recovery Act 

funds, according to office officials. In April 2009, the Comptroller’s Office 

issued policies and procedures to state agencies related to use and 

subsequent reporting on Recovery Act funds. 

The State Auditor’s Office is taking additional steps to ensure 

accountability. Anticipating that federal Recovery Act funding will 

increase its scope of responsibilities, the State Auditor’s Office plans to 

hire 10 additional staff (9 auditors and 1 investigator).15 The office intends 

to audit Recovery Act funds through the Single Audit of the State of Texas’ 

expenditures of federal awards—that is, the audit required by the Single 

Audit Act and to which OMB Circular A-133, Audits of States, Local 

Governments, and Non-Profit Organizations, relates.16 Also, the State 

 

12Also, the Office of the Comptroller of Public Accounts has established a stimulus-related 

Web page (window.state.tx.us/recovery/) with links to the national Web site, 

www.recovery.gov. 

13Members of GAO’s review team attended the March 19, 2009, meeting of the Stimulus 

Working Group in Austin, Texas. 

14Members of GAO’s review team attended the March 27, 2009, state agency internal audit 

forum in Austin, Texas. 

15State officials described the State Auditor’s Office as the independent auditor for Texas 

state government. The office operates with oversight from the Legislative Audit Committee, 

a six-member permanent standing committee of the Texas legislature, jointly chaired by the 

lieutenant governor and the speaker of the House of Representatives. 

16For example, see State Auditor’s Office, State of Texas Federal Portion of the Statewide 

Single Audit Report for the Fiscal Year Ended August 31, 2008, SAO Report No. 09-330 

(Austin, Tex., Feb. 2009). 

Page 274 GAO-09-580 Recovery Act
Appendix XVIII: Texas 

Auditor’s Office may conduct discretionary audits based, for example, on 

(1) discussions with internal auditors at state agencies or (2) risk 

assessments that consider previously reported material weaknesses in 

program compliance and internal controls, as well as risk assessments of 

programs that have not been tested before. Furthermore, the State 

Auditor’s Office noted that, as warranted, it pursues leads generated by 

complaint letters, hotline calls, and other information received from the 

public. In this regard, the State Auditor’s Office has Web-based and 

telephone “hotline” contacts for the general public to use in reporting 

possible fraud, waste, and abuse. In March 2009, the State Auditor told us 

that he was preparing a letter to send to state agencies regarding their 

general fraud responsibilities related to state funds.17 Moreover, in April 

2009, the State Auditor’s Office informed us that a provision for reporting 

Recovery Act-related fraud is being added to the state’s fiscal 2010-2011 

biennium appropriations bill. Among other requirements, this legislative 

provision, according to the State Auditor’s Office, will require that state 

agencies’ Web sites provide information on how to report suspected fraud, 

waste, and abuse directly to the State Auditor’s Office. 

According to state officials, in March 2009, a bill was filed in the Texas 

legislature that proposed creating a new office—the Texas Fiscal 

Responsibility Office—to oversee or monitor the spending of federal 

Recovery Act funds in Texas.18 As of early April 2009, the bill’s status had 

not been determined by the state legislature, which was scheduled to be in 

regular session until June 1, 2009. 

Potential Areas of 

Vulnerability of Recovery 

Act Funds in Texas 

In response to our inquiry, the State Auditor’s Office provided us its views 

regarding accountability risks and other challenges potentially associated 

with the expenditure of federal Recovery Act funds in Texas. Based on its 

experience in auditing Texas’ use of previous federal awards and reporting 

internal control deficiencies or material weaknesses, the State Auditor’s 

Office noted that relatively high risks generally can be anticipated with 

certain types of programs—such as (1) new programs with completely 

 

17Some Texas agencies, such as the Health and Human Services Commission, have an 

Office of Inspector General. 

18State officials identified this bill as H.B. No. 2942, cited as the “Texas Government 

Accountability and Transparency Act of 2009.” According to state officials, under the bill’s 

provisions, the Texas Fiscal Responsibility Office would be created as an independent 

agency of the legislative branch of state government. 

Page 275 GAO-09-580 Recovery Act
Appendix XVIII: Texas 

new processes and internal controls, (2) programs that lack clear guidance 

on allowable uses of Recovery Act funds, (3) programs that distribute 

significant amounts of funds to local governments or boards, and (4) 

programs that rely on subrecipients for internal controls and monitoring. 

The State Auditor’s Office also noted that general economic stability and 

public education programs are considered to be high risk because they are 

new programs and federal guidance regarding the state’s appropriate use 

of the funds the funds is uncertain. The State Auditor’s Office further 

noted that highway construction and workforce programs are also high 

risk because funds flow through contractors or to local entities, 

respectively.19 

Officials from Office of the Governor acknowledged that there are 

inherent risks associated with large, complex programs as well as 

programs that involve a large number of contracts and rely on 

subrecipients. However, the officials emphasized that Texas has 

experience in monitoring these types of programs, and officials noted that 

state agencies have controls in place to mitigate these risks. Regarding the 

Medicaid program, for example, the officials noted that in 2003, the 

Governor appointed an Inspector General for the Texas Health and Human 

Services Commission and charged the Inspector General with monitoring 

and preventing fraud, waste, and abuse. Also, the officials noted that the 

state’s Attorney General’s Office has a Medicaid Fraud Investigation Unit. 

