Recovery Act: States' Use of Highway and Transit Funds and Efforts to Meet the Act's Requirements
Released: 2009-12-10T00:00:00

Letter

Background

The Recovery Act provides funding to 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. In March 2009, $26.7 billion was apportioned to all 50 states and the District for highway infrastructure and other eligible projects. The Recovery Act requires that 30 percent of these funds be suballocated, primarily based on population, for metropolitan, regional, and local use. Highway funds are apportioned to states through federal-aid highway program mechanisms, and states must follow existing program requirements, which include ensuring the project meets all environmental requirements associated with the National Environmental Policy Act (NEPA), paying a prevailing wage consistent with federal Davis- Bacon Act 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. While the maximum federal fund share of highway infrastructure investment projects under the existing federal-aid highway program is generally 80 percent, under the Recovery Act, it is 100 percent.

The Recovery Act appropriated $8.4 billion to fund public transit throughout the country mainly through three existing Federal Transit Administration (FTA) grant programs, including the Transit Capital Assistance Program and the Fixed Guideway Infrastructure Investment program. The majority of the public transit funds—$6.9 billion (82 percent)—was apportioned for the Transit Capital Assistance Program, with $6 billion designated for the urbanized area formula grant program and $766 million designated for the nonurbanized area formula grant program. Under the urbanized area formula grant program, Recovery Act funds were apportioned to large and medium urbanized areas—which in some cases include a metropolitan area that spans multiple states— throughout the country according to existing program formulas. Recovery Act funds were also apportioned to states for small urbanized areas and nonurbanized areas under the formula grant programs using the program’s existing formula. Transit Capital Assistance Program funds may be used for such activities as facilities renovation or construction, vehicle replacements, preventive maintenance, and paratransit services. Up to 10 percent of apportioned Recovery Act Transit Capital Assistance funds may also be used for operating expenses. The Fixed Guideway Infrastructure Investment program was appropriated $750 million, of which $742.5 million was apportioned by formula directly to qualifying urbanized areas. The funds may be used for any capital projects to maintain, modernize, or improve fixed guideway systems. The maximum federal fund share for projects under the Recovery Act’s Transit Capital Assistance Program and the Fixed Guideway Infrastructure Investment program is 100 percent; the federal share under the existing programs is generally 80 percent.

As they work through the state and regional transportation planning process, designated recipients of funds apportioned for transit—typically public transit agencies and metropolitan planning organizations (MPO)— develop a list of transit projects that project sponsors (typically transit agencies) submit to FTA for Recovery Act funding. FTA reviews the project sponsors’ grant applications to ensure that projects meet eligibility requirements and then obligates Recovery Act funds by approving the grant application. Project sponsors must follow the requirements of the existing programs, which include ensuring the projects funded meet all regulations and guidance pertaining to the Americans with Disabilities Act (ADA), pay a prevailing wage consistent with federal Davis-Bacon Act requirements, and comply with goals to ensure disadvantaged businesses are not discriminated against in the awarding of contracts.

Most Highway Recovery Act Funding Has Been Obligated, and DOT and the States Are Taking Steps to Meet the Act’s Requirements

Most Highway Funds Have Been Obligated, and Reimbursements Are Increasing

Three quarters of Recovery Act funds provided for highway infrastructure investment has been obligated nationwide and in the 16 states and the District that are the focus of our review. For example, as of November 16, 2009, $20.4 billion of the funds had been obligated for just over 8,800 projects nationwide and $4.2 billion had been reimbursed. In the 16 states and the District, $11.9 billion had been obligated for nearly 4,600 projects and $1.9 billion had been reimbursed.

Table 1 shows the funds apportioned and obligated nationwide and in selected states as of November 16, 2009.

As of November 16, 2009, $4.2 billion had been reimbursed nationwide by the Federal Highway Administration (FHWA), including $1.9 billion reimbursed to the 16 states and the District. These amounts represent 20 percent of the Recovery Act highway funding obligated nationwide and 16 percent of the funding obligated in the 16 states and the District. As we reported in our September report, because it can take 2 or more months for a state to bid and award the work to a contractor and have work begin after funds have been obligated for specific projects, it may take months before states request reimbursement from FHWA. However reimbursements have increased considerably over time, from $10 million in April to $4.2 billion in mid-November. Reimbursements have also increased considerably since we reported in September, when $604 million had been reimbursed to the 16 states and the District and $1.4 billion had been reimbursed nationwide. See figure 1.

