Recovery Act: Project Selection and Starts Are Influenced by Certain Federal Requirements and Other Factors
Published: 2010-02-10T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The American Recovery and Reinvestment Act of 2009 (Recovery Act) aims to stimulate the economy. It provided $787 billion in spending and tax provisions; more than a third of the money was slated for projects and activities, including construction and certain research projects. To implement a project using federal funds, agencies and funding recipients must comply with federal laws and regulations. GAO was asked to identify key federal requirements that apply to Recovery Act projects and to assess the extent to which (1) selected agencies have obligated and spent funds for Recovery Act projects and (2) federal requirements and other factors have affected, or are expected to affect, project selection and start dates. GAO requested data from 27 agencies that received appropriations under the act. We also spoke with officials responsible for implementing Recovery Act projects in 16 states and the District of Columbia, which together are estimated to receive about two-thirds of the intergovernmental federal assistance available under the act. We also spoke with organizations representing state and local officials and the private sector, as well as private sector contractors. Although GAO is not making recommendations in this report, these findings may be helpful in considering and designing legislation with similar objectives.
section_title: What GAO Found
paragraphs: As of December 31, 2009, the 27 federal agencies GAO reviewed had obligated a total of $194 billion (63 percent) of the approximately $309 billion that was appropriated by the Recovery Act for projects and activities, according to data provided by agency officials. By this date, the percentage of funds obligated ranged from nearly 100 percent for the National Endowment for the Arts ($50 million) to 18 percent for the Social Security Administration ($183 million). As of that same date, the agencies reported they had spent 20 percent ($61 billion) of their appropriated funds. However, according to agency officials, the amount reported as spent may not accurately reflect the amount of work done on a given project because payment for federal projects generally occurs after work is completed, and the recipient may not yet have submitted an invoice for payment. Some federal agency officials reported that certain federal requirements and other factors affected their ability to select and start Recovery Act projects. These include the following: (1) Davis-Bacon requirements. Four federal agencies--the Departments of Commerce, Energy, and Housing and Urban Development, and the Environmental Protection Agency--told us that Davis-Bacon requirements affected the timing of some of their Recovery Act projects. For example, the Department of Energy's Weatherization Assistance Program became subject to the Davis-Bacon requirements for the first time after having been previously exempt from those requirements. Thus, the Department of Labor had to determine the prevailing wages for weatherization workers in each county in the United States, a task it completed on September 3, 2009. Seven out of 16 states and the District of Columbia that GAO has been reviewing said that they had waited to begin weatherizing homes until the Department of Labor had determined county-by-county prevailing wage rates for their state. States used only a small percentage of their available funds in 2009, mostly because state and local agencies needed time to develop the infrastructures required for managing the significant increase in weatherization funding and for ensuring compliance with Recovery Act requirements, including Davis-Bacon requirements. (2) Buy American requirements. Five federal agencies--the Departments of Commerce, Education, Homeland Security, and Housing and Urban Development, as well as the Environmental Protection Agency--told us that Buy American provisions had affected their ability, or their grantees' ability, to select or start some Recovery Act projects. (3) The National Historic Preservation Act. Two federal agencies--the Departments of Commerce and Transportation--told us that this act affected the selection and start of projects. Federal agency officials also stated that factors other than federal requirements affected their ability to quickly select or start projects. These include (1) challenges associated with starting entirely new programs, (2) states' budgeting issues, such as difficulties in providing matching funds, (3) higher staff workloads because of the act, (4) seasonal issues or weather, and (5) lack of clarity on the meaning of "shovel-ready."

section_title: Letter
paragraphs: The American Recovery and Reinvestment Act of 2009 (Recovery Act) is  intended to promote economic recovery, make investments, and minimize  or avoid reductions in state and local government services. Enacted on  February 17, 2009, the act was a response to the economic recession at a  time when the jobless rate was approaching 8 percent. The Recovery Act  provided funding for a range of programs and specified that priority  should be given to certain infrastructure projects that could be completed  within 3 years. (The Administration referred to projects that can be  quickly initiated as “shovel-ready.”) In early 2009, the Congressional  Budget Office projected that the Recovery Act would increase  employment by between 1.2 million and 3.6 million jobs by the end of 2010  and estimated that its net cost would total approximately $787 billion from  2009 through 2019. Of that total, more than one-third comes from Division  A of the act, which provides substantial funding for, among other things,  projects and activities.