The Texas State Auditor’s Office made a recommendation regarding the 

monitoring of subrecipients for risk in its most recent audit of the Texas 

Education Agency.20 The audit report did not find that subrecipients were 

improperly spending federal funds or were not meeting federal 

requirements; however, the report did note, however, that the agency had 

“a limited number of resources available to monitor fiscal compliance.” 

The audit report recommended that the Texas Education Agency continue 

to add resources, within its budget constraints, to increase its monitoring 

of federal fiscal compliance performed. According to the State Auditor’s 

Office, following the audit in February 2009, the Texas Education Agency 

 

19The State Auditor’s Office further noted that additional information about high-risk 

programs could be obtained by inquiring about what actions at the agency level that 

management will be taking to mitigate risks. 

20State Auditor’s Office, State of Texas Federal Portion of the Statewide Single Audit 

Report for the Fiscal Year Ended August 31, 2008, SAO Report No. 09-330 (Austin, Tex., 

Feb. 2009). The audit was performed by an independent public auditing firm under contract 

to the State Auditor’s Office. 

Page 276 GAO-09-580 Recovery Act
Appendix XVIII: Texas 

created a comprehensive correction plan, which the agency is 

implementing to address this resource issue. 

After the Recovery Act was enacted, the Texas Education Agency 

announced in March 2009 that it was creating a task force on federal 

stimulus and stabilization to coordinate the agency’s plans. Also in March 

2009, the agency reported that it had established new accounting codes for 

tracking Recovery Act funds. Furthermore, the agency indicated that its 

application guidance for the temporary funding would specify that (1) 

grantees are expected to expend funds in ways that do not result in 

unsustainable continuing commitments after the funding expires and (2) 

the funds must be separately tracked and monitored. 

Generally, state officials recognized that a potential vulnerability can be 

associated with significant increases in funding levels. An example is the 

weatherization assistance program. As noted in table 1, of the estimated 

$1.2 billion in Recovery Act funds to be used for housing and 

infrastructure programs in Texas, weatherization assistance is the largest 

component program in terms of funding ($327 million). This funding level 

represents about a 25-fold increase over the estimated annual amount ($13 

million) that existed before the Recovery Act, according to Texas 

Department of Housing and Community Affairs data. Tentatively, the 

department indicated that its program implementation plan will include 

using an existing network of 34 weatherization assistance program 

providers (e.g., various community action entities) as well as awarding 

other contracts to cities with populations over 75,000. Under the program, 

subrecipients have 2 years to fully expend the weatherization funding. The 

Texas Department of Housing and Community Affairs noted that it intends 

to periodically assess progress and determine if unobligated funds need to 

be moved to high-performing entities. 

More broadly, a particular challenge or difficulty cited by the executive 

and legislative branch officials we contacted in Texas is the need for more 

guidance from OMB and other applicable federal agencies.21 Regarding 

quarterly recipient reports, for example, the officials said that there is a 

lack of clarity regarding whether all agencies in the state must submit 

reports to OMB or whether each state must submit a consolidated report. 

 

21OMB issued initial guidance on February 18, 2009, and provided additional guidance on 

April 3, 2009. As presented in this appendix, the observations of Texas officials are based 

on OMB’s initial guidance only. 

Page 277 GAO-09-580 Recovery Act
Appendix XVIII: Texas 

The officials also noted that it would be useful to have a reporting 

“template” that specifies the specific data fields or information to be 

reported. Furthermore, the officials commented that rather than simply 

being directed to a Web site, it would be helpful to have a centralized point 

of contact in Washington, D.C., for receiving and addressing questions. In 

April 2009, the Governor’s Office and State Comptroller of Public 

Accounts officials continued to express concerns to us about unclear 

guidance from federal agencies on allowable uses and reporting 

requirements. Also in April 2009, the officials informed us that the Office 

of the Governor had hired a consulting company, and six consultants had 

been staffed to track deadlines and work with state agencies to assist 

Texas in meeting Recovery Act reporting requirements. 

Regarding other opportunities for enhancing Recovery Act funding 

accountability, the executive and legislative branch officials we contacted 

in Texas advocated that various oversight entities in the state be 

concurrently notified when funds are distributed. As mentioned 

previously, in Texas, the state-level decision-making process regarding use 

(and accountability and transparency) of federal Recovery Act funds 

involves several entities or key stakeholders, particularly the Office of the 

Governor, the Office of the Comptroller of Public Accounts, the State 

Auditor’s Office, and the Legislative Budget Board. Generally, in our 

meetings with representatives of these entities, a common theme 

expressed has been a desire to be notified by federal authorities when 

Recovery Act funds are distributed to Texas state agencies and/or 

localities. The representatives stated that concurrent notification to the 

state’s key stakeholders would help to further ensure accountability and 

transparency. 

