Our analysis of initial estimates of Recovery Act spending provided by the Congressional Budget Office (CBO) suggested that about $49 billion would be outlayed to states and localities by the federal government in fiscal year 2009, which runs through September 30. However, our analysis of actual federal outlays reported on www.recovery.gov at the time of our bimonthly review indicated that in the 4 months since enactment, the federal Treasury had paid out approximately $29 billion to states and localities, which was about 60 percent of the payments estimated for fiscal year 2009. Since the release of our July report, an additional $16 billion in Recovery Act funds has been outlayed to states and localities during that period for a total of almost $45 billion as of August 28, 2009. Although this pace of spending may not continue for the remainder of the fiscal year, at present spending is slightly ahead of the original estimates. Figure 1 shows the original estimate of federal outlays to states and localities under the Recovery Act compared with actual federal outlays as reported by federal agencies on www.recovery.gov. More than three quarters of the $45 billion in federal outlays has been provided through the increased Federal Medical Assistance Percentage (FMAP) grant awards and the State Fiscal Stabilization Fund administered by the Department of Education. Figure 1 shows actual federal outlays as of August 28, 2009 and the original estimate. According to the Office of Management and Budget (OMB), an estimated $149 billion in Recovery Act funding will be obligated to states and localities in fiscal year 2009. Our work for our July bimonthly report focused on nine federal programs, selected primarily because they have begun disbursing funds to states and include programs with significant amounts of Recovery Act funds, programs receiving significant increases in funding, and new programs. Recovery Act funding of some of these programs is intended for further disbursement to localities. Together, these nine programs are estimated to account for approximately 87 percent of federal Recovery Act outlays to state and localities in fiscal year 2009. Figure 2 shows the distribution by program of anticipated federal Recovery Act spending in fiscal year 2009 to states and localities. The Recovery Act provides eligible states with an increased FMAP for 27 months between October 1, 2008, and December 31, 2010. On February 25, 2009, CMS made increased FMAP grant awards to states, and states may retroactively claim reimbursement for expenditures that occurred prior to the effective date of the Recovery Act. For the third quarter of fiscal year 2009, the increases in FMAP for the 16 states and the District of Columbia compared with the original fiscal year 2009 levels are estimated to range from 6.2 percentage points in Iowa to 12.24 percentage points in Florida, with the FMAP increase averaging just over 10 percentage points. When compared with the first two quarters of fiscal year 2009, the FMAP in the third quarter of fiscal year 2009 increased in 12 of the 16 states and the District. From October 2007 to May 2009, overall Medicaid enrollment in the 16 states and the District increased by 7 percent. In addition, each of the states and the District experienced an enrollment increase during this period, with the highest number of programs experiencing an increase of 5 percent to 10 percent. However, the percentage increase in enrollment varied widely ranging from just under 3 percent in California to nearly 20 percent in Colorado. Since our July report and with regard to the states’ receipt of the increased FMAP, all 16 states and the District had drawn down increased FMAP grant awards of just over $19.6 billion for the period of October 1, 2008 through September 4, 2009, which amounted to almost 84 percent of funds available. In addition, except for the initial weeks that increased FMAP funds were available, the weekly rate at which the sample states and the District have drawn down these funds has remained relatively constant. States reported that they are using or are planning to use the funds that have become freed up as a result of increased FMAP for a variety of purposes. Most commonly, states reported that they are using or planning to use freed-up funds to cover their increased Medicaid caseload, to maintain current benefits and eligibility levels, and to help finance their respective state budgets. Several states noted that given the poor economic climate in their respective states, these funds were critical in their efforts to maintain Medicaid coverage at current levels. While officials from several states spoke positively about CMS’s guidance related to FMAP requirements, over half of the states and the District reported they wanted CMS to provide additional guidance regarding how they report monthly on increased FMAP spending and whether certain programmatic changes would affect their eligibility for funds. For example, Medicaid officials from several states told us they were hesitant to implement minor programmatic changes, such as changes to prior authorization requirements, pregnancy verifications, or ongoing rate changes, out of concern that doing so would jeopardize their eligibility for increased FMAP. In addition, at