While reimbursement rates have been increasing, wide differences exist across states. Some differences we observed among the states were related to the complexity of the types of projects states were undertaking and the extent to which projects were being administered by local governments. For example, Illinois and Iowa have the highest reimbursement rates—36 percent and 53 percent of obligations, respectively—far above the national average. Illinois and Iowa also have a far larger percentage of funds devoted to resurfacing projects than other states—as discussed in the next section, resurfacing projects can be quickly obligated and bid. Florida and California have among the lowest reimbursement rates, less than 2 percent and 4 percent of obligations respectively. Florida is using Recovery Act funds for more complex projects, such as constructing new roads and bridges and adding lanes to existing highways. Florida officials also told us that the pace of award ing contracts has been generally slower in areas where large numbers of projects are being administered by local agencies. In California, state officials said that projects administered by local agencies may take longe to reach the reimbursement phase than state projects due to additional steps required to approve local highway projects. For example, highway construction contracts administrated by local agencies in California call for a local public notice and review period, which can add nearly 6 weeks to the process. In addition, California state officials stated that localit tend to seek reimbursement in one lump sum at the end of a project, reimbursement rates not matching levels of which can contribute to ongoing construction.

States Continue to Dedicate Most Recovery Act Highway Funds for ut Pavement Projects, b Use of Funds Varies Depending on State Transportation Goals

Almost half of Recovery Act highway obligations nationally have bee pavement improvements—including resurfacing, rehabilitating, and reconstructing roadways—consistent with the use of Recovery Act fundin our previous reports. Specifically, $4.5 billion, or 22 percent, is being used for road resurfacing projects, while $5.2 billion, or 26 percent, is being used for reconstructing or rehabilitating deteriorated roads. As we have reported, many state officials told us they selected a large percentag of resurfacing and other pavement improvement projects because those projects did not require extensive environmental clearances, were quick t design, could be quickly obligated and bid, could employ people q uickly, and could be completed within 3 years. In addition to pavement improvement, other projects that have significant funds obligated include pavement widening (reconstruction that includes adding new capa city to existing roads), with $3 billion (15 percent) obligated, and bridge replacement and improvements, with $2 billion (10 percent) obligated. Construction of new roads and bridges accounted for 6 percent and 3 percent of funds obligated, respectively. Figure 2 shows obligations by the types of road and bridge improvements being made.

According to California officials, under a state law enacted in March 200 62.5 percent of funds went directly to local governments for projects of their selection, while the remaining 37.5 percent is being used main state highway rehabilitation and maintenance projects that, due to significant funding limitations, would not have otherwise been funded. According to California officials, distributing a majority of funds to localities allows a number of locally important projects to be funded.

Mississippi used over half its Recovery Act funds for pavement improvement projects and around 14 percent of funds for pavement widening. The Executive Director of the state transportation department told us the Recovery Act allowed Mississippi to undertake needed projects and to enhance the safety and performance of the state’s highway system. However, the Executive Director also said that the act’s requirements that priority be given to projects that could be completed in 3 years resulted in missed opportunities to address long-term needs, such as upgrading a state roadway to interstate highway standards, that would have likel a more lasting development. impact on Mississippi’s infrastructure and economic In Florida, 36 percent of funds have been obligated for pavement-w projects (compared with 15 percent nationally) and 23 percent for construction of new roads and bridges (compared with 9 percent nationally), while in Ohio, 32 p road and bridge construction. ercent of funds have been obligated for new Pennsylvania targeted Recovery Act funds to reduce the number of structurally deficient bridges in the state. As of October 2009, 31 per of funds in Pennsylvania were obligated for bridge improvement and replacement (compared with 10 percent nationally), in part because a cent significant percentage (about 26 percent, as of 2008) of the state’s bridges are structurally deficient.