In April 2009, officials from the Office of the Governor and the State 

Comptroller’s Office told us that, in its disbursement of Recovery Act 

funds to the state, the federal government was not identifying these funds 

separately from other federal funds. The Texas officials cited increased 

FMAP funding as an example. Absent separate coding from the disbursing 

federal agency, the Texas officials said that the state relies on the Texas 

Health and Human Services Commission to inform the State Comptroller’s 

Office of what portion of the combined funds are Recovery funds. The 

Texas officials commented that it would be helpful if the federal 

government put in place the coding structure to identify Recovery Act 

funds separately from other federal funds—as they believe the Act 

requires—before Recovery Act funds are disbursed to Texas. 

Page 278 GAO-09-580 Recovery Act
Appendix XVIII: Texas 

The executive and legislative branch officials we contacted in Texas—

including officials from the Office of the Governor, the Office of the 

Comptroller of Public Accounts, the State Auditor’s Office, the Legislative 

Budget Board, and various program agencies—recognized the importance 

of the state taking steps to assess the impact of Recovery Act funds in 

terms of preserving and creating jobs, assisting those individuals most 

impacted by the recession, and so forth. In late January 2009, for example, 

in preparing to implement the transportation components of the 

anticipated national economic recovery program, the Texas 

Transportation Commission recognized that a primary purpose of the 

recovery program is to “create and sustain jobs.”22 

Plans for Assessing 

the Impact of 

Recovery Act Funds 

Are Evolving 

Texas officials commented that agencies in Texas—a state that has a 

performance-based budgeting process—already have performance 

measures in place for their respective programs and operations, although 

some Recovery Act-related adjustments or modifications may be needed. 

Texas Department of Transportation officials noted, for example, that 

contracts involving the use of Recovery Act funds will have special 

provisions requiring contractors to report on jobs created. These officials 

also cited potential difficulties in measuring the impact of Recovery Act 

funds used for programs that commingle these funds with other federal or 

state funds. 

Finally, Texas officials told us that the Governor’s Office has taken the 

lead in administering the state’s responsibilities under the Recovery Act. 

As mentioned previously, the Governor’s Office chairs a Stimulus Working 

Group with representatives from the state agencies that have a role under 

the Recovery Act. Texas officials were uncertain as to whether a specific 

agency would be designated to be responsible for compiling an overall 

assessment of the impact of Recovery Act funds in the state. The officials 

added, however, that the state’s legislature was still in session and that the 

forthcoming biennial general appropriations bill—which will have a 

separate section specifically for Recovery Act funds—could perhaps 

assign such responsibility to an agency. 

 

22Texas Transportation Commission, “Report on: Economic Recovery Plan,” presented at 

January 29, 2009, meeting by John Barton, Assistant Executive Director Engineering 

Operations. 

Page 279 GAO-09-580 Recovery Act
Appendix XVIII: Texas 

We provided the Governor of Texas with a draft of this appendix on April 

17, 2009. A Senior Advisor, designated as the state's point of contact for 

the Recovery Act, responded for the Governor on April 20, 2009. In 

general, the Senior Advisor agreed with the information in this appendix 

but wanted us to provide more context for the views of the State Auditor 

regarding potential areas of vulnerability with Recovery Act funds. We 

added contextual perspectives to address this concern and the Senior 

Advisor’s belief that Texas is equipped to meet its responsibilities under 

the Recovery Act. The Senior Advisor also provided technical suggestions 

that we incorporated where appropriate. 

Carol Anderson-Guthrie, (214) 777-5700 or andersonguthriec@gao.gov 

Lorelei St. James, (214) 777-5719 or stjamesl@gao.gov 

In addition to the contacts named above, Danny Burton, Assistant 

Director; K. Eric Essig, auditor-in-charge; Yecenia Camarillo; Camille 

Chaires; Sharhonda Deloach; Michael O’Neill; Daniel Silva; Gabriele 

Tonsil; and Christy Tyson made major contributions to this report. 

Texas’s Comments on 

This Summary 

GAO Contacts 

Staff 

Acknowledgments 

Page 280 GAO-09-580 Recovery Act
Appendix XIX: Washington, D.C. 

Page 281 GAO-09-580 

Appendix XIX: Washington, D.C. 

Use of funds: An estimated 90 percent of Recovery Act funding provided 

to states and localities nationwide in fiscal year 2009 (through Sept. 30, 

2009) will be for health, transportation, and education programs. The three 

largest programs in these categories are the Medicaid Federal Medical 

Assistance Percentage (FMAP) awards, highways, and the State Fiscal 

Stabilization Fund. 

Overview 

9 Medicaid Federal Medical Assistance Percentage (FMAP) Funds

• As of April 3, 2009, the Centers for Medicare and Medicaid Services (CMS) had made about $87.8 million in 

increased FMAP grant awards to the District of Columbia. 

• As of April 1, 2009, the District had drawn down about $49.9 million, or about 57 percent of its initial 

increased FMAP grant awards. 

• District officials plan to use funds made available as a result of the increased FMAP to cover an increased 

caseload, offset general fund deficits, and maintain current Medicaid eligibility and benefit levels. 

9 Transportation—Highway Infrastructure Investment 

• The District of Columbia was apportioned $123.5 million for highway infrastructure investment on March 2, 

2009, by the U.S. Department of Transportation. 

• As of April 16, 2009, the U.S. Department of Transportation had obligated $36.6 million for one project in the 

District of Columbia. 