When implementing a project using federal funds, agencies and funding  recipients must typically comply with certain federal laws and regulations  that are intended to, among other things, ensure fair and open competition  and financial integrity, and protect the environment. These laws and  regulations typically include the following:    The Federal Acquisition Regulation (FAR) establishes uniform policies  and procedures for executive branch agencies to acquire goods and  services. Among its many objectives, the FAR strives to facilitate the  purchase of high-value products and services on a timely basis while  maintaining the public’s trust in the procurement process and fulfilling  public policy objectives. Generally, the FAR requires agencies to compete  contracts by, among other things, publishing a notice on the Federal  Business Opportunities Web site (a database of federal government  contracting opportunities), accepting bids from interested parties,  evaluating proposals, and awarding contracts. In addition, each federal  agency may institute agency-specific rules to better meet its procurement  objectives.
The National Environmental Policy Act (NEPA) establishes national  environmental policies and goals to ensure that federal agencies properly  consider environmental factors before deciding on a project. Under  NEPA, federal agencies evaluate the potential environmental effects of  projects they are proposing using an environmental assessment or, if  projects may significantly affect the environment, a more detailed  environmental impact statement.
The National Historic Preservation Act (NHPA) declares that the federal  government has a responsibility to expand and accelerate historic  preservation programs and activities in order to preserve the nation’s  historical and cultural foundations. The act requires that for all projects  receiving federal funding or a federal permit, federal agencies must take  into account the project’s effect on any historic site, building, structure, or  other object that is or can be listed on the National Historic Register.  Under the act and its implementing regulations, the agency must consult  with relevant federal, state, and tribal officials with regard to such a  project.
In addition, the Recovery Act outlines several specific statutory  requirements that agencies and funding recipients must comply with,  including the following:    Davis-Bacon requirements. The Davis-Bacon Act requires that  contractors and subcontractors pay workers the locally prevailing wages  on most federally funded construction projects, and it imposes several  administrative requirements relating to the payment of workers on  qualifying projects. The Recovery Act applies Davis-Bacon requirements  to all Recovery Act-funded projects, requiring contractors and  subcontractors to pay all laborers and mechanics at least the prevailing  wage rates in the local area where they are employed, as determined by  the Secretary of Labor. In addition, contractors are required to pay these  workers weekly and submit weekly certified payroll records, generally to  the contracting federal agency.
Buy American requirements. The Buy American Act generally requires  that raw materials and manufactured goods acquired for public use be  made or produced in the United States, subject to limited exceptions.  Federal agencies may issue waivers for certain projects under specified  conditions, for example, if using American-made goods is inconsistent  with the public interest or the cost of those goods is unreasonable.  Agencies also need not use American-made goods if they are not  sufficiently available or of satisfactory quality. The Recovery Act has  similar provisions, including one limiting the “unreasonable cost”  exception to those instances when inclusion of American-made iron, steel,  or other manufactured goods would increase the overall project cost by  more than 25 percent.
Recovery Act-specific requirements. Sections 1511 and 1512 of the  Recovery Act establish additional requirements for the expenditure of  Recovery Act funds. Section 1511 requires chief executives of state and  local governments to certify that infrastructure investments have “received  the full review and vetting required by law and that the chief executive  accepts responsibility that the infrastructure investment is an appropriate  use of taxpayer dollars.” Section 1512 requires that recipients of Recovery  Act funding report quarterly on a number of measures. Each report is to  include the amount of funds received and the amount of funds expended  or obligated to projects or activities. For each project or activity, the  report must include the project’s name and a description, an evaluation of  its completion status, and an estimate of the number of jobs created or  retained by that project or activity.
Many other federal requirements also apply to projects receiving any  government funds. For example, as we reported in December 2008, over 70  requirements may apply to states that accept federal funding for highway  projects. Likewise, states often have their own requirements that apply to  implementing federally funded projects.
In this context, you asked us to identify key federal requirements that  apply to Recovery Act projects and to assess the extent to which (1)  selected agencies have obligated and spent funds for Recovery Act  projects and (2) federal requirements and other factors have affected, or  are expected to affect, the selection and start dates of Recovery Act  projects.
To describe the extent to which agencies have obligated and spent  Recovery Act funds, we requested financial data from 27 of the agencies  that received Division A funding—about one-third of the act’s total— which was for projects and activities. Although the act provided $787  billion in spending and tax provisions, we focused on Division A because it  contains the majority of funding for projects. The remaining amount  (Division B) comprises additional mandatory spending and revenue  provisions that generally do not involve funding for specific projects. For  example, the mandatory spending provisions primarily reflect temporary  increases in cash transfers in programs such as Medicaid and  unemployment compensation, while the revenue provisions generally  reduce the tax liability for individuals, families, and businesses.