Massachusetts has used most of its Recovery Act funds to date for pavement improvement projects, including 30 percent of funds for resurfacing projects and 43 percent of funds for reconstructing or rehabilitating deteriorated roads. A Massachusetts official told us that the focus of its projects for reconstructing and rehabilitating roads, as well as the focus of future project selections, is to select projects that promote the state’s broader long-term economic development goals. For example, according to a Massachusetts official, the Fall River development park project supports an economic development project and includes construction of a new highway interchange and new access roadways to a proposed executive park. FHWA officials expressed concern that Massachusetts may be pursuing ambitious projects that run the risk of not meeting Recovery Act requirements that all funds be obligated by March 2010.

States Are Taking Additional Steps to Meet Recovery Act Highway Requirements, Including the Obligation Deadline and the Economically Distressed Area and Maintenance-of-Effort Requirements

Recovery Act highway funding is apportioned under the rules governing the Federal-Aid Highway Program generally and its Surface Transportation Program in particular, and states have wide latitude and flexibility in which projects are selected for federal funding. However, the Recovery Act tempers that latitude with requirements that do not exist in the regular program, including the following requirements: States are required to ensure that all apportioned Recovery Act funds— including suballocated funds—are obligated within 1 year (before Mar. 2, 2010). The Secretary of Transportation is to withdraw and redistribute to eligible states any amount that is not obligated within this time frame. Any Recovery Act funds that are withdrawn and redistributed are available for obligation until September 30, 2010.

Give priority to projects that can be completed within 3 years and to projects located in economically distressed areas. Distressed areas are defined by the Public Works and Economic Development Act of 1965, as amended. According to this act, to qualify as an economically distressed area, the area must (1) have a per capita income of 80 percent or less of the national average; (2) have an unemployment rate that is, for the most recent 24-month period for which data are available, at least 1 percent greater than the national average unemployment rate; or (3) be an area 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 resulting from severe short- or long-term changes in economic conditions. In response to our recommendation, FHWA, in consultation with the Department of Commerce, issued guidance on August 24, 2009, that provided criteria for states to use for designating “special need” areas for the purpose of Recovery Act funding.

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.

The first Recovery Act requirement is that states have to ensure that all apportioned Recovery Act funds—including suballocated funds—are obligated within 1 year. Over 75 percent of apportioned Recovery Act highway funds had been obligated as of November 16, 2009, both nationwide and among the 16 states and the District. Nine states and the District have higher obligation rates than the national average, including Iowa and the District—for which FHWA has obligated 96 percent and 86 percent of funds, respectively. Conversely, Arizona, Massachusetts, Ohio, and Texas have obligation rates of between 52 percent and 62 percent of apportioned funds. Officials at FHWA and state department of transportation officials in the states we reviewed generally believe that these states are on track to meet the March 2010 1-year deadline.

However, two factors may affect some states’ ability to meet the 1-year requirement. First, many state and local governments are awarding contracts for less than the original estimated cost. This allows states to use the savings from lower contract awards for other projects, but additional projects funded with deobligated funds must be identified quickly. In order to use the savings resulting from the lower contract awards, a state must request FHWA to deobligate the difference between the official estimate and the contract award amount and then obligate funds for a new project.

Our analysis of contract award data shows that for the 10 states and the District, the majority of contracts are being awarded for less than the original cost estimates. While there is a variation in the number of contracts being awarded for lower than their original estimates, every state we collected information from awarded at least half of its contracts for less than the original cost estimates. Some states had an extremely high number of contracts awarded at lower amounts. For example, California, Georgia, and Texas awarded more than 90 percent of their contracts for less than their cost estimates. We also found a significant variation in both the average amount and the range of the savings from contracts awarded at lower amounts. For example, in the District and Georgia, such contracts averaged more than 30 percent less than original state estimates, while in Colorado and Massachusetts, such contracts averaged under 15 percent less than original state estimates. In addition, there is also a significant range in individual projects, with the savings ranging from less then 1 percent under estimates in a number of states to almost 55 percent under estimates in New York and over 90 percent under in Illinois.

Federal regulations require states to promptly review and adjust project cost estimates on an ongoing basis and at key decision points, such as when the bid is approved. Many state officials told us that their state has already started the process of ensuring funds are deobligated and obligated to other highway programs and projects by the 1-year deadline. For example, in Colorado, officials are planning to use Recovery Act funds that are being deobligated by FHWA for 5 new projects, while in California, FHWA deobligated approximately $108.5 million and the state has identified 16 new projects for Recovery Act funding. FHWA officials told us they recognize the need to develop a process to monitor and ensure deobligation of Recovery Act funds from known savings before the 1-year deadline.