• The District of Columbia plans to use these funds for reviewed and vetted “shovel ready” projects, such as 

pavement restoration and resurfacing work on federal roadways, once the appropriate contracting processes 

have been completed. 

9 U.S. Department of Education State Fiscal Stabilization Fund 

• The District of Columbia was allocated $89.4 million from the initial release of these funds on April 2, 2009, by 

the U.S. Department of Education. District officials intend to use these funds to increase aid across all 

schools in the District. As of April 2, 2009, about $59.9 million of this allocation was available for the District 

to draw down upon. 

• Before receiving the funds, states are required to submit an application that provides several assurances to 

the U.S. Department of Education. These include assurances that they will meet maintenance of effort 

requirements, or that they will be able to comply with waiver provisions, and that they will implement 

strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing 

inequities in the distribution of highly qualified teachers, and improving the quality of state academic 

standards and assessments. As of April 15, 2009, the District was awaiting a response from the U.S. 

Department of Education on the District’s proposed plan for using the funds before submitting an application.

 Recovery Act 
Appendix XIX: Washington, D.C. 

In addition to the funding for these three programs, the District of 

Columbia is receiving Recovery Act funds under other programs, such as 

programs under Title I, Part A, of the Elementary and Secondary 

Education (ESEA), commonly known as the No Child Left Behind Act; 

programs under the Individuals with Disabilities Education Act (IDEA); 

and two programs of the U.S. Department of Agriculture—one for 

administration of the Temporary Food Assistance Program and one for 

competitive equipment grants targeted at low income districts from the 

National School Lunch Program. The District’s plans for using these and 

other Recovery Act funds are discussed throughout this appendix. 

Safeguarding and transparency: The District plans to use its existing 

financial systems to track the use of Recovery Act funds, and plans to use 

an ongoing accountability program to monitor District agency efforts to 

ensure that funds are used as intended. District officials are working to 

correct 89 material weaknesses in internal controls over both financial 

reporting and compliance with requirements applicable to major federal 

programs that were identified in the Fiscal Year 2007 Single Audit Report

for the District of Columbia. The major federal programs in which these 

weaknesses were identified include programs that will be receiving 

Recovery Act funds, such as Medicaid’s FMAP, ESEA Title I Education 

grants, and Workforce Investment Act programs. At present, it is not clear 

whether corrective actions will be completed before the Recovery Act 

funds are received by the District. This could increase the risk that 

Recovery Act funds may not be used properly. The District’s Inspector 

General has also identified a number of District agencies with internal 

control and management issues that place them at risk for misusing 

Recovery Act funds. The District has initiated a Recovery Act Web site to 

help ensure that its Recovery Act efforts are transparent to the public. 

Assessing the effects of spending: The District plans to assess the 

impact of Recovery Act funds by using the information in reports required 

by federal agencies under the Recovery Act, including information on the 

economic impact of the funds, such as on job creation. The District has 

provided initial guidance to city agencies on the tracking and use of 

Recovery Act funds and is awaiting further guidance from the federal 

government, particularly information related to measuring jobs. District 

officials stated that the Office of Management and Budget (OMB) should 

provide a common definition of “job” and a metric to measure the number 

of jobs that are created by Recovery Act funds. District officials are also 

concerned about the lack of guidance for the methodology of tracking the 

new jobs created. 

Page 282 GAO-09-580 Recovery Act
Appendix XIX: Washington, D.C. 

The Mayor of the District of Columbia has established 13 work groups to 

oversee the use of Recovery Act funds in each program area. Each work 

group is led by the head of a District agency or department, or their 

designee, who reports to the City Administrator through his Recovery Act 

coordinator. The work groups will collaborate to make decisions on the 

use of Recovery Act funds. As of April 3, 2009, the District had been 

allocated about $240 million in Recovery Act funds. The City 

Administrator stated that the District is committed to taking full advantage 

of the opportunities provided by the Recovery Act, and is committed to 

doing so in a manner that is fiscally responsible, efficient, effective, and 

transparent, while addressing the goals of the statute and the needs of 

District residents. The District has begun to use the Recovery Act funds as 

follows. 

District of Columbia 

Beginning to Use 

Recovery Act Funds 

Increased Federal Medical Assistance Percentage Funds: Medicaid 

is a joint federal-state program that finances health care for certain 

categories of low-income individuals, including children, families, persons 

with disabilities, and persons who are elderly. The federal government 

matches state spending for Medicaid services according to a formula 

based on each state’s per capita income in relation to the national average 

per capita income. The amount of federal assistance states receive for 

Medicaid service expenditures is known as the Federal Medical Assistance 

Percentage (FMAP). Across states, the FMAP may range from 50 to no 

more than 83 percent, with poorer states receiving a higher federal 

matching rate than wealthier states. The Recovery Act provides eligible 

states with an increased FMAP for 27 months between October 1, 2008, 

and December 31, 2010.1

 On February 25, 2009, the Centers for Medicare & 

Medicaid Services (CMS) made increased FMAP grant awards to states, 

and states may retroactively claim reimbursement for expenditures that 

occurred prior to the enactment of the Recovery Act.2

 Generally, for fiscal 

year 2009 through the first quarter of fiscal year 2011, the increased FMAP, 

which is calculated on a quarterly basis, provides for (1) the maintenance 

of states’ prior year FMAPs; (2) a general across-the-board increase of 6.2 

percentage points in states’ FMAPs; and (3) a further increase to the 

FMAPs for those states that have a qualifying increase in unemployment 

rates. The increased FMAP available under the Recovery Act are for state 

 

1

See Recovery Act, div. B, title V, § 5001. 

