Recovery Act: States' and Localities' Current and Planned Uses of Funds While Facing Fiscal Stresses
Published: 2009-07-08T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: This report, the second in response to a mandate under the American Recovery and Reinvestment Act of 2009 (Recovery Act), addresses the following objectives: (1) selected states' and localities' uses of 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. GAO's work for this report is focused on 16 states and certain localities in those jurisdictions as well as the District of Columbia--representing about 65 percent of the U.S. population and two-thirds of the intergovernmental federal assistance available. GAO collected documents and interviewed state and local officials. GAO analyzed federal agency guidance and spoke with Office of Management and Budget (OMB) officials and with relevant program officials at the Centers for Medicare and Medicaid Services (CMS), and the U.S. Departments of Education, Energy, Housing and Urban Development (HUD), Justice, Labor, and Transportation (DOT).
section_title: What GAO Found
paragraphs: Across the United States, as of June 19, 2009, Treasury had outlayed about $29 billion of the estimated $49 billion in Recovery Act funds projected for use in states and localities in fiscal year 2009. More than 90 percent of the $29 billion in federal outlays has been provided through the increased Medicaid Federal Medical Assistance Percentage (FMAP) and the State Fiscal Stabilization Fund (SFSF) administered by the Department of Education. GAO's work focused on nine federal programs that are estimated to account for approximately 87 percent of federal Recovery Act outlays in fiscal year 2009 for programs administered by states and localities. Increased Medicaid FMAP Funding All 16 states and the District have drawn down increased Medicaid FMAP grant awards of just over $15 billion for October 1, 2008, through June 29, 2009, which amounted to almost 86 percent of funds available. Medicaid enrollment increased for most of the selected states and the District, and several states noted that the increased FMAP funds were critical in their efforts to maintain coverage at current levels. States and the District reported they are planning to use the increased federal funds to cover their increased Medicaid caseload and to maintain current benefits and eligibility levels. Due to the increased federal share of Medicaid funding, most state officials also said they would use freed-up state funds to help cope with fiscal stresses. Highway Infrastructure Investment As of June 25, DOT had obligated about $9.2 billion for almost 2,600 highway infrastructure and other eligible projects in the 16 states and the District and had reimbursed about $96.4 million. Across the nation, almost half of the obligations have been for pavement improvement projects because they did not require extensive environmental clearances, were quick to design, obligate and bid on, could employ people quickly, and could be completed within 3 years. State Fiscal Stabilization Fund As of June 30, 2009, of the 16 states and the District, only Texas had not submitted an SFSF application. Pennsylvania recently submitted an application but had not yet received funding. The remaining 14 states and the District had been awarded a total of about $17 billion in initial funding from Education--of which about $4.3 billion has been drawn down. School districts said that they would use SFSF funds to maintain current levels of education funding, particularly for retaining staff and current education programs. They also said that SFSF funds would help offset state budget cuts. Accountability States have implemented various internal control programs; however, federal Single Audit guidance and reporting does not fully address Recovery Act risk. The Single Audit reporting deadline is too late to provide audit results in time for the audited entity to take action on deficiencies noted in Recovery Act programs. Moreover, current guidance does not achieve the level of accountability needed to effectively respond to Recovery Act risks. Finally, state auditors need additional flexibility and funding to undertake the added Single Audit responsibilities under the Recovery Act. Impact Direct recipients of Recovery Act funds, including states and localities, are expected to report quarterly on a number of measures, including the use of funds and estimates of the number of jobs created and the number of jobs retained. The first of these reports is due in October 2009. OMB--in consultation with a broad range of stakeholders--issued additional implementing guidance for recipient reporting on June 22, 2009, that clarifies some requirements and establishes a central reporting framework.

section_title: Letter
paragraphs: As federal funds provided by the American Recovery and Reinvestment  Act of 2009 (Recovery Act) flow into the U.S. economy, state fiscal  conditions continue to be stressed. Actual declines in sales, personal  income, and corporate income tax revenues influenced state actions to  begin to fill an estimated $230 billion in budget gaps for fiscal years 2009  through 2011. The national unemployment rate also increased to 9.5  percent in June 2009, and high unemployment can place greater stress on  state budgets as demand for services, such as Medicaid, increases. Some  economists have pointed to signs of economic improvement, although  associations representing state officials have also reported that state fiscal  conditions historically lag behind any national economic recovery.
The Recovery Act specifies several roles for GAO, including conducting  bimonthly reviews of selected states’ and localities’ use of funds made  available under the act. This report, the second in response to the act’s  mandate, addresses the following objectives: (1) selected states’ and  localities’ uses of 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. The report provides overall findings, makes  recommendations, and discusses the status of actions in response to the  recommendations we made in our April 2009 report. Individual summaries  for the 16 selected states and the District of Columbia (District) are  accessible through GAO’s recovery page at www.gao.gov/recovery. In  addition, all of the summaries have been compiled into an electronic  supplement, GAO-09-830SP.
As reported in our April 2009 review, to address these objectives, we  selected a core group of 16 states and the District that we will follow over  the next few years. Our bimonthly reviews examine how Recovery Act  funds are being used and whether they are achieving the stated purposes  of the act. These purposes include  to preserve and create jobs and promote economic recovery; to assist those most impacted by the recession;  to provide investments needed to increase economic efficiency by  spurring technological advances in science and health; to invest in transportation, environmental protection, and other  infrastructure that will provide long-term economic benefits; and to stabilize state and local government budgets, in order to minimize and  avoid reductions in essential services and counterproductive state and  local tax increases.
The states selected for our bimonthly reviews 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  federal 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 nonprobability sample of about 178 local entities  within the 16 selected states and the District.
GAO’s work for this report focused on nine federal programs primarily  because they have begun disbursing funds to states or have known or  potential risks. These risks can include existing programs receiving  significant amounts of Recovery Act funds or new programs. We collected  documents from and conducted semistructured interviews with executive- level state and local officials and staff from state offices including  governors’ offices, “recovery czars,” state auditors, and controllers. In  addition, our work focused on federal, state, and local agencies  administering the selected programs receiving Recovery Act funds. We  analyzed guidance and interviewed officials from the federal Office of  Management and Budget (OMB). We also analyzed other federal agency  guidance on programs selected for this review and spoke with relevant  program officials at the Centers for Medicare and Medicaid Services  (CMS), the U.S. Departments of Education, Energy, Housing and Urban  Development, Justice, Labor, and Transportation. Where attributed to  state officials, 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. 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.
We conducted this performance audit from April 21, 2009, to July 2, 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.
subsections: section_title: Background
paragraphs: Our analysis of initial estimates of Recovery Act spending provided by the  Congressional Budget Office (CBO) suggested that about $49 billion would  be outlayed to states and localities by the federal government in fiscal year  2009, which runs through September 30. However, our analysis of the  latest information available on actual federal outlays reported on  www.recovery.gov indicates that in the 4 months since enactment, the  federal Treasury has paid out approximately $29 billion to states and  localities, which is about 60 percent of payments estimated for fiscal year  2009. Although this pattern may not continue for the remaining 3-1/2   months, at present spending is slightly ahead of estimates. More than 90  percent of the $29 billion in federal outlays has been provided through the  increased Federal Medical Assistance Percentage (FMAP) grant awards  and the State Fiscal Stabilization Fund administered by the Department of  Education. Figure 1 shows the original estimate of federal outlays to states  and localities under the Recovery Act compared with actual federal  outlays as reported by federal agencies on www.recovery.gov. The 16  states and the District of Columbia covered by our review account for  about two-thirds of the Recovery Act funding available to states and  localities. According to the Office of Management and Budget (OMB), an  estimated $149 billion in Recovery Act funding will be obligated to states  and localities in fiscal year 2009.
Our work for this bimonthly report focused on nine federal programs,  selected primarily because they have begun disbursing funds to states and  include programs with significant amounts of Recovery Act funds,  programs receiving significant increases in funding, and new programs.  Recovery Act funding of some of these programs is intended for further  disbursement to localities. Together, these nine programs are estimated to  account for approximately 87 percent of federal Recovery Act outlays to  state and localities in fiscal year 2009. Figure 2 shows the distribution by  program of anticipated federal Recovery Act spending in fiscal year 2009  to states and localities.
section_title: States and Localities Are Using Recovery Act Funds for Purposes of the Act and to Help Address Fiscal Stresses
subsections: section_title: Increased FMAP Has Helped States Finance Their Growing Medicaid Programs, but Concerns Remain about Compliance with Recovery Act Provisions
paragraphs: 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 rate at which states are reimbursed for  Medicaid service expenditures is known as the FMAP, which may range  from 50 percent to no more than 83 percent. The Recovery Act provides  eligible states with an increased FMAP for 27 months between October 1,  2008, and December 31, 2010.  On February 25, 2009, CMS made increased  FMAP grant awards to states, and states may retroactively claim  reimbursement for expenditures that occurred prior to the effective date  of the Recovery Act. 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 would otherwise have to use for their  Medicaid programs, and states have reported using these available funds  for a variety of purposes.
For the third quarter of fiscal year 2009, the increases in FMAP for the 16  states and the District of Columbia compared with the original fiscal year  2009 levels are estimated to range from 6.2 percentage points in Iowa to  12.24 percentage points in Florida, with the FMAP increase averaging  almost 10 percentage points. When compared with the first two quarters of  fiscal year 2009, the FMAP in the third quarter of fiscal year 2009 is  estimated to have increased in 12 of the 16 states and the District.
From October 2007 to May 2009, overall Medicaid enrollment in the 16  states and the District increased by 7 percent. In addition, each of the  states and the District experienced an enrollment increase during this  period, with the highest number of programs experiencing an increase of 5  percent to 10 percent. However, the percentage increase in enrollment  varied widely ranging from just under 3 percent in California to nearly 20  percent in Colorado. (Figure 3.)
Overall enrollment growth was the most rapid in early 2009—generally  from January through April 2009—an enrollment trend that was mirrored  in several states and the District; however, variation existed. For example,  while Colorado and Mississippi experienced a nearly 5 percent increase in  Medicaid enrollment during this time, Medicaid enrollment in Illinois  remained relatively stable, growing at less than 1 percent. Most of the  increase in overall enrollment was attributable to populations that are  sensitive to economic downturns—primarily children and families  Nonetheless, enrollment growth in other population groups, such as  disabled individuals, also contributed to enrollment growth.
With regard to the states’ receipt of the increased FMAP, all 16 states and  the District had drawn down increased FMAP grant awards totaling just  over $15.0 billion for the period of October 1, 2008 through June 29, 2009  which amounted to 86 percent of funds available.  (See table 2.) In  addition, except for the initial weeks that increased FMAP funds were  available, the weekly rate at which the sample states and the District have  drawn down these funds has remained relatively constant.
While the increased FMAP available under the Recovery Act is for state  expenditures for Medicaid services, the receipt of these funds may reduce  the state share for their Medicaid programs. As such, states reported that  they are using or are planning to use the funds that have become freed up  as a result of increased FMAP for a variety of purposes. Most commonly,  states reported that they are using or planning to use freed-up funds to  cover their increased Medicaid caseload, to maintain current benefits and  eligibility levels, and to help finance their respective state budgets. Several  states noted that given the poor economic climate in their respective  states, these funds were critical in their efforts to maintain Medicaid  coverage at current levels. For example, officials from Georgia, Michigan,  and Pennsylvania reported that the increased FMAP funds have allowed  their respective states to maintain their Medicaid programs, which could  have been subject to cuts in eligibility or services without the increased  funds. Additionally, Medicaid officials in five states and the District  indicated that they used the funds made available as a result of the  increased FMAP to maintain program expansions or local health care  reform initiatives, which in some states would have otherwise been  vulnerable to program cuts. Lastly, all but Texas and the District reported  they are using or planning to use the freed-up funds to help finance their  state budgets. Five states—Arizona, California, Colorado, North Carolina,  and Ohio—-reported using or planning to use these funds solely for this  purpose.
For states to qualify for the increased FMAP available under the Recovery  Act, they must meet a number of requirements, including the following:     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.
States must comply with prompt payment requirements.
States cannot deposit or credit amounts attributable (either directly or  indirectly) to certain elements of the increased FMAP into any reserve or  rainy-day fund of the state.
States with political subdivisions—such as cities and counties—that  contribute to the nonfederal share of Medicaid spending cannot require  the subdivisions to pay a greater percentage of the nonfederal share than  would have been required on September 30, 2008.
Medicaid officials from many states and the District raised concerns about  their ability to meet these requirements and, thus, maintain eligibility for  the increased FMAP. While officials from several states spoke positively  about CMS’s guidance related to FMAP requirements, at least nine states  and the District reported they wanted CMS to provide additional guidance  regarding (1) how they report daily compliance with prompt pay  requirements, (2) how they report monthly on increased FMAP spending,  and (3) whether certain programmatic changes would affect their  eligibility for funds. For example, Medicaid officials from several states  told us they were hesitant to implement minor programmatic changes,  such as changes to prior authorization requirements, pregnancy  verifications, or ongoing rate changes, out of concern that doing so would  jeopardize their eligibility for increased FMAP. In addition, at least three  states raised concerns that glitches related to new or updated information  systems used to generate provider payments could affect their eligibility  for these funds. Specifically, Massachusetts Medicaid officials said they  are implementing a new provider payment system that will generate  payments to some providers on a monthly versus daily basis and would  like guidance from CMS on the availability of waivers for the prompt  payment requirement. A CMS official told us that the agency is in the  process of finalizing its guidance to states on reporting compliance with  the prompt payment requirement of the Recovery Act, but did not know  when this guidance would be publicly available. However, the official  noted that, in the near term, the agency intends to issue a new Fact Sheet,  which will include questions and answers on a variety of issues related to  the increased FMAP.
Due to the variability of state operations, funding processes, and political  structures, CMS has worked with states on a case-by-case basis to discuss  and resolve issues that arise. Specifically, communications between CMS  and several states indicate efforts to clarify issues related to the  contributions to the state share of Medicaid spending by political  subdivisions or to rainy-day funds. For example, in a May 20, 2009, letter,  CMS clarified that California would not fail to meet the provision of the  Recovery Act related to contributions by political subdivisions if a county  voluntarily used its funds to make up for a decrease in the amount the  state appropriated for the Medicaid payment of wages of personal care  service providers. Similarly, Mississippi clarified with CMS its  understanding that it would not be permissible to deposit general fund  savings resulting from the increased FMAP into the rainy-day fund in state  fiscal year 2010 in order to use those funds in state fiscal year 2011.
Regarding the tracking of the increased FMAP, most of the states and the  District use existing processes to track the receipt of the increased FMAP  separately from regular FMAP, and almost half of the states reported using  existing processes to reconcile these expenditures. In addition, we  reviewed the 2007 Single Audits for the states and the District and  identified material weaknesses related to Medicaid, including weaknesses  related to provider enrollment processes and subrecipient monitoring, for  most of them. The Single Audits indicated that many states and the  District planned or implemented actions to correct identified weaknesses.
According to CMS officials, CMS regional offices work with states to  address single audit findings related to Medicaid.
section_title: States Are Using Highway Infrastructure Funds Mainly For Pavement Improvements and Are Generally Complying with Recovery Act Requirements
paragraphs: The Recovery Act provides funding to the states for restoration, repair,  and construction of highways and other activities allowed under the  Federal-Aid Highway Surface Transportation Program and for other  eligible surface transportation projects. The act requires that 30 percent of  these funds be suballocated for projects in metropolitan and other areas of  the state. Highway funds are apportioned to the states through federal-aid  highway program mechanisms, and states must follow the requirements of  the existing program, which include ensuring the project meets all  environmental requirements associated with the National Environmental  Policy Act (NEPA), paying a prevailing wage in accordance with federal  Davis-Bacon requirements, complying with goals to ensure disadvantaged  businesses are not discriminated against in the awarding of construction  contracts, and using American-made iron and steel in accordance with Buy  America program requirements. However, the maximum federal fund  share of highway infrastructure investment projects under the Recovery  Act is 100 percent, while the federal share under the existing federal-aid  highway program is generally 80 percent.
In March 2009, $26.7 billion was apportioned to all 50 states and the  District of Columbia (District) for highway infrastructure and other  eligible projects. As of June 25, 2009, $15.9 billion of the funds had been  obligated for over 5,000 projects nationwide, and $9.2 billion had been  obligated for nearly 2,600 projects in the 16 states and the District that are  the focus of our review.
Almost half of Recovery Act highway obligations have been for pavement  improvements. Specifically, $7.8 billion of the $15.9 billion obligated  nationwide as of June 25, 2009, is being used for projects such as  reconstructing or rehabilitating deteriorated roads, including $3.6 billion  for road resurfacing projects. Many state officials told us they selected a  large percentage of resurfacing and other pavement improvement projects  because they did not require extensive environmental clearances, were  quick to design, could be quickly obligated and bid, could employ people  quickly, and could be completed within 3 years. For example, Michigan  began a $22 million project on Interstate 196 in Allegan County that  involves resurfacing about seven miles of road. Michigan Department of  Transportation officials told us they focused primarily on pavement  improvements for Recovery Act projects because they could be obligated  quickly and could be under construction quickly, thereby employing  people this calendar year. Since many of the environmental clearances had  been completed, Michigan could accelerate the construction of these  projects when Recovery Act funds became available. Table 4 shows  obligations by the types of road and bridge improvements being made.
As table 4 shows, in addition to pavement improvements, $2.7 billion, or  about 17 percent of Recovery Act funds nationally, has been obligated for  pavement-widening projects. These projects provide for reconstructing  and improving existing roads as well as increasing the capacity of the road  to accommodate traffic, which can reduce congestion. In Florida, around  47 percent of Recovery Act funds were obligated for widening projects  that increase capacity, while about 9 percent was obligated for pavement  improvements such as resurfacing.
As of June 25, 2009, around 10 percent of the funds apportioned  nationwide have been obligated for the replacement or improvement or  rehabilitation of bridges. Funding for bridge rehabilitation and  replacement has been a growing national concern since the I-35 bridge  collapse in Minnesota in 2007. Eleven of the states we visited had less  than 10 percent of their Recovery Act funds obligated for bridge  replacement and rehabilitation, while two states—New York and  Pennsylvania—and the District each had more than one-quarter of their  funds obligated for bridge replacement and rehabilitation. In the District,  about 36 percent of its obligations are for rehabilitating bridges, including  the District’s largest Recovery Act project—a bridge that has been  identified as having potentially significant safety concerns. Around 2.6  percent of apportioned funds have been obligated for construction of new  bridges.
As of June 25, 2009, $233 million had been reimbursed nationwide by the  Federal Highway Administration (FHWA) and $96.4 million had been  reimbursed to the 16 states and the District. States are just beginning to  get projects awarded so that contractors can begin work, and U.S.  Department of Transportation officials told us that although funding has  been obligated for more than 5,000 projects, it may be months before  states can request reimbursement. Once contractors mobilize and begin  work, states make payments to these contractors for completed work, and  may request reimbursement from FHWA. FHWA told us that once funds  are obligated for a project, it may take 2 or more months for a state to bid  and award the work to a contractor and have work begin. According to  FHWA, depending on the type of project, it can take days or years from the  date of obligation for those funds to be reimbursed. For example, the  North Carolina Department of Transportation (as of June 30, 2009) had  advertised 65 contracts representing $335 million in Recovery Act funding.  Of the 65 contracts, 55, representing $309 million, had been awarded; of  these contracts, 33, representing $200 million, are under way. North  Carolina has been reimbursed about $4 million of Recovery Act funding  for projects as of June 25, 2009. Approximately 27 of the 65 projects,  representing $70 million, are anticipated to be complete by December 1,  2009.
According to state officials, because an increasing number of contractors  are looking for work, bids for Recovery Act contracts have come in under  estimates. State officials told us that bids for the first Recovery Act  contracts were ranging from around 5 percent to 30 percent below the  estimated cost. For example in California, officials reported they have had  8 to 10 bidders for each contract bid, compared with 2 to 4 bids per  contract prior to the economic downturn, and that bids are generally  coming in 30 percent below estimates. Arizona officials told us that  contractors are willing to bid for contracts with little profit margin in  order to cover overhead and put people to work, while Mississippi officials  told us that material costs had decreased. Several state officials told us  they expect this trend to continue until the economy substantially  improves and contractors begin taking on enough other work.
Funds appropriated for highway infrastructure spending must be used as  required by the Recovery Act. States are required to do the following:    Ensure that 50 percent of apportioned Recovery Act funds are obligated  within 120 days of apportionment (before June 30, 2009) and that the  remaining apportioned funds are obligated within 1 year. The 50 percent  rule applies only to funds apportioned to the state and not to the 30  percent of funds required by the Recovery Act to be suballocated,  primarily based on population, for metropolitan, regional, and local use.  The Secretary of Transportation is to withdraw and redistribute to other  states any amount that is not obligated within these time frames.
Give priority to projects that can be completed within 3 years and to  projects located in economically distressed areas (EDA). EDAs are defined  by the Public Works and Economic Development Act of 1965, as  amended. According to this act, to qualify as an EDA, an area must meet  one or more of three criteria related to income and unemployment based  on the most recent federal or state data.
Certify that the state will maintain the level of spending for the types of  transportation projects funded by the Recovery Act that it planned to  spend the day the Recovery Act was enacted. As part of this certification,  the governor of each state is required to identify the amount of funds the  state plans to expend from state sources from February 17, 2009, through  September 30, 2010.
All states have met the first Recovery Act requirement that 50 percent of  their apportioned funds are obligated within 120 days. Of the $18.7 billion  nationally that is subject to this provision, 69 percent was obligated as of  June 25, 2009. The percentage of funds obligated nationwide and in each  of the states included in our review is shown in figure 4.
The second Recovery Act requirement is to give priority to projects that  can be completed within 3 years and to projects located in economically  distressed areas. Officials from almost all of the states said they  considered project readiness, including the 3-year completion  requirement, when making project selections, and, according to officials  from just fewer than half of the states, project readiness was the single  most important consideration for selecting projects. Officials from most  states reported they expect all or most projects funded with Recovery Act  funds to be completed within 3 years, with the exception of some larger or  more complex projects that may take longer to complete. For example,  Massachusetts chose to use Recovery Act funds to construct a new  highway interchange in Fall River. Although this project will take longer  than other projects to complete, Massachusetts officials said they selected  it because it was located in the state’s only EDA.
We found that due to the need to select projects and obligate funds  quickly, many states first selected projects based on other factors and only  later identified to what extent these projects fulfilled the EDA  requirement. According to the American Association of State Highway and  Transportation Officials, in December 2008, states had already identified  more than 5,000 “ready-to-go” projects as possible selections for federal  stimulus funding, 2 months prior to enactment of the Recovery Act.  Officials from several states also told us they had selected projects prior to  the enactment of the Recovery Act and that they only gave consideration  to EDAs after they received EDA guidance from DOT. For instance,  officials in New York said that in anticipation of the Recovery Act being  enacted the state initially selected projects that were ready to go and were  distributed throughout the state, without regard to their location in EDAs.  Since then, the state has emphasized the need to identify and fund projects  in EDAs, pushing such projects to the “head of the line.” Officials in  Pennsylvania said they selected projects before federal guidance was  available and that after reviewing project selections for compliance with  the EDA requirement, decided to make no changes because their choices  provided the greatest potential to provide jobs in an expeditious manner.
States also based project selection on priorities other than EDAs. State  officials we met with said they considered factors based on their own state  priorities, such as geographic distribution and a project’s potential for job  creation or other economic benefits. The use of state planning criteria or  funding formulas to distribute federal and state highway funds was one  factor that we found affected states’ implementation of the Recovery Act’s  prioritization requirements. According to officials in North Carolina, for  instance, the state used its statutory Equity Allocation Formula to  determine how highway infrastructure investment funds would be  distributed. Similarly, in Texas, state officials said they first selected  highway preservation projects by allocating a specific amount of funding  to each of the state’s 25 districts, where projects were identified that  addressed the most pressing needs. Officials then gave priority for funding  to those projects that were in EDAs.
In commenting on a draft of this report, DOT agreed that states must give  priority to projects located in EDAs, but said that states must balance all  the Recovery Act project selection criteria when selecting projects  including giving preference to activities that can be started and completed  expeditiously, using funds in a manner that maximizes job creation and  economic benefit, and other factors. DOT stated that the Recovery Act  does not give EDA projects absolute primacy over projects not located in  EDAs. However we would note that the Recovery Act contains both  general directives, such as using funds in a manner that maximizes job  creation and economic benefit, and specific directives which we believe  must be seen as taking precedence. While we agree with DOT that there is  no absolute primacy of EDA projects in the sense that they must always be  started first, the specific directives in the act that apply to highway  infrastructure are that priority is to be given to projects that can be  completed in 3 years, and are located in EDAs.
We also found some instances of states developing their own eligibility  requirements using data or criteria not specified in the Public Works and  Economic Development Act, as amended. According to the act, the  Secretary of Commerce, not individual states, has the authority to  determine the eligibility of an area that does not meet the first two criteria  of the act. In each of these cases, FHWA approved the use of the states’  alternative criteria, but it is not clear on what authority FHWA approved  these criteria. For example:    Arizona based the identification of EDAs on home foreclosure rates and  disadvantaged business enterprises—data not specified in the Public  Works Act. Arizona officials said they used alternative criteria because the  initial determination of economic distress based on the act’s criteria  excluded three of Arizona’s largest and most populous counties, which  also contain substantial areas that, according to state officials, are clearly  economically distressed and include all or substantial portions of major  Indian reservations and many towns and cities hit especially hard by the  economic downturn. The state of Arizona, in consultation with FHWA,  developed additional criteria that resulted in these three counties being  classified as economically distressed.
Illinois based EDA classification on increases in the number of  unemployed persons and the unemployment rate, whereas the act bases  this determination on how a county’s unemployment rate compares with  the national average unemployment rate. According to FHWA, Illinois  opted to explore other means of measuring recent economic distress  because the initial determination of economic distress based on the act’s  criteria was based on data not as current as information available within  the state and did not appear to accurately reflect the recent economic  downturn in the state. Using the criteria established by the Public Works  Act, 30 of the 102 counties in Illinois were identified as not economically  distressed. Illinois’s use of alternative criteria resulted in 21 counties being  identified as EDAs that would not have been so classified following the  act’s criteria.