A second factor that may affect some states’ ability to meet the 1-year requirement is that obligations for projects in suballocated areas, while increasing, are generally lagging behind obligations for statewide projects in most states and lagging considerably behind in a few states. In the 16 states and the District, 79 percent of apportioned statewide funds had been obligated as of October 31, 2009, while 65 percent of suballocated funds had been obligated. Figure 3 shows obligations for statewide and suballocated areas in the 16 states and the District.

As shown in figure 3, and as we reported in September 2009, FHWA has obligated substantially fewer funds suballocated for metropolitan and local areas in three states. While the national average for obligations of Recovery Act funds for suballocated areas is 63 percent, as of October 31, New Jersey, Massachusetts, and Arizona had obligation rates of 34 percent, 31 percent, and 18 percent of these funds, respectively. Officials in these three states cited a number of reasons for this—including lack of familiarity by local officials with federal requirements and increased staff workload associated with Recovery Act projects—and reported they were taking a number of actions to increase obligations, such as imposing internal deadlines on local governments to identify and submit projects. As of October 2009, Arizona had awarded four contracts (one more than it had as of September 2009) representing $29 million of the $157 million of suballocated funds. This represents 18 percent of suballocated funds—a decline from the 21 percent of suballocated funds that had been obligated when we reported in September 2009. Arizona Department of Transportation officials told us that although one new contract had been awarded, the state’s total obligation of suballocated funds had declined because some suballocated funds were deobligated after more contracts were awarded for less than the estimated amount. Officials also told us that if local governments are not able to advertise contracts for construction in suballocated areas prior to the March 2010 deadline, the state would use Recovery Act funds on “ready-to-go” statewide highway projects in those areas. Similarly, officials in two localities told us that if projects intended for Recovery Act funds were in danger of not having funds obligated by the deadline, they would use those funds on projects now slated to be funded with state dollars and use state funding for other projects.

Although states are working to have all of their suballocated funds obligated before March 2010, failure to do so will not prohibit them from participating in the redistribution of Recovery Act funds after March 2, 2010. The Secretary of Transportation is to withdraw highway funds, including suballocated funds, that are not obligated before March 2, 2010. A state that has obligated all of the funds that were apportioned for use by the state (those that were not suballocated) is eligible to participate in this redistribution, regardless of whether all of the state’s suballocated funds have been obligated. FHWA has stated that it is in the process of developing guidance on how the redistribution of any Recovery Act funding that remains unobligated 1 year after apportionment. According to DOT officials, consistent with guidance in the Recovery Act, FHWA currently plans to model this redistribution after the process used each year in the regular federal-aid highway program to redistribute obligation authority, allowing Recovery Act funds redistributed to the states to be available for any qualified project in a state.

The second Recovery Act requirement is to give priority to projects located in economically distressed areas. In July and September 2009, we identified substantial variation in the extent to which states prioritized projects in economically distressed areas and how they identified these areas. For example, we found instances of states developing their own eligibility requirements for economically distressed areas using data or criteria not specified in the Public Works and Economic Development Act (Public Works). State officials told us they did so to respond to rapidly changing economic conditions. In response to our recommendation, FHWA, in consultation with the Department of Commerce, issued guidance to the states in August 2009 on identifying and giving priority to economically distressed areas and criteria to identify “special need” economically distressed areas that do not meet the statutory criteria in the Public Works act. In its guidance, FHWA directed states to maintain information as to how they identified, vetted, examined, and selected projects located in economically distressed areas and to provide FHWA’s division offices with documentation that demonstrates satisfaction of the “special need” criteria. FHWA issued additional questions and answers relating to economically distressed areas in November 2009.

Widespread designations of special needs areas gives added preference to highway projects for Recovery Act funding; however, they also make it more difficult to target Recovery Act highway funding to areas that have been the most severely impacted by the economic downturn. Three of the states we reviewed—Arizona, California, and Illinois—had each developed and applied its own criteria for identifying economically distressed areas, and in two of the three states, applying the new criteria increased the number of areas considered distressed. In California, the number of counties considered distressed rose from 49 to all 58 counties, while in Illinois, the number of distressed areas increased from 74 to 92 of the state’s 102 counties. All 15 counties in Arizona were considered distressed under the state’s original determination and remained so when the state applied the revised criteria. FHWA officials told us they expected the number of “special need” distressed areas to increase when the new guidance was applied. We plan to continue to monitor the states’ implementation of DOT’s economically distressed area guidance.

