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entitled 'Recovery Act: As Initial Implementation Unfolds in States and
Localities, Continued Attention to Accountability Issues Is Essential'
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
April 2009:
Recovery Act:
As Initial Implementation Unfolds in States and Localities, Continued
Attention to Accountability Issues Is Essential:
GAO-09-580:
GAO Highlights:
Highlights of GAO-09-580, a report to Senate and House Committees on
Appropriations, Senate Committee on Homeland Security and Governmental
Affairs, and House Committee on Oversight and Government Reform.
Why GAO Did This Study:
The American Recovery and Reinvestment Act of 2009 (Recovery Act) is
estimated to cost about $787 billion over the next several years, of
which about $280 billion will be administered through states and
localities. The Recovery Act requires GAO to do bimonthly reviews of
the use of funds by selected states and localities. In this first
report, GAO describes selected states’ and localities’ (1) uses of and
planning of Recovery Act funds, (2) accountability approaches, and (3)
plans to evaluate the impact of funds received. GAO’s work is focused
on 16 states and the District of Columbia—representing about 65 percent
of the U.S. population and two-thirds of the intergovernmental federal
assistance available through the Recovery Act. GAO collected documents
from and interviewed state and local officials, including Governors, “
Recovery Czars,” State Auditors, Controllers, and Treasurers. GAO also
reviewed guidance from the Office of Management and Budget (OMB) and
other federal agencies.
What GAO Found:
Uses and Planning for Recovery Act Funds: About 90 percent of the
estimated $49 billion in Recovery Act funding to be provided to states
and localities in FY2009 will be through health, transportation and
education programs. Within these categories, the three largest programs
are increased Medicaid Federal Medical Assistance Percentage (FMAP)
grant awards, funds for highway infrastructure investment, and the
State Fiscal Stabilization Fund (SFSF). The funding notifications for
Recovery Act funds for the 16 selected states and the District of
Columbia (the District) have been approximately $24.2 billion for
Medicaid FMAP on April 3, $26.7 billion for highways on March 2, and
$32.6 billion for SFSF on April 2.
Increased Medicaid FMAP Funding:
Fifteen of the 16 states and the District have drawn down approximately
$7.96 billion in increased FMAP grant awards for the period October 1,
2008 through April 1, 2009. The increased FMAP is for state
expenditures for Medicaid services. The receipt of this increased FMAP
may reduce the state share for their Medicaid programs. States have
reported using funds made available as a result of the increased FMAP
for a variety of purposes. For example, states and the District
reported using these funds to maintain their current level of Medicaid
eligibility and benefits, cover their increased Medicaid caseloads-
which are primarily populations that are sensitive to economic
downturns, including children and families, and to offset their state
general fund deficits thereby avoiding layoffs and other measures
detrimental to economic recovery.
Highway Infrastructure Investment:
States are undertaking planning activities to identify projects, obtain
approval at the state and federal level and move them to contracting
and implementation. For the most part, states were focusing on
construction and maintenance projects, such as road and bridge repairs.
Before they can expend Recovery Act funds, states must reach agreement
with the Department of Transportation on the specific projects; as of
April 16, two of the 16 states had agreements covering more than 50
percent of their states’ apportioned funds, and three states did not
have agreement on any projects. While a few, including Mississippi and
Iowa had already executed contracts, most of the 16 states were
planning to solicit bids in April or May. Thus, states generally had
not yet expended significant amounts of Recovery Act funds.
State Fiscal Stabilization Fund:
The states and D.C. must apply to the Department of Education for SFSF
funds. Education will award funds once it determines that an
application contains key assurances and information on how the state
will use the funds. As of April 20, applications from three states had
met that determination-South Dakota, and two of GAO’s sample states,
California and Illinois. The applications from other states are being
developed and submitted and have not yet been awarded. The states and
the District report that SFSF funds will be used to hire and retain
teachers, reduce the potential for layoffs, cover budget shortfalls,
and restore funding cuts to programs.
This report contains separate appendixes on each of the 16 states and
the District that discuss the plans and uses of funds in these three
major programs as well as selected other programs that are receiving
Recovery Act funds.
Planning continues for the use of Recovery Act funds. The figure below
shows the projected timing of funds made available to states and
localities.
Figure: Projected Timing Of Funds Made Available To States And
Localities:
[Refer to PDF for image: vertical bar graph]
Fiscal year: 2009;
Amount: $48.9 billion.
Fiscal year: 2010;
Amount: $107.7 billion.
Fiscal year: 2011;
Amount: $63.4 billion.
Fiscal year: 2012;
Amount: $23.3 billion.