In commenting on a draft of this report, DOT stated that the basic  approach used in Arizona and Illinois is consistent with the Public Works  Act and its implementing regulations on EDAs because it makes use of  flexibilities provided by the Act to more accurately reflect changing  economic conditions. DOT recognizes that the Public Works Act provides  the definition of EDAs that states are to follow. DOT believes, however,  that it is appropriate to interpret the requirements of the Public Works Act  flexibly by applying the EDA special needs criteria to areas that are  experiencing unemployment or economic adjustment problems. We  recognize that states may want to reflect their own particular  circumstances in defining EDAs. However, the Public Works Act states  that to apply the definition to a special needs area, the area must be one  “that the Secretary of Commerce determines has experienced or is about  to experience a special need arising from actual or threatened severe  unemployment or economic adjustment problems . . .” The result of DOT’s  interpretation would be to allow states to prioritize projects based on  criteria that are not mentioned in the highway infrastructure investment  portion of the Recovery or the Public Works Acts without the involvement  of the Secretary or Department of Commerce. We plan to continue to  monitor states’ implementation of the EDA requirements and interagency  coordination at the federal level in future reports.
Some states’ circumstances served to largely ensure compliance with the  EDA requirement. For instance, all areas within the District of Columbia,  which the Recovery Act treats as a state, are a single EDA, assuring that  the selection of any project that can be completed within 3 years satisfies  the statutory priority rules. Mississippi has 75 of 82 counties that qualify as  EDAs, and Mississippi reported to FHWA that 87 percent of the funds  obligated to date had been obligated for to projects located in areas  classified as economically distressed. Likewise in Ohio, where 90 percent  of all counties qualify as EDAs, a substantial number of Recovery Act  highway projects are located in EDAs.
DOT and FHWA have yet to provide clear guidance regarding how states  are to implement the EDA requirement. In February 2009, FHWA  published replies to questions from state transportation departments on its  Recovery Act Web site stating that because states have the authority to  prioritize and select federal-aid projects, it did not intend to develop or  prescribe a uniform procedure for applying the Recovery Act’s priority  rules. Nonetheless, FHWA provided a tool to help states identify whether  projects were located in EDAs. Further, in March 2009, FHWA provided  guidance to its division offices stating that FHWA would support the use of  “whatever current, defensible, and reliable information is available to  make the case that  has made a good faith effort to consider  EDAs” and directed its division offices to take appropriate action to  ensure that the states gave adequate consideration to EDAs. FHWA  officials we spoke with said they discussed the priority requirements with  states and that the requirements were taken into consideration when  approving projects. They also stated that whether a state has satisfied the  EDA priority requirement will not be finally determined until the funds  apportioned to the state under the Recovery Act are all obligated, which  may not be completed until 2010. According to FHWA the states have until  then to address future compliance with the EDA priority requirement. By  2010, however, it will be too late to take corrective action. In each of the  cases where a state used its own criteria, state officials told us they did so  with the approval of the FHWA division office in that state. Without  clearer guidance to the states, it will be difficult to ensure that the act’s  priority provision is applied consistently.
Finally, the states are required to certify that they will maintain the level of  state effort for programs covered by the Recovery Act. With one  exception, the states have completed these certifications, but they face  challenges. Maintaining a state’s level of effort can be particularly  important in the highway program. We have found that the preponderance  of evidence suggests that increasing federal highway funds influences  states and localities to substitute federal funds for funds they otherwise  would have spent on highways. In 2004, we estimated that during the 1983  through 2000 period, states used roughly half of the increases in federal  highway funds to substitute for funding they would otherwise have spent  from their own resources and that the rate of substitution increased during  the 1990s. The federal-aid highway program creates the opportunity for  substitution because states typically spend substantially more than the  amount required to meet federal matching requirements. As a  consequence, when federal funding increases, states are able to reduce  their own highway spending and still obtain increased federal funds. As  we previously reported, substitution makes it difficult to target an  economic stimulus package so that it results in a dollar-for-dollar increase  in infrastructure investment.
Most states revised the initial certifications they submitted to DOT. As we  reported in April, many states submitted explanatory certifications—such  as stating that the certification was based on the “best information  available at the time”—or conditional certifications, meaning that the  certification was subject to conditions or assumptions, future legislative  action, future revenues, or other conditions. The legal effect of such  qualifications was being examined by DOT when we completed our  review. On April 22, 2009, the Secretary of Transportation sent a letter to  each of the nation’s governors and provided additional guidance, including  that conditional and explanatory certifications were not permitted, and  gave states the option of amending their certifications by May 22. Each of  the 16 states and District selected for our review resubmitted their  certifications. According to DOT officials, the department has concluded  that the form of each certification is consistent with the additional  guidance, with the exception of Texas. Texas submitted an amended  certification on May 27, 2009, which contained qualifying language  explaining that the Governor could not certify any expenditure of funds  until the legislature passed an appropriation act. According to DOT  officials, as of June 25, 2009, the status of Texas’ revised certification  remains unresolved. Texas officials told us the state plans to submit a  revised certification letter, removing the qualifying language. For the  remaining states, while DOT has concluded that the form of the revised  certifications is consistent with the additional guidance, it is currently  evaluating whether the states’ method of calculating the amounts they  planned to expend for the covered programs is in compliance with DOT  guidance.
States face drastic fiscal challenges, and most states are estimating that  their fiscal year 2009 and 2010 revenue collections will be well below  estimates. In the face of these challenges, some states told us that meeting  the maintenance-of-effort requirements over time poses significant  challenges. For example, federal and state transportation officials in  Illinois told us that to meet its maintenance-of-effort requirements in the  face of lower-than-expected fuel tax receipts, the state would have to use  general fund or other revenues to cover any shortfall in the level of effort  stated in its certification. Mississippi transportation officials are  concerned about the possibility of statewide, across-the-board spending  cuts in 2010. According to the Mississippi transportation department’s  budget director, the agency will try to absorb any budget reductions in  2010 by reducing administrative expenses to maintain the state’s level of  effort.
Other states have faced challenges calculating an appropriate level of  effort. For example, Georgia officials told us the state does not routinely  estimate future expenditures and had to develop an alternative method for  its revised certification using past expenditures to extrapolate future  expenditures. In Pennsylvania, transportation officials told us that  calculating the amounts for the amended certification involved making  estimates over three state fiscal years and making assumptions about  proposed budgets that are subject to future legislative action.
As discussed earlier, states using Recovery Act funds must comply with  the requirements of the federal-aid highway program, including  environmental requirements, paying a prevailing wage in accordance with  federal Davis-Bacon requirements, complying with goals to ensure  disadvantaged business enterprises are not discriminated against in  awarding construction contracts, and using American-made iron and steel  in accordance with Buy America program requirements. We discussed the  impact these requirements were having on project costs and time frames  with officials in three states. Transportation officials in Arizona,  Mississippi, and New Jersey each reported that these requirements were  not causing increases in project costs and were not delaying projects from  moving forward. For example, New Jersey officials stated that since these  requirements apply to all highway construction using federal highway  funds, not solely to Recovery Act funding, they were accustomed to  complying with these requirements and had a process in place for quickly  documenting compliance. In addition, these officials stated that to meet  the Recovery Act’s requirements to spend the funds quickly, the state  selected projects that had already completed the environmental review  process or that were relatively simple projects that would have limited  environmental impact.
section_title: State Fiscal Stabilization Fund
paragraphs: The Recovery Act created a State Fiscal Stabilization Fund (SFSF) in part  to help state and local governments stabilize their budgets by minimizing  budgetary cuts in education and other essential government services, such  as public safety. Stabilization funds for education distributed under the  Recovery Act must be used to alleviate shortfalls in state support for  education to school districts and public institutions of higher education  (IHEs). The U.S. Department of Education (Education), the federal agency  charged with administration and oversight of the SFSF, distributes the  funds on a formula basis, with 81.8 percent of each state’s allocation  designated for the education stabilization fund for local educational  agencies (LEA) and public IHEs. The remaining 18.2 percent of each  state’s allocation is designated for the government services fund for public  safety and other government services, which may include education.  Consistent with the purposes of the Recovery Act—which include, in  addition to stabilizing state and local budgets, promoting economic  recovery and preserving and creating jobs—the SFSF can be used by  states to restore cuts to state education spending. In return for SFSF  funding, a state must make several assurances, including that it will  maintain state support for education at least at fiscal year 2006 levels. In  order to receive SFSF funds, each state must also assure it will implement  strategies to advance education reform in four specific ways as described  by Education:  1.  Increase teacher effectiveness and address inequities in the  distribution of highly qualified teachers; 2.  Establish a pre-K-through-college data system to track student  progress and foster improvement; 3.  Make progress toward rigorous college- and career-ready standards  and high-quality assessments that are valid and reliable for all students,  including students with limited English proficiency and students with  disabilities; and 4.  Provide targeted, intensive support and effective interventions to turn  around schools identified for corrective action or restructuring.
Along with these education reform assurances, additional state assurances  must address federal requirements concerning accountability,  transparency, reporting, and compliance with certain federal laws and  regulations.
Beginning in March 2009, the Department of Education issued a series of  fact sheets, letters, and other guidance to states on the SFSF. Specifically,  a March fact sheet, the Secretary’s April letter to Governors, and program  guidance issued in April and May mention that the purposes of the SFSF  include helping stabilize state and local budgets, avoiding reductions in  education and other essential services, and ensuring LEAs and public IHEs  have resources to “avert cuts and retain teachers and professors.” The  documents also link educational progress to economic recovery and  growth and identify four principles to guide the distribution and use of  Recovery Act funds: (1) spend funds quickly to retain and create jobs; (2)  improve student achievement through school improvement and reform;  (3) ensure transparency, public reporting, and accountability; and (4)  invest one-time Recovery Act funds thoughtfully to avoid unsustainable  continuing commitments after the funding expires, known as the “funding  cliff.”
After meeting assurances to maintain state support for education at least  at fiscal year 2006 levels, states are required to use the education  stabilization fund 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 Elementary  and Secondary Education Act of 1965 (ESEA), Title I, Part A funding  formula. On the other hand, 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 school districts and public IHEs. Education stabilization funds  must be allocated to school districts and public IHEs and cannot be  retained at the state level.
Once education 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 education stabilization funds for  any allowable purpose under ESEA, the Individuals with Disabilities  Education Act (IDEA), the Adult Education and Family Literacy Act, or the  Carl D. Perkins Career and Technical Education Act of 2006 (Perkins Act),  subject to some prohibitions on using funds for, among other things,  sports facilities and vehicles. In particular, Education’s guidance states  that because allowable uses under the Impact Aid provisions of ESEA are  broad, school districts have discretion to use education stabilization funds  for a broad range of things, such as salaries of teachers, administrators,  and support staff and purchases of textbooks, computers, and other  equipment. The Recovery Act allows public IHEs to use education  stabilization 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 education stabilization funds for such  things as increasing endowments; modernizing, renovating, or repairing  sports facilities; or maintaining equipment. Education’s SFSF guidance  expressly prohibits states from placing restrictions on LEAs’ use of  education stabilization funds, beyond those in the law, but allows states  some discretion in placing limits on how IHEs may use these funds.
The SFSF provides states and school districts with additional flexibility,  subject to certain conditions, to help them address fiscal challenges. For  example, the Secretary of Education is granted authority to permit waivers  of state maintenance-of-effort (MOE) requirements if a state certified that  state education spending will not decrease as a percentage of total state  revenues. Education issued guidance on the MOE requirement, including  the waiver provision, on May 1, 2009. Also, the Secretary may permit a  state or school district to treat education stabilization funds as nonfederal  funds for the purpose of meeting MOE requirements for any program  administered by Education, subject to certain conditions. Education, as of  June 29, 2009, has not provided specific guidance on the process for states  and school districts to apply for the Secretary’s approval.
States have broad discretion over how the $8.8 billion in the SFSF  government services fund are used. The Recovery Act provides that these  funds must be used for public safety and other government services and  that these services may include assistance for education, as well as  modernization, renovation, and repairs of public schools or IHEs.
On April 1, 2009, Education made at least 67 percent of each state’s SFSF  funds available, subject to the receipt of an application containing state  assurances, information on state levels of support for education and  estimates of restoration amounts, and baseline data demonstrating state  status on each of the four education reform assurances. If a state could not  certify that it would meet the MOE requirement, Education required it to  certify that it will meet requirements for receiving a waiver—that is, that  education spending would not decrease relative to total state revenues. In  determining state level of support for elementary and secondary  education, Education required states to use their primary formula for  distributing funds to school districts but also allowed states some  flexibility in broadening this definition. For IHEs, states have some  discretion in how they establish the state level of support, with the  provision that they cannot include support for capital projects, research  and development, or amounts paid in tuition and fees by students. In order  to meet statutory requirements for states to establish their current status  regarding each of the four required programmatic assurances, Education  provided each state with the option of using baseline data Education had  identified or providing another source of baseline data. Some of the data  provided by Education was derived from self-reported data submitted  annually by the states to Education as part of their Consolidated State  Performance Reports (CSPR), but Education also relied on data from third  parties, including the Data Quality Campaign (DQC), the National Center  for Educational Achievement (NCEA), and Achieve. Education has  reviewed applications as they arrive for completeness and has awarded  states their funds once it determined all assurances and required  information had been submitted. Education set the application deadline  for July 1, 2009. On June 24, 2009, Education issued guidance to states  informing them they must amend their applications if there are changes to  the reported levels of state support that were used to determine  maintenance of effort or to calculate restoration amounts.
section_title: Most States We Visited Have Received SFSF Funds and Have Planned to Allocate Most Education Stabilization Funds to LEAs.
paragraphs: As of June 30, 2009, of the 16 states and the District of Columbia covered  by our review, only Texas had not submitted an SFSF application.  Pennsylvania recently submitted an application but had not yet received  funding.  The remaining 14 states and the District of Columbia had  submitted applications and Education had made available to them a total  of about $17 billion in initial funding. As of June 26, 2009, only 5 of these  states had drawn down SFSF Recovery Act funds.  In total, about 25  percent of allocated funds had been drawn down by these states. (See  table 5.)
Three of these states—Florida, Massachusetts, and New Jersey—said they  would not meet the maintenance-of-effort requirements but would meet  the eligibility requirements for a waiver and that they would apply for a  waiver. Most of the states’ applications show that they plan to provide the  majority of education stabilization funds to LEAs, with the remainder of  funds going to IHEs. Several states and the District of Columbia estimated  in their application that they would have funds remaining beyond those  that would be used to restore education spending in fiscal years 2009 and  2010. These funds can be used to restore education spending in fiscal year  2011, with any amount left over to be distributed to LEAs. Table 6 shows  the amount of SFSF funds received by states and how the states indicate  they will divide education stabilization funds between LEAs and IHEs,  based on the states’ SFSF applications.
States have flexibility in how they allocate education stabilization funds  among IHEs but, once they establish their state funding formula, not in  how they allocate the funds among LEAs. Florida and Mississippi allocated  funds among their IHEs, including universities and community colleges,  using formulas based on factors such as enrollment levels. Other states  allocated SFSF funds taking into consideration the budget conditions of  the IHEs. For example, Georgia allocated funds to universities based on  the degree to which each institution’s budget had been cut, and Illinois  allocated funds among universities to provide each university a share of  SFSF funds proportionate to its share of state support in fiscal year 2006.  New York provided all SFSF funds slated for IHEs to community colleges  to avoid cutting community college budgets. On the other hand, California  planned to provide SFSF funds to its state university systems and not to  community colleges because the universities had received significant  budget cuts. However, California may change this plan because budget  cuts at community colleges are now likely.
Regarding LEAs, most states planned to allocate funds based on states’  primary funding formulae.  Many states are using a state formula based on  student enrollment weighted by characteristics of students and LEAs. For  example, Colorado’s formula accounts for the number of students at risk  while the formula used by the District of Columbia allocates funds to LEAs  using weights for each student based on the relative cost of educating  students with specific characteristics. For example, an official from  Washington, D.C., Public Schools said a student who is an English  language learner may cost more to educate than a similar student who is  fluent in English.
States may use the government services portion of SFSF for education but  have discretion to use the funds for a variety of purposes. Officials from  Florida, Illinois, New Jersey, and New York reported that their states plan  to use some or most of their government services funds for educational  purposes. Other states are applying the funds to public safety. For  example, according to state officials, California is using the government  services fund for it corrections system, and Georgia will use the funds for  salaries of state troopers and staff of forensic laboratories and state  prisons.
subsections: section_title: Plans for SFSF Funds Usually Target Restoring Funding, and Many School Districts Reported It Would Be Challenging to Use SFSF Funds for Educational Reform
paragraphs: Officials in many school districts told us that SFSF funds would help offset  state budget cuts and would be used to maintain current levels of  education funding. However, many school district officials also reported  that using SFSF funds for education reforms was challenging given the  other more pressing fiscal needs.
Although their plans are generally not finalized, officials in many school  districts we visited reported that their districts are preparing to use SFSF  funds to prevent teacher layoffs, hire new teachers, and provide  professional development programs. Most school districts will use the  funding to help retain jobs that would have been cut without SFSF  funding. For example, Miami Dade officials estimate that the stabilization  funds will help them save nearly two thousand teaching positions. State  and school district officials in eight states we visited (California, Colorado,  Florida, Georgia, Massachusetts, Michigan, New York, and North Carolina)  also reported that SFSF funding will allow their state to retain positions,  including teaching positions that would have been eliminated without the  funding. In the Richmond County School System in Georgia, officials  noted they plan to retain positions that support its schools, such as  teachers, paraprofessionals, nurses, media specialists and guidance  counselors. Local officials in Mississippi reported that budget-related  hiring freezes had hindered their ability to hire new staff, but because of  SFSF funding, they now plan to hire. In addition, local officials in a few  states told us they plan to use the funding to support teachers. For  example, officials in Waterloo Community and Ottumwa Community  School Districts in Iowa as well as officials from Miami-Dade County in  Florida cited professional development as a potential use of funding to  support teachers.
Although school districts are preventing layoffs and continuing to provide  educational services with the SFSF funding, most did not indicate they  would use these funds to pursue educational reform. School district  officials cited a number of barriers, which include budget shortfalls, lack  of guidance from states, and insufficient planning time. In addition to  retaining and creating jobs, school districts have considerable flexibility to  use these resources over the next 2 years to advance reforms that could  have long-term impact. However, a few school district officials reported  that addressing reform efforts was not in their capacity when faced with  teacher layoffs and deep budget cuts. In Flint, Michigan, officials reported  that SFSF funds will be used to cope with budget deficits rather than to  advance programs, such as early childhood education or repairing public  school facilities. According to the Superintendent of Flint Community  Schools, the infrastructure in Flint is deteriorating, and no new school  buildings have been built in over 30 years. Flint officials said they would  like to use SFSF funds for renovating buildings and other programs, but  the SFSF funds are needed to maintain current education programs.
Officials in many school districts we visited reported having inadequate  guidance from their state on using SFSF funding, making reform efforts  more difficult to pursue. School district officials in most states we visited  reported they lacked adequate guidance from their state to plan and report  on the use of SFSF funding. Without adequate guidance and time for  planning, school district officials told us that preparing for the funds was  difficult. At the time of our visits, several school districts were unaware of  their funding amounts, which, officials in two school districts said, created  additional challenges in planning for the 2009-2010 school year. One  charter school we visited in North Carolina reported that layoffs will be  required unless their state notifies them soon how much SFSF funding  they will receive. State officials in North Carolina, as well as in several  other states, told us they are waiting for the state legislature to pass the  state budget before finalizing SFSF funding amounts for school districts.
section_title: IHEs Plan to Use SFSF Funds for Faculty Salaries and Other Purposes and Expect the Funds to Save Jobs and Mitigate Tuition Increases
paragraphs: Although many IHEs had not finalized plans for using SFSF funds, the  most common expected use for the funds at the IHEs we visited was to  pay salaries of IHE faculty and staff. Officials at most of the IHEs we  visited told us that, due to budget cuts, their institutions would have faced  difficult reductions in faculty and staff if they were not receiving SFSF  funds. In California and North Carolina, according to the IHE officials, the  states instructed their IHEs to use the funds to cover IHE payroll expenses  in certain months in spring 2009. Other IHEs expected to use SFSF funds  in the future to pay salaries of certain employees during the year. For  example, according to an official at Hillsborough Community College in  Florida, to avoid using the nonrecurring SFSF money for recurring  expenses, the IHE expects to use the funds to pay salaries of about 400  nonpermanent adjunct faculty members. Georgia Perimeter College plans  to use its SFSF funds to retain 51 full-time and 17 part-time positions in its  science department, and the University of Georgia plans to use the funds  to retain approximately 160 full-time positions in various departments.
Several IHEs we visited are considering other uses for SFSF funds.  Officials at the Borough of Manhattan Community College in New York  City want to use some of their SFSF funds to buy energy saving light bulbs  and to make improvements in the college’s very limited space such as, by  creating tutoring areas and study lounges. Northwest Mississippi  Community College wants to use some of the funds to increase e-learning  capacity to serve the institution’s rapidly increasing number of students.  Several other IHEs plan to use some of the SFSF funds for student  financial aid. For example, Hudson Valley Community College plans to use  some SFSF funds to provide financial aid to 500 or more low-income  students who do not qualify for federal Pell Grants or New York’s Tuition  Assistance Program.
Because many IHEs expect to use SFSF funds to pay salaries of current  employees that they likely would not have been able to pay without the  SFSF funds, IHEs officials said that SFSF funds will save jobs. Officials at  several IHEs noted that this will have a positive impact on the educational  environment such as, by preventing increases in class size and enabling  the institutions to offer the classes that students need to graduate. In  addition to preserving existing jobs, some IHEs anticipate creating jobs  with SFSF funds. For example, New York IHEs we spoke with plan to use  SFSF funds to hire additional staff and faculty. The University of South  Florida is considering using some SFSF money to hire postdoctoral  fellows to conduct scientific research, and Florida A&M University plans  to use the funds to hire students for assistantships. Besides saving and  creating jobs at IHEs, officials noted that SFSF monies will have an  indirect impact on jobs in the community. For example, University of  Mississippi officials noted that, without the SFSF funds, the university  probably would have shut down ongoing capital projects building  dormitories and upgrading campus heating and cooling systems, and this  would have had a negative impact on construction and engineering jobs in  the community. Jackson State University officials said SFSF monies will  help local contractors and vendors who conduct business with the  university because the funds will enable the university to recover from  severe budget cuts and resume normal spending. IHE officials also noted  that SFSF funds will indirectly improve employment because some faculty  being paid with the funds will help unemployed workers develop new  skills, including skills in fields, such as health care, that have a high  demand for trained workers.
State and IHE officials also believe that SFSF funds are reducing the size  of tuition and fee increases. For example, Florida officials said that the 8  percent tuition increase approved by the Florida Legislature likely would  have been much higher if the state had not received SFSF funds. Officials  estimated that without SFSF funds, the increase in tuition necessary to  compensate for decreases in state funding would have been 21 percent for  students at community colleges and 35 percent for students at universities.  A University of California official stated that, if the university system had  not received SFSF funds and had to use fee increases to cover its budget  shortfall, system-wide fees would have increased by about 24 percent  instead of the approved 9.3 percent increase.
section_title: Education Provided Preliminary Baseline Data to States to Ease the Application Process but Plans to Implement a New Approach for the Second Round of Applications
paragraphs: U.S. Department of Education officials told us that to benchmark states’  current position on the four education reform assurances and to ease the  application process, they had provided base-line data for each state and  asked states to certify their acceptance of these data as part of their  application for SFSF funding, or provide alternate data. In their  applications to Education for SFSF funds, states were required to provide  assurances that they were committed to advancing education reform in  these four areas. The table below lists the four assurances and the data  elements and sources Education chose to set base-line benchmarks for  states. Education officials told us that these data, while not perfect, were  the best available. Officials also told us that the data in the application  package were preliminary, and that they plan to develop a more complete  set of performance measures under each assurance for states to use or  develop for the final SFSF application.
While Education officials told us that the base-line data are preliminary,  staff working at Achieve and the Data Quality Campaign—the two  educational advocacy groups whose survey data are being used to  measure two of the assurances—told us that while they believed their data  set appropriate baselines, they did not believe measuring change against  these baselines would be the best accountability mechanism. One staff  member said that since many states were already poised to make  substantial progress in implementing improved data systems in the next  two years, it would not be appropriate to automatically attribute state  progress in implementing the elements of a longitudinal data system to  Recovery Act funds. Staff at the Data Quality Campaign said that they have  told Education that it was fine to use their survey as a baseline, but that  they were not comfortable with the survey becoming a primary auditing  tool; doing so could change the incentives for states to respond to the  survey. Moreover, staff at the Data Quality Campaign believe the more  appropriate way to monitor progress is to ask states to publicly post  information and analyses on a series of metrics, because by posting such  information states would be verifying the capacity of their longitudinal  data systems.
Education officials told us that in making phase II SFSF funding available  to states, Education will ask states to report on a series of performance  measures for each of the four major themes for reform, which align with  the education reform assurances. According to these officials, the  performance measures developed for the second and final application will  allow Education to fulfill three main purposes: (1) to get a status report on  states’ progress in developing performance measures, (2) to put plans in  place to gather the relevant information if performance measures are not  available, and 3) to be able to track how states are progressing over time  with respect to education reform. Education officials also said that they  were aware of potential issues regarding data quality and that they plan to  conduct an initial staff review and may later conduct an external review of  the reliability of data used for its performance measures.
section_title: Seven States We Visited Have Drawn Down Title I Recovery Act Funds and Made Funds Available to Local Educational Agencies
paragraphs: The Recovery Act provides $10 billion to help local educational agencies  educate disadvantaged youth by making additional funds available beyond  those regularly allocated through Title I, Part A of the Elementary and  Secondary Education Act (ESEA) of 1965. The Recovery Act requires  these additional funds to be distributed through states to local educational  agencies (LEAs) using existing federal funding formulas, which target  funds based on such factors as high concentrations of students from  families living in poverty. In using the funds, local educational agencies are  required to comply with current statutory and regulatory requirements and  must obligate 85 percent of these funds by September 30, 2010. The  Department of Education is advising LEAs to use the funds in ways that  will build the agencies’ long-term capacity to serve disadvantaged youth,  such as through providing professional development to teachers. The  Department of Education made the first half of states’ Recovery Act Title I,  Part A funding available on April 1, 2009, with the 16 states and the District  in our review receiving more than $3 billion of the $5 billion released to all  of the states and territories. The initial state allocations and amounts  drawn down as of June 26, 2009, are shown in table 8 below.