The third Recovery Act requirement is for states to certify that they will maintain the level of state effort for programs covered by the Recovery Act. As we reported in September 2009, most states revised the initial explanatory or conditional certifications they submitted to DOT after DOT’s April 22, 2009, guidance required states to recertify without conditions. All states that submitted conditional certifications submitted a second maintenance-of-effort certification to DOT without conditions, and DOT concluded that the form of each state certification was consistent with its April guidance. In June 2009, FHWA began to review each state’s maintenance-of-effort calculation to determine whether the method of calculation was consistent with DOT guidance and the amounts reported by the states for planned expenditures for highway investment was reasonable. For example, FHWA division offices evaluated, among other things, whether the amount certified (1) covered the period from February 17, 2009, through September 30, 2010, and (2) included in-kind contributions. FHWA division staff then determined whether the state certification needed (1) no further action, (2) further assessment, or (3) additional information. In addition, according to FHWA officials, their assessments indicated that FHWA needed to clarify the types of projects funded by the appropriations and the types of state expenditures that should be included in the maintenance-of-effort certifications. As a result of these findings, DOT issued guidance in June, July, and September 2009 and plans to issue additional guidance on these issues.

In August 2009, FHWA staff in headquarters reviewed the FHWA division staff findings for each sate and proceeded to work with each FHWA division office to make sure their states submit revised certifications that will include the correct planned expenditures for highway investment— including aid to local agencies. FHWA officials said that of the 16 states and the District that we reviewed for this study, they currently expect to have 12 states submit revised certifications for state highway spending, while an additional 2 states are currently under review and may have to revise their certifications. DOT officials stated they have not determined when they will require the states to submit their revised consolidated certification. According to these officials, they want to ensure that the states have enough guidance to ensure that all programs covered by the Recovery Act maintenance-of-effort provisions have completed their maintenance-of-effort assessments and that the states have enough guidance to ensure that this is the last time that states have to amend their certifications.

Most state officials we spoke with are committed to trying to meet their maintenance-of-effort requirements, but some are concerned about meeting the requirements. As we have previously reported, states face drastic fiscal challenges, and most states are estimating that their fiscal year 2009 and 2010 revenue collections will be well below estimated amounts. Although the state officials we spoke with are committed to trying to meet the maintenance-of-effort requirements, officials from seven state departments of transportation told us the current decline in state revenues creates major challenges in doing so. For example, Iowa, North Carolina, and Pennsylvania transportation officials said it may be more difficult for their departments to maintain their levels of transportation spending if state gas tax and other revenues, which are used to fund state highway and state-funded transportation projects, decline. In addition, Georgia officials also stated that reduced state gas-tax revenues pose a challenge to meeting its certified level of effort. Lastly, Mississippi and Ohio transportation officials stated that if their state legislatures reduce their respective department’s budget for fiscal year 2010 or 2011, the department may have difficulty maintaining its certified spending levels.

FTA Reports That the Majority of Transit Funds Have Been Obligated, with Most Funding Being Used for Transit Facilities, Bus Fleets, and Preventive Maintenance

For Recovery Act transit funds, we focused our review on the Transit Capital Assistance Program and the Fixed Guideway Infrastructure Investment program, which received approximately 91 percent of the Recovery Act transit funds, and on seven selected states that received funds from these programs. As of November 5, 2009, about $6.7 billion of the Recovery Act’s Transit Capital Assistance Program and the Fixed Guideway Infrastructure Investment program funds had been obligated nationwide. Almost 88 percent of Recovery Act Transit Capital Assistance program obligations are being used for upgrading transit facilities, improving bus fleets, and conducting preventive maintenance.

In March 2009, $6.9 billion was apportioned to states and urbanized areas in all 50 states, the District, and five territories for transit projects and eligible transit expenses under the Recovery Act’s Transit Capital Assistance Program and $750 million was apportioned to qualifying urbanized areas under the Recovery Act’s Fixed Guideway Infrastructure Investment program. As of November 5, 2009, almost $6 billion of the Transit Capital Assistance Program funds had been obligated nationwide and $738 million of the Fixed Guideway Infrastructure Investment program funds has been obligated nationwide.