U.S. Army Corps of Engineers,    Education,    Energy,    Health and Human Services,    Homeland Security,    Housing and Urban Development,   the Interior,    Justice,    Labor,    State,    Transportation,    Treasury,    Veterans Affairs, and    Corporation for National and Community Service,    Environmental Protection Agency,    Federal Communications Commission,    General Services Administration,    National Aeronautics and Space Administration,    National Endowment for the Arts,    National Science Foundation,    Small Business Administration,    Smithsonian Institution,    Social Security Administration, and    U.S. Agency for International Development.
We requested information on the dates on which the Office of  Management and Budget (OMB) first apportioned money for each of the  27 federal agencies in our review. We also requested data from the  agencies on their obligations and expenditures for Recovery Act projects  for the quarters ending June 30, 2009; September 30, 2009; and December  31, 2009. We verified the agency-provided data with agency officials and  checked their appropriations figures with appropriations values in the  Recovery Act. However, we did not check obligations or spending against  other sources, with the exception of the Recovery.gov Web site. Our data  differ from those on that site because of data presentation, coverage, and  reporting dates. We believe the data we collected are sufficiently reliable  for the descriptive purposes of this review. To describe the extent to  which federal requirements have significantly affected, or are expected to  significantly affect, Recovery Act project selection and start dates, we  asked the 27 agencies which federal requirements, if any, affected the  timing of project selection and start dates. We also asked whether any  requirements at the state and local levels, or any other factors, affected  project selection and start dates. To supplement the federal agencies’  responses, we spoke with officials in 16 states and the District of  Columbia who are responsible for implementing Recovery Act projects.  We are reviewing these 16 states and the District of Columbia for our  bimonthly reports to Congress on Recovery Act implementation. These  16 states are Arizona, California, Colorado, Florida, Georgia, Illinois, Iowa,  Massachusetts, Michigan, Mississippi, New Jersey, New York, North  Carolina, Ohio, Pennsylvania, and Texas. To gain an industry perspective  on the extent to which federal requirements affect the timing of Recovery  Act projects, we spoke with representatives of three business  associations—the Associated General Contractors of America, the  Professional Services Council, and the U.S. Chamber of Commerce—that  represented firms receiving Recovery Act funds. We also spoke with  representatives from the National Governors Association; the National  Association of State Auditors, Comptrollers, and Treasurers; and the  National Association of Counties. We also spoke with contractors that  received funds for large construction projects from the Department of  Housing and Urban Development and the Environmental Protection  Agency. In addition, we spoke with community action agencies that have  contracts with various states to do weatherization work funded by the  Department of Energy. We obtained contractor names for Recovery Act  programs from state and local officials in states that we reviewed as part  of our bimonthly reporting. We ensured a range of firms were selected by  asking for contacts from different states (geographically dispersed and  different in terms of unionization rates) for different Recovery Act  programs. The examples we provide in this report are illustrative only and  not generalizable to other federal agencies.
We conducted this performance audit from September 2009 to February  2010 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: In responding to the deepest recession since the end of World War II, the  Recovery Act employs a combination of tax relief and government  spending. The Recovery Act’s purposes are to preserve and create jobs  and promote economic recovery; assist those most impacted by the  recession; provide investments needed to increase economic efficiency by  spurring technological advances in health and science; invest in  transportation, environmental protection, and other infrastructure that  will provide long-term economic benefits; and stabilize the budgets of  state and local governments.
About one-third of the funds provided by the act is for tax relief to  individuals and businesses; one-third is in the form of temporary increases  in entitlement programs to aid people directly affected by the recession  and provide some fiscal relief to states; and one-third falls into the  category of grants, loans, and contracts, which generally fund projects and  activities.
section_title: Agencies Had Obligated a Total of $194 Billion of Division A Funds as of December 31, 2009
paragraphs: The 27 agencies that we reviewed reported that they had obligated a total  of about $194 billion of the approximately $309 billion in Division A  Recovery Act funds by the end of 2009; $173 billion as of September 30,  2009; and $106 billion as of June 30, 2009. As of June 30, the percentage of  funds obligated ranged from a high of 98 percent for the Department of  Treasury ($98 million) to a low of about 1 percent (about $8.3 million) for  the National Aeronautics and Space Administration (NASA). By December  31, the percentage of funds obligated ranged from nearly 100 percent for  the National Endowment for the Arts ($50 million) to 18 percent for the  Social Security Administration ($183 million).