As shown in table 8, as of June 26, education officials in seven states— Arizona, California, Florida, Illinois, Iowa, North Carolina, and Texas—had  drawn down a portion of their Title I Recovery Act funds. As of June 26,  Arizona had drawn down $16,000 in Title I Recovery Act funds.  California  authorized the funds to be released to LEAs on May 28, 2009 and has  drawn down 80 percent of its available funds.  According to local officials,  both of the LEAs we visited in California received funds the week of June  1, 2009.
According to U.S. Department of Education officials, they monitor state  drawdowns of Recovery Act funds and will meet with state officials if they  notice anything unusual. As a result of California’s large drawdown,  Education officials met with California state officials to discuss their  justification, especially given recent findings by the department’s  Inspector General (IG) that the state lacked adequate oversight over cash  management practices of school districts. According to department  officials, California officials informed the department that the drawdown  of Title I Recovery Act funds was in lieu of its normally scheduled  drawdown of school year 2008-2009 Title I funds. As a result, officials told  us the school districts were ready to use these funds quickly as they would  be used under approved plans for the current school year. However, the  department remains concerned over the state’s cash management system.  Further, the California State Auditor has cited continued concerns about  the California Department of Education’s (CDE) internal controls in both  the most recent statewide Single Audit issued on May 27, 2009, and a  Recovery Act funding review issued on June 24, 2009. The Single Audit  identified a number of significant deficiencies or material weaknesses,  including continued problems with CDE ESEA Title I cash management— specifically, that CDE routinely disburses Title I funds to districts without  determining whether the LEAs need program cash at the time of the  disbursement.
According to California officials, the California Department of Education  has developed an improvement plan to address cash management  concerns. It involves LEAs reporting federal cash balances on a quarterly  basis using a Web-based reporting system. According to Education  officials, the first phase of this plan will be piloted beginning this summer.  CDE officials stated that the pilot project includes cash management fiscal  monitoring procedures to verify LEAs’ reported cash balances, ensure  compliance with cash management practices, and ensure that interest  earned on federal dollars is properly accounted for. Education officials  told us that, given the cash management concerns, they would work with  the California State Auditor and the Education Inspector General to  develop a monitoring and assistance plan to ensure that California  properly followed cash management requirements.
According to state education officials, Illinois allowed districts to  complete an application due May 29 to receive funds for summer  programming use and has started to draw down funds. State officials told  us that on June 2, Iowa made the first of six payments of Title I Recovery  funds available to LEAs. Florida allowed LEAs to begin obligating and  spending funds in late April or early May, according to a state official. In  North Carolina, a state official told us that Recovery Act Title I funds have  been available since May 4 for all LEAs with a current Title I application  on file and that as of June 19, 31 LEAs had submitted planning budgets to  the state’s Department of Public Instruction and the budgets have been  approved; these LEAs, in turn, can now obligate and spend funds.  As of  June 26, Texas had drawn down $58,060 in Title I Recovery Act funds.
subsections: section_title: State Application Procedures and Budget Deliberations Have Affected the Release of Title I, Part A Recovery Act Funds
paragraphs: Officials in Colorado and New Jersey were planning to release some Title I  Recovery Act funds to a small number of their districts in June to allow  them to fund summer programming and to release the rest of their funds  later in the summer. In the remaining states we visited, funds will not be  released to LEAs until July, August, or September. Officials in the District  of Columbia, Massachusetts, Michigan, and New York said they expected  to release funds to LEAs in July.
Nearly all of the 16 states and the District of Columbia have required (or  will require) LEAs to submit an application, a budget, or a detailed plan as  a condition for receiving Recovery Act funding, but the amount of time  needed to complete these processes has varied. For example, in Florida,  the State Educational Agency made available an online, abbreviated  application to receive funds on April 9, 2009, according to a state official.  The application asked LEAs to describe how they planned to spend the  funds, submit a budget, and make assurances specific to Title I. The state  sent award notices to LEAs the last week of April and the first week of  May 2009, allowing LEAs to begin obligating and expending funds,  according to a state official. In contrast, when we spoke with Mississippi  educational officials in early June, the state was still in the process of  developing a new application for Title I Recovery Act funds. Mississippi  planned to release the application within several weeks, provide LEAs  with training and a handbook on the application, and hoped to release  funds to LEAs by August 2009. Similarly, New York plans to require school  districts to agree to a number of assurances regarding the use of the Title I  Recovery Act funds before funds are disbursed; however, the application  was in draft form as of June 17, 2009 according to a state official.
Three of the states we visited (Colorado, Illinois, and New Jersey) issued  early applications inviting districts to apply to receive Recovery Act  funding for school year 2008-2009, such as to fund summer school  programs. Other states have tied the release of funds into their annual  application for regular Title I funding. For example, Georgia added seven  additional questions to its consolidated application and expects to release  funds on a rolling basis once LEA applications and budgets have been  approved.
According to officials in three of the states we visited, the state budget  process is slowing the release of funds and the ability of local and state  educational agencies to finalize their plans for using Title I Recovery Act  funds. For example, in Pennsylvania, funds have been allocated and  obligated but cannot be expended until the legislature passes a budget,  according to state officials. Similarly, in Ohio, a state official told us that  LEAs cannot yet spend their allocated funds because state law requires the  state legislature to pass a final budget before federal funds are made  available for use by state and local agencies. Education officials in  Chicago told us that because the General Assembly had not yet finalized  the state budget, they do not know exactly how much state funding they  will receive in fiscal year 2010 and have not been able to make final  decisions as to how they will spend Recovery Act Title I funds.
section_title: Many LEAs We Visited Plan to Use Title I Recovery Act Funds for Professional Development to Build Capacity and Avoid the “Funding Cliff” or to Fund High School Programs
paragraphs: As shown in figure 5 below, local officials most frequently reported  planning to use their Title I Recovery Act funds for professional  development or to fund high school programs; officials in nearly half of the  districts we visited said they planned to use funds for these purposes.  Approximately one-third of these local officials indicated that spending on  professional development would allow them to build their long-term  ong-term  capacity and avoid the “funding cliff.”  capacity and avoid the “funding cliff.”
Nearly one-half of the districts we visited plan to use funds to serve high  school students, and nearly 40 percent plan to use funds to serve  preschool students—purposes that the Department of Education gave as  examples of uses that are allowable under Title I and consistent with the  goals of the Recovery Act. About one quarter of the districts planned to  fund schools that did not previously receive Title I funding, purchase  technology or software licenses, or purchase instructional materials.  About 20 percent planned to make the school day or year longer, fund  programs to increase parent involvement, or create or save jobs.
section_title: State and Local Education Officials Express Interest in Securing Flexibility, Such as through Waivers
paragraphs: A common theme in our discussions with state education officials was the  desire to secure flexibility in using Title I Recovery Act funds. For  example, of the 16 states and the District in our review, officials from 14  states expressed interest in at least one waiver. Specifically, state officials  in 8 states planned to apply for at least one waiver: All of these officials  planned to apply for the carryover waiver, and 3 also planned to apply for  a maintenance-of-effort waiver. In addition, officials in 6 other states we  visited had not yet decided whether to apply for a waiver, but all  mentioned considering the carryover waiver and 3 mentioned considering  the maintenance-of-effort waiver. Officials in the remaining 3 states did  not plan to request a waiver. The most common waivers mentioned were  carryover waivers (14 states), maintenance-of-effort waivers (6 states),  and waivers for required spending for supplemental educational services  or school choice transportation (3 states).
Local education officials were similarly interested in securing flexibility in  the uses of Title I Recovery Act Funds. Of the local officials we  interviewed, more than 40 percent said they planned to request at least  one waiver and approximately one quarter said they did not plan to  request a waiver. The remaining officials were undecided at the time of  our interviews. The particular waivers most frequently mentioned by local  officials were carryover waivers, waivers of requirements for  supplemental educational services (SES) funding, and maintenance-of- effort waivers. Nearly 40 percent of officials said they would request a  waiver on maintenance-of-effort, over half said they would request a  waiver for SES, and nearly 75 percent of these officials said they would  request a carryover waiver.  Of those officials planning to request a waiver  for SES, officials in two school districts mentioned they did not typically  need all of the funds they were required to set aside for supplemental  services and wanted the flexibility to spend the funds more quickly and on  purposes that would most benefit disadvantaged students.
section_title: State and Local Officials Do Not Want to Finalize Plans before Receiving More Guidance
paragraphs: On April 1, 2009, Education released policy guidance that included  principles, goals, and possible uses of funds. This guidance also included  information on allocations from Education to state educational agencies  and from states and the District of Columbia to their LEAs, addressed  fiscal issues such as the carryover limitation, and explained the process  for obtaining a waiver. Education officials told us they hosted three  conference calls with state Title I directors after releasing the guidance to  answer questions from state officials. Education officials also told us they  have made a number of presentations around the country on using  Recovery Act Title I funds and have planned a meeting for state Title I  directors for this July, by which time they hope to have released additional  written guidance on waivers and allowable uses of Title I Recovery Act  funds.
In addition to guidance from Education, LEAs report receiving various  forms of guidance from their state agencies on Title I Recovery Act  funding. Figure 6 shows the number of states we visited in which local  educational officials in at least one district we visited told us they had  received particular forms of guidance. In particular, local education  officials reported participating in webinars hosted by the state educational  agency (officials in eight states), participating in meetings (officials in six  states), receiving state-specific written guidance (officials in seven states),  obtaining information from the state educational agency Web site (officials  in six states), calling or e-mailing state officials (officials in four states),  participating in training sessions provided by state officials (officials in  two states), and participating in conference calls with state officials  (officials in four states). In at least one LEA in nine of the states we  visited, local officials did not mention receiving any guidance from the  state.
Officials in one state and one district said that local officials are fearful of  missteps with the funds.  For example, officials in one LEA said they  wanted more specific guidance on how the Title I Recovery Act funds can  be spent in order to be sure they are doing things correctly.  Given these  examples and the fact that nearly half of officials in districts we visited  reported wanting more guidance on allowable uses of Title I funds that  meet the priorities of the Recovery Act, it seems likely that the lack of  guidance may be slowing LEA’s planning processes.
When asked about guidance they would particularly like to receive, state  education officials most frequently said they wanted more information  regarding guidance on waivers (nine states), reporting requirements (five  states), and how to define jobs created or saved (three states). Local  officials most frequently said they wanted guidance on reporting  requirements and on allowable uses of Title I funds that would be in  accordance with the priorities of the Recovery Act. They also reported  wanting more guidance on waivers, flexibility in spending, and the  “supplement-supplant” provision.
section_title: U.S. Department of Education Has Allocated Half of Recovery Act IDEA Funding, but States and Localities Have Drawn Down Few Funds, and Await Guidance on Reporting and Other Issues
paragraphs: The Recovery Act provided supplemental funding for programs authorized  by Parts B and C of the Individuals with Disabilities Education Act (IDEA),  the major federal statute that supports the provisions of early intervention  and special education and related services for infants, toddlers, children,  and youth with disabilities. Part B funds programs that ensure preschool  and school-aged children with disabilities have access to a free and  appropriate public education and Part C funds programs that provide early  intervention and related services for infants and toddlers with  disabilities—or at risk of developing a disability—and their families. IDEA  formula grants and Recovery Act funds are allocated to states through 3  grants—Part B grants to states (for school-age children), Part B preschool  grants (section 619), and Part C grants for infants and families. The U.S.  Department of Education made the first half of states’ Recovery Act IDEA  allocations to state agencies on April 1, 2009. As of June 26, 2009, of the  sixteen states and District of Columbia that we visited, only seven states  had drawn down IDEA Recovery Act funds. In total, just over eight  percent of allocated funds had been drawn down in these states.   (See table 9.) Most states that we visited are requiring LEAs to submit an  application to receive the IDEA Part B Recovery Act funding.
State and local officials report receiving general guidance from the U.S.  Department of Education (Education) but additional clarifications are  needed in key areas. In April 2009, Education released policy guidance  describing principles and goals of IDEA Recovery Act funds, and written  guidance with information on the timing of allocations of funds to states,  indirect costs, waivers, and authorized uses of IDEA Recovery Act funds.  According to Education officials, Education has also provided assistance  and guidance to states and school districts in a variety of other ways,  including conference calls with state agencies administering Parts B and  C, presentations at conferences, and webinars on specific issues such as  IDEA maintenance-of-effort requirements. While Education officials  provided guidance with examples of allowable uses of Recovery Act IDEA  funds on April 24, states and LEAs indicate the need for further guidance  in this area. For example, several states and LEAs report needing clearer  guidance on allowable uses, including construction costs, and Education  officials said they have heard questions about allowable uses for buses for  students with disabilities. Education officials said that they are working on  a more detailed document on innovative strategies for increasing student  academic achievement and avoiding funding commitments that will be  unsustainable after the Recovery Act funding expires. Several states  reported offering various forms of guidance to LEAs, including holding  webinars, direct communication, and providing written guidance on  potential uses of Recovery Act IDEA funding.
At the time of our site visits neither Education nor the U.S. Office of  Management and Budget (OMB) had issued final guidance on Recovery  Act reporting. Many state officials told us that it will be difficult to plan  how they will report the impact of Recovery Act funding until they receive  further guidance from OMB or Education. Education is planning to  supplement the guidance OMB provides, to help state agencies report the  proper data. In particular, Education officials noted that draft OMB  guidance on recipient reporting would require some additional Education  guidance to clarify issues for recipients of formula grants, such as the  IDEA grants.
Various state and local officials had concerns about whether their LEAs  would be able to exercise the flexibility allowed under IDEA Part B’s  maintenance-of-effort requirements. Generally, in any fiscal year that an  LEA’s IDEA, Part B section 611 or grants to states allocation exceeds the  amount the LEA received in the previous year, the LEA may reduce its  local spending on disabled students by up to 50 percent of the amount of  the increase, as long as the LEA (1) uses those freed-up funds for activities  that could be supported under the Elementary and Secondary Education  Act of 1965, (2) meets the requirements of the IDEA, including the  performance targets in its state’s performance plan, and (3) can provide a  free appropriate public education. Pennsylvania officials said that this rule  has been a source of confusion for LEAs in their state, and state officials  said they have discussed it in great detail in webinars, conferences, and  other communication with LEAs. Education officials said that in  developing Education’s guidelines, in addition to reviewing and  interpreting the statutes, they have met with state and local educational  agencies and interest groups who have raised concerns. Education  officials told us that some interest groups have asked them to reconsider  the requirement that LEAs meet requirements of the IDEA, including  performance targets in state performance plans in order to qualify for the  MOE flexibility, but agency officials believe this requirement was  statutorily mandated. Another concern involves LEAs that have been  determined to have significant disproportionality based on race and  ethnicity, because these districts are required to set aside 15 percent of  their total IDEA, Part B funds, including Recovery Act IDEA, Part B funds,  for comprehensive early intervention services. This limits their ability to  exercise MOE flexibility. According to Education officials, interest groups  have asked Education to reconsider its interpretation of this IDEA  provision.
States and LEAs plan to spend IDEA Part B Recovery Act funding for a  variety of services and initiatives. Most LEAs planned to offer professional  development activities and several noted that such activities could avoid  unsustainable funding commitments after Recovery Act funds expire. LEA  officials in the District of Columbia and Philadelphia said that their goal  with their IDEA Part B Recovery Act expenditures is to expand their  districts’ ability to serve more students with disabilities, which would  mean that the LEAs would receive IDEA funds for serving students with  disabilities who are currently served by going to schools outside the LEAs.  Other examples of areas in which LEAs plan to spend Recovery Act funds  include: acquiring and improving the use of assistive technologies;  improving transitions for students with disabilities, from preschool to K- 12, and from school to jobs; and increasing capacity to collect and utilize  data.
States may use IDEA, Part C Recovery Act funds for any allowable  purpose under IDEA, Part C, including the direct provision of early  intervention services to infants and toddlers with disabilities and their  families, and implementing a statewide, comprehensive, coordinated,  multidisciplinary, interagency system to provide early intervention  services. At the time of our interview, Illinois Department of Human  Services officials said that the department had already received and  expended its initial allocation of IDEA, Part C Recovery Act funds and that  the funds had been used to avert a 7 to 8 percent cut in its caseload.  Pennsylvania officials plan to spend most of the state’s IDEA, Part C  Recovery Act funds on basic services, but they also plan to spend $1  million in IDEA, Part C Recovery Act funds for an early childhood  integrated data system. In Arizona, officials told us that these services are  provided by entities that contract with the Arizona Department of  Economic Security (DES). DES officials maintain that these IDEA Part C  Recovery Act funds will be used to address funding shortfalls created by  an increasing caseload without a commensurate increase in base federal  or state funding for Part C services. In Colorado, state officials said that  the IDEA Part C Recovery Act funds would generally go to contracts with  community centered boards and some universities that provide  professional and paraprofessional development as well as technology and  services.
section_title: States and Localities Are Using Recovery Act Funds in an Effort to Provide Summer Employment Activities to Greater Numbers of Youth
paragraphs: The Recovery Act provides an additional $1.2 billion in funds nationwide  for the Workforce Investment Act (WIA) Youth program to facilitate the  employment and training of youth. The WIA Youth program is designed to  provide low-income in-school and out-of-school youth age 14 to 21, who  have additional barriers to success, with services that lead to educational  achievement and successful employment, among other goals. The  Recovery Act extended eligibility through age 24 for youth receiving  services funded by the act. In addition, the Recovery Act provided that, of  the WIA Youth performance measures, only the work readiness measure is  required to assess the effectiveness of summer-only employment for youth  served with Recovery Act funds. Within the parameters set forth in federal  agency guidance, local areas may determine the methodology for  measuring work readiness gains. The WIA Youth program is administered  by the Department of Labor (Labor), and funds are distributed to states  based on a statutory formula; states, in turn, distribute at least 85 percent  of the funds to local areas, reserving up to 15 percent for statewide  activities. The local areas, through their local workforce investment  boards, have flexibility to decide how they will use these funds to provide  required services.
In the conference report accompanying the bill that became the Recovery  Act, the conferees stated they were particularly interested in states using  these funds to create summer employment opportunities for youth. While  the WIA Youth program requires a summer employment component to be  included in its year-round program, Labor has issued guidance indicating  that local areas have the program design flexibility to implement stand- alone summer youth employment activities with Recovery Act funds.  Local areas may design summer employment opportunities to include any  set of allowable WIA Youth activities—such as tutoring and study skills  training, occupational skills training, and supportive services—as long as it  also includes a work experience component. Labor has also encouraged  states and local areas to develop work experiences that introduce youth to  opportunities in “green” educational and career pathways. Work  experience may be provided at public sector, private sector, or nonprofit  work sites. The work sites must meet safety guidelines, as well as federal  and state wage laws.
subsections: section_title: States Have Allocated Recovery Act WIA Youth Funds to Local Workforce Areas
paragraphs: For this report, we focused on the WIA Youth program in 13 of our 16  states (all except Arizona, Colorado, and Iowa) and the District of  Columbia (District). The 13 states and the District received nearly two- thirds of the Recovery Act WIA Youth funds allotted by Labor. In turn, the  13 states have allocated at least 85 percent of these funds to their local  workforce areas, as shown in table 10. As allowed, the 13 states generally  reserved 15 percent of the Recovery Act WIA Youth funds for statewide  uses, although Florida and New Jersey instead allocated their entire  allotments to local workforce areas.
As of June 25, 2009, about 6 percent of Recovery Act WIA Youth funds had  been drawn down nationwide, according to Department of Labor data.  Draw downs represent cash transactions: funds drawn down by states and  localities to pay their bills.   Among the 13 states and the District of  Columbia, the percent drawn down generally ranged from zero for the  District to 10 percent for Ohio.  However, one state—Mississippi—had  drawn down 39 percent of its funds. Draw downs do not provide a  complete picture of the extent to which states and localities have used  Recovery Act WIA Youth funds to provide services since payment for  services can occur after funds are obligated and services are provided. The  Department of Labor receives quarterly reports from states on their WIA  Youth expenditures for services that have been provided, but there is a  time lag before these data become available. For example, states’ reports  for the quarter ending June 30 are due to Labor 45 days after the end of the  quarter, or August 15, and Labor then reviews the data before releasing  them.
section_title: States Plan to Use Funds to Provide More Youth with Summer Employment Activities
paragraphs: Consistent with congressional intent that a substantial portion of these  funds be used for summer youth employment activities, our states  generally plan to use these funds to increase the number of youth served  through summer activities. For example, Michigan anticipates serving  about 25,000 youth in the summer of 2009, compared with about 4,000  youth served with WIA funds in the summer of 2008. Illinois plans to spend  about $50 million of its $62 million Recovery Act Youth allotment on youth  employment activities in the summer of 2009 and has set a target of  serving about 15,000 youth through these activities. Texas set a target of  spending 60 percent of Recovery Act WIA Youth funds allocated to local  areas on summer employment activities and serving about 14,400 youth in  the summer of 2009 (compared with 918 youth actually served in the  summer of 2008 with WIA funds). In contrast to these states, the District  plans to use its Recovery Act WIA Youth funds on its year-round WIA  Youth program. District officials told us that, before receiving the  Recovery Act funds, they had already allocated $45 million for the  district’s locally funded 2009 summer youth employment program, which  they said is the second-largest summer youth employment program in the  nation, serving about 23,000 youth.
Several states, including Massachusetts, Ohio, Pennsylvania, and Texas,  have required their local workforce areas to spend from 50 percent to 70  percent of their Recovery Act WIA Youth funds by September or October  2009. For example, Ohio requires local areas to spend at least 70 percent  of these funds by October 31, 2009, and 90 percent of funds by January 31,  2010, or risk having funds recaptured by the state. Massachusetts requires  local areas to spend at least 60 percent of their funds by September 30,  2009.
section_title: Local Flexibility Is Evident in the Different Approaches Planned for Providing Services to Youth This Summer
paragraphs: States and local areas we visited varied in the approaches they planned to  use in providing summer youth employment activities. While public  sector work sites were frequently mentioned, so, too, were private sector  and nonprofit organizations. Across the spectrum of work sites, work  activities ranged widely. Local areas were varied in the role that academic  and occupational skills training is playing in the summer activities and in  the extent to which contracted providers will administer the summer  activities.
Type of work experience. Planned work sites for the Recovery Act-funded  summer youth activities varied widely across the local areas we visited  and included public sector, private sector, and nonprofit organizations.  Most local areas expected at least some public sector jobs, and in some  areas the majority of the work sites are expected to be in the public sector.  These sites often included local government offices; public parks,  recreation centers, and camps; and public schools and community  colleges, public libraries, and animal shelters. Local areas in several states  were planning to place youth in private sector work sites, as well,  including supermarkets, pharmacies, health care institutions, and private  learning centers. Officials in two local areas we visited expected the  majority of their work sites to be in the private sector. In addition, at least  one local area in nearly all of the states we visited expects to make use of  nonprofit work sites, including community action agencies, boys and girls  clubs, and the YMCA. Across the different types of work sites, the specific  work activities planned for the youth ranged from clerical work, grounds  keeping, animal care, and kitchen support to customer service and serving  as camp counselors or radiology technicians’ assistants.
Labor encouraged states to develop work experiences in “green” jobs, and  officials reported that green jobs were available in nearly all local areas we  visited. The jobs they cited included landscape maintenance, recycling,  and green construction, and an automotive fuel technology project at a  university, as well as jobs in energy efficiency and weatherization.
However, officials told us they were not always clear what constituted a  green job. For example, officials in Pennsylvania’s South Central local area  questioned whether a youth working in a plastics factory that makes parts  for a windmill is working in a “green” job. Labor has provided some  discussion of green jobs in its guidance letters to states on Recovery Act  funds. For example, Labor’s March 18, 2009, guidance letter highlights  areas within the energy efficiency and renewable energy industries that  will receive large Recovery Act investments, such as energy-efficiency  home retrofitting and biofuel development, and also provides examples of  occupations that could be impacted by “green” technologies, including  power plant operators, electrical engineers, and roofers and construction  managers. Labor officials told us that their reporting requirements for  Recovery Act funds do not include any tracking of green jobs.
Role of academic and occupational skills training. While not all local  areas had completed their plans for the summer activities at the time of  our review, in about half of the states at least some local areas were  planning to provide academic or occupational skills training along with  work experience. For example, Buffalo, New York, plans several projects  that will combine green jobs with academic training, as well as  weatherization and construction skills. In one such program, youth will  work to earn their General Equivalency Diplomas (GED) while also  learning “green” construction skills. Participants will earn $7.25 an hour  for their work experience and $3 an hour while working on their GEDs.  Another of Buffalo’s projects will help youth who are at-risk of dropping  out of school by providing them with an opportunity to recover the high  school credits they need for graduation while also taking part in work  experience.
Even when local areas are focusing most of their efforts on work  experience, many are also planning to provide work readiness training as  part of an initial orientation to the summer activities, but the nature of the  work readiness training varied widely. In Mercer County, New Jersey, for  example, youth will be given a short workshop on interviewing skills prior  to a job fair. In addition to employment, youth age 14 to 17 will receive 21  hours of job readiness training, and those age 18 to 24 will receive 28  hours of job readiness training. In another New Jersey example, youth in  Camden County will receive 8 hours of life skills training using a standard  curriculum, followed by financial literacy training based on curricula  developed for youth by the Federal Deposit Insurance Corporation. Other  local areas we visited also plan to provide financial literacy training as part  of their orientation. Ohio’s Franklin and Montgomery Counties, for  example, have arranged for a local bank to help participating youth set up  bank accounts, into which their paychecks will be automatically  deposited. Youth will receive debit cards to access the account and will  receive basic financial counseling.