Almost 88 percent of Recovery Act Transit Capital Assistance Program obligations are being used for upgrading transit facilities, improving bus fleets, and conducting preventive maintenance. Figure 4 shows Recovery Act Transit Capital Assistance Program obligations for urbanized and nonurbanized areas, by project type. As we reported in September 2009, many transit agency officials told us they decided to use Recovery Act funding for these types of projects since they are high-priority projects that support their agencies short- and long-term goals, can be started quickly, improve safety, or would otherwise not have been funded. This continues to be the case. Following are some examples: Transit infrastructure facilities: $2.8 billion, or 47 percent, of these funds obligated nationally have been for transit infrastructure construction projects and related activities, which range from large-scale projects, such as upgrading power substations, to a series of smaller projects, such as installing enhanced bus shelters. For example, in Pennsylvania, the Lehigh and Northampton Transportation Authority will implement a new passenger information technology system, install enhanced bus shelters and signage, and fund a new maintenance facility. Elsewhere, in North Carolina, the Charlotte Area Transit System will renovate its operating and maintenance facilities. In addition, in California, the San Diego Association of Governments plans to upgrade stations on a light-rail line and replace a section of a railroad trestle bridge.

Bus fleets: $2 billion, or 33 percent, of Recovery Act funds obligated nationally have been for bus purchases or rehabilitation to replace aging vehicles or expand an agency’s fleet. For example, in Pennsylvania, the Lehigh and Northampton Transportation Authority plans to purchase 5 heavy-duty hybrid buses and the Southeastern Pennsylvania Transportation Authority plans to purchase 40 hybrid buses. In Iowa, the state’s smaller transit agencies are combining bus orders through the state’s department of transportation for 160 replacement buses and 20 buses to expand bus fleets in areas of growth around the state. In Colorado, both the Regional Transportation District in Denver and the Fort Collins-Transfort agency plan to purchase 6 buses each.

Preventive maintenance: Another $515 million, or 9 percent, has been obligated for preventive maintenance. FTA considers preventive maintenance projects eligible capital expenditures under the Transit Capital Assistance Program.

The remaining obligations have been used for rail car purchases and rehabilitation, leases, training, financing costs, and, in some limited cases, operating expenses—all of which are eligible expenditures. In particular, transit agencies reported using $5.2 million, or less than 1 percent, of the Transit Capital Assistance Program funds obligated by FTA for operating expenses. For example, the Des Moines transit agency has proposed to use approximately $788,800 for operating expenses, such as costs associated with personnel, facilities, and fuel.

Funds from the Recovery Act Fixed Guideway Infrastructure Investment program may also be used for transit improvement projects; however this is limited to fixed guideway transit facilities and equipment. Recipients may use the funding on any capital purpose to include purchasing of rolling stock, improvements to rail tracks, signals and communications, and preventive maintenance. For example, in New York, FTA approved a $254.4 million grant from Recovery Act Fixed Guideway Infrastructure Investment funds for the Metropolitan Transportation Authority for a variety of maintenance and safety improvement projects, including the Jackson Avenue Vent Plant Rehabilitation project in Long Island City. In addition, northeastern Illinois’s Regional Transportation Authority is planning on using $95.5 million that was obligated from the Fixed Guideway Infrastructure Investment program to provide capital assistance for the modernization of existing fixed guideway systems. Metra (a regional commuter rail system that is part of the authority) plans to use these funds, in part, to repair tracks and rehabilitate stations.

Some State Transit Officials and Bus Manufacturers Are Using Different Criteria to Measure Job Creation and Retention

As we reported in September, recipients of transit Recovery Act funds, such as state departments of transportation and transit agencies, are subject to multiple reporting requirements. First, under section 1201(c) of the Recovery Act, recipients of transportation funds must submit periodic reports to DOT on the amount of federal funds appropriated, allocated, obligated, and reimbursed; the number of projects put out to bid, awarded, or for which work has begun or been completed; and the number of direct and indirect jobs created or sustained, among other things. DOT is required to collect and compile this information for Congress, and it issued its first report to Congress in May 2009. Second, under section 1512, recipients of Recovery Act funds, including but not limited to transportation funds, are to report quarterly on a number of measures, such as the use of funds and the number of jobs created or retained.