Regarding expenditures, the agencies reported that, as of June 30, 2009,  they had spent about 5 percent (about $15 billion) of their appropriated  Division A Recovery Act funds; about 12 percent ($38 billion) as of  September 30, 2009; and 20 percent ($61 billion) as of December 31, 2009.  Although expenditure data provide some indication of when funding was  spent, officials from several agencies told us that payment for federal  projects generally occurs after work on a given project is completed. As a  result, although work may have been substantially completed, the  expenditure data would not reflect this fact because the recipient would  not have submitted an invoice for payment. For example, as we reported  in July 2009, although funding has been obligated for more than 5,000  Federal Highway Administration projects, it may be months before the  federal government is billed for completed work. Contractors have to  complete work before receiving payments from the state, which, in turn,  invoices the cognizant federal agency.
Agencies generally have until September 30, 2010, to obligate funds  appropriated by the Recovery Act; some agencies have chosen to obligate  and spend funds over time to ensure they will have a steady stream of  funds for program activities. For example, Department of Health and  Human Services officials noted that some agency projects involved social  service activities, for which funding is intentionally spent over time.  Consequently, outlays for such service-based projects may be uneven  throughout the year, depending on program needs. Table 1 provides data  on agencies’ Division A obligations and expenditures as of June 30,  September 30, and December 31, 2009.
Table 2 shows the percentage of Division A funding that each agency had  obligated and spent as of June 30, September 30, and December 31, 2009.
section_title: The Effects of Federal Requirements and Other Factors on Project Selection and Starts Varied
paragraphs: Officials at some of the 27 agencies said federal requirements had affected  their ability to implement Recovery Act projects. For example, Davis- Bacon, Buy American, and National Historic Preservation Act  requirements slowed some project selection and starts. Other factors  unrelated to federal requirements also affected the timing of some  projects, according to federal and state officials. On the other hand,  officials from some agencies and certain programs within other agencies  said they were able to implement Recovery Act projects quickly for two  main reasons. First, the award processes for some Recovery Act projects  were not substantially different from the processes agencies use for non- Recovery Act projects. Second, to expedite the use of Recovery Act funds,  some federal agencies selected projects that had already satisfied key  federal requirements, such as NEPA, that need to be met before a federal  project can start.
subsections: section_title: Some Agencies Reported That Certain Federal Requirements Affected the Timing of Project Selection and Starts
paragraphs: Officials from some agencies cited certain federal requirements that had  affected their ability to select or start some Recovery Act projects. Figure  1 shows the factors that federal officials most often cited as affecting their  ability to select or start projects, and figure 2 shows the factors most often  cited by state and local officials.
As figures 1 and 2 show, federal, state, and local agency officials identified  several factors affecting their ability to select or start projects. For  example:    Davis-Bacon requirements. Officials in 4 of the 27 federal agencies—the  Departments of Commerce and Energy and Housing and Urban  Development, as well as the Environmental Protection Agency—cited  these requirements as affecting project timing, and officials from another 2  federal agencies said Davis-Bacon requirements may affect the timing of  projects. Similarly, officials from 10 states and 3 local agencies said Davis- Bacon requirements had caused delays in implementing Recovery Act  projects. In particular, Energy’s Weatherization Assistance Program  became subject to the Davis-Bacon requirements for the first time after  having been previously exempt from those requirements. Thus, the  Department of Labor had to determine the prevailing wages for  weatherization workers in each county in the United States. In July 2009,  the departments of Energy and Labor issued a joint memorandum to  Weatherization Assistance Program grantees authorizing them to begin  weatherizing homes using Recovery Act funds, provided they pay  construction workers at least Labor’s wage rates for residential  construction, or an appropriate alternative category, and compensate  workers for any differences if Labor establishes a higher local prevailing  wage rate for weatherization activities. On September 3, 2009, Labor  completed its determinations; later that month, we reported that Davis- Bacon requirements were a reason why some states had not started  weatherizing homes. Specifically, 7 out of 16 states and the District of  Columbia decided to wait to begin weatherizing homes until Labor had  determined county-by-county prevailing wage rates for their state. These  officials explained that they wanted to avoid having to pay back wages to  weatherization workers who started working before the prevailing wage  rates were known. States used only a small percentage of their available  funds in 2009, mostly because state and local agencies needed time to  develop the infrastructures required for managing the significant increase  in weatherization funding and for ensuring compliance with Recovery Act  requirements, including Davis-Bacon requirements. According to data  available to Energy, as of December 31, 2009, about 9,100 homes had been  weatherized out of a planned 593,000. Moreover, Housing and Urban  Development officials told us that until passage of the Recovery Act, one  of its Office of Healthy Homes and Lead Hazard Control grant programs  had never been subject to Davis-Bacon requirements. Therefore, agency  staff, grantees, and contractors needed to establish and implement new  administrative procedures, which delayed the start of construction  projects. In another case, Texas Department of Housing and Community  Affairs officials told us that Davis-Bacon’s administrative requirements  affected their ability to start projects in two ways. First, the state had to  wait until late December 2009 for wage rates for a particular county.  Second, officials experienced delays of 30 to 45 days to (1) provide  training to ensure an understanding of the Davis-Bacon Act at the grantee,  subrecipient, and subcontractor levels, and (2) have sufficient staff to  collect, monitor, and document that data and check its reliability through  payment verifications and employee interviews.