Fiscal year: 2013;
Amount: $14.4 billion.
Fiscal year: 2014;
Amount: $9.1 billion.
Fiscal year: 2015;
Amount: $5.7 billion.
Fiscal year: 2016;
Amount: $2.5 billion.
Source: GAO analysis of CBO and FFIS data.
[End of figure]
State activities include appointing Recovery Czars; establishing task
forces and other entities, and developing public websites to solicit
input and publicize selected projects. In many states, legislative
authorization is needed before the state can receive and/or expend
funds or make changes to programs or eligibility requirements.
Accountability Approaches
GAO found that the selected states and the District are taking various
approaches to ensuring that internal controls to manage risk up-front;
they are assessing known risks and developing plans to address those
risks. However, officials in most of the states and the District
expressed concerns regarding the lack of Recovery Act funding provided
for accountability and oversight. Due to fiscal constraints, many
states reported significant declines in the number of oversight staff—
limiting their ability to ensure proper implementation and management
of Recovery Act funds. State auditors are also planning their work
including conducting required single audits and testing compliance with
federal requirements. The single audit process is important for
effective oversight but can be modified to be a more timely and
effective audit and oversight tool for the Recovery Act and OMB is
weighing options on how to modify it.
Nearly half of the estimated spending programs in the Recovery Act will
be administered by non-federal entities. State officials suggested
opportunities to improve communication in several areas. For example,
they wish to be notified when Recovery Act funds are made available
directly to prime recipients within their state that are not state
agencies.
Plans to Evaluate Impact:
Two of the several objectives of the Recovery Act are to (1) preserve
existing jobs and stimulate job creation and (2) promote economic
recovery. Officials in nine of the 16 states and the District expressed
concern about determining jobs created and retained under the Recovery
Act, as well as methodologies that can be used for estimation of each.
GAO’s Recommendations:
OMB has moved out quickly to guide implementation of the Recovery Act.
As OMB’s initiatives move forward, it has opportunities to build upon
its efforts to date by addressing several important issues.
Accountability and Transparency Requirements: The Director of OMB
should:
* adjust the single audit process to provide for review of the design
of internal controls during 2009 over programs to receive Recovery Act
funding, before significant expenditures in 2010.
* continue efforts to identify methodologies that can be used to
determine jobs created and retained from projects funded by the
Recovery Act.
* evaluate current requirements to determine whether sufficient,
reliable and timely information is being collected before adding
further data collection requirements.
Administrative Support and Oversight:
The Director of OMB should clarify what Recovery Act funds can be used
to support state efforts to ensure accountability and oversight.
Communications:
The Director of OMB should provide timely and efficient notification to
(1) prime recipients in states and localities when funds are made
available for their use, (2) states, where the state is not the primary
recipient of funds, but has a state-wide interest in this information,
and (3) all recipients, on planned releases of federal agency guidance
and whether additional guidance or modifications are expected.
What GAO Recommends:
GAO makes a number of recommendations, which are discussed on the next
page. In general, OMB concurred with the overall objectives of our
recommendations and plans to work with GAO to further accountability
for these funds.
View [hyperlink, http://www.gao.gov/products/GAO-09-580] or key
components. For more information, contact J. Christopher Mihm at (202)
512-6806 or mihmj@gao.gov.
[End of section]
Contents:
Letter:
Background:
States' and Localities' Use of and Plans for Recovery Act Funds Focus
on Purposes of the Act and States' Fiscal Stresses:
Selected States' and Localities' Internal Controls and Safeguards to
Manage and Mitigate the Risk of Mismanagement, Waste, Fraud, and Abuse
of Recovery Act Funds:
State Plans to Assess Recovery Act Spending Impact:
Concluding Observations and Recommendations: Moving Forward to Clarify
Recovery Act Roles and Responsibilities:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Localities Visited by GAO in Selected States:
Appendix III: Arizona:
Overview:
Arizona Beginning to Use Recovery Act Funds:
Recovery Act Funds Supporting Other Programs:
State Agencies and Localities Are Expecting to Use Existing Internal
Controls to Safeguard Recovery Act Funds, Although in Some Cases,
Resource Constraints Could Affect Oversight:
State Agencies and Localities Will Use Existing Performance Measures to