To help recipients meet these reporting requirements, DOT and the Office of Management and Budget (OMB) have provided training and guidance. For example, DOT, through FTA, conducted a training session consisting of six webinars to provide information on the 1201(c) reporting requirements, such as who should submit these reports and what information is required. In addition, FTA issued guidance in September 2009 that provided a variety of information, including definitions of data elements. OMB also issued implementing guidance for section 1512 recipient reporting. For example, on June 22, 2009, OMB issued guidance to dispel some confusion related to reporting on jobs created and retained by providing, among other information, additional detail on how to calculate the relevant numbers. Despite this guidance, we reported in September that transit officials expressed concerns and confusion about the reporting requirement, and therefore we recommended that DOT continue its outreach to transit agencies to identify common problems in accurately fulfilling reporting requirements and provided additional guidance, as appropriate. In responding to our recommendation, DOT said it had conducted outreach, including providing technical assistance training and guidance, to recipients and will continue to assess the need to provide additional information.

Through our ongoing audit work, we continued to find confusion among recipients about how to calculate the numbers of jobs created and saved that is required by DOT and OMB for their reporting requirements. First, a number of transit agencies continue to express confusion about calculating the number of jobs resulting from Recovery Act funding, especially with regard to using Recovery Act funds for purchasing equipment, such as new buses. For the section 1201(c) reporting requirement, transit agencies are not to report any jobs created or sustained from the purchase of buses. However, for the section 1512 recipient reporting requirement, transit agencies were required to report jobs created or retained from bus purchases, as long as these purchases were directly from the bus manufacturers and not from dealer lots. FTA held an outreach session in September 2009 with representatives from bus manufacturers and the American Public Transportation Association in an effort to standardize 1512 reporting methods and clarify recipient responsibilities under the federal recipient reporting requirements. FTA, the represented manufacturers, and American Public Transportation Association discussed a standardized methodology that was established by OMB for calculating the number of jobs created or retained by a bus purchase with Recovery Act funds. Under the agreed-upon methodology, bus manufacturers are to divide their total U.S. employment by their total U.S. production to determine a standard “full-time equivalents” (FTE)-to- production ratio. The bus manufacturers would then multiply that FTE-to- production ratio by a standard full-time schedule in order to provide transit agencies with a standard “direct job hours”-to-production ratio. This ratio is to include hours worked by administrative and support staff, so that the ratio reflects total employment. Bus manufacturers are to provide this ratio to the grantees, usually transit agencies, which the grantee then can use to calculate the number of jobs created or retained by a bus purchase. FTA officials told us that the selected group of bus manufacturers and FTA agreed that this methodology—which allows manufacturers to report on all purchases, regardless of size—simplifies the job reporting process. According to guidance, it is the responsibility of the transit agency to contact the manufacturer and ask how many jobs were related to that order. The manufacturers, in turn, are responsible for providing the transit agencies with information on the jobs per bus ratio at the time when buses are delivered. If the manufacturers cannot give the agencies a jobs estimate, the transit agencies must develop their own estimate.

While representatives from three bus manufacturers we interviewed were using the agreed-upon methodology, they highlighted a number of different issues related to job estimates: Representatives from two bus manufacturers reported not knowing about the FTA methodology and used their own measures for jobs created or retained. For example, representatives from two manufacturers told us that the labor-hours required to produce a bus formed the basis for their calculation of FTEs and was then pro-rated based upon the amount of production taking place in the United States and the purchase amount funded by Recovery Act dollars.

One bus manufacturer representative said it was difficult to prorate the jobs calculation by the proportion funded by the Recovery Act, as the agreed-upon methodology requires, since they did not always receive this information from the transit agencies.

According to FTA officials, the manufacturer is only responsible for reporting the ratio of jobs created or retained per bus produced; the purchasing transit agencies are responsible for the prorating and final calculation of jobs created or retained. However, even bus manufacturers that were otherwise aware of FTA guidance and following FTA’s methodology would sometimes calculate the total number of jobs created or retained by a purchase.