2

Although the Recovery Act was enacted on February 17, 2009, states generally may claim 

reimbursement for the increased FMAP for Medicaid service expenditures made on or after 

October 1, 2008. 

Page 283 GAO-09-580 Recovery Act
Appendix XIX: Washington, D.C. 

expenditures for Medicaid services. However, the receipt of the increased 

FMAP may reduce the funds that states must use for their Medicaid 

programs, and states have reported using these available funds for a 

variety of purposes. 

As of April 1, 2009, the District of Columbia had drawn down $49.9 million 

in increased FMAP grant awards, which was 56.8 percent of its awards to 

date.3

 District of Columbia officials reported that they plan to use funds 

made available as a result of the increased FMAP to cover an increased 

caseload, offset general fund deficits, and maintain current eligibility and 

benefit levels in the District’s Medicaid program. 

Transportation—Highway Infrastructure Investment: The Recovery 

Act provides additional funds for highway infrastructure investment using 

the rules and structure of the existing Federal-Aid Highway Surface 

Transportation Program, which apportions money to states to construct 

and maintain eligible highways and for other surface transportation 

projects. States must follow the requirements for the existing programs, 

and in addition, the governor or other appropriate chief executive must 

certify that the state or local government to which funds have been made 

available has completed all necessary legal reviews and determined that 

the projects are an appropriate use of taxpayer funds. 

As of March 2, 2009, the District’s Department of Transportation was 

apportioned $123.5 million in Recovery Act funds for highway 

infrastructure and has identified “shovel ready” projects for these funds. 

According to the District of Columbia’s certification, approximately $56 

million in projects have been fully reviewed and vetted. As of April 16, 

2009, the U.S. Department of Transportation had obligated $36.6 million 

for one District project—the demolition and reconstruction of the existing 

New York Avenue Bridge over the railroad. 

U.S. Department of Education State Fiscal Stabilization Fund: The 

Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be 

administered by the U.S. Department of Education (Education). The SFSF 

provides funds to states to help avoid reductions in education and other 

essential public services. The initial award of SFSF funding requires each 

state to submit an application to Education that assures, among other 

 

3

The District of Columbia received increased FMAP grant awards of $87.8 million for the 

first three quarters of federal fiscal year 2009. 

Page 284 GAO-09-580 Recovery Act
Appendix XIX: Washington, D.C. 

things, it will take actions to meet certain educational requirements, such 

as increasing teacher effectiveness and addressing inequities in the 

distribution of highly qualified teachers. 

As of April 15, 2009, the District was awaiting a response from Education 

on the District’s proposed plan for using the funds to increase funding for 

education on a per student basis. Once this response is received, the 

District will submit an application to the federal government and expects 

to receive about $89.4 million in fiscal stabilization funds. The District is 

home to about 220 schools in 60 local education agencies (LEAs). The 

District’s 60 LEAs include one large public school system (District of 

Columbia Public Schools, or DCPS) and 59 smaller LEAs that are mostly 

single public charter schools. For the 2008-2009 school year, about 64 

percent of District students were enrolled in DCPS, while about 36 percent 

were in public charter schools. District officials stated that they intend to 

distribute stabilization funds across all 60 LEAs. 

Other Education Funds: The District expects to receive about $37 

million in Recovery Act funds for its ESEA Title I program. Title I, Part A 

of the Elementary and Secondary Education Act of 1965 (ESEA), as 

amended by the No Child Left Behind Act provides funds to LEAs for 

schools that have high concentrations of students from families living in 

poverty in order to help improve teaching and learning. District officials 

told us that it may be a challenge to disburse funds rapidly while also 

meeting programmatic requirements. They also told us they did not yet 

know how the LEAs were planning on using these funds. 

The District also expects to receive about $18.8 million in stimulus funds 

for Individuals with Disabilities Education Act (IDEA) programs. About 

$16.4 million will be used for Part B grants to states, and about $260,000 

for Part B grants for preschool children. The other $2.1 million will be 

used for Part C (state grants for infants and families). Officials told us that 

they were unsure of how IDEA funds would be used, but they anticipate 

being able to serve more children under each program, improve methods 

for assessing the performance of students with disabilities, and improve 

services to children and compliance with IDEA’s requirements. 

Public Transit Capital Assistance: The U.S. Department of 

Transportation, through the Federal Transit Administration (FTA), has 

apportioned funds for Transit Capital Assistance grants. Although these 

funds are not apportioned directly to the District, the Washington 

Metropolitan Area Transit Authority (WMATA), which serves the District 

of Columbia and the surrounding area, estimates that WMATA will receive 

Page 285 GAO-09-580 Recovery Act
Appendix XIX: Washington, D.C. 

approximately $202 million in Recovery Act funding from FTA. WMATA 

plans to use these funds for 29 projects, including improving information 

technology and operating systems, maintenance, repair and replacement 

of buses, and renovation of passenger facilities in disrepair. According to 

its Web site, WMATA expects to make its first Recovery Act purchase of 45 

hybrid-electric buses at the end of April 2009. 