Gauge the Impacts of Recovery Act Funding and Are Waiting for Federal
Guidance on How to Implement New Measures the Act Requires, Especially
on Jobs Created and Saved:
Arizona's Comments on This Summary:
GAO Contacts:
Staff Acknowledgments:
Appendix IV: California:
Overview:
California Beginning to Use Recovery Act Funds:
Plans for Oversight and Control of Recovery Funds Are Still Evolving:
State Officials Expressed Concerns about Lack of Guidance and Ability
to Measure the Impacts of Recovery Act Funds:
California's Comments on This Summary:
GAO Contacts:
Staff Acknowledgments:
Appendix V: Colorado:
Overview:
Colorado Beginning to Use Recovery Act Funds:
Colorado Officials Expressed Concerns Related to Tracking of, Internal
Controls over, and Safeguards for Recovery Act Funds:
Colorado Is Developing Plans to Assess the Effects of Recovery Act
Funds:
Colorado's Comments on This Summary:
GAO Contacts:
Staff Acknowledgments:
Appendix VI: Florida:
Overview:
Florida Beginning to Use Recovery Act Funds:
Florida's Planning Process Has Set the Stage for Decisions on Spending
of Recovery Act Funds:
Plans for Safeguards and Controls Being Developed at State Level:
Plans to Assess Impact of Recovery Act Funds Are in Initial Stages:
Florida's Comments on This Summary:
GAO Contacts:
Staff Acknowledgments:
Appendix VII: Georgia:
Overview:
Georgia Beginning to Use Recovery Act Funds:
Georgia Has Been Establishing Internal Controls for Recovery Act Funds:
Plans to Assess Impact of Recovery Act Funds Are in Initial Stages:
Georgia's Comments on This Summary:
GAO Contacts:
Staff Acknowledgments:
Appendix VIII: Illinois:
Overview:
Illinois Beginning to Use Recovery Act Funds:
Illinois Is Taking Steps to Assess Risk and Develop Plans for
Safeguards Related to Recovery Act Funds:
Agencies Are Considering Ways to Assess Impacts, but Additional
Guidance Is Needed:
Illinois's Comments on This Summary:
GAO Contacts:
Staff Acknowledgments:
Appendix IX: Iowa:
Overview:
Iowa Beginning to Use Recovery Act Funds:
Iowa Has a Foundation of Safeguards and Controls That Could Help Assure
Proper Spending of Recovery Act Funds:
State Agencies Are Considering How to Assess the Effects of Recovery
Act Funds:
Iowa's Comments on This Summary:
GAO Contacts:
Staff Acknowledgments:
Appendix X: Massachusetts:
Overview:
Massachusetts Beginning to Use Recovery Funds:
Plans for Safeguards and Controls Being Developed at State Level:
Plans to Assess Impact of Recovery Act Funds Are in Initial Stages:
Massachusetts's Comments on This Summary:
GAO Contacts:
Staff Acknowledgments:
Appendix XI: Michigan:
Overview:
Michigan Beginning to Use Recovery Act Funds:
Michigan Is Augmenting Its Approach to Safeguarding and Transparency of
Recovery Act Funds but Gaps Exist:
Michigan Using Existing Internal Controls:
Plans to Assess Impact of the Recovery Act Are Preliminary:
Michigan's Comments on This Summary:
GAO Contacts:
Staff Acknowledgments:
Appendix XII: Mississippi:
Overview:
Mississippi Beginning to Use Recovery Act Funds:
Mississippi's Comments on This Summary:
GAO Contacts:
Staff Acknowledgments:
Appendix XIII: New Jersey:
Overview:
New Jersey Beginning to Use Recovery Act Funds:
New Jersey's Comments on this Summary:
GAO Contacts:
Staff Acknowledgments:
Appendix XIV: New York:
Overview:
New York Beginning to Use Recovery Act Funds:
New York Plans to Oversee and Safeguard Recovery Act Funds Using
Existing Control Mechanisms Where Possible:
New York's Comments on This Summary:
GAO Contacts:
Staff Acknowledgments:
Appendix XV: North Carolina:
Overview:
North Carolina Beginning to Use Recovery Act Funds:
Plans for Safeguards and Controls Being Developed at the State Level
and at State Agencies Administering Federal Programs:
Plans to Assess Impact of Recovery Act Funds Are Just Being Developed:
North Carolina's Comments on This Summary:
GAO Contacts:
Staff Acknowledgments:
Appendix XVI: Ohio:
Overview:
Ohio Beginning to Use Recovery Act Funds:
Ohio Is Planning to Use Existing Systems and Safeguards to Track
Recovery Act Funds, But Reliance on Subrecipients to Provide Data for
Enhanced Reporting Requirements Could Present Challenges:
Ohio Is Exploring Ways to Assess Impact of Recovery Act Funds, but
Officials Anticipate Challenges:
Ohio's Comments on This Summary:
GAO Contacts:
Staff Acknowledgments:
Appendix XVII: Pennsylvania:
Overview:
Pennsylvania Beginning to Use Recovery Act Funds:
Pennsylvania Developing Plans for Safeguards and Controls:
Plans to Assess Impact of Recovery Act Funds Depend on Federal
Guidance:
Pennsylvania's Comments on This Summary:
GAO Contacts:
Staff Acknowledgments:
Appendix XVIII: Texas:
Overview:
Texas Beginning to Use Recovery Act Funds:
Texas Is Taking Steps to Help Ensure Accountability and Transparency
and Address Potential Areas of Vulnerability:
Plans for Assessing the Impact of Recovery Act Funds Are Evolving:
Texas's Comments on This Summary:
GAO Contacts:
Staff Acknowledgments:
Appendix XIX: Washington, D.C.