The second area of confusion we found involved the methodology recipients were using to calculate full-time equivalents for the recipient reporting requirements. As we reported in our November 2009 report on recipient reporting, the data element on jobs created or retained expressed in FTEs raised questions and concerns for some recipients. In section 5.2 of the June 22 guidance, OMB states that “the estimate of the number of jobs required by the Recovery Act should be expressed as FTE, which is calculated as the total hours worked in jobs retained divided by the number of hours in a full-time schedule, as defined by the recipient.” Further, “the FTE estimates must be reported cumulatively each calendar quarter.” In addition to issuing guidance, OMB and DOT provided several types of clarifying information to recipients as well as opportunities to interact and ask questions or receive help with the reporting process. However, FTE calculations varied depending on the period of performance the recipient reported on, and we found examples where the issue of a project period of performance created significant variation in the FTE calculation. For example, in Pennsylvania, each of four transit entities we interviewed used a different denominator to calculate the number of full-time equivalent jobs they reported on their recipient reports for the period ending September 30, 2009. Southeastern Pennsylvania Transportation Authority in Philadelphia used 1,040 hours as its denominator since it had projects under way in two previous quarters. Port Authority of Allegheny County prorated the hours based on the contractors’ start date, as well as to reflect that hours worked from September were not included due to lag time in invoice processing; Port Authority used 1,127 hours for contractors starting before April, 867 hours for contractors starting in the second quarter, and 347 hours for contractors starting in the third quarter. Lehigh and Northampton Transportation Authority in Allentown used 40 hours in the 1512 report they tried to submit, but, due to some confusion about the need for corrective action, the report was not filed. Finally, the Pennsylvania Department of Transportation reported using 1,248 hours, which was prorated by multiplying 8 hours per workday times the 156 workdays between February 17 and September 30, 2009. In several other of our selected states, this variation across transit programs’ period of performance for the FTE calculation also occurred. Our November report provided additional detail and recommendations to address the problems and confusion associated with how FTEs were calculated in the October recipient report.

In summary Mr. Chairman, obligation of Recovery Act funds continues, and states are using these funds for a variety of purposes to address the particular transportation challenges in their states. DOT and the states remain confident that the March 2010 1-year deadline for obligating all highway funds will be met. It seems likely that funds will be available for obligation after the March deadline, although estimating precisely how much is difficult. This is because states continue to realize savings from contracts awarded at less than estimated costs, allowing the savings to be deobligated and obligated to other projects. In the weeks ahead, FHWA and the states have the opportunity to exercise diligence to both promptly seek deobligation of known savings and to identify projects that make sound use of Recovery Act funding. In addition, if any funds are withdrawn, they will be redistributed to states that have had all of their statewide funds obligated by March and will be available for obligation by FHWA. States that do not have all of their suballocated funds obligated by March will not be precluded from receiving redistributed funds. We will continue to monitor states’ and localities’ use of Recovery Act funds, including the rates of deobligation. In addition, there is a lack of understanding among transit agencies and bus manufacturers regarding the suggested methodology for calculating the number of jobs created or saved through bus purchases and the manufacturer’s role in the reporting process. We have previously recommended that OMB work with recipients to enhance understanding of the reporting process and that DOT continue its outreach to state departments of transportation and transit agencies to ensure recipients of Recovery Act funds are adequately fulfilling their reporting requirements. Implementing these recommendations will be key to addressing the lack of understanding we found related to reporting the number of jobs saved or created through bus purchases. We will continue to monitor states’ and localities’ use of Recovery Act funds in our future reviews.

Mr. Chairman, this concludes my prepared statement. I would be pleased to respond to any questions that you or other Members of the Committee might have.

GAO Contact and Staff Acknowledgments

For further information regarding this statement, please contact Katherine A. Siggerud at (202) 512-2834 or siggerudk@gao.gov, or A. Nicole Clowers at (202) 512-2834 or clowersa@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals who made key contributions to this statement are Lauren Calhoun, Steve Cohen, Catherine Colwell, Robert Ciszewski, Dean Gudicello, Heather Halliwell, Bert Japikse, Delwen Jones, Hannah Laufe, Les Locke, Tim Schindler, Raymond Sendejas, Tina Won Sherman, Crystal Wesco, Carrie Wilks, and Susan Zimmerman.

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