Administration of summer employment activities. Many local areas are  using contracted providers to operate key aspects of the WIA summer  youth employment activities, such as recruiting youth and work sites and  administering payroll. In some cases, officials report they have been able  to extend existing contracts with their WIA year-round program service  providers to cover the stand-alone summer employment activities. In other  cases, they have conducted new competitions, in part, because they  needed additional contractors to cover the expansion of services. All  thirteen of our states applied for and received a waiver from Labor relating  to procurement requirements for youth summer employment providers.  The waivers allow local areas to expand existing competitively procured  contracts or conduct an expedited, limited competition to select service  providers.  Labor approved 10 of these waivers in April or May 2009, and  the other 3 in June 2009.
While using contracted providers to operate the program was more  common, in a few states at least some local areas were operating the  entire program in-house. In New Jersey, for example, the local areas we  visited are relying mostly on internal staff to carry out program  responsibilities; however, one area plans to use contracted providers for  some specific roles. In Ohio, two of the four local areas we visited had  decided to operate the program in-house. Officials in one of the local areas  in Ohio told us they made the decision for two reasons—they wanted to be  able to exercise greater control over the program and they were seeking to  avert staff layoffs due to funding cuts in other programs.
section_title: States and Local Areas Experienced Multiple Challenges in Quickly Implementing Summer Youth Employment Activities
paragraphs: State and local officials reported challenges in implementing their stand- alone summer youth employment activities that generally reflected three  key themes—tight time frames for implementing the program, lack of  staffing capacity to meet the expanding needs, and difficulty in  determining and documenting youth eligibility.
Tight time frames. Many state and local officials commented that the  biggest challenge in implementing the program was the limited time frame  they had for making the program operational. Once the Recovery Act was  passed, states and local areas had only about 4 months to get their new  summer youth employment activities up and running—a process that  officials told us would normally begin many months earlier. And local  areas often lacked recent experience in operating such a stand-alone  program. In implementing the year-round service requirements of WIA (in  which summer employment is a component rather than a stand-alone  program), many states and local areas had greatly reduced their summer  youth employment programs and no longer offered a stand-alone summer  program—or they had found other funding sources, such as state, local, or  foundation funds, to cover it. Unlike WIA, its predecessor, the Job Training  Partnership Act, required local areas to provide a stand-alone summer  youth employment program. The local areas we reviewed represented a  mix of experiences. Those without recent experience had to build the  program from the ground up. These areas had to quickly confront many  basic decisions—how to structure the program, how to recruit work sites  and participants, whether to use contracted providers (and for what  functions) or whether to administer the program in house. Other areas,  however, had well-developed summer youth employment programs. These  areas already had some of these basic structures in place, but often still  found it challenging to quickly expand their existing programs.
Staffing capacity. Across the local areas we visited, many officials told us  staff were challenged to address the needs of the growing number of youth  they needed to serve. In some cases, states had been downsizing or did not  have the flexibility to hire additional staff due to hiring freezes and budget  cuts. For example, Essex County, New Jersey, operating with two full-time  staff, said the inability to hire additional staff posed challenges for  recruiting youth and monitoring the program. In the local areas we visited  in Ohio, the expected increases in enrollments were leaving local areas’  staff stretched thin. To address this challenge, some counties were  reassigning employees from other programs to work on WIA summer  youth employment activities. One county had arranged for additional staff  to monitor the summer program by using a temporary placement agency.  Similarly, Chicago officials said that, despite having had experience in  implementing a stand-alone summer program, they found implementing  the WIA summer youth employment activities challenging because, in  order to adequately ramp up their programs and prepare for  implementation, they had to borrow staff from other sections who do not  typically work on the WIA Youth program.
Determining and documenting youth eligibility. Several states and local  areas commented that it was challenging to determine youth applicants’  eligibility and to obtain supporting documentation, especially for the  increased number of youth they are planning to serve. New Jersey officials  told us that the youth targeted for the program generally have difficulty  providing the kinds of documents required in order to prove WIA Youth  program eligibility. For example, to determine that youth meet the  eligibility requirements, local officials in New Jersey require  documentation that includes public assistance identification cards to  support total household income, birth certificates for proof of citizenship,  Social Security numbers, and documentation of selective service  registration for males age 18 and over. Officials in a few states also  expressed concern that the income eligibility standards were more  restrictive than for other programs, particularly those operated using state  funds, and that the standards may be excluding a significant number of  youth who need the services. For example, officials in Philadelphia  reported that some of their youth applicants whose parents had recently  lost their jobs were not eligible for the program because eligibility was  based on income earned during the period just prior to dislocation.
section_title: States Plan to Use Various Procedures to Monitor Local Areas’ Summer Youth Activities
paragraphs: With regard to program oversight, all 13 of our states and the District  reported they had the capacity to track and report on Recovery Act funded  WIA Youth expenditures separately from those not funded by the  Recovery Act. The states also reported plans to use a variety of procedures  to monitor local areas’ summer youth employment activities, such as risk  assessments, on-site monitoring, and periodic meetings with local program  directors. For example, Ohio state officials sent a survey to the local  workforce areas in May 2009 to help identify local areas with greater risk  due to factors such as critical timing issues, larger program scope, or  substantial changes from past programs, and the state planned to initially  focus its attention on these local areas. Massachusetts state officials said  they planned to conduct on-site visits to each local workforce area at least  twice during the summer and that the state’s monitoring efforts would  include file reviews of information pertaining to topics such as eligibility,  standard operating procedures, contracts, statements of work, and  subrecipient monitoring. Michigan state officials said they planned to hold  monthly meetings with all local program directors to encourage the  reporting of consistent information and that their on-site monitoring  would focus especially on private sector components of the program, such  as private sector worksites.
Department of Labor officials said that they have efforts underway to  understand the experiences of those operating summer youth activities  through regular interaction with state and local service providers,  monitoring, identifying any issues, and providing assistance to address the  issues. For example, they said that Labor’s regional offices have begun  visiting local areas to monitor and gather information and will be visiting  about two areas in each of their states this summer. Beginning the week of  June 29, each of the six regional offices will begin providing weekly  narrative reports on the Recovery Act summer youth employment  activities from at least two local areas each week.
section_title: Measuring the Effects of the Summer Youth Activities Will Focus Largely on Work Readiness Improvements
paragraphs: To assess the effects of the summer youth employment activities, states  will be required to report a work readiness attainment rate—defined as the  percentage of participants in summer employment who attain a work  readiness skill goal. Under Department of Labor guidelines, states and  local areas are permitted to determine the specific assessment tools and  the methodology they use to determine improvements in work readiness,  but it must be measured at the beginning and completion of the summer  experience. Not all areas had finalized their plans for assessing work  readiness at the time of our visits but were considering various pre- and  post-test options. For example, officials in Mississippi plan to do a written  pre- and post-test but will also assess youth at the midpoint through an  interview with an employment adviser. All three areas we visited in  Florida plan to supplement the pre- and post-tests with feedback from  businesses and work site supervisors.
To monitor and report on progress made in implementing the program,  Labor has instituted new reporting requirements on youth participating in  Recovery Act-funded activities.  Under WIA, states have been required to  report quarterly to Labor on aggregate counts of youth participants,  activities, and outcomes.  However, since these reports are not submitted  in time for Labor to comply with Recovery Act requirements to make  information readily available to the public, states will be required,  beginning on July 15, to submit a supplemental monthly report on youth.   In this supplemental report, states will submit aggregate counts of all  Recovery Act youth participants, including the characteristics of  participants, the number of participants in summer employment, services  received, attainment of a work readiness skill, and completion of summer  youth employment.
In addition to Labor’s reporting requirements, a few states were  developing plans for additional assessments of the program. Georgia  officials, for example, reported that they are considering tracking whether  youth return to school or obtain full-time employment after the summer  program is over. Similarly, officials in Illinois are currently designing a  tracking system that will allow them to assess the long-term impacts of the  program, including job placement and job retention of participants.
section_title: Many Public Housing Agencies Have Obligated, but Few have Drawn Down, Recovery Act Funds
paragraphs: The Recovery Act requires the U.S. Department of Housing and Urban  Development (HUD) to allocate $3 billion through the Public Housing  Capital Fund to public housing agencies using the same formula for  amounts made available in fiscal year 2008. HUD allocated Capital Fund  formula dollars to public housing agencies shortly after passage of the  Recovery Act and, after entering into agreements with over 3,100 public  housing agencies, obligated these funds to public housing agencies on  March 18, 2009. Although HUD has allocated and obligated almost $3  billion in formula capital grants to 3,123 public housing agencies, and  1,483 agencies have begun obligating relatively less, little funding has been  drawn down by housing agencies. Specifically, as of June 20, 2009, $466  million, or 16 percent, of the funds allocated by HUD to the housing  agencies has actually been obligated by the housing agencies, and $32  million, or 1.1 percent, has been drawn down (see figure 7).
For this report, we visited 47 public housing agencies in the 16 states and  the District of Columbia, which had received formula grant awards  totaling $531 million. These housing agencies have identified projects and  are just beginning to obligate and draw down Recovery Act funds for  project expenses. As of June 20, 2009, these public housing agencies had  obligated almost $66 million, or about 12 percent of their $531 million  allocation, and had drawn down $2.6 million, or 0.5 percent of the $531  million. Thirty of the 47 agencies had obligated funds (including 3 small  agencies and 1 medium agency that had obligated 100 percent of their  funds), indicating that contracts had been awarded and signed and that  work was beginning, of which 20 had drawn down funds (see figure 8).
Several of the 17 public housing agencies we spoke to that had neither  obligated nor drawn down any funds stated that they had not done so  because they were awaiting approval from HUD on their plans for using  Recovery Act funds, or they were still soliciting bids and finalizing  contracts. Others were developing project plans or completing  environmental reviews. In addition, some public housing agency officials  stated that their status as a “troubled performer”—based on HUD’s Public  Housing Assessment System (PHAS)—meant they faced more oversight  and monitoring from HUD, which was preventing them from obligating the  Recovery Act funds as quickly as they would like. However, many of these  17 agencies expected to begin awarding contracts, obligating funds, and  working on projects by July 2009. This timeline is in line with HUD  headquarters officials’ expectations that activity involving obligating  Recovery Act funds will increase substantially during the next quarter  (July to September 2009).
subsections: section_title: Planned Use of Recovery Act Funds by Housing Agencies
paragraphs: For the 47 housing agencies that we visited, officials indicated that they  were planning to use their Recovery Act funds for various types of  activities, ranging from parking lot repaving to complete rehabilitation of  multi-unit structures. Among the most common Recovery Act project  types mentioned by public housing agency officials were roof and window  replacements; heating, ventilation, and air conditioning (HVAC) system  upgrades or replacements; and interior rehabilitation work, such as  kitchen or bathroom renovations and flooring or carpet replacements. For  example, Athens Housing Authority in Georgia plans to replace water  heaters and kitchen cabinets at 23 scattered sites (see figure 9). According  to the public housing agencies we visited, more than 15,000 units will be  rehabilitated, including more than 1,500 vacant units.
Relatively small-scale projects were already underway or had been  completed, such as the 10 bathroom remodels and 105 window  replacements that Ferris Housing Authority in Texas had finished. In  contrast, some major projects requiring planning and design work had yet  to begin. In fact, some public housing agencies avoided large, complex  projects because they believed the projects would take too long. However,  some of the large public housing agencies are funding major activities,  such as demolishing a public housing structure, constructing new  structures, or completely renovating hundreds of units across many  properties. For example, Philadelphia Housing Authority plans to spend  over $29 million to rehabilitate 300 vacant units at various sites—one of  which is shown in figure 10—and another $14.6 million to completely  reconfigure a 71-unit mid-rise building into a 53-unit building with new  community spaces, elevators, and energy-efficient electrical and  mechanical systems. Cuyahoga Metropolitan Housing Authority in Ohio is  using $12 million of Recovery Act funds to pay for part of a $65 million  redevelopment initiative that involves demolishing existing structures and  building new structures. HUD has informed housing agencies that they  may use the Recovery Act funds for demolition and construction of new  units, provided that they can meet the Act’s obligation and expenditure  deadlines.
Prioritization: The Recovery Act requires public housing agencies to give  priority to projects involving the rehabilitation of vacant units, projects  already underway or on the agency’s latest 5-year plan, and projects that  could be awarded based on bids within 120 days of the Recovery Act funds  becoming available. Public housing agency officials we spoke to generally  prioritized projects that were on their 5-year plan, that could be initiated  quickly, and that were, in their judgment, the most critical projects to be  completed.
Only a few of the largest public housing agencies we visited stated that  they had relatively large numbers of vacant units they were going to  rehabilitate. More than 1,200 of the over 1,500 vacant units that agencies  we visited had slated for rehabilitation using Recovery Act funds were  identified by just five public housing agencies: Chicago Housing Authority,  Philadelphia Housing Authority, San Francisco Housing Authority,  Cuyahoga Metropolitan Housing Authority in Ohio, and Newark Housing  Authority. However, for some agencies facing relatively few vacancies,  rehabilitating vacant units was not the highest priority in selecting  projects. Instead, they focused on meeting other Recovery Act priorities,  such as selecting projects already underway or selecting projects for  which contracts could be awarded within 120 days.
An additional priority for public housing agencies in selecting projects was  finding ways to improve energy efficiency in their buildings. Some are  seeking to accomplish this by making exterior improvements, such as  replacing roofs, siding, or windows, while others will be replacing  appliances or HVAC equipment with more energy-efficient models. For  example, Rahway Housing Authority in New Jersey is in the process of  replacing siding on some of its buildings to increase the energy efficiency  (see figure 11). Another example of an exterior improvement is from the  District of Columbia Housing Authority. Agency officials told us they used  Recovery Act funds to install solar panels on top of one of the residential  buildings as part of its effort to “green retrofit” all the housing units in the  complex. These panels will help heat water for the building.
Barriers and Challenges: Public housing agency officials noted a few  barriers and challenges they had confronted or anticipated related to  Recovery Act funds and projects, but in most cases no single concern was  widely shared among the officials with whom we spoke. In a few cases,  public housing agencies mentioned that they had experienced delays in  accessing their funds in HUD’s Electronic Line of Credit Control System  (ELOCCS) due to problems with or confusion about the requirement to  obtain a Data Universal Numbering System (DUNS) number and to  register in the Central Contractor Registration (CCR) system. For  example, two housing agencies had trouble registering because their  actual location (city or county) was different from the information  associated with the DUNS number in the system. However, once agencies  were properly registered, they did not anticipate any problems using the  system. According to HUD officials, registering in the CCR has been a  substantial problem nationwide, despite efforts by HUD to communicate  these requirements to public housing agencies. HUD officials estimated  that about 380 public housing agencies (out of approximately 3,100) had  not properly registered in CCR and were therefore unable to obligate or  draw down Recovery Act funds as of June 15, 2009. HUD officials are  working with these agencies to resolve the problems as quickly as  possible.
Another challenge raised by public housing agency officials and HUD  officials was the “Buy American” provision of the Recovery Act. Several  officials noted that depending on how this provision was interpreted, it  could pose a barrier to getting contracts in place and completing projects.  For example, HUD officials noted that agencies may have difficulty in  finding an adequate selection of goods and materials for improving energy  efficiency that meet the “Buy American” requirement and are  competitively priced. For other public housing agencies, however, this  provision was not a concern. For example, two agencies stated they had  revised their procurement policy to include “Buy American” requirements,  while another agency required its contractors to certify the materials they  use are American-made.
An additional potential challenge that some officials had identified  involved the requirements HUD had placed on agencies in order to use  Recovery Act funds for administration. HUD’s guidance states that public  housing agencies may use 10 percent of their grant funds for  administration but that agencies can only draw down 10 percent of each  invoice submitted for administration. In addition, one public housing  agency official stated that he expected the documentation requirements  for drawing down these funds would require so much extra work that he  believed it would be better to use non-Recovery Act funds to cover all  administration expenses and devote his agency’s entire Recovery Act  award to the identified projects. HUD officials stated that these  requirements were intended to provide public housing agencies with an  incentive to use Recovery Act funds immediately on projects that would  create jobs.
Troubled housing agencies may also experience delays in obligating and  expending Recovery Act funds. Some officials from public housing  agencies that HUD has identified as troubled performers in PHAS stated  that additional requirements placed on them by HUD had hindered these  agencies’ ability to obligate and expend funds as quickly as they believe  necessary. At one public housing agency, officials stated that they were  designated as troubled because of the physical condition of their housing  units and that they were in need of the Recovery Act funding to address  these deficiencies. HUD has identified 172 housing agencies as troubled  under PHAS that will be subject to increased monitoring for the Recovery  Act. These 172 troubled housing agencies have obligated and expended  Recovery Act funds at a slower rate than the overall group of housing  agencies receiving Recovery Act funding. Specifically, troubled performing  public housing agencies were allocated nearly $186 million of Recovery  Act funding, and as of June 20, 2009, 61 (35.5 percent) of these housing  agencies had obligated $15.1 million (8 percent) and 22 (13 percent) of  these housing agencies had drawn down almost $926,000 (0.5 percent).   Overall housing agencies have obligated and expended funds at about  double this rate.
One reason for these delays is the additional monitoring required by HUD  for housing agencies that are designated as troubled performers under  PHAS. HUD has informed these troubled public housing agencies that for  Recovery Act purposes they would receive increased monitoring and  placed them in either a high, medium, or low-risk category. Of these 172  troubled housing agencies, 106 (61.6 percent) were considered low-risk  troubled, 53 (30.8 percent) were considered medium-risk troubled, and the  remaining 13 (7.6 percent) were considered high-risk troubled. HUD has  established and is implementing a strategy for monitoring these troubled  housing agencies that have received Recovery Act funds. HUD stated to us  that they have disseminated this strategy to its field offices and it is  currently being administered to the 172 troubled housing agencies. For  example, according to HUD, all 172 troubled public housing agencies— regardless of risk category—have been placed on a “zero threshold” status  and therefore cannot draw down Recovery Act funds without HUD Field  Office approval.  HUD stated to us that the ability to place housing  agencies on “zero threshold” has always been available, and has been used  for housing agencies that have had problems obligating and expending  their Capital Fund grants appropriately.  However, HUD has stated that  housing agencies that are troubled will be subject to additional monitoring  and oversight as deemed necessary to ensure proper uses of Recovery Act  funds. Specifically, HUD Field Offices notified troubled housing agencies  that prior to obligation of Recovery Act funding, all award documents (i.e.,  solicitations, contracts, or board resolutions, where applicable) must be  submitted to their respective Field Office for review. Further, housing  agencies that HUD considers to be high-risk troubled are to be assigned to  a HUD designated team that will provide additional monitoring, oversight  and technical assistance. HUD further stated that the effect of any  increased requirements on obligating Recovery Act funds should be short- lived since Recovery Act funds must be obligated within one year, and  much of the funds should be obligated in the next few months.
The officials with whom we spoke generally did not anticipate that they  would face internal challenges with meeting the accelerated obligation and  expenditure requirements under the Recovery Act. Several cited the large  backlogs of projects that were ready to begin in welcoming the additional  funds. In Ohio, Columbus Metropolitan Housing Authority officials stated  that they began preparing projects in December 2008 in anticipation of the  Recovery Act’s passage. Two of the larger agencies, Tampa Housing  Authority and the District of Columbia Housing Authority, stated that they  had in place “job order contracting,” which establishes long-term contracts  with several contractors for a variety of routine construction projects, and  they had found that this strategy aided in their ability to award contracts  quickly and begin projects. Similarly, housing agency officials we  interviewed generally did not expect to encounter any challenges meeting  the Davis-Bacon local prevailing wage requirements because they were  used to complying with Davis-Bacon.
section_title: Most Agencies Expect Few Monitoring Problems, and HUD Systems Can Monitor Controls And Safeguards Over Recovery Act Funds
paragraphs: For public housing agencies, the responsibility for establishing and  maintaining internal controls rests with each housing agency and is  typically not part of the state’s overall system of internal controls that is  discussed in other parts of the report. GAO visited 47 housing agencies in  the 16 states plus the District of Columbia to discuss what internal  controls were in place to track the appropriate use of Recovery Act funds.  The housing agencies stated that they did not anticipate internal control  problems as a result of receiving Recovery Act funds because they would  use their existing accounting systems to track the use of these funds. They  noted that they have experience with tracking funding—including Capital  Fund grants awarded prior to the Recovery Act—and would simply add  specific funding codes to their system to track the use of the Recovery Act  funds.
Many housing agencies are subject to the Single Audit requirements that  have been discussed in this report. Single Audits provide federal agencies  with information on the use of federal funds, internal control deficiencies,  and compliance with federal program requirements. In addition, the HUD  Inspector General (HUD OIG) conducts audits of individual housing  agencies. Although we did not systematically review audit reports for  those housing agencies we visited and they did not anticipate problems  with monitoring Recovery Act funds, it is important to note that both  single audits and HUD OIG’s audits have identified instances of internal  control deficiencies and noncompliance with HUD programs—including  the Capital Fund grants provided prior to the Recovery Act. In our June  2009 report, we reported that housing agency audits do report findings of  inappropriate use and mismanagement of public housing funds, including  problems with accounting, documentation, and internal controls.  That  report recommended that HUD better leverage the information in housing  agency audits to identify emerging issues, and evaluate its overall  monitoring and oversight processes. In addition to implementing its  strategy for monitoring troubled housing agencies, HUD stated to us that  they are in the process of developing a strategy to monitor non-troubled  housing agencies’ use of Recovery Act funds.
section_title: Public Housing Agencies Are Taking Steps to Measure the Impact of Recovery Act Funds
paragraphs: Preserving existing jobs, stimulating job creation, and promoting  economic recovery are among the Recovery Act’s key objectives. Public  housing agencies are taking steps to measure the extent to which  Recovery Act funds are achieving these objectives, though agencies are  waiting for guidance from HUD. As recipients of Recovery Act funds,  public housing agencies are expected to track and report on jobs created  and jobs retained through projects funded by the agency. Most public  housing agencies told us they plan to collect payroll data from contractors,  existing project management systems, or Davis-Bacon wage reports to  calculate the number of jobs created and retained. Some of the public  housing agencies told us they would include job-measurement  requirements in bid specifications, so that prospective contractors would  be aware that they would have to measure jobs if they won the bid. Other  agencies said they plan to employ agency employees or public housing  residents—whose jobs could be easily counted—on projects funded by the  Recovery Act. While some public housing agencies viewed calculating jobs  created or retained as straightforward, others expressed concerns about  the number of work hours defining jobs created or retained. One agency  reported that they had hired a third-party firm to provide tracking and  reporting services related to the Recovery Act. The firm will provide  analyses of construction-related items and contractor payroll records to  satisfy the requirement to report on jobs created and retained with  Recovery Act funding. Three public housing agencies reported they have  not yet made plans to track the effects of Recovery Act funds.
Public housing agencies are also taking steps to report on another  Recovery Act objective—promoting energy conservation measures. Public  housing agencies are selecting projects that they expect will reduce energy  costs, support energy efficiency, and decrease usage of electricity and  water. For example, one public housing agency plans to replace older  appliances with newer, more energy-efficient models. Another agency  plans to replace all light bulbs with energy-efficient bulbs. To measure the  impact of these projects, several public housing agencies plan to compare  utility bills over time to assess the amount of dollar savings realized. One  public housing agency official told us that she plans to read the electric  meters in the public housing development to determine the change in  energy usage.
Public housing agencies also plan to track a number of other performance  measures. Many public housing agencies told us they regularly track the  budget control, timeliness, and quality of work of projects they fund and  that they plan to continue tracking these measures with Recovery Act- funded projects. In addition, some public housing agencies monitor the  number of contracts they have with minority- and women-owned  businesses, and they expect to be able to use Recovery Act-funded  projects to continue to meet their goals of contracting with such entities.  Lastly, public housing agencies anticipate that they may see improvement  in other measures—such as tenant satisfaction, occupancy rates, crime  rates, and employment among residents—as a result of the projects  funded through Recovery Act funds. For example, one public housing  agency official hoped that a new community center in one development  will lead to less apartment turnover, less maintenance expense, lower  crime, more efficient use of utilities, and more cooperation with residents.
Public housing agencies reported that they have not received guidance  from HUD on how to measure jobs created and retained. Most public  housing agency officials told us they would like guidance on how to  accomplish this objective. In the absence of centralized guidance, public  housing agencies are following individual strategies to track and report on  jobs. OMB’s June 2009 guidance provided this centralized guidance.
Quarterly reporting to HUD is another requirement of the Recovery Act. A  number of public housing agencies thought that meeting the quarterly  reporting requirement could be accomplished because they are already  reporting to HUD on a quarterly basis for other programs, such as HOPE  VI. Some agencies, however, told us they had neither heard of the  quarterly reporting requirement nor received guidance about what was to  be included. However, since OMB issued new guidance in June 2009, HUD  officials said they are finalizing work on designing and developing a  Recovery Act Management and Performance System for reporting jobs  created and other effects of the Recovery Act. OMB is also working on a  system it plans to have available by October 10, 2009. OMB’s June 2009  guidance clarified the reporting requirements for recipients and sub- recipients.
section_title: The Edward Byrne Memorial Justice Assistance Grant (JAG) Program
paragraphs: The Edward Byrne Memorial Justice Assistance Grant (JAG) Program  within the Department of Justice’s Bureau of Justice Assistance (BJA)  provides federal grants to state and local governments for law  enforcement and other criminal justice activities, such as corrections and  domestic violence programs. The JAG program was established in law in  2006 to, among other things, provide state and local agencies with the  flexibility to prioritize and place justice funds where they are most needed  to prevent and control crime based on local needs and conditions. JAG  funds can be used to support a range of activities in seven broad program  areas, including law enforcement; prosecution and courts; crime  prevention and education; corrections; drug treatment and enforcement;  program planning, evaluation, and technology improvement; and crime  victim and witness programs. Within these areas, JAG funds can be used  for state and local initiatives, training, personnel, equipment, supplies,  contractual support, research, and information systems for criminal  justice.