Workforce Investment Act (WIA): As of April 3, 2009, the District’s 

Department of Employment Services had been allocated about $1.5 million 

for adult Workforce Investment Act (WIA) programs, about $3.8 million for 

dislocated workers programs, and almost $4 million for youth programs. 

The District plans to use these Recovery Act funds in accordance with the 

U.S. Department of Labor’s Guidance Letter Number 14-08. This guidance 

states that it is the intent of the Recovery Act that WIA adult funds be used 

to provide the necessary services to substantially increase the number of 

adults to support their entry or reentry into the job market, and that WIA 

dislocated worker funds be used to provide the necessary services to 

dislocated workers to support their reentry into the recovering job market. 

The guidance also emphasizes Congress’s interest in using WIA youth 

funds to create summer employment opportunities for youth. 

The District has also developed a plan that includes an increase in weekly 

benefits for the unemployed and an expansion of city services to help 

those filing unemployment claims and looking for work. The new benefits 

for the unemployed include additional compensation in the form of a 

supplemental $25 weekly benefit outlined in the Recovery Act. In addition, 

the District announced an extension for those who have exhausted their 

unemployment benefits and are actively seeking work. According to 

District officials, the Mayor plans to forward legislation to the D.C. City 

Council that will enable those who will exhaust their unemployment 

benefits by late spring to extend them until December 2009. Both the new 

supplemental compensation and the extension of benefits are 100 percent 

federally funded as part of the Recovery Act. 

Housing Programs: The U.S. Department of Housing and Urban 

Development (HUD) allocated about $11.6 million to the District of 

Columbia to provide additional gap financing to Low Income Housing Tax 

Credit (LIHTC) projects under the Taxpayer Credit Assistance Program 

(TCAP). District of Columbia Department of Housing and Community 

Development (DHCD) officials told us that they were waiting for the 

Internal Revenue Service (IRS) and HUD to issue guidance for TCAP and 

the LIHTC Exchange programs before releasing details on their plans for 

implementing the program. Regarding the LIHTC Exchange program, 

Page 286 GAO-09-580 Recovery Act
Appendix XIX: Washington, D.C. 

DHCD officials said they have questions about how the program will be 

implemented and that the answers to their questions could require 

revisions to state qualified allocation plans and procedures. As a result, 

further guidance from IRS will be needed to understand whether DHCD 

would use the program and, if so, what management changes, if any, will 

be needed for its implementation. As required by the Recovery Act, HUD 

allocated about $27 million to the District of Columbia Housing Authority 

(DCHA) for capital and management activities, including modernization 

and rehabilitation of public housing projects. DCHA officials told us that 

they planned to use the allocation to fund improvements at ongoing 

projects included in their 5-year construction plan. 

Homeland Security and Justice Programs: District officials expect to 

receive an additional allocation of about $11.7 million through the 

Department of Justice’s Edward Byrne Memorial Justice Assistance Grant 

Formula Program, which nearly doubles the total amount of grant funding 

awarded by the District’s Justice Grants Administration in the last fiscal 

year. The District plans to use these funds in several areas, including 

prisoner reentry, detention and incarceration diversion initiatives, and 

court diversion services for at-risk youth. The District plans to change its 

funding priority targets by phasing out small discrete grants and instead 

focus on awarding grants that invest in long-term projects. According to 

District officials, they have collaborated with local criminal justice 

stakeholders and community groups to identify funding priorities. 

District officials plan to track Recovery Act funds using existing financial 

systems. According to District officials, the financial system already has 

the infrastructure to track, monitor, and report the source of funds 

distributed to recipients to ensure strict compliance with the requirements 

of the Recovery Act and to monitor the flow of Recovery Act funds from 

the federal government to District agencies. District officials plan to 

account for Recovery Act funds in a manner similar to the way they track 

and manage grant funds, using a unique four-digit code. Officials from the 

District’s Office of the Chief Financial Officer told us that they had notified 

District agency officials of the need to closely monitor Recovery Act funds. 

The District has not provided guidance to recipients regarding the tracking 

and use of Recovery Act funds. The District will determine what guidance 

needs to be provided to recipients once the District receives guidance 

from OMB. 

The District Plans to 

Use Existing Systems 

to Track Recovery Act 

Funds 

Page 287 GAO-09-580 Recovery Act
Appendix XIX: Washington, D.C. 

District Web site Used 

to Promote 

Transparent Use of 

Recovery Act Funds 

The District has developed a Recovery Act Web site 

(www.recovery.dc.gov) that is intended to allow the public to track 

Recovery Act efforts. The Web site contains information on the 

management process the District plans to use to oversee Recovery Act 

spending, and provides the public a way to track Recovery Act spending 

and get information on grants and contracts that are available. The Web 

site also offers the public a means to submit ideas and to identify any 

waste or fraud. Further, the Mayor’s certification of the use of the funds is 

also posted on the Web site, as is the testimony of the City Administrator 

and the Chief Procurement Officer on Recovery Act efforts before the D.C. 