Buy American provisions. According to officials from 5 of the 27 federal  agencies—the Departments of Commerce, Education, Homeland Security,  Housing and Urban Development, as well as the Environmental Protection  Agency—these provisions had affected their ability, or their grantees’  ability, to select or start some Recovery Act projects. Moreover, officials  from 3 additional federal agencies said Buy American provisions may  affect their ability to select or start projects. At the state level, 2 states and  1 local entity said that Buy American provisions had affected the timing of  Recovery Act projects. In some cases, federal agencies had to develop  guidance for compliance with Buy American provisions, including issuing  guidance on waivers to recipients that were unable to comply. For  example, according to Environmental Protection Agency officials,  developing Buy American guidance was particularly challenging because  of the need to establish a waiver process for Recovery Act projects.  Likewise, Homeland Security officials told us that a project under the  Transportation Security Administration’s Electronic Baggage Screening  Program was slowed as officials awaited a Buy American waiver to allow  contractors to use foreign-made components. The waiver became  necessary when the contractor learned that U.S.-made components would  have hindered the integration of an airport’s security systems. At the local  level, officials from the Chicago Housing Authority (CHA) reported that  the only security cameras that are compatible with the existing CHA  system and City of Chicago police systems are not made in the United  States. CHA worked with Housing and Urban Development to determine  how to seek a waiver for this particular project. Moreover, an industry  representative told us that the Buy American provisions could interrupt   contractors’ supply chains, requiring them to find alternate suppliers and  sometimes change the design of their projects, which could delay project  starts.
The National Historic Preservation Act. According to officials from 2 of  the 27 federal agencies—the Departments of Commerce and  Transportation—NHPA requirements affected some Recovery Act project  selection and starts, and officials at another 6 federal agencies stated that  the NHPA may affect the timing of project implementation. Officials from  7 states identified this act as a factor that did or could impact the timing of  their Recovery Act projects. At the federal level, Transportation officials  said that projects to improve the security of train stations, bridges, and  tunnels have been delayed because Amtrak must obtain clearances for its  projects through the various state historic preservation offices before  starting work. Commerce officials also said that some state historic  preservation officers were slow to issue NHPA clearances because of the  increased workload stemming from the Recovery Act. At the state level,  Mississippi officials said the NHPA’s clearance requirements represented  one of the biggest potential delays to project selection in the energy  programs. In part because of this requirement, the state had to adjust  program plans and limit the scope of eligible recipients and projects to  avoid historic preservation issues. For example, many of the city- and  county-owned facilities that could benefit from the Energy Efficiency and  Conservation Block Grant program could be subject to historic  preservation requirements. These program requirements mandate that  projects must be identified within 180 days of award.
Likewise, officials from the Michigan Department of Human Services told  us that the NHPA requires that weatherization projects receiving federal  funds undergo a state historic preservation review. According to Michigan  officials, this requirement means that the state historic preservation office  may review every home over 50 years of age if any work is to be  conducted, regardless of whether the home is in a historic district or on a  national registry. State officials told us that an estimated 90 percent of the  homes to be weatherized would need a historic review. These reviews are  a departure from Michigan’s previous experience; the state’s historical  preservation office had never considered weatherization work to trigger a  review. Furthermore, Michigan officials told us that the State Historic  Preservation Office (SHPO) policy is to review weatherization applications  for these homes within 30 days after receiving the application and advise  the state Department of Human Services on whether the work can  proceed. However, as of October 29, 2009, SHPO had only two employees,  so state officials were concerned that this process could cause a  significant delay, according to officials in the state’s Department of Human  Services. To avoid further delays, Michigan officials told us that in  November 2009, they signed an agreement with the SHPO that is designed  to expedite the review process. They also told us that with the agreement  in place, they expect to meet their weatherization goals.