The procedure for allocating JAG funds is based on a statutory formula of  population and violent crime statistics, in combination with a minimum  allocation to ensure that each state and territory receives some funding.  Using this formula, 60 percent of a state’s JAG allocation is awarded by  BJA directly to the state, which must in turn allocate a formula-based  share of those funds—a variable pass-through requirement—to local  governments within the state. For Recovery Act JAG funds, the  percentage share that states are required to pass through to local  governments varies across the 16 states and the District of Columbia  (District) in our review, ranging from 36.52 percent (Massachusetts) to 100  percent (District). Further, states may use up to 10 percent of their state  award to cover costs associated with administering JAG funds. The  remaining 40 percent of funds is awarded directly by BJA to eligible units  of local government within the state. Although allocations for JAG  funding are determined by formula, state and local governments must  apply to BJA to receive JAG funding.
Table 11 shows BJA’s Recovery Act JAG state allocations and variable  pass-through percentages for the 16 states and the District, as well as  BJA’s Recovery Act JAG allocations to localities within the 16 states and  the District and total Recovery Act JAG allocations.
Federal funding for JAG has fluctuated significantly in recent years. From  fiscal years 2007 through 2008, federal JAG appropriations were reduced  by about 68 percent, from about $525 million to about $170 million. The  Recovery Act provides $2 billion in JAG funds nationwide for state and  local governments (see table 12).
Using many of its existing grant award and oversight processes and  procedures, BJA and the Office of Justice Programs (OJP)—which  oversees BJA and establishes minimum standards for grant monitoring— have reported plans and taken steps to oversee, measure, and monitor  Recovery Act JAG funds. For example, as part of BJA’s review of  applications for JAG funding, BJA reviewed states’ grant funding history  with OJP to identify any outstanding audit deficiencies, such as delinquent  financial and programmatic reports regarding OJP funding. If any such  deficiencies were identified, they were highlighted in the states’ award  letter from BJA for Recovery Act JAG funding as special conditions  requiring resolution by the state. According to BJA, 4 of the 16 states and  the District in our review had at least one special condition requiring  resolution that prohibited them from obligating or expending funds until  the specific issues were resolved. As of June 30, 2009, 3 of these states and  the District had resolved the issues and had received written approval  from BJA releasing the funds. OJP is working with the remaining state to  resolve the issues to release the special conditions.
With respect to monitoring grants once they are awarded, OJP’s plans  include, among others, taking steps to track Recovery Act funds and  assessing the performance of projects funded by these grants. For  example, OJP’s financial system allows it to track grantees’ use of funds by  program and project code, where project codes align with a grantee’s  program areas. As of June 30, 2009, project codes have been developed for  the JAG program for Recovery Act funds. In addition, OJP plans to  conduct programmatic, administrative, and financial monitoring of its  Recovery Act grantees. This monitoring, among other activities, includes  ongoing reviews of grantee compliance with program guidelines, as well as  on-site monitoring of grantee performance. OJP has reported plans to  conduct on-site monitoring of no less than 30 percent of open, active  Recovery Act grant funding. Further, the Office of Audit, Assessment, and  Management, within OJP, plans to collaborate with BJA to update  monitoring procedures. For example, the office plans to develop  guidance that focuses on monitoring Recovery Act grants by July 31, 2009.  In addition, this office plans to complete quarterly reports on grantee data,  such as reporting compliance with requirements to submit performance  measure data and how grantees are obligating funds, to identify grantees  not complying with reporting requirements or program guidelines to  enable timely follow-up with grantees to correct such deficiencies. In  addition to other available courses, OJP plans to develop Web-accessible  training for grantees, which are to cover topics such as Recovery Act  reporting requirements, writing grant applications, and an orientation for  new grantees. OJP also reported that it facilitated training sessions in the  spring of 2009 for its employees on topics such as grant fraud detection  and how to create grant award packages, and it has plans to facilitate  training on monitoring Recovery Act grantees during fiscal year 2009.
In addition to two performance measures on the number of jobs created  and preserved that are to be collected under the Recovery Act, BJA  requires JAG grantees to report on additional performance measures for  the specific activities that apply to the programs being funded through the  Recovery Act. As of June 30, 2009, OJP has updated JAG program  performance measures for grants awarded with Recovery Act funds. For  example, if JAG Recovery funds are used to support a drug treatment  program, the grantee would be required to report on the number of  participants who completed the program, among other measures. BJA  requires that these reports be submitted by grant recipients within 30 days  after the end of each quarter. OJP has also developed an online  performance measurement tool for JAG grantees to use to report these  data, which it anticipates JAG fund recipients can begin to use to report on  updated measures in July 2009.
subsections: section_title: BJA Has Approved State-Level Recovery Act JAG Awards for the District of Columbia and All States in Our Review, and Eight States Have Obligated Funds
paragraphs: As of June 30, 2009, all 16 states and the District in our review have  received their state award letter from BJA. Further, as of that date, 8 states  reported having obligated a share of these funds:    Arizona (about $23.1 million obligated, or about 91 percent of its state    Colorado (about $13,700 obligated, or about .08 percent of its state award),    Florida (about $8,300 obligated, or about .01 percent of its state award),  Illinois (about $12.4 million obligated, or about 25 percent of its state  award),   Massachusetts (about $12.7 million obligated, or about 51 percent of its    Michigan (about $41.2 million obligated, or 100 percent of its state award),    Mississippi (about $57,000 obligated, or about 0.5 percent of its state    Texas (about $4.6 million obligated, or about 5 percent of its state award).
The remaining 8 states and the District reported that no state Recovery Act  JAG funds had yet been obligated.
According to officials from the states’ administering agencies (SAA), who  are responsible for, among other things, administering and setting  priorities for the use of JAG funds for the state, they are in various stages  of finalizing how these funds will be used—primarily the portion that is to  be passed through to local entities, or subrecipients. Specifically:    Four states are early in the request for proposal (RFP) process for local  entities to apply for state pass-through funds. For example, Mississippi and  New Jersey are developing their RFPs, while Pennsylvania and Illinois are  beginning to collect proposals. New Jersey officials stated they are in the  process of developing RFPs for local jurisdictions while Mississippi  officials similarly stated they plan to have a final RFP done in time to make  awards by August 1, 2009. Pennsylvania issued its RFP on June 18, 2009,  and plans to collect proposals from local entities until July 24, 2009, while  Illinois officials stated they plan to begin soliciting applications from local  law enforcement agencies in the first part of July 2009 and plan to notify  applicants of funding recommendations in early August 2009.
Eight states—Colorado, Florida, Georgia, Iowa, Massachusetts, New York,  Ohio, and Texas—and the District of Columbia have received applications  or letters of intent submitted by local entities for pass-through funding and  are in the process of reviewing and in some cases also approving them.  For example, according to Colorado officials, the state received 193  applications and is reviewing them for allowable costs, budgets, and a  description of how the funds are to help create or retain jobs, among other  items. Staff are also ranking the applications in preparation for their  presentation and scoring by the state’s JAG board in early July 2009. In  Massachusetts, an official noted the state is in different stages of reviewing  and finalizing agreements with state agencies that are to receive a share of  JAG funds and, for some funds, are awaiting final processing through the  state comptroller. In Ohio, officials stated they are performing compliance  reviews on the more than 500 applications received for JAG funding and  plan to notify subrecipients of their awards by July 31, 2009.
Three states have selected potential projects for funding and are awaiting  final governing body approval. For example, according to state officials in  California, the Legislature must approve the planning document for how  JAG funds are to be used in the state in order for funds to be allocated to  local agencies, and this approval has not yet occurred as of June 30, 2009.  In North Carolina, the SAA has selected 85 eligible projects for JAG  funding and is awaiting approval by the governor to proceed with  allocating those funds. Similarly, in Michigan, an official stated that  recommendations for grant awards have been sent to the Governor’s office  for final approval and that contracts are to have a July 1, 2009, start date.
One state has finalized and approved a list of projects to receive the state’s  JAG award. Specifically, Arizona has selected and approved 36 projects  that are to receive state Recovery Act JAG funds, and subrecipients are to  have those funds available on July 1, 2009.
However, all 16 states and the District of Columbia have reported uses for  their state Recovery Act JAG awards that are consistent with their states’  priorities and allowable uses of those funds, as determined by BJA. Table  13 shows planned uses of these funds for the 16 states and the District.
BJA is in the process of reviewing and processing applications from local  governments for Recovery Act JAG funding. The solicitation for this  funding was closed on June 17, 2009. As of June 30, 2009, BJA has awarded  about 44 percent of allocated funds to local governments within the 16  states (see table 14). BJA officials stated they intend to award all of these  local JAG funds by September 30, 2009.
While Recovery Act JAG funds are calculated and administered using the  same rules and structure of the existing JAG program, the Recovery Act  introduces some new requirements for recipients. For example, recipients  are required to track performance measures on the number of jobs created  and preserved as a result of Recovery Act funds and must report certain  financial and programmatic information—such as the amount of Recovery  Act funds expended or obligated and an evaluation of the project’s  completion status—to the Recovery Act central reporting Web site 10 days  after the end of each quarter.
Officials from several of the 17 state administering agencies we visited  noted concerns about subrecipients’ ability to meet the act’s reporting  requirements for determining the number of jobs created and preserved,  and the majority noted challenges to meeting the 10-day deadline for  submitting quarterly reports on Recovery Act data. For example, state  officials noted the need for additional guidance on how to determine  whether JAG funds are contributing to job creation or job preservation.  Specifically, officials in three states raised questions about how, if at all,  grantees were to measure jobs that may be indirectly related to JAG fund  expenditures. For example, if a grantee purchased three new police  cruisers, how might it determine how many secondary jobs were retained  or created at the car manufacturer. On June 22, 2009, the Office of  Management and Budget (OMB) issued guidance on, among other things,  how to report on job creation performance measures, which included  clarification that recipients should not attempt to report on the  employment impact on material suppliers and central service providers  (i.e., indirect jobs) that may be related to Recovery Act supported  activities.
Further, officials from the majority of states shared concerns over the  Recovery Act requirement that recipients submit reports within 10 days of  the end of each quarter. In previous years, JAG award recipients were  required to provide programmatic reports to BJA on an annual basis— rather than on a quarterly basis, as required by the Recovery Act.  Specifically, state officials were concerned that subrecipients would not  be able to meet that deadline or that they may do so at the risk of quality  and accuracy of reporting. For example, officials in North Carolina stated  they were concerned about programs, specifically first-time subrecipients  from nonprofit and faith-based organizations, not being prepared for  compliance responsibilities, due to limitations in the numbers and  experience of staff that are to complete the reports. Officials stated that  many of the subrecipients’ offices do not have the resources to prepare  detailed reporting documents. Officials in Iowa expressed similar  concerns about the 10-day reporting requirement and noted that some  potential recipients—small law enforcement agencies with five or fewer  officers or staff—may not apply for Recovery Act funds if they believe the  reporting requirements are burdensome relative to the amount of JAG  funds they might receive. Alternatively, officials noted that some  recipients may choose to apply for funds and then spend them quickly  because the reporting requirement ends after the funds have been  expended, reported on, and the grant closed. Officials stated they are  concerned about the accuracy of the information the administering  agencies are to receive if the data are reported so quickly. For example,  officials in Michigan noted that to meet performance measurement  reporting on time, subrecipients are to submit reports within 5 days of the  end of the quarter to allow time for the state administering agency to  prepare and submit these reports. Officials in North Carolina noted that  with an increased number of localities receiving the awards compared  with previous years, compliance with tracking and consolidating reporting  requirements is expected to be more difficult. BJA officials stated they  recognized these concerns and agreed that states may face challenges  should they have hundreds of subrecipients for pass-through funds.
To help facilitate subrecipients in meeting the reporting requirements,  officials in many of the states and the District described plans to prepare  entities for reporting, such as conducting training, implementing Web- based reporting, and clarifying the requirements with potential  subrecipients. For instance, officials in North Carolina stated they plan to  sponsor workshops to provide additional information about the Recovery  Act reporting requirements to potential subrecipients. Officials in Illinois  stated that while they had some concerns about timely reporting, they plan  to require subrecipients to report on a monthly basis to the SAA, conduct  training for subrecipients, and transition to an electronic system to  facilitate tracking and reporting of funds.
section_title: The District of Columbia and States Reported Plans to Use Existing Processes to Safeguard the Use of JAG Funds
paragraphs: The District of Columbia and states in our review reported they plan to use  existing grants management processes to ensure that subrecipients are  using JAG funds in accordance with BJA and Recovery Act requirements,  as can be seen in the following examples:    Arizona SAA officials reported that as an established process they used a  peer-reviewed, risk-based scoring matrix to select subrecipients that  considered, among other things, the applicant’s most recent Single Audit  results, plans for evaluating the impact resulting from the use of such  funds, and funding history with the SAA including any past compliance  issues. Once grants are awarded, SAA officials stated that they have a  compliance team of six staff that are to perform ongoing financial and  programmatic compliance reviews to ensure that subrecipients comply  with grant guidance. For example, program compliance staff are to review  subrecipients’ monthly and quarterly financial reports and identify any  areas of concern, such as if funds are expended too slowly or too quickly,  if there are questionable expenses, or if monthly and quarterly reports do  not agree. Financial compliance staff are to also perform annual on-site  visits that include financial audits in addition to internal controls  inspections of, among other things, the accounting system and key  financial documentation. Officials estimated that the workload is likely to  double as a result of receiving additional funds through the Recovery Act  and plan to use some of the state’s administrative JAG funds to hire  additional staff to help manage the heightened Recovery Act requirements  and increased number of subrecipients.
District of Columbia SAA officials reported that they have established  programmatic and financial procedures for separately tracking and  reporting on all federal grant funding programs. The SAA requires  subrecipients to provide detailed, separate monthly or quarterly financial  reports on their federal funding that includes supporting documentation  on all expenses. These financial reports and reimbursement requests are  tracked separately by the SAA in a grants management database as well as  through the District’s financial system; additionally, the Office of the Chief  Financial Officer is responsible for completing separate financial reports  on each federal grant and for drawing down funds in line with grant  expenditures.
New Jersey SAA officials reported that they plan to monitor the use of JAG  funds in several ways. First, the SAA plans to track expenditures through a  separate code in its accounting system for Recovery Act funds, as required  by the state and federal government. Second, the SAA plans to educate  subrecipients on how to comply with funding rules by holding postaward  conferences with subrecipients prior to the receipt of funds. Subsequently,  subrecipients are to be required to submit monthly financial and  programmatic reports to the SAA. Internally, the SAA plans to use existing  program and fiscal analysts to track spending and compliance with  financial and programmatic requirements. Officials said that they are  exploring ways to increase the number of staff monitoring subrecipients,  but because New Jersey is under a hiring freeze, any increase in staff to  conduct this monitoring would likely come as a result of reassignments  from other agencies or offices. Finally, SAA officials noted that an audit by  the Office of the State Auditor should provide another layer of review  regarding the use of JAG Recovery Act funds.
Texas SAA officials report that they plan to monitor performance and  financial aspects of awarded funds to ensure that funds are used for  authorized purposes. Also, the SAA, in coordination with the Office of the  Governor’s Financial Services Division, plans to able to account for, track,  and report on federal funds resulting from the Recovery Act separately  from other fund sources. According to the SAA officials, this will allow  each award to be directly tied to accounting codes to give the Governor’s  office the ability to account for, track, and report separately on these  funds. Texas also contracts with the Public Policy Research Institute at  Texas A&M University to maintain a Web-based data collection system  that can retrieve and analyze program performance data, and the state  plans to continue to do so to support Recovery Act reporting  requirements.
section_title: DOE’s Weatherization Assistance Program
paragraphs: The Recovery Act appropriated $5 billion over a 3-year period for the  Weatherization Assistance Program, which the U.S. Department of Energy  (DOE) administers through each of the states, the District of Columbia  (District), and seven territories and Indian tribes. According to DOE,  during the past 32 years, the program has assisted more than 6.2 million  low-income families to reduce their utility bills by making long-term  energy-efficiency improvements to homes. For example, by installing  insulation, sealing leaks around doors and windows, or modernizing  heating equipment, the weatherization program allows these households  to spend their money on more pressing family needs. The Recovery Act  appropriation represents a significant increase for a program that has  received about $225 million per year in recent years.
subsections: section_title: DOE Has Provided the States with Initial Funds, but Most States Report Using Little if Any of the These Funds
paragraphs: In response to the Recovery Act, DOE announced on March 12, 2009, that  the 50 states, the District, and seven U.S. territories and Indian tribes are  eligible to receive weatherization formula grants. Each of the 16 states  and the District in our review submitted an initial grant application. As  shown in table 15, DOE then provided each with an initial 10 percent of its  formula funds with the stipulation that the funds could be used only for  such start-up activities as preparing a state weatherization plan, hiring and  training staff, and purchasing needed equipment but could not be used for  the production of weatherized homes. Subsequently, on June 9, 2009, DOE  lifted this prohibition for local agencies that have previously provided  services and are included in a state’s plan, in response to states’ concern  that their local agencies were ready to begin weatherization activities but  lacked funding.
Most of the states reported that they have used little if any of the initial 10  percent allocation of Recovery Act funds. In fact, some state  weatherization agencies have not received any of their DOE allocation  because the funds are being held at the state level. For example, Georgia  has not spent the 10 percent allocation because the action plan required by  the governor is still under review. In Pennsylvania, the funds must be  appropriated through the state budget process, and the budget has not yet  been approved. Other states decided not to use the funds until July 1, 2009  for a variety of reasons. Illinois waited until July 1 to begin spending the  weatherization funds because of DOE’s initial guidance that funds could  not be used for weatherization production activities. Massachusetts did  not spend any of the initial allocation until the beginning of the state’s  fiscal year on July 1. Furthermore, as of June 30, 2009, Florida reports  obligating $113,000 of its $17.6 million initial allocation for start-up  activities, such as hiring and training staff.
section_title: DOE Is Reviewing State Plans and Providing the Next 40 Percent of Weatherization Funds
paragraphs: All of the states in our review submitted state weatherization plans to DOE  by May 12, 2009. State officials told us that DOE’s funding announcement  and e-mail messages had provided them with the guidance needed to  complete their weatherization plans, which outline the states’ plans for  using the weatherization funds and for monitoring and measuring  performance, among other things. DOE’s goal is to approve 80 percent of  all state weatherization plans by the end of July 2009. DOE is providing the  next 40 percent of weatherization funds to a state once the weatherization  plan is approved. DOE plans to release the final 50 percent of the funding  to each state based on the department’s progress reviews examining each  state’s performance in spending its first 50 percent of the funds and the  state’s compliance with the Recovery Act’s reporting and other  requirements.
As shown in table 16, as of June 30, 2009, DOE had approved the state  weatherization plans for Arizona, California, Florida, Georgia, Illinois,  Mississippi, New York, North Carolina, Ohio, and the District, enabling  them to receive the next 40 percent of their funds. Most states expect  DOE approval of their plans by mid-July. However, the timing of DOE’s  approval could be an issue for some states. For example, Colorado  officials in the Governor’s Energy Office expressed concern about the  timing of DOE’s approval because their plan is designed to begin on July 1,  the beginning of the state’s fiscal year. DOE’s June 9 revised guidance  provided the states with some additional flexibility for using the initial 10  percent of funds. DOE’s continued communication with the states on the  timing of the approval of state plans will be important in minimizing  possible disruptions of states’ efforts to implement their weatherization  programs.
In addition, officials in nine of the states in our review expressed concern  that the Recovery Act requires that weatherization contractors and  subcontractors pay their laborers and mechanics at the locally prevailing  wage rates, as determined by the U.S. Secretary of Labor. Because prior  DOE weatherization funding did not have this requirement, questions have  been raised about how the requirement should be implemented. For  example, it creates the possibility that workers could be paid at different  wage rates for the same work, depending on the source of funds.  Pennsylvania officials noted that local community action agencies may  have difficulty tracking the number of hours worked by employees who  perform tasks at both prevailing and nonprevailing wage rates. We will  continue to monitor the implementation of this requirement.
section_title: States’ Proposed Plans for Using Weatherization Funds Vary
paragraphs: As shown in table 17, each of the states in our review has provided its  plans for using its Recovery Act weatherization allocation by breaking  expenditures into program operations, administration, training and  technical assistance, and other activities. All of the states propose to  spend at least 50 percent of their allocation on program operations,  ranging from 53 percent in California to 90 percent in Massachusetts.  According to DOE, variances among the states in the percentage of funds  devoted to program operations reflect different levels of maturity in, for  example, providing the infrastructure needed to achieve the  administration’s overall goal of weatherizing 1 million houses per year.
DOE’s funding announcement directs the states to report on the number of  housing units weatherized, the resulting energy savings, and the number of  jobs created. Table 18 shows the number of housing units that states  expect to weatherize using Recovery Act funds, according to states’  weatherization plans. While many of the weatherization plans estimate  expected energy savings, they do not use a consistent unit of measurement  or time frame. Few of the states’ weatherization plans present an estimate  of the expected jobs created.  DOE officials told us that OMB will issue  additional guidance to the states regarding a consistent methodology for  making this calculation.
section_title: Recovery Act Funding Helped States Address Budget Challenges
paragraphs: The Office of Management and Budget estimates that, in addition to the  existing federal grants to states and territories, federal obligations of  Recovery Act funds for states and territories will be about $149 billion in  federal fiscal year 2009. Federal grants represented the second-largest  share of funding for state and local governments in 2008 (about 20 percent  or $388 billion). As shown in figure 12, state and local tax receipts  constituted the largest share of funding for state and local governments in  2008 (about 68 percent or $1.3 trillion).
State revenue continued to decline and states used Recovery Act funding  to reduce some of their planned budget cuts and tax increases to close  current and anticipated budget shortfalls for fiscal years 2009 and 2010.  Of the 16 states and the District, 15 estimate fiscal year 2009 general fund  revenue collections will be less than in the previous fiscal year.  For  example, in Georgia, the state’s net revenue collections for May 2009 were  14.4 percent less than they were in May 2008, representing a decrease of  approximately $212 million in total tax and other collections. On May 28,  2009, the lower-than-expected revenue projections led the Governor to  instruct the Office of Planning and Budget to reduce available funds by 25  percent for the month of June (the last month of fiscal year 2009). In  Michigan, fiscal year 2008-2009 revenue collections are estimated to be  $1.9 billion—or 20.6 percent—less than fiscal year 2007-2008 collections,  putting current revenue estimates below 1971 levels, when adjusted for  inflation. The 2 remaining states —Iowa and North Carolina—had  revenues that were lower than projected. As shown in figure 13, data from  the Bureau of Economic Analysis (BEA) also indicate that the rate of state  and local revenue growth has generally declined since the second quarter  of 2005, and the rate of growth has been negative in the fourth quarter of  2008 and the first quarter of 2009.
Officials in most of the selected states and the District expect these  revenue trends to contribute to budget gaps (estimated revenues less than  estimated disbursements) anticipated for future fiscal years. All of the 16  states and the District forecasted budget gaps in state fiscal year 2009-2010  before budget actions were taken. New York’s enacted budget for fiscal  year 2009-2010 closed what state officials described as the largest budget  gap ever faced by the state. The combined New York current services  budget gaps totaled $2.2 billion in fiscal year 2008-2009 and $17.9 billion in  2009-2010 before the state instituted corrective budget actions and  received Recovery Act funding. In California, the governor projects a $24.3  billion budget gap in fiscal years 2008-2009 and 2009-2010, created in large  part by lower revenue estimates. Florida, which recently passed a $66.5  billion budget for the state’s 2009-2010 fiscal year, faced what officials  estimated as a $4.8 billion gap in general funds before corrective budget  actions were taken.
subsections: section_title: States Combined Use of Recovery Act Funds with Budget Actions to Maintain Balance and Close Budget Gaps
paragraphs: Consistent with one of the purposes of the act, states’ use of Recovery Act  funds to stabilize their budgets helped them minimize and avoid  reductions in services as well as tax increases. States took a number of  actions to balance their budgets in fiscal year 2009-2010, including staff  layoffs, furloughs, and program cuts. The use of Recovery Act funds  affected the size and scope of some states’ budgeting decisions, and many  of the selected states reported they would have had to make further cuts  to services and programs without the receipt of Recovery Act funds. For  example, California, Colorado, Georgia, Illinois, Massachusetts, Michigan,  New York, and Pennsylvania budget officials all stated that current or  future budget cuts would have been deeper without the receipt of  Recovery Act funds.
Recovery Act funds helped cushion the impact of states’ planned budget  actions but officials also cautioned that current revenue estimates indicate  that additional state actions will be needed to balance future-year budgets.  Future actions to stabilize state budgets will require continued awareness  of the maintenance-of-effort (MOE) requirements for some federal  programs funded by the Recovery Act. For example, Massachusetts  officials expressed concerns regarding MOE requirements attached to  federal programs, including those funded through the Recovery Act, as  future across-the-board spending reductions could pose challenges for  maintaining spending levels in these programs. State officials said that  MOE requirements that require maintaining spending levels based upon  prior-year fixed dollar amounts will pose more of a challenge than  upholding spending levels based upon a percentage of program spending  relative to total state budget expenditures.
