Enacted on February 17, 2009, to jump-start the economy and encourage long-term economic growth, the Recovery Act makes more than $780 billion available in supplemental appropriated funds to eligible state, local, and sometimes private recipients. These funds are intended to create and save jobs, spur economic activity, and promote high levels of accountability and transparency in government spending, among other things. We reported that as of September 23, 2009, the Department of the Treasury had outlayed about $48 billion of the estimated $49 billion in Recovery Act funds projected for use in states and localities in federal fiscal year 2009, which ran through September 30, 2009. To ensure that Recovery Act funds supplement rather than replace other spending, the Recovery Act contains requirements that the federal funds not be substituted for state, local, and private support for some aided programs. State and local governments are to be held accountable for how the Recovery Act funds are used to support those programs, and the federal agencies that oversee the programs will be responsible for reviewing states’ compliance with the requirements. These spending requirements include the following: Maintenance of effort. This requirement prohibits recipients from replacing their own spending with federal dollars. In particular, a maintenance of effort provision requires a state or its agency to maintain certain levels of state spending for a certain program. Supplement-not-supplant. This requirement does not hold recipients responsible for maintaining their level of effort in supporting a program, but it does require that funds provided for certain programs serve only to supplement expenditures from other federal, state, or local sources or from funds independently generated by the recipient. But-for test. This requirement ensures appropriate use of Recovery Act funds by requiring recipients to explain how a certain project would not have been implemented during the grant period without the federal grant. This requirement is described as the “but-for test” because, but for the funds, the project would not be supported. Requirements for the programs that are subject to Recovery Act provisions designed to guard against the substitution of federal funds for state funds vary by responsible agency. In general, the supplement-not-supplant requirements for HUD and the “but-for test” for the Department of Commerce are different from the maintenance of effort requirements for the Departments of Education and Transportation. However, only recipients of funds administered by the Department of Education can seek a waiver from the maintenance of effort requirements. (See table 2.) The federal agencies responsible for these programs have issued guidance to recipients on how to implement the maintenance of effort or similar provision requirements. In addition, the Department of Transportation (DOT) continues to issue further guidance to clarify some requirements. To determine whether recipients comply with maintenance of effort and similar provisions, agencies are finalizing state certifications, reviewing applications, and developing plans to review recipients’ compliance with the provisions. However, some agencies and states face challenges in implementing these provisions. For example, the Department of Commerce’s review of applications to ensure that proposed projects would not be feasible without federal funding has been delayed by scheduling and staffing challenges. In addition, officials from several state departments of transportation told us that while they plan to meet their maintenance of effort requirements, decreasing state revenues and budgets pose a challenge to doing so. DOT maintenance of effort provision: The Recovery Act provided about $43.9 billion for highway, transit, and rail projects. This funding is administered through DOT’s operating administrations—the Federal Highway Administration (FHWA), Federal Transit Administration (FTA), and Federal Railroad Administration (FRA). To be eligible for these funds, the Recovery Act specifies that the governor of each state must certify that the state will maintain its current level of highway, transit, and rail spending, among other things. The certification must include a statement of the amount of funds the state plans to spend from state sources from the date of enactment—February 17, 2009—through September 30, 2010, for the types of projects that are funded by that appropriation. The Recovery Act required that the Governor of each state submit this certification no later than 30 days after enactment, or March 19, 2009. The Recovery Act does not provide any waivers or exemptions for the states— for changes in economic conditions, for example—from the maintenance of effort provision. The consequence for a state of not maintaining the certified level of effort is that the state will be prohibited from participating in the redistribution of federal-aid highway obligation authority that will occur after August 1, 2011. According to a DOT official, the department has not made a decision as to whether the Recovery Act requires states to maintain a total level of effort for covered programs or to maintain their level of effort for each covered program. For example, a state might not maintain its certified level of effort for transit but might exceed its certified level of effort for highways, thereby equaling or exceeding its total certified level for transportation. How this question is interpreted has significance for state flexibility in meeting maintenance of effort requirements and for decisions about whether states will be eligible for redistributed federal-aid highway obligations. According to this DOT official, DOT plans to make a decision on this issue by the end of calendar year 2009. DOT guidance to states: Ten days after the enactment of the Recovery Act on February 17, 2009, DOT issued guidance to the states on the FHWA, FTA, and FRA programs, among others, with maintenance of effort provisions. This guidance included the principal requirements for a governor’s certification that a state will maintain its highway, transit, and rail funding efforts, among others. Specifically, this guidance included a sample form that states could complete to satisfy the Recovery Act’s certification requirement. In March 2009, as required by the Recovery Act, all states submitted their certifications; however, many states submitted explanatory certifications—such as a statement that the certification was based on “the best information available at the time”—or conditional certifications, indicating that the certification was subject to conditions or assumptions, future legislative action, future revenues, or other conditions. In response, on April 22, 2009, DOT issued guidance requiring such states to correct those problems through recertification. All states that submitted conditional certifications submitted a second maintenance of effort certification to DOT without conditions. Since April, DOT has issued supplemental guidance to reduce the variations in how states calculate their maintenance of effort certifications. This additional guidance is as follows: On May 13, 2009, DOT issued guidance in response to questions asked by state representatives during a conference call. The majority of this guidance addresses the types of expenditures to include in their maintenance of effort calculation. For example, states should include in- kind contributions from state sources in the planned amount of the expenditures. In June and July 2009, FHWA posted several sets of frequently asked questions to continue to provide states with information on the types of expenditures to include in their maintenance of effort calculations—and therefore reduce the variation in how states calculated their maintenance of effort certifications. For example, states should include planned expenditures from state sources regardless of which agency or political subdivision in the state is responsible for overseeing the expenditure of those funds. However, the maintenance of effort calculation does not include any locally generated funds (i.e., funds produced by local taxes). In September 2009, DOT issued guidance that requires states to include grants-in-aid to local governments as part of their maintenance of effort calculation, which states generally did not count in their previous calculations. This guidance will require some (if not many) states to complete another certification. Of the 17 departments of transportation we spoke with, officials from 13 stated that they had received timely guidance from DOT on maintenance of effort certification and that DOT has generally been responsive to their questions. For example, Mississippi transportation officials told us that they had spoken and met with DOT officials regularly since the enactment of the Recovery Act to discuss Mississippi’s maintenance of effort certification. DOT plans for determining compliance with maintenance of effort provision: DOT continues to work with state governments to finalize their maintenance of effort certifications. As we reported in September 2009, DOT has concluded that the form of the revised state certifications is consistent with its April 22, 2009, guidance, but it is currently evaluating whether the states’ method of calculating the amounts they planned to expend for the covered programs is in compliance with DOT guidance. As of November 30, 2009, FHWA, FTA, and FRA had reached different stages in their reviews. In June 2009, FHWA began to review each state’s maintenance of effort calculation to ensure that the state included the correct planned expenditures for highway investment. 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, as required. 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 the June, July, and September 2009 guidance and plans to issue additional guidance on these issues. Our review of FHWA division assessments for the 16 states and the District of Columbia included in this study showed that 6 states needed further assessment. In August 2009, FHWA staff in headquarters reviewed the FHWA division staff findings for each state 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 District of Columbia 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 that they have not determined when they will require the states to submit their revised consolidated certification.