Project selection process. This process—including requesting and  reviewing applications—was cited as a factor affecting the timing of  projects by 5 of the 27 federal agencies—the Departments of Commerce,  Defense, Education, Health and Human Services, and Homeland  Security—and 2 agencies said it may be a factor. For example, according  to Commerce officials, before selecting or awarding grants, the  department’s rules require that each application to the Broadband  Technology Opportunities Program (BTOP) be reviewed by a panel of at  least three reviewers. The agency within Commerce that oversees BTOP  received more than 1,800 applications for funding. According to agency  officials, ensuring that each application was evaluated by three  independent reviewers resulted in a moderate delay in awarding funds.  The agency originally anticipated starting to announce BTOP awards in  November 2009, but it delayed these initial announcements until  December 2009 to ensure that each application received a thorough review  and evaluation. Likewise, officials from Homeland Security’s Federal  Emergency Management Agency said that it needed to carry out very  rigorous technical reviews of its new Fire Station Construction Grants  program so that the (1) recommended costs would be appropriate and  allowable and (2) “shovel-ready” aspect of the grant would be verified.  Technical review of grant applications, therefore, affected the timing of  projects funded under this program.
Recovery Act-specific requirements. Five of the 27 federal agencies—the  Departments of Health and Human Services, Justice, and Transportation,  as well as the Environmental Protection Agency and NASA—stated that  some Recovery Act requirements, particularly sections 1511 (certification)  and 1512 (reporting), affected the timing of projects. In addition,  Education told us that both sections 1511 and 1512 may cause delays.  Officials from 5 states also said that Recovery Act-specific requirements  caused delays. At the federal level, Transportation officials told us that the  section 1511 certification requirement added a step to the process for both  states and the department, and in a few cases, the certification and posting  requirement delayed the start of a project. At the state level, officials from  the Illinois State Board of Education reported that section 1511 delayed  approval of fiscal year 2010 grant applications that contain construction  costs. Specifically, because of the need to develop a state-level  certification process, the approval of construction funding requests was  delayed, in some cases by several months, for a few districts that  submitted requests prior to completing a state-level process. Illinois  officials indicated that an approval process was subsequently put in place;  as a result, districts usually received approval within days of the request  submission. Similarly, officials from California stated that section 1511  certification caused a delay of about 30 days.
NASA officials told us that contractors sometimes resisted the Recovery  Act’s section 1512 public reporting requirement. For example, one  company negotiated with the agency for about 2 months, mainly over the  effect of the Recovery Act’s reporting requirements on its subcontractors.  In addition, officials at the Texas Criminal Justice Division told us that the  state invested more than 1,000 hours to develop and implement technology  system updates to accommodate the Recovery Act reporting requirements,  which included redesigning their system to collect data from grantees and  adding new data elements to the information that they had already  collected. These system updates, along with the need to send a large  volume of applications back to applicants as new or changing federal  guidance was released, added an estimated 3 weeks to program  implementation.
National Environmental Policy Act. Officials from 3 federal agencies— Commerce, Energy, and Housing and Urban Development—stated that  NEPA had affected project timing; another 8 federal agencies stated that  NEPA may affect project timing. Officials from 3 states also said that  NEPA affected project timing. Although Energy officials stated that the  agency had taken steps to expedite the NEPA review process and the  agency’s funding opportunity announcements specified that projects must  be sufficiently developed to meet the Recovery Act’s timetable for  commitment of funds, officials in California and Mississippi nonetheless  told us that NEPA had caused delays in Energy programs. For example,  California officials said that the State Energy Commission must submit  some of its Recovery Act projects to Energy for NEPA review because  they are not covered by Energy’s existing categorical exclusions. State  officials said that such reviews can take up to 6 or more weeks. Both  California and Mississippi officials told us that activities that are  categorically excluded under NEPA (e.g., road repaving or energy-efficient  upgrades to existing buildings) still require clearance before the state can  award funds. Staff must spend time filling out forms and supplying  information to Energy on projects that may qualify for a categorical  exclusion. Similarly, Arizona state transportation officials stated that  NEPA was causing some delays in project selection and starts. In  particular, Arizona officials explained that delays have occurred at the  local level because local officials do not have experience in dealing with  federal highway requirements, including NEPA requirements.
section_title: Factors Other than Federal Requirements Have Also Affected the Timing of Project Selection and Starts
paragraphs: Officials also told us that factors other than federal requirements have  affected the timing of project selection or starts. For example:    Newness of programs. Because some Recovery Act programs were newly  created, officials at several federal agencies told us that before  implementing projects, they needed time to establish procedures and  provide guidance. Housing and Urban Development officials, for example,  told us that because its Office of Native American Programs had not  previously administered a competitive Native American Housing Block  Grant, they had to develop a new notice of funding availability and new  forms for the program, which then had to be cleared by both the  department and OMB. The Energy Inspector General noted that the  awards process for the Energy Efficiency and Conservation Block Grant  Program, newly funded under the Recovery Act, was challenging to  implement because there was no existing infrastructure. Hence, Recovery  Act funds were not awarded and distributed to recipients in a timely  manner.