States’ current uses of Recovery Act funds helped fund and maintain  staffing for existing programs. In Arizona, state budget officials said that  Recovery Act funding enabled the state to, among other things, reduce the  number of furloughs and layoffs, avoid some service reductions, maintain  the level of state employee benefit levels, and prevent some contract  delays and reductions that otherwise would have occurred. Similarly,  officials in Mississippi plan to use Recovery Act funds to help Mississippi  stabilize its budget and support local governments, particularly school  districts. For example, officials at the two local education agencies and  three institutions of higher education we visited told us that they plan to  use Recovery Act funds to avoid layoffs and hire new staff. Officials in the  District told us that because they knew the Recovery Act funds were  coming while they were developing the fiscal year 2010 budget, they did  not have to create a budget scenario in which additional actions, such as  furloughs, were necessary to fill the anticipated revenue gap. Similarly,  Colorado officials also knew early on that Recovery Act funds were  coming—particularly the increased federal share of Medicaid—thereby  making state funds that would have been used to pay the state share of  Medicaid available for avoiding certain budget actions including additional  furloughs. In New Jersey, although budget officials anticipated receiving  Recovery Act funds before the state finalized its 2010 budget, this did not  preclude the state from including personnel actions such as furloughs and  wage freezes to aid in closing the projected budget gap. In Iowa, for the  fiscal year 2009 budget, Recovery Act funding allowed state agencies to  avoid program cuts as well as mandatory layoffs and furloughs.
In addition to these budget actions, some states also reported accelerating  their use of Recovery Act funds to stabilize deteriorating budgets. For  example, in Georgia, lower-than-expected revenue numbers caused the  state to use more Recovery Act funds in state fiscal year 2009 than it had  anticipated using. In Massachusetts, state officials said that accelerating  their use of Recovery Act and state rainy-day funds was the most viable  solution to balance their budget. Massachusetts officials reported that the  state had hoped to leave a sizable amount of its State Fiscal Stabilization  Fund (SFSF) allocation available for 2011 but changed its planned  approach because of its deteriorating fiscal condition. Using more of these  funds in the 2008-2009 state fiscal year may make it more difficult for the  state to balance its budget after Recovery Act funds are no longer  available. California’s dire fiscal condition prompted the state to  accelerate the use of its Recovery Act funds, along with the use of a  number of additional measures to reduce the state’s 2008-2009 budget gap.
Many states, such as Colorado, Florida, Georgia, Iowa, New Jersey, and  North Carolina, also reported tapping into their reserve or rainy-day funds  in order to balance their budgets. In most cases, the receipt of Recovery  Act funds did not prevent the selected states from tapping into their  reserve funds, but a few states reported that without the receipt of  Recovery Act funds, withdrawals from reserve funds would have been  greater. Officials from Georgia stated that although they have already  used reserve funds to balance their fiscal year 2009 and 2010 budgets, they  may use additional reserve funds if, at the end of fiscal year 2009, revenues  are lower than the most recent projections. In contrast, New York officials  stated they were able to avoid tapping into the state’s reserve funds due to  the funds made available as a result of the increased Medicaid FMAP funds  provided by the Recovery Act.
section_title: Approaches to Developing Exit Strategies for End of Recovery Act Funding Influenced by Nature of State Budget Processes
paragraphs: States’ approaches to developing exit strategies for the use of Recovery  Act funds reflect the balanced-budget requirements in place for all of our  selected states and the District. Budget officials referred to the temporary  nature of the funds and fiscal challenges expected to extend beyond the  timing of funds provided by the Recovery Act. Officials discussed a desire  to avoid what they referred to as the “cliff effect” associated with the dates  when Recovery Act funding ends for various federal programs.
Budget officials in some of the selected states are preparing for the end of  Recovery Act funding by using funds for nonrecurring expenditures and  hiring limited-term positions to avoid creating long-term liabilities.  Representatives of the Texas Governor’s office also told us that their  office has advised state agencies that much of the funding is temporary.  The Texas Legislature provided similar guidance in the conference  committee report for the appropriations bill directing state agencies to  “give priority to expenditures that do not recur beyond the 2010-2011  biennium.” In Ohio, budget officials remain focused on budgeting for the  coming biennia (2010-2011), but key legislators have queried state officials  during budget deliberations about their plans for the next biennia (2012- 2013), when federal Recovery Act funding is no longer available.
A few states reported that although they are developing preliminary plans  for the phasing out of Recovery Act funds, further planning has been  delayed until revenue and expenditure projections are finalized. For  example, while Georgia’s Governor has encouraged state agencies to  spend funds judiciously and take into consideration that the funding is  temporary, the state is still in the process of developing a strategy for  winding down its use of Recovery Act funds. In part, such a strategy is  dependent on revenue and expenditure projections, which will be updated  as part of the fiscal year 2011 budget planning process. In addition, risk  mitigation plans currently being developed by state agencies may impact  the state’s exit strategy.
Some states are in the process of developing exit strategies aligned with  planning for broader fiscal challenges. In North Carolina, the state’s  recovery office hired a temporary staff person to look at some of the  factors that may have caused the state’s economic slowdown, as well as to  help plan for an exit strategy after Recovery Act funds end. Officials in  Illinois also said that they plan to convene a working group to assess state  agencies’ level of preparedness for the end of Recovery Act funding. They  have issued guidance to state agencies regarding the use of the funds and  have directed agencies to submit hiring plans containing provisions that  mitigate the risk of layoffs, such as hiring temporary employees and  contractors.
section_title: States Have Implemented Various Internal Control Programs: However, Single Audit Guidance and Reporting Does Not Adequately Address Recovery Act Risk
paragraphs: Given that Recovery Act funds are to be distributed quickly, effective  internal controls over use of funds are critical to help ensure effective and  efficient use of resources, compliance with laws and regulations, and in  achieving accountability over Recovery Act programs. 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. Management is responsible for the  design and implementation of internal controls and the states in our  review have a range of approaches for implementing their internal  controls.
Some states have internal control requirements in their state statutes,  while others have undertaken internal control programs as management  initiatives. In our sample, seven states—California, Colorado, Florida,  Michigan, Mississippi, New York, and North Carolina—noted they have  statutory requirements for internal control programs and activities. The  other nine states—Arizona, Georgia, Illinois, Iowa, Massachusetts, New  Jersey, Ohio, Pennsylvania, and Texas—noted they have undertaken  various internal control programs. In addition, the District of Columbia  has taken limited actions related to its internal control program. An  effective internal control program helps in managing change to cope with  shifting environments and evolving demands and priorities, as the  Recovery Act entails. Internal controls need to be continually assessed and  evaluated by management as programs change and entities strive to  improve operational processes.
Risk assessment and monitoring are key elements of internal controls, and  the states and the District in our review have undertaken a variety of  actions in the area of risk assessment. Risk assessment involves  performing comprehensive reviews and analyses of program operations to  determine if internal and external risks exist and to evaluate the nature  and extent of risks identified. Approaches to risk analysis can vary across  organizations because of differences in missions and the methodologies  used to qualitatively and quantitatively assign risk levels. 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 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 also provides information and feedback to the  risk assessment process.
In California, the Office of State Audits and Evaluations (OSAE) has  primary responsibility for reviewing whether state agencies receiving  Recovery Act funds have established adequate systems of internal control  to maintain accountability over those funds. According to state officials,  OSAE is using two primary approaches to assessing internal controls at  agencies receiving Recovery Act funds— Financial Integrity and State  Manager’s Accountability Act of 1983 (FISMA) reviews (an existing  internal control assessment tool) and readiness reviews (a new internal  control assessment tool). Both the FISMA reviews and the readiness  reviews rely primarily on information that is self-certified by agency  officials. FISMA requires each state agency to maintain effective systems  of internal accounting and administrative control, to evaluate the  effectiveness of these controls on an ongoing basis, and to biennially  review and prepare a report on the adequacy of the agency’s systems of  internal accounting and administrative control.
The state of Colorado enacted the State Department Financial  Responsibility and Accountability Act in 1988, which which requires each  principal department of the state’s executive department to institute and  maintain systems of internal accounting and administrative control— including an effective process of internal review and for making  adjustments for changing conditions. The act also requires the head of  each principal department to annually state in writing whether the  department’s systems of internal accounting and control either do or do  not fully comply with the act’s requirements. While the Controller’s office  ensures that these statements are filed every year, historically, the  Controller has not had the resources to ensure that proper internal  controls are in place. The Controller’s office is developing an internal  control toolkit that will provide state departments with information on  internal control systems and checklists to formalize and improve their  existing processes and identify potential weaknesses. In addition, the  Controller’s office is in the process of filling its internal auditor position,  which has been vacant for over 2 years. According to the Controller, the  auditor will work with state departments to promote and monitor internal  controls, as well as monitor proper tracking and reporting of Recovery Act  funds.
Florida law also places the responsibility for internal controls on state  agencies. A Florida statute requires the agencies to establish and maintain  management systems and controls that promote and encourage  compliance; economic, efficient, and effective operations; reliability of  records and reports; and safeguarding of assets. However, while Florida  law requires state agencies to have such internal controls, the state  oversight agencies are preparing for the infusion of Recovery Act funds  into the state. Annually, the Florida Department of Financial Services’  obtains representation letters from agency heads stating that they are  responsible for establishing and maintaining effective controls over  financial reporting and preventing and detecting fraud for all funds  administered by their agency. Department of Financial Services’ officials  stated that, this year, they will ask the agency heads to also to sign a  separate representation letter for Recovery Act funds that says internal  controls are in place for Recovery Act funds and that these funds will be  tracked separately from other funds.
New York State also enacted into law internal control requirements. The  law requires, among other things, that each agency establish and maintain  a system of internal controls and a review program, designate an internal  control officer, and periodically evaluate the need for an internal audit  function in each agency. In addition, to fulfill the requirements of the  New York State Government Accountability, Audit and Internal Control  Act (New York Internal Control Act), the Office of the State Comptroller is  responsible for developing the Standards for Internal Control in New York  State Government. The Internal Control Act requires that the State  Division of the Budget (DOB) periodically (1) issue a list of agencies  covered by the act, and (2) issue a list of agencies required to have an  internal audit function. Beyond these two statutory requirements, DOB has  also taken administrative steps to facilitate and support the goals of the  Internal Control Act through the issuance of additional guidance and the  annual internal control certification requirement. Based on DOB’s  Governmental Internal Control and Internal Audit Requirements  manual, the system of internal control should be developed using the  Committee of Sponsoring Organizations of the Treadway Commission  (COSO) conceptual framework and should incorporate COSO’s five basic  components of internal control.
North Carolina has enacted the State Governmental Accountability and  Internal Control Act, requiring the Office of the State Controller to  establish statewide internal control standards. The Office of the State  Controller is implementing a statewide internal control program called  EAGLE (Enhancing Accountability in Government through Leadership and  Education). The purpose was not only to establish adequate internal  control, but also to increase fiscal accountability within state government.  North Carolina is using a phased approached to implement the EAGLE  program. In Phase I, state agencies and state universities are required to  perform an annual assessment of internal control over financial reporting.  This risk assessment is seen as a benefit to the agencies as it identifies  risks and compensating controls that reduce the possibility of material  misstatements of financial reports and misappropriation of assets, as well  as opportunities to increase efficiency and control effectiveness in  business processes and operations. In January 2008, the State Controller  requested each agency to appoint an Internal Control Officer to lead the  agency’s risk assessment team and monitor the agency’s compliance with  EAGLE requirements. Phase II of the program will be “efficiency of  operations” and Phase III will be “compliance with laws and regulations.”
In accordance with Mississippi’s statutory requirement to maintain  continuous internal audit over the activities of each state agency,  Mississippi has implemented a program of internal control. First,  Mississippi has required each state agency to certify in writing that it has  conducted an evaluation of internal controls and that the findings of the  evaluation provide reasonable assurance that the assets of the agency have  been preserved, duties have been segregated by function, and transactions  are executed in accordance with laws of the state of Mississippi. As part of  maintaining appropriate controls, the Department of Finance and  Administration directed all state agency executive and finance directors to    conduct a comprehensive review of their agency’s internal control  structure to determine if it is functioning properly and in accordance with  the agency’s internal control plan;   determine whether the internal control structure has been updated to  address operational or procedural changes made during the period under  review to processes, program areas, or functions; identify internal control weaknesses; initiate actions to ensure that control weaknesses discovered during the  period under review, and in prior periods, have been adequately  addressed; and   give immediate attention to all internal control related findings and  recommendations reported by auditors during the year.
Second, in addition to the certification required of all state agencies, the  Department of Finance and Administration is requiring another  certification of agencies receiving Recovery Act funds. Agencies must  certify that they accept responsibility for spending the funds as  responsibly and effectively as possible while maintaining the appropriate  controls and reporting mechanisms to ensure accountability and  transparency in compliance with the Recovery Act. The certifications also  include an agency’s guarantee that program risks are, or will be, identified  and that the agency has, or will, implement internal controls sufficient to  mitigate the risk of waste, fraud, and abuse. Finally, the Department of  Finance and Administration established an internal control unit that is  reviewing agency letters of certification and expects to weigh all agencies  internal control assessments, as well as the findings and corrective action  plans noted by the State Auditor in the 2007 and 2008 Mississippi Single  Audit Report, to decide which agencies receiving Recovery Act funds  should initially be the focus of the unit’s monitoring activities.
Although not based on a statutory requirement, Georgia is taking steps to  monitor and safeguard Recovery Act funds at the state and program level.  Georgia has established a Recovery Act Accountability and Transparency  Support Team comprising representatives from the Office of Planning and  Budget, State Accounting Office, and Department of Administrative  Services (the department responsible for procurement). In May 2009, the  Georgia Office of Planning and Budget issued a risk management  handbook to all state agencies. Its purpose is to provide a process that  allows agencies to identify potential Recovery Act risk areas and develop  risk mitigation strategies for each individual funding source. The State  Accounting Office developed the agency self-assessment questionnaire  that accompanied the risk management handbook. This survey included  questions about compiling Recovery Act data for reporting purposes, the  specific contracting requirements in the Recovery Act that are not current  agency practices, and agency internal controls. The State Accounting  Office plans to use the results to target its audit efforts.
Ohio has made strides in refining its internal control process to  accommodate the Recovery Act funds. The state Office of Budget and  Management issued guidance on risk assessment in March 2009  highlighting the significance of risk mitigation strategies that all state  agencies should have in place to ensure management controls are  operating effectively to identify and prevent wasteful spending and  minimize waste, fraud, and abuse. The new Office of Internal Audit is  working with state agencies to develop and evaluate these risk  assessments. Based on these agency risk assessments, the Office of  Internal Audit is developing an oversight strategy that it will present to the  Audit Committee on June 30, 2009.
Although the District of Columbia (District) government and agencies  have internal controls, the controls are not consolidated into a citywide  internal control program, and past reports have identified numerous  weaknesses in the District’s internal controls. The District’s Office of  Inspector General (OIG) has issued reports that identified weaknesses in  the District’s internal controls and made several recommendations to  improve internal controls. One report recommends that the Chief  Financial Officer (CFO), in conjunction with the City Administrator, issue  citywide guidance requiring managers to establish, assess, correct, and  report on internal controls and that these requirements should be reflected  in personnel performance plans. In addition, 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. The Single Audit  report identified material 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 are receiving Recovery Act funds. The findings were significant  enough to result in a qualified opinion for that section of the report. In  September 2008, the Office of the Chief Financial Officer (OCFO)  contracted with an independent accounting firm to identify areas with  internal control problems and deficiencies in the office. The review may  help direct OCFO in developing an internal control program. The  assessments will not be available until the end of 2009. When the firm has  completed its OCFO assessment, it will expand its review to District  agencies.
subsections: section_title: Challenges Exist in Tracking Recovery Act Funds
paragraphs: States and localities receiving Recovery Act funds directly from federal  agencies are responsible for tracking and reporting on those Recovery Act  funds. An effective internal control program is critical to preparing  reliable financial statements and other financial reports. OMB has issued  guidance to the states and localities that provides for separate  identification “tagging” of Recovery Act funds, so that specific reports can  be created and transactions can be specifically identified as Recovery Act  funds. The flow of federal funds to the states varies by programs. As we  have previously reported, the grant programs generally have different  objectives and strategies that are reflected in their application, selection,  monitoring, and reporting processes. Multiple federal entities are involved  in grants administration; the grantor agencies have varied grants  management processes; the grantee groups are diverse; and grants  themselves vary substantially in their types, purposes, and administrative  requirements. The federal grant system is highly fragmented.
Several states and the District of Columbia have created unique codes for  their financial systems in order to tag the Recovery Act funds. District of  Columbia’s Office of Finance and Treasury (OFT) has established a bank  account exclusively for depositing Recovery Act funds. Most states plan to  use their current financial system to track and report on Recovery Act  funds, but various challenges exist. For instance, since the state of Arizona  is decentralized, the recording and tracking responsibility lies with the  state agencies that have different accounting systems. The state agencies  will need to periodically transfer accounting data from the agencies’  systems to the state’s system. Georgia is segregating funds through a set of  Recovery Act fund sources in the state’s financial accounting system.  Georgia’s State Accounting Office issued guidance on Recovery Act  accounting that states those state agencies such as the Georgia  Department of Labor that do not use the state’s financial accounting  system must ensure that the data are maintained in accordance with all  Recovery Act financial reporting requirements.
California’s Recovery Task Force (Task Force), which has overarching  responsibility for ensuring that California’s Recovery Act funds are spent  efficiently and effectively, intends to use its existing internal control and  oversight structure, with some enhancements, to maintain accountability  for Recovery Act funds. State agencies, housing agencies, and other local  Recovery Act funding recipients we interviewed all told us that using  separate accounting codes within their existing accounting systems will  enable them to effectively track Recovery Act funds. However, officials  told us that accumulating this information at the statewide level will be  difficult using existing mechanisms. The state, which is currently relying  on lengthy manually updated spreadsheets, is awaiting additional federal  OMB guidance to design and implement a new system to effectively track  and report statewide Recovery Act funds. Most state and local program  officials told us they will apply existing controls and oversight processes  that they currently apply to other program funds to oversee Recovery Act  funds.
Officials from the Texas State Comptroller’s Office repeated their concern  in May 2009 that the federal government was not identifying Recovery Act  funds separately from other federal funds disbursed to the state. Absent  this identification, the Comptroller relies on state agencies to distinguish  between the two types of federal funds. Texas officials cited federal fund  transfers to the Texas Workforce Commission and the Texas Health and  Human Services Commission as examples of this fund identification  problem. Absent separate coding from the U.S. Department of the  Treasury, the Texas officials said the state relies on the state agencies to  inform the State Comptroller’s office on what portion of federal funds are  Recovery Act 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 Recovery Act requires—before Recovery Act funds are  disbursed to Texas. State agency officials told us they do not share the  Comptroller’s concern because they are able to distinguish between their  normal federal funds and Recovery Act funds when initiating fund  transfers.
The District of Columbia has also experienced a challenge. District of  Columbia’s Office of Finance and Treasury (OFT) has established a bank  account exclusively for depositing Recovery Act funds. Agencies are  notified by OFT when Recovery Act funds are received in the bank  account. All Recovery Act revenue received will be tracked by OFT in a  separate database. When Recovery Act funds are ready to be distributed  from federal agencies to District agencies, Recovery Act grant funding  notifications are sent directly to the District agencies. When an agency  receives a grant funding notification, it is the agency’s responsibility to  report the receipt to the Office of Budget and Planning (OBP). OBP  provides weekly reports of grant funding notifications that are reconciled  by the agencies. OBP stated there is a disparity of grant information  caused by the process and is working on a solution.
Mississippi is undergoing changes to most of the state’s central accounting  and reporting systems. The Department of Finance and Administration  (DFA) is making changes to the Statewide Automated Accounting System  (SAAS), which tracks purchasing, accounts payables, revenues, and  accounts receivable and includes Mississippi’s general ledger. The use of  reporting categories does not allow DFA to currently tie individual  obligations or expenditures to the contract for which they were incurred.
However, DFA is in the process of making modifications to the state  central accounting system that will allow the system to do so. Once  completed, these changes will provide greater transparency of Recovery  Act fund usage. For example, the changes will allow the public to view  online Recovery Act contracts and expenditures for specific contracts. In  addition, the changes will add further system controls, such as the ability  to deny the obligation of funds until state agencies have posted the  contract that supports the obligation.
section_title: Single Audit Guidance and Reporting Does Not Adequately Address Recovery Act Risks
paragraphs: In addition to being an important accountability mechanism, the results of  audits can provide valuable information for management’s risk assessment  and monitoring processes. The Single Audit report, prepared to meet the  requirements of the Single Audit Act, as amended (Single Audit Act), is a  source of information on internal control and compliance findings and the  underlying causes and risks. The report is prepared in accordance with  OMB’s implementing guidance in OMB Circular No. A-133, Audits of  States, Local Governments, and Non-Profit Organizations, which  provides guidance to auditors on selecting federal programs for audit and  the related internal control and compliance audit procedures to be  performed. A Single Audit report includes the auditor’s schedule of  findings and questioned costs, internal control and compliance  deficiencies, and the auditee’s corrective action plans and a summary of  prior audit findings that includes planned and completed corrective  actions. The Single Audit Act requires that a nonfederal entity subject to  the act transmit its reporting package to a federal clearinghouse  designated by OMB 9 months after the end of the period audited.
In our April 2009 report, we reported that the guidance and criteria in  OMB Circular No. A-133 do not adequately address the substantial added  risks posed by the new Recovery Act funding. Such risks may result from  (1) new government programs, (2) the sudden increase in funds or  programs that are new to the recipient entity, and (3) the expectation that  some programs and projects will be delivered faster so as to inject funds  into the economy. With some adjustment, the Single Audit could be an  effective oversight tool for Recovery Act programs, addressing risks  associated with all three of these factors.
Our April report included recommendations that OMB adjust the current  audit process to  focus the risk assessment auditors use to select programs to test for  compliance with 2009 federal program requirements on Recovery Act  funding;   provide for review of the design of internal controls during 2009 over  programs to receive Recovery Act funding, before significant expenditures  in 2010; and   evaluate options for providing relief related to audit requirements for low- risk programs to balance new audit responsibilities associated with the  Recovery Act.
Since April, OMB has taken several steps in response to our  recommendations. However, those actions do not sufficiently address the  risks leading to our recommendations. In OMB’s view, it is limited in its  options to address our concerns due to specific requirements set forth in  the Single Audit Act. The Single Audit Act charges OMB with, among other  things, prescribing the risk-based criteria auditors use to select federal  programs to include for Single Audit compliance and internal controls  testing. To focus auditor risk assessments on Recovery Act-funded  programs and to provide guidance on internal control reviews for  Recovery Act programs, OMB is working within the framework defined by  existing mechanisms—Circular No. A-133 and the Compliance  Supplement. In this context, OMB has made limited adjustments to its  Single Audit guidance and is planning to issue additional guidance.  Following is the status of OMB’s actions related to our April  recommendations.
subsections: section_title: Focusing Auditors’ Program Risk Assessments on Programs with Recovery Act Funding
paragraphs: In our April report, we recommended that OMB focus the risk assessment  auditors use to select programs to test for compliance with 2009 federal  program requirements on Recovery Act funding. On May 26, OMB made  available the 2009 edition of the Circular A-133 Compliance Supplement.  The new Compliance Supplement includes the following, which is  intended to focus auditor risk assessment on Recovery Act funding:    A requirement that auditors specifically ask auditees about and be alert to  expenditure of funds provided by the Recovery Act.
An appendix that highlights some areas of the Recovery Act impacting  single audits. The appendix adds a requirement that large programs and  program clusters with Recovery Act funding cannot be assessed as low  risk for the purposes of program selection without clear documentation of  the reasons that the expenditures of Recovery Act awards are low risk for  the program. The appendix also states that recipients are to separately  identify expenditures for Recovery Act programs on the Schedule of  Expenditures of Federal Awards. It also notes that compliance  requirements unique to Recovery Act-funded programs are not included in  the Compliance Supplement and advises auditors to review award  documents, check the OMB Web site for addenda to the supplement, and  use the existing Compliance Supplement framework as guidance to  identify material Recovery Act compliance requirements.
OMB has not yet identified program groupings critical to auditors’  selection of programs to be audited for compliance with program  requirements. As we reported in April 2009, the current approach  prescribed by OMB Circular No. A-133 relies heavily on the amount of  federal expenditures in a program during a fiscal year and whether  findings were reported in the previous period to determine whether  detailed compliance testing is required for that year. In some cases, OMB  requires that auditors group closely related programs that share common  compliance requirements and consider them as one program when  selecting programs for testing. OMB specifically identifies these groups of  programs, called “clusters,” in the Compliance Supplement. OMB has  noted that many of the Recovery Act awards will share common  compliance requirements with existing programs and that the Compliance  Supplement cluster list will be updated to include Recovery Act programs.  OMB is currently considering ways to cluster programs for Single Audit  selection in ways that would make it more likely that Recovery Act  programs would be selected and, therefore, be subjected to internal  control and compliance testing, but the dollar formulas would not change  under this plan. This approach may not provide sufficient assurance that  smaller, but nonetheless significant, Recovery Act-funded programs would  be selected for audit. OMB plans to issue the new cluster information by  mid-July 2009.
In addition, the 2009 Compliance Supplement to OMB’s Circular No. A-133  does not yet provide specific auditor guidance for new programs funded  by the Recovery Act or for new compliance requirements specific to  Recovery Act funding within existing programs, that may be selected as  major programs for audit. For instance, there is currently no program- specific audit guidance included in the Compliance Supplement on the  new State Fiscal Stabilization Fund programs, significant programs  administered by the Department of Education to support education and  other government services, with federal funds already flowing to the  states. OMB acknowledges that additional guidance is called for and is in  the process of drafting such guidance. OMB plans to issue an addendum to  the Compliance Supplement that would address some Recovery Act- related compliance requirements by mid-July 2009.
section_title: Early Review of the Design of Internal Controls over Recovery Act-Funded Programs before Significant Expenditures in 2010
paragraphs: In our April 2009 report, we recommended that OMB adjust the current  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.