Council—the District’s legislative body. 

District Plans for 

Ensuring that 

Adequate Safeguards 

and Internal Controls 

Are in Place 

The District Plans to Use 

Existing Accountability 

Program for Recovery 

Funds 

The District will continue to use CapStat, a performance-based 

accountability program designed to make the District government run 

more efficiently and to ensure accountability, effectiveness of internal 

controls, compliance with reporting requirements, and reliable reporting 

about uses of Recovery Act funds. The CapStat process takes the form of 

weekly accountability sessions where the Mayor and City Administrator 

bring into one room all the executives responsible for improving 

performance on an issue to examine performance data and explore ways 

to improve government services, as well as to make commitments for 

follow-up actions. Each District agency participates in the program. 

Agency directors prepare for a session by examining their agency’s 

performance measures and analyzing how they can improve their results. 

Single Audit Identified 

Many Weaknesses in 

District Internal Controls 

The Fiscal Year 2007 Single Audit Report for the District of Columbia 

identified 89 material weaknesses in internal controls over both financial 

reporting and compliance with requirements applicable to major federal 

programs. There were three financial reporting material weaknesses 

related to (1) fraudulent activities involving the Office of Tax and 

Revenue, (2) management of the Medicaid program, and (3) systemic 

weaknesses in DCPS. The single audit report identified material 

Page 288 GAO-09-580 Recovery Act
Appendix XIX: Washington, D.C. 

weaknesses in compliance with requirements applicable to major federal 

programs including Medicaid’s FMAP, ESEA Title I Education grants, and 

Workforce Investment Act programs, all of which will be receiving 

Recovery Act funds. The findings were significant enough to result in a 

qualified opinion for that section of the report. In addition, Education 

designated the District as a high-risk grantee in April 2006 because of its 

poor management of federal grants. If the District continues to be 

designated as a high-risk grantee, Education could respond by taking 

several actions, such as discontinuing one or more federal grants made to 

the District or having a third party take control over the administration of 

federal grants. OCFO officials told us that they are in the process of 

working with the federal agencies to address these material weaknesses, 

but it is unlikely the corrective actions will be completed before the 

District programs with these weaknesses begin receiving Recovery Act 

funds. This could increase the risk that Recovery Act funds may not be 

used properly. 

District’s Office of 

Inspector General Intends 

to Monitor Recovery Act 

Funds During Ongoing and 

Planned Work 

The District’s Office of Inspector General (OIG) has not developed a 

specific plan to audit Recovery Act spending, but OIG officials believe that 

ongoing and planned reviews will cover programs that are going to receive 

much of the stimulus money. OIG officials said that they continuously 

audit these four areas that have internal control problems and 

management issues: Medicaid, D.C. Public Schools, grants management, 

and the vendor/contractor payment process. As a result, the OIG maintains 

a regular presence in the D.C. Department of Health, DCPS, the Office of 

the Chief Financial Officer (OCFO), and the Office of Procurement. 

However, according to OIG officials, the OIG does not have legal authority 

to audit the District’s Public Charter Schools.4

 The OIG also performs an 

annual audit of the District’s Highway Trust Fund (separate from the 

Federal Highway Trust Fund). The OIG also plans to use the District’s 

Comprehensive Annual Financial Report (CAFR) Committee, which the 

OIG chairs, to monitor Recovery Act spending by District agencies. This 

committee, which oversees D.C.’s Comprehensive Annual Financial 

Report, is working with the mayor’s office regarding how the Committee 

can assist in monitoring Recovery Act spending. The OIG noted that they 

 

4

All public charter schools in the District of Columbia are required to submit annual 

financial audits to the D.C. Public Charter School Board. The charter schools select an 

auditor from a list of best qualified auditors and who has been approved by the D.C. Chief 

Financial Officer and the Public Charter School Board. 

Page 289 GAO-09-580 Recovery Act
Appendix XIX: Washington, D.C. 

did not receive any additional funds or resources to carry out specific 

Recovery Act reviews. 

Role of the D.C. Auditor 

for Recovery Act 

Accountability Is Limited 

Due to Legislative 

Directive and Resource 

Constraints 

The Office of the District of Columbia Auditor is the legislative auditor for 

the District. The office exists to support the District City Council in 

meeting its legislative oversight responsibilities and to help improve the 

performance and accountability of the District government. The Auditor 

has the authority to conduct audits on District funds, including those used 

by the D.C. Charter schools, but is not set up to provide comprehensive 

services regarding federal funds except in instances of D.C. Council 

requests and pre-existing mandates. The D.C. Auditor’s main body of work 

is developed on a rotating basis, where the Auditor selects specific 

activities or accounts to review every 3 years, concentrating on financial 

accounting and reporting. According to the D.C. Auditor, due to limited 

resources, they only plan to conduct audits based on scheduled rotations 

and requests, and they have no plans to audit Recovery Act funds. If, 

however, a planned audit concerns a program receiving Recovery Act 

funds, then the Auditor may adjust audit plans accordingly. 