State, local, or tribal issues. The economic recession affected some states’  budgets, which, in turn, affected states’ ability to use some Recovery Act  funds. For example, an Army National Guard cooperative agreement  program required states to provide matching funds for such things as  window and roof replacement at certain facilities. However, because  states were experiencing difficulties in passing their current-year budgets,  some were unable to provide the matching funds. As a result, according to  Defense officials, Defense had to revise its Recovery Act project plan to  cancel or reduce the number of Army National Guard projects with state  matching funds and replace them with other projects that did not require  matching funds. In addition, according to officials at the National  Endowment for the Arts, one state arts agency had to delay its release of  Recovery Act grant funds by 3 months, from July to October 2009, because  of the state’s budgetary constraints. Because the state had not approved its  budget on time, it authorized agencies to spend funds only in quarterly  allotments, which were not sufficient to make the recommended grants.  The state arts agency ultimately received approval of its special request for  the funds to be released as one allotment. Finally, Housing and Urban  Development told us that project starts in some instances were affected by  the need for state and local governments to furlough employees as a result  of the economic downturn.
Staff capacity. Federal officials at some agencies told us they have  experienced heavy workloads as a result of the Recovery Act, which has  impaired their ability to initiate programs. For example, officials from the  Small Business Administration said that they were unable to begin their  two secondary markets programs until the fall of 2009 because of limited  staff resources and the need to sort out other issues related to these  programs, including contracting and Recovery Act recipient reporting  requirements. In addition, as we reported in December 2009, smaller  localities, which are often rural, told us that they faced challenges because  of a lack of staff to understand, apply for, and comply with requirements  for federal Recovery Act grants. For example, some local government  officials reported that they did not employ a staff person to handle grants  and therefore did not have the capacity to understand which grants they  were eligible for and how to apply for them. In the District of Columbia,  moreover, Department of the Environment officials explained that  weatherization funds had not been spent as quickly as anticipated because  officials needed to develop the infrastructure to administer the program.  For example, the department needed to hire six new staff members to  oversee and manage the program. Officials reported that, as of late  January 2010, the department had still not hired any of the six new staff  required. However, the job posting was closed, and Department of the  Environment officials expected Recovery Act-funded weatherization work  to begin in early February 2010. Officials from the National Association of  Counties (NACO), moreover, said that some localities had turned down  Recovery Act funding to avoid the administrative burdens associated with  the act’s numerous reporting requirements.
Seasonal issues or weather. Officials at some federal agencies said that  winter and other seasonal concerns impeded their ability to start or  continue construction projects. For example, according to Interior  officials, construction starts in Alaska and some northern areas of the  continental United States may be delayed because of the long winter  seasons there. In addition, an Interior official stated that seasonal wildland  fires could also affect the agency’s ability to start certain Recovery Act  projects. Likewise, Defense officials told us that construction on a pier  was delayed because the contractor missed the “fish window,” when  construction activities underwater can be performed with minimal impact  on fish habitat. Finally, contractors in Massachusetts said that inclement  weather delayed the progress of some paving projects.
Lack of clarity on the meaning of “shovel-ready.” Although officials from  several federal agencies said they made “shovel-ready” projects a priority  for funding, officials from NACO told us that there was no official  definition of “shovel-ready.” Hence, local officials had different  interpretations of the concept. According to NACO officials, localities had  designated certain projects “shovel-ready,” but the necessary background  work for these projects had not in fact been completed.
section_title: Some Federal Officials Reported That Federal Requirements Did Not Affect the Timing of Recovery Act Projects for Two Reasons
paragraphs: Federal officials from some agencies offered two reasons why federal  requirements did not affect the timing of certain Recovery Act projects.  First, officials from these agencies said that the procedures for awarding  and implementing Recovery Act funds for some programs and projects  were similar to, or the same as, their usual procedures and did not pose  any new challenges or cause any particular delays. For example, officials  from Agriculture’s Farm Direct Operating Loans program used Recovery  Act dollars to fund an existing backlog of direct operating loan  applications that had been previously approved but for which no funding  was available. According to agency officials, the requirements for direct  operating loans funded through the Recovery Act were thus the same as  those for direct operating loans funded with regular annual  appropriations. Therefore, there was no additional burden on applicants.  These preapproved loans accounted for more than 75 percent of the  funding made available through the Recovery Act. Within 3 weeks of  receipt, according to Agriculture officials, nearly 100 percent of the  Recovery Act direct operating loan funds had been obligated. Likewise,  General Services Administration officials stated that the agency has been  operating under the Davis-Bacon requirements within the United States for  years and has accounted for these requirements in its project plans.  According to these officials, in cases where Davis-Bacon newly applies to  Recovery Act projects (i.e., projects in the territories of Puerto Rico and  the Virgin Islands), the agency’s experience with the requirements has  facilitated its ability to implement these projects. Hence, according to  General Services Administration officials, the impact of any federal  requirements on Recovery Act projects has been negligible.
