National Overview – July 2009

What GAO Found

The July 8, 2009 report showed that, across the United States, as of June 19, 2009, Treasury had outlayed about $29 billion of the estimated $49 billion in Recovery Act funds projected for use in states and localities in fiscal year 2009. More than 90 percent of the $29 billion in federal outlays has been provided through the increased Medicaid Federal Medical Assistance Percentage (FMAP) and the State Fiscal Stabilization Fund (SFSF) administered by the Department of Education.

87 Percent of Estimated Fiscal Year 2009 Federal Recovery Act Outlays to States and Localities Are in the Nine Programs Reviewed by GAO

Medicaid: 63%, State Fiscal Stabilization Fund: 13%, Highways: 6%, IDEA, Parts B and C: 1%, WIA Youth Programs: %O, ESEA, Title 1 Part A: 1%, Byrne grants: less than 1%, Weatherization Assistance Program: less than 1%, Public Housing Capital Fund: less than 1%, Other programs not in study:13%

Source: GAO analysis of data from CBO and Federal Funds Information for States.

Increased Medicaid FMAP Funding

All 16 states and the District have drawn down increased Medicaid FMAP grant awards of just over $15 billion for October 1, 2008, through June 29, 2009, which amounted to almost 86 percent of funds available. Medicaid enrollment increased for most of the selected states and the District, and several states noted that the increased FMAP funds were critical in their efforts to maintain coverage at current levels. States and the District reported they are planning to use the increased federal funds to cover their increased Medicaid caseload and to maintain current benefits and eligibility levels. Due to the increased federal share of Medicaid funding, most state officials also said they would use freed-up state funds to help cope with fiscal stresses.

Highway Infrastructure Investment

As of June 25, DOT had obligated about $9.2 billion for almost 2,600 highway infrastructure and other eligible projects in the 16 states and the District. Across the nation, almost half of the obligations have been for pavement improvement projects because they did not require extensive environmental clearances, were quick to design, obligate and bid on, could employ people quickly, and could be completed within 3 years. Officials from most states considered project readiness, including the 3-year completion requirement, when making project selections and only later identified to what extent these projects fulfilled the economically distressed area requirement. We found substantial variation in how states identified areas in economically distressed areas and how they prioritized project selection for these areas.

State Fiscal Stabilization Fund

As of June 30, 2009, of the 16 states and the District, only Texas had not submitted an SFSF application. Pennsylvania recently submitted an application but had not yet received funding. The remaining 14 states and the District have been awarded a total of about $17 billion in initial funding from Education-of which about $4.3 billion has been drawn down. School districts said they would use SFSF funds to maintain current levels of education funding, particularly for retaining staff in current education programs. They also told us that SFSF funds would help offset state budget cuts.

Overall, states reported using Recovery Act funds to stabilize state budgets and to cope with fiscal stresses. The funds helped them maintain staffing for existing programs and minimize or avoid tax increases as well as reductions in services.

Accountability

States have implemented various internal control programs; however, federal Single Audit guidance and reporting does not fully address Recovery Act risk. The Single Audit reporting deadline is too late to provide audit results in time for the audited entity to take action on deficiencies noted in Recovery Act programs. Moreover, current guidance does not achieve the level of accountability needed to effectively respond to Recovery Act risks. Finally, state auditors need additional flexibility and funding to undertake the added Single Audit responsibilities under the Recovery Act.

Impact

Direct recipients of Recovery Act funds, including states and localities, are expected to report quarterly on a number of measures, including the use of funds and estimates of the number of jobs created and retained. The first of these reports is due in October 2009. OMB—in consultation with a broad range of stakeholders—issued additional implementing guidance for recipient reporting on June 22, 2009, that clarifies some requirements and establishes a central reporting framework.

In addition to employment-related reporting, OMB requires reporting on the use of funds by recipients and nonfederal subrecipients receiving Recovery Act funds. The tracking of funds is consistent with the Federal Funding Accountability and Transparency Act (FFATA). Like the Recovery Act, FFATA requires a publicly available Web site—www.USAspending.gov—to report financial information about entities awarded federal funds. Yet, significant questions have been raised about the reliability of the data on www.USAspending.gov, primarily because what is reported by the prime recipients is dependent on the unknown data quality and reporting capabilities of subrecipients.

GAO's RecommendationsBack to top

Accountability and Transparency

To leverage Single Audits as an effective oversight tool for Recovery Act programs, the Director of OMB should

  • develop requirements for reporting on internal controls during 2009 before significant Recovery Act expenditures occur, as well as for ongoing reporting after the initial report;
  • provide more direct focus on Recovery Act programs through the Single Audit to help ensure that smaller programs with high risk have audit coverage in the area of internal controls and compliance;
  • evaluate options for providing relief related to audit requirements for low-risk programs to balance new audit responsibilities associated with the Recovery Act; and
  • develop mechanisms to help fund the additional Single Audit costs and efforts for auditing Recovery Act programs.

Matter for Congressional Consideration

Congress should consider a mechanism to help fund the additional Single Audit costs and efforts for auditing Recovery Act programs.

Reporting on Impact

The Director of OMB should work with federal agencies to provide recipients with examples of the application of OMB's guidance on recipient reporting of jobs created and retained. In addition, the Director of OMB should work with agencies to clarify what new or existing program performance measures are needed to assess the impact of Recovery Act funding.

Communications and Guidance

To strengthen the effort to track funds and their uses, the Director of OMB should (1) ensure more direct communication with key state officials, (2) provide a long range time line on issuing federal guidance, (3) clarify what constitutes appropriate quality control and reconciliation by prime recipients, and (4) specify who should best provide formal certification and approval of the data reported.

The Secretary of Transportation should develop clear guidance on identifying and giving priority to economically distressed areas that are in accordance with the requirements of the Recovery Act and the Public Works and Economic Development Act of 1965, as amended, and more consistent procedures for the Federal Highway Administration to use in reviewing and approving states' criteria.

Full Report

July 2009

Recovery Act: States' and Localities' Current and Planned Uses of Funds While Facing Fiscal Stresses
GAO-09-829
Recovery Act: States' and Localities' Current and Planned Uses of Funds While Facing Fiscal Stresses (Appendixes)
GAO-09-830SP
July 2009 Reviews of Selected States