The District plans to assess the impact of Recovery Act funds by using the 

information in reports required by federal agencies under the Recovery 

Act, including information on the economic impact of the funds, such as 

on job creation. However, District officials told us that calculating the 

number of jobs created through Recovery Act funds may be difficult. 

Officials stated that OMB should provide a common definition of “job” and 

a metric to measure the number of jobs that are created by Recovery Act 

funds. They are also concerned about the lack of guidance for the 

methodology of tracking the new jobs. They recommended that OMB 

create a centralized recovery tracking system that provides consistency in 

measuring how funds have impacted each state. While the direct impact of 

Recovery Act funds may be measurable, District officials are unsure of 

methods to track indirect impact and how to separate the impact of 

Recovery Act funds and the impact from other federal funds in programs 

that receive both sources and use both sources in their program 

implementation. Without this guidance, the District believes it will have 

difficulty producing reports using quantitative measures related to using 

the Recovery Act funds. In addition, officials would like to have a 

standardized reporting template with addendums for each federal agency. 

This would clarify confusion for the District and states since a reporting 

template would reduce reporting burden, especially since the amount of 

funding per issue area varies from state to state. Officials request that 

Plans to Assess 

Impact of Recovery 

Act Funds Have Not 

Yet Been Developed 

Page 290 GAO-09-580 Recovery Act
Appendix XIX: Washington, D.C. 

OMB provide a template for the format and required information for 

Recovery Act Web sites as well. 

District officials also plan to use the CapStat performance-based 

accountability program to examine the impact of the use of Recovery Act 

funds on District agencies and programs. 

We provided the Office of the Mayor of the District of Columbia with a 

draft of this appendix on April 15, 2009. On April 17, 2009, the City 

Administrator’s office provided technical suggestions on the appendix that 

were incorporated, as appropriate. 

District of Columbia’s 

Comments on This 

Appendix 

William O. Jenkins, Jr., (202) 512-8757 or jenkinswo@gao.gov 

Carolyn Yocom, (202) 512-4931 or yocomc@gao.gov 

GAO Contacts 

In addition to the contacts named above, John Hansen, Assistant Director; 

Mark Tremba, analyst-in-charge; Maria Strudwick; Shawn Arbogast; 

Marisol Cruz; Nagla’a El-Hodiri; Sunny Chang; Nancy Glover; Justin 

Monroe; Ellen Phelps Ranen; and Melissa Schermerhorn made major 

contributions to this report. 

Staff 

Acknowledgments 

Page 291 GAO-09-580 Recovery Act
Appendix XX:

A

 GAO Contacts and Staff 

cknowledgments 

Page 292 GAO-09-580 

Appendix XX: GAO Contacts and Staff 

Acknowledgments 

J. Christopher Mihm, Managing Director for Strategic Issues (202) 512-

6806 or Mihmj@gao.gov 

For issues related to SFSF and other education programs: Cynthia M. 

Fagnoni, Managing Director for Education, Workforce and Income 

Security, (202) 512-7215 or fagnonic@gao.gov 

For issues related to Medicaid and FMAP: Dr. Marjorie Kanof, Managing 

Director for Health Care, (202) 512-7114 or kanofm@gao.gov 

For issues related to highways and other transportation programs: 

Katherine A. Siggerud Managing Director for Physical Infrastructure, (202) 

512-2834 or siggerudk@gao.gov 

The names of GAO staff who served on the teams for the selected states 

and the District are listed at the end of each respective appendix. In 

addition, the following staff contributed to this report: Stanley J. 

Czerwinski, Denise Fantone, and Yvonne Jones (Directors); Thomas 

James, James McTigue, and Michelle Sager (Assistant Directors); and 

Allison Abrams, David Alexander, Peter Anderson, Thomas Beall, Joanna 

Berry, Sandra Beattie, Bonnie Beckett, Pedro Briones, Kimberly Brooks, 

Kay Brown, Marcia Buchanan, Ted Burik, Steven Cohen, Nancy Cosentino, 

Robert Cramer, Michael Derr, Kevin Dooley, Heather Dowey, Colin Fallon, 

Alice Feldesman, Andy Finkel, Shannon Finnegan, Jim Fuquay, Vicky 

Green, Brandon Haller, Anita Hamilton, Tracy Harris, Laura Heald, 

Michael Hrapsky, Mary Catherine Hult, Susan Irving, Shirley Jones, Stuart 

Kaufman, Karen Keegan, Martha Kelly, Ba Lin, Edward Leslie, Leslie 

Locke, Steve Martin, JoAnn Martinez, Kim McGatlin, John McGrail, Donna 

Miller, Sheila Miller, Clarita Mrena, Elizabeth Morrison, Andy O’Connell, 

Lisa Pearson, Janice Poling, Brenda Rabinowitz, Carl Ramirez, Mathew 

Scire, Thomas Short, Michael Springer, George Stalcup, Andrew Stephens, 

Hemi Tewarson, Patrick Tobo, Gabriele Tonsil, Cheri Truett, Susan 

Wallace, Lindsay Welter, Michelle Woods, and Carolyn Yocom. 

 Recovery Act 

GAO Contacts 

Acknowledgments 

(450745) 
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