least three states raised concerns that glitches related to new or updated information systems used to generate provider payments could affect their eligibility for these funds. Due to the variability of state operations, funding processes, and political structures, CMS has worked with states on a case-by-case basis to discuss and resolve issues that arise. Specifically, communications between CMS and several states indicate efforts to clarify issues related to the contributions to the state share of Medicaid spending by political subdivisions or to rainy-day funds. Since we issued our July report, on July 30, 2009, CMS published new guidance for states regarding the prompt payment requirement. The guidance describes the method states should use to calculate days during a quarter that states have either met or not met the prompt payment requirement in the Medicaid statute; and how a state could obtain a waiver from the requirement. More recently, CMS published new guidance clarifying the maintenance of eligibility requirements under the Recovery Act, which includes a discussion of programmatic changes that could affect states’ eligibility for the increased FMAP. The Recovery Act provides funding to the states for restoration, repair, and construction of highways and other eligible surface transportation projects. The act requires that 30 percent of these funds be suballocated, primarily based on population, for metropolitan, regional, and local use. In March 2009, $26.7 billion was apportioned to all 50 states and the District of Columbia (District) for highway infrastructure and other eligible projects. More recently, as of September 1, 2009, $18 billion of the funds had been obligated for almost 7,000 projects nationwide, and approximately $11 billion had been obligated for almost 3,800 projects in the 16 states and the District that are the focus of GAO’s review. Almost half of Recovery Act highway obligations nationwide have been for pavement improvements. Specifically, $8.7 billion of the $ 18 billion obligated nationwide is being used for projects such as reconstructing or rehabilitating deteriorated roads. Many state officials told us they selected a large percentage of resurfacing and other pavement improvement projects because they did not require extensive environmental clearances, were quick to design, could be quickly obligated and bid, could employ people quickly, and could be completed within 3 years. In addition, $3 billion, or about 16 percent of Recovery Act funds nationally, has been obligated for pavement-widening projects and around 10 percent has been obligated for the replacement, improvement or rehabilitation of bridges. As of September 1, 2009, $1.4 billion had been reimbursed nationwide by the Federal Highway Administration (FHWA) and $604 million had been reimbursed in the 16 states and the District. States are just beginning to get projects awarded so that contractors can begin work, and U.S. Department of Transportation (DOT) officials told us that although funding has been obligated for almost 7,000 projects, it may be months before states can request reimbursement. Once contractors mobilize and begin work, states make payments to these contractors for completed work, and may request reimbursement from FHWA. FHWA told us that once funds are obligated for a project, it may take 2 or more months for a state to bid and award the work to a contractor and have work begin. According to state officials, because an increasing number of contractors are looking for work, bids for Recovery Act contracts have come in under estimates. State officials told us that bids for the first Recovery Act contracts were ranging from around 5 percent to 30 percent below the estimated cost. Several state officials told us they expect this trend to continue until the economy substantially improves and contractors begin taking on enough other work. Funds appropriated for highway infrastructure spending must be used as required by the Recovery Act. States are required to do the following: Ensure that 50 percent of apportioned Recovery Act funds are obligated within 120 days of apportionment (before June 30, 2009) and that the remaining apportioned funds are obligated within 1 year. The 50 percent rule applies only to funds apportioned to the state and not to the 30 percent of funds required by the Recovery Act to be suballocated, primarily based on population, for metropolitan, regional, and local use. The Secretary of Transportation is to withdraw and redistribute to other states any amount that is not obligated within these time frames. Give priority to projects that can be completed within 3 years and to projects located in economically distressed areas. These areas are defined by the Public Works and Economic Development Act of 1965, as amended. According to the act, to qualify as economically distressed, an area must have (1) a per capita income that is 80 percent or less than the national average or (2) 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. For areas that do not meet one of these two criteria, the Secretary of Commerce has the authority to determine that an area has experienced or is about to experience a “special need” arising from actual or threatened severe unemployment or economic adjustment problems.