Furthermore, in some cases, agencies provided Recovery Act funding  through major programs that have historically received large sums of  funding and already had the infrastructure in place to administer the high  level of funding involved. For instance, a significant amount of  Transportation’s Recovery Act funding is being provided to state and local  transportation authorities through existing program structures, helping to  ensure that these funds will be used expeditiously. Of the $48 billion that  Transportation received under the act, nearly $39 billion was distributed  through existing funding programs, such as highway formula grant  programs.
Second, to expedite the use of Recovery Act funds, some federal agencies  selected—or encouraged states to select—projects that had already  satisfied key federal requirements that need to be met before a federal  project can start. For example, agency officials reported the following:    Transportation’s Federal Highway Administration encouraged states to  select projects that had completed preconstruction requirements,  including NEPA reviews, preconstruction procedures, right-of-way  acquisition, planning, and administration of engineering- and design- related services.
The National Science Foundation awarded the majority of its funding to  proposals that had been received by the agency or gone through its merit  review process prior to September 30, 2009.
NASA and the U.S. Agency for International Development mainly  modified existing contracts, rather than developing new ones, to  implement projects expeditiously. NASA officials estimated that about 80  percent of its programs consist of modifications to existing contracts. U.S.  Agency for International Development officials said they simply included a  reference to a new FAR clause for the Recovery Act and took the  appropriate procurement and contracting actions required by the FAR  before obligating funds.
Similarly, many state transportation officials said they selected a large  percentage of resurfacing and other pavement improvement projects for  Recovery Act funding because such projects did not require extensive  environmental clearances and because other processes could also occur  quickly, such as design, request for bids, obligation of funds, and  employment. In addition, projects could be completed within 3 years. For  example:    Massachusetts transportation officials said that they had avoided  significant delays in starting projects by selecting those that were likely to  have little environmental impact—such as impairing air quality—or that  require additional permitting before the project could get under way.  These officials also said that they did not select projects involving entities  with a history of lengthy permitting processes. For example, if a project  had permitting requirements that involved the U.S. Army Corps of  Engineers, the Coast Guard, or a municipality, the state did not generally  select the project for Recovery Act funding because, according to state  officials, the permitting process with these entities typically takes a year or  more to resolve.
Mississippi officials told us that prior to the enactment of the Recovery  Act, the state’s department of Transportation appointed a selection  committee to identify projects that could be advertised no later than June  2009. Projects placed on the list to be funded by the Recovery Act were  required to have all rights-of-way acquired, utilities adjusted,  environmental clearances obtained, and plans developed. In addition to  selecting highway construction projects, the committee identified  transportation enhancement projects that could be obligated before  February 17, 2010, 1 year after the act’s enactment. Such projects  included improving the department’s rest areas and welcome centers to  enhance tourism and encourage new industry in the state. All identified  projects were reviewed and ranked on the basis of (1) need, (2) location in  an economically distressed area, (3) the likelihood of statewide job  creation, (4) expected economic benefit to the area, and (5) the projects’  ability to meet requirements for timely obligation. When the state was  notified of its share of Recovery Act funds, officials selected projects from  this group of reviewed and ranked projects and emphasized obligating 50  percent of a subset of the funds within 120 days.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to all 27 agencies and OMB for review  and comment and received technical comments from 17 agencies. We have  incorporated these comments into the report as appropriate. We also  provided a copy of the relevant sections to GAO teams responsible for  reviewing Recovery Act work in the states mentioned in this report. In  some cases, those teams forwarded relevant sections to officials within  those states. We included these comments as appropriate.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to all 27 agencies reviewed in  this report and other interested parties. The report will also be available at  no charge on the GAO Web site at http://www.gao.gov.
If you or your staff members have any questions about this report, please  contact me at (202) 512-3841 or daltonp@gao.gov. 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 I.
section_title: Appendix I: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: Other key contributors to this report were Mark Gaffigan (Director), Ric  Cheston (Assistant Director), Kimberly Gianopoulos (Assistant Director),  Anne K. Johnson (Analyst-in-Charge), and Amanda Krause. Important  contributions were also made by Jessica Bryant-Bertail, Janice Ceperich,  Richard P. Johnson, Jonathan Kucskar, Anne Rhodes-Kline, and Carol  Herrnstadt Shulman.