To provide additional focus on internal control reviews, OMB has drafted  guidance that indicates the importance of such reviews and encourages  auditors to communicate weaknesses to management early in the audit  process but does not add requirements for auditors to take these steps.  Because OMB is choosing to address this recommendation through the  existing audit framework, it has not changed the reporting time frames and  therefore does not address our concern that internal controls over  Recovery Act programs should be reviewed before significant funding is  expended. OMB plans to finalize and issue the guidance by mid-July 2009.  In addition, the guidance to be provided by OMB will be limited to those  programs selected by the auditor as “major programs” under the current  approach for selecting programs for audit, which may not adequately  consider Recovery Act program risks. Finally, if this internal control work  is done within the current Single Audit framework and reporting timelines,  the auditor evaluation of internal control and related reporting will occur  too late—after significant levels of federal expenditures have already  occurred.
section_title: Providing Relief Related to Low-Risk Programs to Balance Expected Increased Workload
paragraphs: In our April 2009 report, we recommended that the Director of OMB  evaluate options for providing relief related to audit requirements for low- risk programs to balance new audit responsibilities associated with the  Recovery Act. While OMB has noted the increased responsibilities falling  on those responsible for performing Single Audits, to date it has not issued  any proposals and does not have plans to address this recommendation.
A recent survey conducted by the staff of the National State Auditors  Association (NSAA) highlighted the need for relief to overburdened  state audit organizations. Survey participants were asked whether they  were experiencing cuts in staffing and to comment on the effects of these  cuts on their ability to perform effective audits. Thirty-two state audit  organizations that indicated in an earlier survey that their responsibilities  included Single Audit had responded to the survey as of June 24. Of the 32  respondents, 17 indicated that staff had been cut by 5 percent or more.  Eight respondents are anticipating that staff will be required to take  unpaid leave in fiscal year 2010.
OMB officials told us they are considering reducing auditor workload by  decreasing the number of risk assessments of smaller federal programs.  Auditors conduct these risk assessments as part of the planning process to  identify which federal programs will be subject to detailed internal control  and compliance testing. GAO believes that this step in itself will not  provide sufficient relief to balance the additional audit requirements for  Recovery Act programs.
OMB officials have expressed reluctance to revise OMB Circular No. A-133  or to propose revisions to the Single Audit Act to provide auditor relief or  to provide additional flexibility to allow auditors to have more control  over the selection of programs tested for internal control and compliance.  They stated that to do so would take considerable time and could not be  accomplished in time to have adequate coverage of Recovery Act funds. In  addition, federal inspectors general have expressed concern about  reducing audit coverage of existing programs. However, without action  now, audit coverage of Recovery Act programs will not be sufficient to  address Recovery Act risks, and the audit reporting that does occur will be  after significant Recovery Act funds have already been expended.
Congress is currently considering a bill, H.R. 2182, that could provide  some financial relief to auditors lacking the staff capacity necessary to  handle the increased audit responsibilities associated with the Recovery  Act. H.R. 2182 would amend the Recovery Act to provide for enhanced  state and local oversight of activities conducted pursuant to the Recovery  Act. As passed by the House, H.R. 2182 would allow state and local  governments to set aside 0.5 percent of Recovery Act funds, in addition to  funds already allocated to administrative expenditures, to conduct  planning and oversight to prevent and detect waste, fraud, and abuse.
section_title: Single Audit Reporting Will Not Facilitate Timely Reporting of Recovery Program Findings and Risks
paragraphs: The Single Audit reporting deadline is too late to provide audit results in  time for the audited entity to take action on deficiencies noted in Recovery  Act programs. The Single Audit Act requires that recipients submit their  Single Audit reports to the federal government no later than 9 months after  the end of the period being audited. As a result an audited entity may not  receive feedback needed to correct an identified internal control or  compliance weakness until the latter part of the subsequent fiscal year.  For example, states that have a fiscal year end of June 30 have a reporting  deadline of March 31, which leaves program management only 3 months to  take corrective action on any audit findings before the end of the  subsequent fiscal year. For Recovery Act programs, significant  expenditure of funds could occur during the period prior to the audit  report being issued.
The timing problem is exacerbated by the extensions to the 9-month  deadline that are routinely granted by the awarding agencies, consistent  with OMB guidance. For example, 13 of the 17 states in our review have a  June 30 fiscal year end. We found that 7 of these 13 states requested and  received extensions for their March 31, 2009, submission requirement of  their fiscal year 2008 reporting package. Three of the requests for  extensions were from auditors, and the remaining requests were from the  audited entities. Table 19 below lists the seven states, the extension date  requested, and the reason for the extension.
The Health and Human Services Office of Inspector General (HHS OIG) is  the cognizant agency for most of the states, including all of the states  selected for our review under the Recovery Act. According to an HHS OIG  official, states contact HHS requesting and providing a reason for an  extension of their report submission; the HHS IG has had a practice of  routinely granting the requested extensions. The HHS OIG noted that the  IG has no means to enforce compliance with the reporting time frames.  The program office of the federal agency issuing the federal awards, not  the cognizant IG, has the authority at the federal level to impose sanctions  when the state or local government has not complied with the audit  requirement. According to an HHS OIG official, beginning in May 2009,  the HHS IG adopted a policy of no longer approving requests for  extensions of the due dates for Single Audit reporting package  submissions. OMB officials have stated they plan to eliminate allowing  extensions of the reporting package but have not issued any official  guidance or memorandums to the agencies, OIGs, or federal award  recipients.
In order to realize the Single Audit’s full potential as an effective Recovery  Act oversight tool, OMB needs to take additional action to focus auditors’  efforts on areas that can provide the most efficient, and most timely,  results. OMB has taken some first steps, and has plans to issue additional  guidance. As federal funding of Recovery Act programs accelerates in the  next few months, we are particularly concerned that the Single Audit  process may not provide the timely accountability and focus needed to  assist recipients in making necessary adjustments to internal controls, so  that they achieve sufficient strength and capacity to provide assurances  that the money is being spent as effectively as possible to meet program  objectives.
Legislative changes may be necessary to make certain changes to the  Single Audit requirements to address the new risks brought on by  Recovery Act funding if OMB concludes that it is unable to take the  necessary steps under the current framework to adequately address  accountability for the Recovery Act programs and related risks and to  provide for more timely reporting, especially in the area of internal  controls. Given that the scope of Single Audit workloads will increase,  consideration should be given to determining what funds can be used to  support Single Audit efforts related to Recovery Act programs, including  whether legislative changes are needed to specifically direct resources to  cover incremental audit costs related to Recovery Act programs.
section_title: Efforts to Assess Impact of Recovery Act Spending
paragraphs: Under the Recovery Act, direct recipients of Recovery Act funds, including  states and localities, are expected to report quarterly on a number of  measures, including the use of funds and an estimate of the number of jobs  created and the number of jobs retained. The jobs created and jobs  retained are part of the “recipient reports” required under section 1512(c)  of the Recovery Act and will be submitted by recipients starting in October  2009. In addition to this statutory requirement to report on jobs, the Office  of Management and Budget (OMB) has directed federal agencies to collect  other performance information from entities that receive funding. To the  extent possible, OMB’s guidance also requires agencies to instruct  recipients to collect and report performance information that is consistent  with the agency’s program performance measures. This is intended to  allow an assessment of what OMB describes as the marginal performance  impact of Recovery Act requirements.
In general, states are adapting information systems, issuing guidance, and  beginning to collect data on jobs created and jobs retained, but questions  remain about how to count jobs and measure performance under  Recovery Act-funded programs. For example, many state education  officials told us it has been difficult to plan how they will report the impact  of Recovery Act funding until they receive further guidance from OMB or  the Department of Education. Education is planning to supplement the  guidance OMB provided to help state agencies report the proper data. In  particular, Education officials noted that draft OMB guidance on recipient  reporting would require some additional Education guidance to clarify  issues for recipients of formula grants, such as the IDEA grants. OMB’s  latest guidance on recipient reporting addresses some of these concerns.
subsections: section_title: OMB’s June 22, 2009, Guidance Provides More Detail on the Recipient Reporting Process, Clarifies Some Requirements, and Establishes a Central Reporting Framework
paragraphs: In response to requests for more guidance on the recipient reporting  process and required data, OMB, after soliciting responses from an array  of stakeholders, issued additional implementing guidance for recipient  reporting on June 22, 2009. As discussed in our April 2009 report and  echoed in this report, state and local officials had questions and concerns  about the recipient reporting requirements contained in the Recovery Act.  For example, officials had expressed some confusion about how to count  less than full-time jobs and indirect jobs. Over the last several months  OMB met regularly with state and local officials, federal agencies, and  others to gather input on the reporting requirements and implementation  guidance. OMB also worked with the Recovery Accountability and  Transparency Board to design a nationwide data collection system that  will reduce information reporting burdens on recipients by simplifying  reporting instructions and providing a user-friendly mechanism for  submitting required data; OMB will be testing this system in July. This  latest guidance attempts to address these concerns through additional  details and clarification of previous guidance.
subsections: section_title: Guidance on Job Creation and Job Retention
paragraphs: In its June 22 guidance, OMB endeavors to (1) dispel some of the  confusion related to reporting on jobs created and retained versus the  macroeconomic impact of the Recovery Act, (2) clarify which recipients of  Recovery Act funds are required to report under the act, and (3) provide  additional detail on how to calculate jobs created and retained. The new  guidance articulates once again that under the Recovery Act, there are two  distinct types of job reports. First, the Council of Economic Advisers  (CEA), in consultation with OMB and the Department of the Treasury, is  required to submit quarterly reports to Congress that detail the impact of  programs funded through the Recovery Act on employment, economic  growth, and other key economic indicators. In order to fulfill this mandate,  CEA has developed macroeconomic methodologies to estimate  employment effects for both the national and state levels. These macro- level employment estimates will attempt to capture the full employment  impact of the Recovery Act. OMB and federal agencies will coordinate  with CEA on these quarterly reports and other questions regarding macro- level jobs estimates.
The second type of job report is part of the “recipient reports” required  under section 1512 of the Recovery Act. Specifically, section 1512(c)(3)(D)  requires recipients of Recovery Act funds to report an estimate of the  direct jobs created or retained by the Recovery Act project or activity.  These reporting requirements apply only to nonfederal recipients of  funding, including all entities receiving Recovery Act funds directly from  the federal government such as state and local governments, private  companies, educational institutions, nonprofits, and other private  organizations. However, the recipient reporting requirement only covers a  defined subset of the Recovery Act’s funding. OMB’s guidance, consistent  with the statutory language in the Recovery Act, states that these reporting  requirements apply to recipients who receive funding through  discretionary appropriations, not recipients receiving funds through  entitlement programs, such as Medicaid, or tax programs. Recipient  reporting also does not apply to individuals. These reports are to provide  information on direct job creation and retention, and OMB expects they  will be useful in the overall estimation and evaluation of the employment  effects of the Recovery Act, such as the employment reporting undertaken  by CEA.
The OMB guidance also clarifies that recipients of Recovery Act funds are  required to report only on jobs directly created or retained by Recovery  Act-funded projects, activities, and contracts. Recipients are not expected  to report on the employment impact on materials suppliers (“indirect”  jobs) or on the local community (“induced” jobs). According to OMB,  recipients are to report only direct jobs because they may not have  sufficient insight or consistent methodologies for reporting indirect or  induced jobs. OMB notes this broader view of the overall employment  impact of the Recovery Act will be covered in the estimates generated by  CEA using a macro-economic approach. According to CEA, it will consider  the direct jobs created and retained reported by recipients to supplement  its analysis.
The new OMB guidance also provides additional instruction on how to  estimate the number of jobs created and retained by Recovery Act  funding. The guidance explains that the number of jobs created or retained  should be expressed as “full-time equivalents” (FTE), which is calculated  as total hours worked in jobs funded by the Recovery Act divided by the  number of hours in a full-time schedule, as defined by the recipient. This  calculation is designed to increase consistency in reported data by  converting part-time and temporary jobs into FTE-jobs. By doing so, it  seeks to avoid overstating the number of jobs that could occur through  other methods or reporting of part-time, partial-time, or nonpermanent  jobs.
The new guidance restates from earlier guidance the definitions of jobs  created and jobs retained. According to OMB guidance, a job created is a  new position created and filled or an existing unfilled position that is filled  as a result of the Recovery Act; a job retained is an existing position that  would have been eliminated were it not for Recovery Act funding. A job  cannot be counted as both created and retained, and only compensated  employment in the United States should be counted.
OMB’s guidance for reporting on job creation aims to shed light on the  immediate uses of Recovery Act funding; however, reports from recipients  of Recovery Act funds must be interpreted with care. For example,  accurate, consistent reports will only reflect a portion of the likely impact  of the Recovery Act on national employment, since Recovery Act  resources are also made available directly through tax cuts and benefit  payments.
section_title: Recipient Data Reporting Model
paragraphs: Some of the questions and concerns raised by state and local officials  about the recipient reporting requirements centered on the reporting  logistics and information technology requirements. For example,  California and District of Columbia officials said they were awaiting final  guidance on the data standards before finalizing their reporting  approaches. Officials from several states said they modified, or are  assessing whether they can modify, existing reporting systems for  Recovery Act reporting. The new OMB guidance should answer many of  these questions as it describes in detail the reporting model to be used for  recipient reporting. The information reported by all prime recipients (and  subrecipients to which the prime recipient has delegated reporting  responsibility) will be submitted through www.federalreporting.gov, an  online Web portal designed to collect all Recovery Act recipient reports.  All recipient reports will be made available on www.recovery.gov and, as  appropriate, on individual federal agency recovery Web sites.
The guidance also provides documentation of the data model for recipient  reporting that includes a reporting template, a data dictionary, and an  Extensible Markup Language (XML) schema for electronic data  submissions. The reporting template is a simple spreadsheet table that  enables manual data entry and collection of recipient reporting  information in a familiar spreadsheet format. The data dictionary  describes the data elements specifically required for recipient reporting  under the Recovery Act.
Our initial assessment of the technical specifications and framework of the  recipient reporting model suggests that this is a reasonable approach. The  pilot testing scheduled for July will provide additional information about  potential technical and reporting challenges. It is likely that there will be  challenges associated with data quality, including timeliness and  completeness of submissions as well as the technical ability of some  recipients to develop solutions (including processes and procedures) for  capturing, tracking, and submitting the required data on a consistent basis.  We will continue to monitor and assess OMB’s recipient reporting model  and July pilot test.
section_title: OMB Requires Agencies to Measure Program Performance beyond Jobs Created and Retained
paragraphs: OMB guidance described recipient reporting requirements under the  Recovery Act’s section 1512 as the minimum that must be collected,  leaving it to federal agencies to determine additional information that  would be required for oversight of individual programs. OMB has  instructed federal agencies to develop formal documented plans for how  Recovery Act funds will be used and managed that are consistent with  sound program management principles. According to the guidance,  agencies must describe how they are coordinating broad Recovery Act  efforts toward successful implementation and monitoring of performance  and results in a comprehensive “agency plan.” Officials from some states  indicated they would use existing program indicators and, in some cases,  build on these indicators to measure performance. Officials also expressed  a desire for additional guidance from federal agencies on what  performance measures to use.
As instructed by OMB, each Recovery Act federal agency plan must  describe the program’s Recovery Act objectives and relationships with  corresponding goals and objectives through ongoing agency programs and  activities. OMB states that expected public benefits should demonstrate  cost-effectiveness and be clearly stated in concise, clear, and plain  language targeted to an audience with no in-depth knowledge of the  program. Furthermore, OMB guidance states that, to the extent possible,  Recovery Act goals should be expressed in the same terms as programs’  goals in federal departmental strategic plans, and agencies should  instruct recipients to collect and report performance information to the  extent possible as part of their quarterly submissions. The objective is to  use existing measures to allow the public to see the marginal performance  impact of Recovery Act investments. Some state program officials have  said that they do plan to use existing program performance measures. For  example, public housing agencies told us they regularly track the budget  control, timeliness, and quality of work of projects they fund and that they  plan to continue using these measures with Recovery Act-funded projects.  Some other performance measures public housing agencies typically track  include tenant satisfaction, occupancy rates, crime rates, and employment  among residents.
Some states are issuing guidance and modifying their information systems  to capture and report on jobs created and retained, but many state and  local officials expressed concern about the lack of clear guidance on what  other program or impact measures are required for evaluating the impact  of Recovery Act funding. Some federal agencies have issued such  additional guidance, but others have not. For example, the Department of  Transportation (DOT) through the Federal Highway Administration  (FHWA) has provided guidance specifying the data to be reported when  complying with the requirements in section 1201(c) of division A of the  Recovery Act, which stipulates, among other requirements, that each  highway infrastructure grant recipient submit periodic reports on the use  of the funds. For example, California state transportation officials said that  contractors will be required to report on the number of workers and  payroll amounts on a monthly basis to the California Department of  Transportation. The state office will then provide the data to the FHWA  California division office, which will provide it to FHWA headquarters.  DOT said that grantees will not be expected to estimate employment data  other than the direct on-site jobs and noted that the reporting to FHWA is  in addition to the recipient reporting to OMB. DOT economists in  coordination with CEA plan to compute the number of indirect jobs and  induced jobs using direct on-site job data provided by the state  transportation departments.
OMB guidance also states that federal agencies must have a process in  place for senior managers to regularly review the progress and  performance of major programs. To achieve this objective, OMB has  encouraged federal agencies to leverage their existing Senior Management  Councils to oversee Recovery Act performance. OMB states that the  councils should review Recovery Act reporting and performance across  each agency; establish and oversee development and implementation of  agency guidance to identify and mitigate risk; and ensure the correction of  weaknesses relating to the Recovery Act. According to OMB, the councils  should analyze findings and results from quarterly or monthly  performance reviews, coordinated by the agency’s Performance  Improvement Officer, to help determine the highest-risk program areas  and ensure corrective actions are implemented.
section_title: OMB’s Recipient Reporting Implementing Guidance Addresses Some Concerns, but Additional Instruction on Reporting May Be Needed
paragraphs: OMB’s new guidance on the implementation of recipient reporting should  be helpful in addressing answers to many of the questions and concerns  raised by state and local program officials. However, a number of the  issues were covered in previous guidance, and some concerns remain. For  example, the counting of part-time employment was covered to some  extent in previous guidance but continued to be mentioned by officials in  some states. Overall, state and local officials were clearly aware of the  requirements to report on jobs created and jobs retained, but questions  persist on how to do this. For example, public housing agencies reported  they have not received guidance from HUD on how to measure jobs  created and retained or other performance measures. Most public housing  agency officials told us they would like guidance on how to accomplish  these objectives. Similarly, Education officials noted that draft OMB  guidance on recipient reporting would require some additional Education  guidance to clarify issues for recipients of formula grants, such as special  education IDEA grants.
In sum, federal agencies may need to do a better job of communicating the  OMB guidance in a timely manner to their state counterparts and, as  appropriate, issue clarifying guidance on required performance  measurement. In particular, while any additional guidance for recipients  must be in accordance with OMB guidance, OMB could work with federal  agencies to provide program-specific examples about how to count jobs  created and jobs retained. This would be especially helpful for programs  that have not previously tracked and reported such metrics, such as with  public housing and special education grants. Other channels to educate  state and local program officials on the reporting requirements could be  considered, including Web- or telephone-based information sessions or  other forums.
section_title: Concluding Observations and Recommendations
paragraphs: Since enactment of the Recovery Act in February 2009, OMB has issued  three sets of guidance—on February 18, April 3 and, most recently, June  22, 2009 —to announce spending and performance reporting  requirements to assist prime recipients and subrecipients of federal  Recovery Act funds to comply with these requirements. OMB has reached  out to Congress, federal, state, and local government officials, grant and  contract recipients, and the accountability community to get a broad  perspective on what is needed to meet the high expectations set by  Congress and the administration. Further, according to OMB’s June  guidance, OMB has worked with the Recovery Accountability and  Transparency Board to deploy a nationwide data collection system at  www.federalreporting.gov.
As work proceeds on the implementation of the Recovery Act, OMB and  the cognizant federal agencies have opportunities to build on the early  efforts by continuing to address several important issues.
These issues can be placed broadly into three categories, which have been  revised from our last report to better reflect evolving events since April:  (1) accountability and transparency requirements, (2) reporting on impact,  (3) communications and guidance.
subsections: section_title: Accountability and Transparency Requirements
paragraphs: Recipients of Recovery Act funding face a number of implementation  challenges in this area. The act includes new programs and significant  increases in funds out of normal cycles and processes. There is an  expectation that many programs and projects will be delivered faster so as  to inject funds into the economy, and the administration has indicated its  intent to assure transparency and accountability over the use of Recovery  Act funds. Issues regarding the Single Audit process and administrative  support and oversight are important.
Single Audit: The Single Audit process needs adjustments to provide  appropriate risk-based focus and the necessary level of accountability over  Recovery Act programs in a timely manner.
In our April 2009 report, we reported that the guidance and criteria in  OMB Circular No. A-133 do not adequately address the substantial added  risks posed by the new Recovery Act funding. Such risks may result from  (1) new government programs, (2) the sudden increase in funds or  programs that are new to the recipient entity, and (3) the expectation that  some programs and projects will be delivered faster so as to inject funds  into the economy. With some adjustment, the Single Audit could be an  effective oversight tool for Recovery Act programs because it can address  risks associated with all three of these factors.
April report recommendations: Our April report included  recommendations that OMB adjust the current audit process to focus the  risk assessment auditors use to select programs to test for compliance  with 2009 federal program requirements on Recovery Act funding; provide  for review of the design of internal controls during 2009 over programs to  receive Recovery Act funding, before significant expenditures in 2010; and  evaluate options for providing relief related to audit requirements for low- risk programs to balance new audit responsibilities associated with the  Recovery Act.
Status of April report recommendations: OMB has taken some actions  and has other planned actions to help focus the program selection risk  assessment on Recovery Act programs and to provide guidance on  auditors’ reviews of internal controls for those programs. However, we  remain concerned that OMB’s planned actions would not achieve the level  of accountability needed to effectively respond to Recovery Act risks and  does not provide for timely reporting on internal controls for Recovery Act  programs. Therefore, we are re-emphasizing our previous  recommendations in this area.
To help auditors with single audit responsibilities meet the increased  demands imposed on them by Recovery Act funding, we recommend that  the Director of OMB take the following four actions:    Develop requirements for reporting on internal controls during 2009  before significant Recovery Act expenditures occur as well as ongoing  reporting after the initial report.
Provide more focus on Recovery Act programs through the Single Audit to  help ensure that smaller programs with high risk have audit coverage in  the area of internal controls and compliance.
Evaluate options for providing relief related to audit requirements for low- risk programs to balance new audit responsibilities associated with the  Recovery Act.
To the extent that options for auditor relief are not provided, develop  mechanisms to help fund the additional Single Audit costs and efforts for  auditing Recovery Act programs.
Administrative Support and Oversight: States have been concerned  about the burden imposed by new requirements, increased accounting and  management workloads, and strains on information systems and staff  capacity at a time when they are under severe budgetary stress.
April report recommendation: In our April report, we recommended  that the Director of OMB 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.
Status of April report recommendation: On May 11, 2009, OMB  released a memorandum clarifying how state grantees could recover  administrative costs of Recovery Act activities.
section_title: Matter for Congressional Consideration
paragraphs: Because a significant portion of Recovery Act expenditures will be in the  form of federal grants and awards, the Single Audit process could be used  as a key accountability tool over these funds. However, the Single Audit  Act, enacted in 1984 and most recently amended in 1996, did not  contemplate the risks associated with the current environment where  large amounts of federal awards are being expended quickly through new  programs, greatly expanded programs, and existing programs. The current  Single Audit process is largely driven by the amount of federal funds  expended by a recipient in order to determine which federal programs are  subject to compliance and internal control testing. Not only does this  model potentially miss smaller programs with high risk, but it also relies  on audit reporting 9 months after the end of a grantee’s fiscal year—far too  late to pre-emptively correct deficiencies and weaknesses before  significant expenditures of federal funds. Congress is considering a  legislative proposal in this area and could address the following issues:    To the extent that appropriate adjustments to the Single Audit process are  not accomplished under the current Single Audit structure, Congress  should consider amending the Single Audit Act or enacting new legislation  that provides for more timely internal control reporting, as well as audit  coverage for smaller Recovery Act programs with high risk.
To the extent that additional audit coverage is needed to achieve  accountability over Recovery Act programs, Congress should consider  mechanisms to provide additional resources to support those charged with  carrying out the Single Audit Act and related audits.
section_title: Reporting on Impact
paragraphs: Under the Recovery Act, 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 identifying the degree to which  Recovery Act goals are achieved.
Performance reporting is broader than the jobs reporting required under  section 1512 of the Recovery Act.  OMB guidance requires that agencies  collect and report performance information consistent with the agency’s  program performance measures. As described earlier in this report, some  agencies have imposed additional performance measures on projects or  activities funded through the Recovery Act.
April report recommendation: In our April report, we recommended  that 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 (1) assess jobs  created and retained from projects funded by the Recovery Act; (2)  determine the impact of Recovery Act spending when job creation is  indirect; (3) 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 and consider whether the approaches taken to  estimate jobs created and jobs retained in these cases can be replicated or  adapted to other programs.
Status of April report recommendation: OMB has been meeting on a  regular basis with state and local officials, federal agencies, and others to  gather input on reporting requirements and implementation guidance and  has worked with the Recovery Accountability and Transparency Board on  a nationwide data collection system.  On June 22, OMB issued additional  implementation guidance on recipient reporting of jobs created and  retained.  This guidance is responsive to much of what we said in our April  report.  It states that there are two different types of jobs reports under the  Recovery Act and clarifies that recipient reports are to cover only direct  jobs created or retained.  “Indirect” jobs (employment impact on  suppliers) and “induced” jobs (employment impact on communities) will  be covered in Council of Economic Advisers (CEA) quarterly reports on  employment, economic growth, and other key economic indicators.   Consistent with the statutory language of the act, OMB’s guidance states  that these recipient reporting requirements apply to recipients who receive  funding through discretionary appropriations, not to those receiving funds  through either entitlement or tax programs. These reporting requirements  also do not apply to individuals.  It clarifies that the prime recipient and  not the subrecipient is responsible for reporting section 1512 information  on jobs created or retained to the federal government. The June 2009  guidance also provides detailed instructions on how to calculate and  report jobs as full-time equivalents (FTE).  It also describes in detail the  data model and reporting system to be used for the required recipient  reporting on jobs.
The guidance provided for reporting job creation aims to shed light on the  immediate uses of Recovery Act funding and is reasonable in that context.   It will be important, however, to interpret the recipient reports with care.   As noted in the guidance, these reports are only one of the two distinct  types of reports seeking to describe the jobs impact of the Recovery Act.  CEA's quarterly reports will cover the impact on employment, economic  growth, and other key economic indicators.  Further, the recipient reports  will not reflect the impact of resources made available through tax  provisions or entitlement programs.
Recipients are required to report no later than 10 days after the end of the  calendar quarter.  The first of these reports is due on October 10, 2009.   After prime recipients and federal agencies perform data quality checks,  detailed recipient reports are to be made available to the public no later  than 30 days after the end of the quarter. Initial summary statistics will be  available on www.recovery.gov.  The guidance explicitly does not mandate  a specific methodology for conducting quality reviews.  Rather, federal  agencies are directed to coordinate the application of definitions of  material omission and significant reporting error to “ensure consistency”  in the conduct of data quality reviews.  Although recipients and federal  agency reviewers are required to perform data quality checks, none are  required to certify or approve data for publication. It is unclear how any  issues identified under data quality reviews would be resolved and how  frequently data quality problems would have been identified in the  reviews.  GAO will continue to monitor this data quality and recipient  reporting requirements.
Our recommendations: To increase consistency in recipient reporting or  jobs created and retained, the Director of OMB should work with federal  agencies to have them provide program-specific examples of the  application of OMB’s guidance on recipient reporting of jobs created and  retained.  This would be especially helpful for programs that have not  previously tracked and reported such metrics.
Because performance reporting is broader than the jobs reporting required  by section 1512, the Director of OMB should also work with federal  agencies—perhaps through the Senior Management Councils—to clarify  what new or existing program performance measures—in addition to jobs  created and retained—that recipients should collect and report in order to  demonstrate the impact of Recovery Act funding.
In addition to providing these additional types of program-specific  examples of guidance, the Director of OMB should work with federal  agencies to use other channels to educate state and local program officials  on reporting requirements, such as Web- or telephone-based information  sessions or other forums.
section_title: Communications and Guidance
paragraphs: Financial funding and program guidance: 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 easily accessible, real-time  procedure for ensuring that appropriate officials in states and localities  are notified. Because half of the estimated spending programs in the  Recovery Act will be administered by nonfederal entities, states wish to be  notified when funds are made available to them for their use as well as  when funding is received by other recipients within their state that are not  state agencies.
OMB does not have a master timeline for issuing federal agency guidance.  OMB’s preferred approach is to issue guidance incrementally. This  approach potentially produces a more timely response and allows for mid- course corrections; however, this approach also creates uncertainty  among state and local recipients responsible for implementing programs.  We continue to believe that OMB can strike a better balance between  developing timely and responsive guidance and providing a long range  time line that gives some structure to state and localities’ planning efforts.   We appreciate that the timeline will almost certainty be modified over time  as new issues emerge that require additional guidance and clarification.
April report recommendation: In our April report, we recommended  that 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 statewide interest in this information—and (3) all nonfederal  recipients on planned releases of federal agency guidance and, if known,  whether additional guidance or modifications are recommended.
Status of April recommendation: OMB has made important progress in  the type and level of information provided in its reports on Recovery.gov.  Nonetheless, OMB has additional opportunities to more fully address the  recommendations we made in April.  By providing a standard format  across disparate programs, OMB has improved its Funding Notification  reports, making it easier for the public to track when funds become  available.  Agencies update their Funding Notification reports for each  program individually whenever they make funds available.  Both reports  are available on www.recovery.gov.  OMB has taken the additional step of  disaggregating financial information, i.e., federal obligations and outlays  by Recovery Act programs and by state in its Weekly Financial Activity  Report.
Our recommendation: The Director of OMB should continue to develop  and implement an approach that provides easily accessible, real-time  notification to (1) prime recipients in states and localities when funds are  made available for their use, and (2) states—where the state is not the  primary recipient of funds but has a statewide interest in this information.   In addition, OMB should provide a long range time line for the release of  federal guidance for the benefit of nonfederal recipients responsible for  implementing Recovery Act programs.
Recipient financial tracking and reporting guidance: In addition to  employment related reporting, OMB’s guidance calls for the tracking of  funds by the prime recipient, recipient vendors, and subrecipients  receiving payments. OMB’s guidance also allows that a “prime recipients  may delegate certain reporting requirements to subrecipients.”  Either the  prime or sub-recipient must report the D-U-N-S number (or an acceptable  alternative) for any vendor or sub-recipient receiving payments greater  than $25 thousand. In addition, the prime recipient must report what was  purchased and the amount, and a total number and amount for sub-awards  of less than $25 thousand.  By reporting the DUNS number, OMB guidance  provides a way to identify subrecipients by project, but this alone does not  ensure data quality.
The approach to tracking funds is generally consistent with the Federal  Funding Accountability and Transparency Act (FFATA). Like the Recovery  Act, the FFATA requires a publicly available Web site— www.USAspending.gov—to report financial information about entities  awarded federal funds.  Yet, significant questions have been raised about  the reliability of the data on USAspending.gov, primarily because what is  reported by the prime recipients is dependent on the unknown data quality  and reporting capabilities of their subrecipients.
For example, earlier this year, more than 2 years after passage of FFATA,  the Congressional Research Service (CRS) questioned the reliability of the  data on USAspending.gov.  We share CRS’s concerns associated with  USAspending.gov, including incomplete, inaccurate, and other data quality  problems.  More broadly, these concerns also pertain to recipient financial  reporting in accordance with the Recovery Act and its federal reporting  vehicle, www.FederalReporting.gov, currently under development.
Our recommendation: To strengthen the effort to track the use of funds,  the Director of OMB should (1) clarify what constitutes appropriate quality  control and reconciliation by prime recipients, especially for subrecipient  data, and (2) specify who should best provide formal certification and  approval of the data reported.
Agency-specific guidance: DOT and FHWA have yet to provide clear  guidance regarding how states are to implement the Recovery Act  requirement that economically distressed areas (EDA) are to receive  priority in the selection of highway projects for funding.  We found  substantial variation both in how states identified areas in economic  distress and how they prioritized project selection for these areas.  As a  result, it is not clear whether areas most in need are receiving priority in  the selection of highway infrastructure projects, as Congress intended.   While it is true that states have discretion in selecting and prioritizing  projects, it is also important that this goal of the Recovery Act be met.
Our recommendation: To ensure states meet Congress’s direction to give  areas with the greatest need priority in project selection, the Secretary of  Transportation should develop clear guidance on identifying and giving  priority to economically distressed areas that are in accordance with the  requirements of the Recovery Act and the Public Works and Economic  Development Act of 1965, as amended, and more consistent procedures  for the Federal Highway Administration to use in reviewing and approving  states’ criteria.
section_title: Agency Comments and Our Evaluation
paragraphs: We received comments on a draft of this report from the Office of  Management and Budget (OMB) and the U.S. Department of  Transportation (DOT) on our report recommendations.
subsections: section_title: Office of Management and Budget
paragraphs: OMB concurs with the overall objectives of GAO’s recommendations made  to OMB in this report.  OMB offered clarifications regarding the area of  Single Audit and did not concur with some of GAO’s conclusions related to  communications.  What follows summarizes OMB’s comments and our  responses.
subsections: section_title: Single Audit Act
paragraphs: OMB agreed with the overall objectives of GAO’s recommendations and  offered clarifications regarding the areas of Single Audit. OMB also noted  it believes that the new requirements for more rigorous internal control  reviews will yield important short-term benefits and the steps taken by  state and local recipients to immediately initiate controls will withstand  increased scrutiny later in the process.
OMB commented that it has already taken and is planning actions to focus  program selection risk assessment on Recovery Act programs and to  increase the rigor of state/local internal controls on Recovery Act  activities.  However, our report points out that OMB has not yet completed  critical guidance in these areas.  Unless OMB plans to change the risk  assessment process conducted for federal programs under Circular A-133,  smaller, but significantly risky programs under the Recovery Act may not  receive adequate attention and scrutiny under the Single Audit process.
OMB acknowledged that acceleration of internal control reviews could  cause more work for state auditors, for which OMB and Congress should  explore potential options for relief. This is consistent with the  recommendations we make in this report.  OMB also noted that our draft  report did not offer a specific recommendation for achieving acceleration  of internal control reporting.  Because there are various ways to achieve  the objective of early reporting on internal controls, we initially chose not  to prescribe a specific method; however, such accelerated reporting could  be achieved in various ways.  For instance, OMB could require specific  internal control certifications from federal award recipients meeting  certain criteria as of a specified date, such as December 31, 2009, before  significant Recovery Act expenditures occur.  Those certifications could  then be reviewed by the auditor as part of the regular single audit process.   Alternatively, or in addition, OMB could require that the internal control  portion of the single audit be completed early, with a report submitted 60  days after the recipient’s year end.  We look forward to continuing our  dialog with OMB on various options available to achieve the objective of  early reporting on internal controls.   We will also continue to review  OMB’s guidance in the area of single audits as such guidance is being  developed.
section_title: Communications
paragraphs: OMB has made important progress relative to some communications. In  particular, we agree with OMB’s statements that it requires agencies to  post guidance and funding information to agency Recovery Act websites,  disseminates guidance broadly, and seeks out and responds to stakeholder  input. In addition, OMB is planning a series of interactive forums to offer  training and information to Recovery Act recipients on the process and  mechanics of recipient reporting and they could also serve as a vehicle for  additional communication. Moving forward and building on the progress it  has made, OMB can take the following additional steps related to funding  notification and guidance.
First, OMB should require direct notification to key state officials when  funds become available within a state. OMB has improved Funding  Notification reports by providing a standard format across disparate  programs, making it easier for the public to track when funds become  available.  However, it does not provide an easily accessible, real-time  notification of when funds are available.  OMB recognized the shared  responsibilities of federal agencies and states in its April 3, 2009 guidance  when it noted that federal agencies should expect states to assign a  responsible office to oversee data collection to ensure quality,  completeness, and timeliness of data submissions for recipient reporting.  In return, states have expressed a need to know when funds flow into the  state regardless of which level of government or governmental entity  within the state receives the funding so that they can meet the  accountability objectives of the Recovery Act. We continue to recommend  more direct notification to (1) prime recipients in states and localities  when funds are made available for their use, and (2) states-where the state  is not the primary recipient of funds but has a statewide interest in this  information.
Second, OMB should provide a long range time line for the release of  federal guidance. In an attempt to be responsive to emerging issues and  questions from the recipient community, OMB’s preferred approach is to  issue guidance incrementally. This approach potentially produces a more  timely response and allows for mid-course corrections; however, this  approach also creates uncertainty among state and local recipients. State  and local officials expressed concerns that this incremental approach  hinders their efforts to plan and administer Recovery Act programs. As a  result, we continue to believe OMB can strike a better balance between  developing timely and responsive guidance and providing some degree of  a longer range time line so that states and localities can better anticipate  which programs will be affected and when new guidance is likely to be  issued. OMB’s consideration of a master schedule and its  acknowledgement of the extraordinary proliferation of program guidance  in response to Recovery Act requirements seem to support a more  structured approach. We appreciate that a longer range time line would  need to be flexible so that OMB could also continue to issue guidance and  clarifications in a timely manner as new issues and questions emerge.
OMB also offered suggestions for several technical clarifications which we  have made when appropriate.
section_title: U.S. Department of Transportation
paragraphs: DOT generally agreed to consider the recommendation that it develop  clear guidance on identifying and giving priority to economically  distressed areas and more consistent procedures for reviewing and  approving states’ criteria.  As discussed in the highways section of this  report, in commenting on a draft of this report, DOT agreed that states  must give priority to projects located in economically distressed areas  (EDAs), but said that states must balance all the Recovery Act project  selection criteria when selecting projects including giving preference to  activities that can be started and completed expeditiously, using funds in a  manner that maximizes job creation and economic benefit, and other  factors. While we agree with DOT that there is no absolute primacy of  EDA projects in the sense that they must always be started first, the  specific directives in the act that apply to highway infrastructure are that  priority is to be given to projects that can be completed in 3 years, and are  located in EDAs.  DOT also stated that the basic approach used by  selected states to apply alternative criteria is consistent with the Public  Works and Economic Development Act and its implementing regulations  on EDAs because it makes use of flexibilities provided by the Public  Works Act to more accurately reflect changing economic conditions.  However the result of DOT’s interpretation would be to allow states to  prioritize projects based on criteria that are not mentioned in the highway  infrastructure investment portion of the Recovery or the Public Works  Acts without the involvement of the Secretary or Department of  Commerce. We plan to continue to monitor states’ implementation of the  EDA requirements and interagency coordination at the federal level in  future reports.
We are sending copies of this report to the Office of Management and  Budget and the Department of Transportation, as well as sections of the  report to officials of the 16 states and the District covered in our review.  The report will also be available at no charge on the GAO Web site at  http://www.gao.gov.
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 IV.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This appendix describes our objectives, scope, and methodology (OSM)  for this second report on our bimonthly reviews on the Recovery Act. A  detailed description of the criteria used to select the core group of 16  states and the District of Columbia (District) and programs we reviewed is  found in appendix I of our April 2009 Recovery Act bimonthly report.
subsections: section_title: Objectives and Scope
paragraphs: 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  assess (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 have received to date.
Our teams visited the 16 selected states, the District, and a non-probability  sample of 178 localities during May and June 2009. As described in our  previous Recovery Act report’s OSM, our teams met again with a variety of  state and local officials from executive-level and program offices. During  discussions with state and local officials, teams used a series of program  review and semistructured interview guides that addressed state plans for  management, tracking, and reporting of Recovery Act funds and activities.  We also reviewed state constitutions, statutes, legislative proposals, and  other state legal materials for this report. Where attributed, we relied on  state officials and other state sources for description and interpretation of  state legal materials. Appendix II details the states and localities visited by  GAO. Criteria used to select localities within our selected states follow.
section_title: States’ and Localities’ Uses of Recovery Act Funds
paragraphs: Using criteria described in our last bimonthly report, we selected the  following streams of Recovery Act funding flowing to states and localities  for review during this report: increased Medicaid Federal Medical  Assistance Percentage (FMAP) grant awards; the Federal-Aid Highway  Surface Transportation Program; the State Fiscal Stabilization Fund  (SFSF); Title I, Part A of the Elementary and Secondary Education Act of  1965 (ESEA); Parts B and C of the Individuals with Disabilities Education  Act (IDEA); the Workforce Investment Act (WIA) Youth program; the  Public Housing Capital Fund; Edward Byrne Memorial Justice Assistance  Grant (JAG) Program, and the Weatherization Assistance Program.  Together, these nine programs are estimated to account for approximately  87 percent of federal Recovery Act outlays to states and localities in fiscal  year 2009. We also reviewed how Recovery Act funds are being used by  states to stabilize their budgets. In addition, we analyzed  www.recovery.gov data on federal spending.
subsections: section_title: Medicaid Federal Medical Assistance Percentage
paragraphs: For the FMAP grant awards, we again relied on our web-based inquiry,  asking the 16 states and the District to update information they had  previously provided to us 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 also reviewed states’  Single Audit results for 2007 and, where available, for 2008, to identify  material weaknesses related to the Medicaid programs in the 16 states and  the District. In interviews with Medicaid officials from all the sample  states and the District, we obtained additional information regarding  states’ efforts to comply with the provisions of the Recovery Act, as well  as states’ responses to material weaknesses identified in their Single  Audits. We spoke with individuals from the Centers for Medicare &  Medicaid Services (CMS) regarding their oversight and guidance to states,  their FMAP grant awards, and funds drawn down by states.
section_title: Federal-Aid Highway Surface Transportation Program
paragraphs: For highway infrastructure investment, we reviewed status reports and  guidance to the states and discussed these with the U.S. Department of  Transportation (DOT) and Federal Highway Administration (FHWA)  officials. We obtained data from FHWA on obligations and  reimbursements for the Recovery Act’s highway infrastructure funds  nationally and for each of our selected states. We selected two projects in  every state that were furthest along—for example, projects under  construction or out for bid. In selecting projects, we attempted to select a  mix of projects, including projects that were in and outside of  economically distressed areas; projects administered by the state and  locally administered projects; projects in urban and rural areas; and  projects requiring various amounts of funding—both large and small. To  obtain information on the impact certain requirements associated with  highway funding were having on states, we selected three states—New  Jersey, Arizona, and Mississippi—because we did not include these states  in the scope of our previous report on this issue and because they have  varying environmental planning and labor environments. For example,  according to the Council on Environmental Quality, New Jersey has a state  environmental planning law similar to the National Environmental Policy  Act (NEPA), while Arizona and Mississippi do not, and, according to the  Bureau of Labor Statistics, in 2008, union membership in New Jersey was  18.3 percent, while 8.8 percent of Arizona and 5.3 percent of Mississippi  workers were union members.
section_title: SFSF, ESEA Title I, and IDEA
paragraphs: To understand how the U.S. Department of Education is implementing the  SFSF, ESEA Title I, and IDEA under the Recovery Act, 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. Also, to understand the baseline data being used to demonstrate  states’ status related to the assurances states must make about education  reform in their SFSF applications, we interviewed Education officials  about the data being used and officials at organizations such as Achieve  and the Data Quality Campaign, which develop and assess the data.
We visited at least two school districts in each state covered by our review  to learn the districts’ plans for Recovery Act funds received for SFSF,  ESEA Title I, and IDEA. For our visits to school districts, in each state, we  selected from school districts that were among the top 10 recipients of  Recovery Act funds for the ESEA Title I program and, when possible,  included school districts with a high number of schools in improvement  and school districts in locales other than large cities. For our visits to  public institutions of higher education (IHE), we visited IHEs in Ohio and  North Carolina and the six states—California, Florida, Georgia, Illinois,  Mississippi, and New York—that had received approval of their  applications for State Fiscal Stabilization Funds from Education by the  time of our initial site visits in May 2009. For each state, we selected  among the largest, in terms of enrollment, public IHEs in the state that  would be receiving SFSF funds, including universities and community  colleges. In 3 states, we also visited some public historically black colleges  and universities.
section_title: WIA Youth Program
paragraphs: We reviewed the Recovery Act-funded WIA Youth program in 13 of our 16  states (all except Arizona, Colorado, and Iowa) and the District. We  focused on state and local efforts to provide summer youth employment  activities. To learn about the status of implementation, the use and  oversight of funds, and the challenges faced, we interviewed workforce  development officials in all 13 states and at least two local areas in each  state—for a total of 34 local areas—and the District. We also reviewed  relevant documents obtained from state and local officials. In addition, we  obtained and analyzed data from the Department of Labor on the amount  of Recovery Act WIA Youth funds allotted to, and drawn down by states,  and reviewed Labor’s guidance to states and local areas on Recovery Act  funds.
section_title: Public Housing Capital Fund
paragraphs: For Public Housing, we obtained data from HUD’s Electronic Line of  Credit and Control System on the amount of Recovery Act funds that have  been obligated and/or drawn down by each housing agency in the country,  as of June 20, 2009. To determine how housing agencies were using or  planning to use these funds, we selected a sample of 47 agencies in our  sample of 16 states and the District. At the selected agencies we  interviewed housing agency officials and conducted site visits of ongoing  or planned Recovery Act projects. GAO selected these locations to obtain  a mix of large, medium, and small housing agencies, housing agencies  designated as troubled performers by HUD, those to which HUD allocated  significant amounts of Recovery Act funding, and housing agencies that  had drawn down funds at the time of our selection. We also interviewed  HUD Headquarters officials in the District to understand their procedures  for monitoring housing agency use of Recovery Act Funds.
section_title: JAG Program
paragraphs: For our review of the JAG program, we reviewed relevant laws, federal  guidance, and states’ grant applications and award letters; interviewed  officials with the Department of Justice’s Office of Justice Programs and  Bureau of Justice Assistance; and interviewed officials from state  administering agencies that oversee the JAG program in their state. We  spoke with and reviewed documentation from Department of Justice  officials on the agency’s coordination with, guidance to, and oversight of  grant recipients. We interviewed state officials and reviewed relevant state  documentation to determine and clarify states’ plans for using JAG funds  awarded to the state and their progress in using and overseeing those  funds. We did not review JAG grants awarded directly to local  governments in this report because the Bureau of Justice Assistance’s  (BJA) solicitation for local governments closed on June 17; therefore, not  all of these funds have been awarded.
section_title: Weatherization Assistance Program
paragraphs: For the Weatherization Assistance Program, we reviewed relevant laws,  regulations, and federal guidance and interviewed Department of Energy  officials who administer the program at the federal level. We also  coordinated activities with officials from the department’s Office of  Inspector General. In addition, we conducted semistructured interviews  with officials in the states’ energy agencies that administer the  weatherization program. We collected data about each state’s total  allocation for weatherization through the Recovery Act, as well as the  initial allocation already sent to the states. We asked DOE officials about  their timetable for reviewing state energy plans and when they would  provide the next allocation to the states. Finally, we reviewed the state  weatherization plans to determine how each state intends to allocate their  funds and the outcomes they expect.
section_title: State Budget Stabilization
paragraphs: To better understand how states and the District are using Recovery Act  funds to stabilize government budgets, we reviewed enacted and proposed  state budgets and revenue estimates for state fiscal years 2008-2009 and  2009-2010. In addition, we reviewed reports and analysis regarding state  fiscal conditions. We interviewed state budget officials to determine how  states are using Recovery Act funds to avoid reductions in essential  services or tax increases and developing exit strategies to plan for the end  of Recovery Act funding. We also consulted with researchers and  associations representing state officials to better understand states’  current fiscal conditions.
section_title: Assessing States’ and Localities’ Safeguards and Internal Controls
paragraphs: To determine how states and localities are tracking the receipt of and use  of Recovery Act funds, the state and District teams asked cognizant  officials to describe the accounting systems and conventions being used to  execute transactions and to monitor and report on Recovery Act  expenditures. To determine the current internal control structure in states  and the District, we asked cognizant officials to describe and provide  relevant documentation about their current internal control program,  including risk assessment and monitoring. In addition, to assist in the  planning of the audit work, we provided the state and District teams, as  well as certain program teams, with available fiscal year 2008 Single Audit  summary information. Single Audit information was obtained from the  Federal Audit Clearinghouse (FAC) Single Audit data collection forms and  the Single Audit reports. We discussed with relevant OMB officials the  Single Audit reports and guidance. We also analyzed how OMB was  addressing the recommendations related to the Single Audit in the April  2009 Recovery Act report. We also asked auditors to address how they  were monitoring and overseeing the Recovery Act.
section_title: Efforts to Assess Impact of Recovery Act Spending
paragraphs: To understand the reporting requirements on the impact of the Recovery  Act, we reviewed the guidance issued by OMB on February 18, April 3, and  June 22, 2009, as well as selective federal agency guidance related to  grants and to states and localities. We also interviewed selected state,  District, and local officials to understand their views of agency and OMB  guidance for reporting on implementation of the Recovery Act, as well as  about their plans to provide assessment data required by Section 1512.
section_title: Data and Data Reliability
paragraphs: We collected funding data from www.recovery.gov and federal agencies  administering Recovery Act programs for the purpose of providing  background information. We used funding data from www.recovery.gov— which is overseen by the Recovery Accountability and Transparency  Board—because it is the official source for Recovery Act spending. We  collected data on states’ and localities’ plans, uses, and tracking of  Recovery Act funds during interviews and follow-up meetings with state  and local officials. In addition, we used data collected from state and local  officials to report the amount of Recovery Act funding received by states  and localities thus far. Based on a preliminary and limited examination of  this information, we consider these data sufficiently reliable with  attribution to official sources for the purposes of providing background  information on Recovery Act funding for this report. Our sample of  selected states and localities is not a random selection and therefore  cannot be generalized to the total population of state and local  governments.
We conducted this performance audit from April 21, 2009, to July 2, 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.
section_title: Appendix II: Comments from the Office of Management and Budget
section_title: Appendix III: Localities
paragraphs: Local school districts: Title I-LEA, IDEA, State  Fiscal Stabilization Fund   Phoenix Elementary School District No.1  Phoenix Union High School District No. 210  Mesa Unified School District No. 4  Tucson Unified School District No. 1  Imagine Charter Elementary at Desert West Inc.
section_title: Appendix IV: GAO Contacts and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: The following staff contributed to this report: Stanley Czerwinski, Denise  Fantone, Susan Irving, and Yvonne Jones, (Directors); Thomas James,  James McTigue, and Michelle Sager, (Assistant Directors); and Allison  Abrams, David Alexander, Judith Ambrose, Peter Anderson, Lydia Araya,  Thomas Beall, Sandra Beattie, Jessica Botsford, Karen Burke, Richard  Cambosos, Ralph Campbell Jr., Virginia Chanley, Tina Cheng, Marcus  Corbin, Sarah Cornetto, Robert Cramer, Michael Derr, Helen Desaulniers,  Kevin Dooley, Holly Dye, Abe Dymond, Doreen Feldman, Alice Feldesman,  Michele Fejfar, Shannon Finnegan, Alexander Galuten, Ellen Grady,  Victoria Green, Brandon Haller, Anita Hamilton, Geoffrey Hamilton, Jackie  Hamilton, Tracy Harris, Barbara Hills, David Hooper, Bert Japikse, Stuart  Kaufman, Karen Keegan, Nancy Kingsbury, Judith Kordahl, Hannah Laufe,  Armetha Liles, John McGrail, Sarah McGrath, Jean McSween, Donna  Miller, Kevin Milne, Marc Molino, Susan Offutt, Sarah Prendergast, Brenda  Rabinowitz, Carl Ramirez, James Rebbe, Audrey Ruge, Sidney Schwartz,  Jena Sinkfield, John Smale Jr., Michael Springer, George Stalcup, Jonathan  Stehle, Andrew J. Stephens, Gloria Sutton, Barbara Timmerman, Crystal  Wesco, Michelle Woods, and Kimberly Young.
section_title: Program Contributors
section_title: Contributors to the Selected States and the District Appendixes