Overview:
District of Columbia Beginning to Use Recovery Act Funds:
The District Plans to Use Existing Systems to Track Recovery Act Funds:
District Web site Used to Promote Transparent Use of Recovery Act
Funds:
District Plans for Ensuring that Adequate Safeguards and Internal
Controls Are in Place:
Plans to Assess Impact of Recovery Act Funds Have Not Yet Been
Developed:
District of Columbia's Comments on This Appendix:
GAO Contacts:
Staff Acknowledgments:
Appendix XX: GAO Contacts and Staff Acknowledgments:
Tables:
Table 1: FMAP Changes from Fiscal Year 2008 to the First Two Quarters
of Fiscal Year 2009, for 16 states and the District:
Table 2: Notification of Recovery Act Funds for GAO Core States and the
District of Columbia for Select Programs (Dollars in thousands):
Table 3: FMAP Grant Awards and Funds Drawn Down, for 16 States and the
District:
Table 4: Highway Apportionments and Obligations as of April 16, 2009
(Dollars in millions):
Table 5: States and Localities Visited by GAO:
Table 6: Planned Uses of Selected Recovery Act Funds:
Table 7: Budget for Selected State Agencies in Georgia, Fiscal Years
2008 and 2009:
Table 8: Budget Reductions for Selected State Agencies in Mississippi
for Fiscal Year 2009:
Table 9: Estimated Allocations by Program Areas of Federal Recovery Act
Funds in Texas (as of March 2009):
Figures:
Figure 1: State and Local Recovery Act Funding by Broad Functional
Category, Fiscal Years 2009-2019:
Figure 2: Projected Timing of Federal Recovery Act Funding Made
Available to States and Localities by Fiscal Year:
Figure 3: Composition of State and Local Recovery Act Funding, Fiscal
Years 2009 and 2012:
Figure 4: California State and Local Recovery Act Funding:
Figure 5: Georgia's Estimated Recovery Act Funding, by Major Programs,
as of April 17, 2009:
Figure 6: Georgia Department of Transportation's Project Implementation
Schedule:
Figure 7: Organizational Chart of Georgia's Recovery Act Implementation
Team:
Figure 8: State of Georgia Review Process for Recovery Act Funds:
Figure 9: Estimated Allocation of Mississippi's Recovery Act Funding by
Major Programs:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
April 23, 2009:
Report to Congressional Committees:
The Nation faces what is generally reported to be the most serious
economic crisis since the Great Depression. In response, the American
Recovery and Reinvestment Act of 2009 (Recovery Act)[Footnote 1] was
enacted to promote economic recovery, make investments, and to minimize
and avoid reductions in state and local government services. The
Congressional Budget Office (CBO) estimated that the Recovery Act's
combined spending and tax provisions will cost $787 billion over ten
years, of which more than $580 billion will be in additional federal
spending. The stated purposes of the Recovery Act 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 science and health;
* invest in transportation, environmental protection, and other
infrastructure that will provide long-term economic benefits; and:
* stabilize state and local government budgets, in order to minimize
and avoid reductions in essential services and counterproductive state
and local tax increases.
The Recovery Act specifies several roles for GAO including conducting
bimonthly reviews of selected states' and localities' use of funds made
available under the act.[Footnote 2] Accordingly, our objectives for
this report were to describe (1) selected states' and localities' uses
of and planning for Recovery Act funds, (2) the approaches taken by the
selected states and localities to ensure accountability for Recovery
Act funds, and (3) states' plans to evaluate the impact of the Recovery
Act funds they received.
To address these objectives, we selected a core group of 16 states and
the District of Columbia (District) that we will follow over the next
few years to provide an ongoing longitudinal analysis of the use of
funds provided in conjunction with the Recovery Act. The states are
Arizona, California, Colorado, Florida, Georgia, Iowa, Illinois,
Massachusetts, Michigan, Mississippi, New Jersey, New York, North
Carolina, Ohio, Pennsylvania, and Texas. These states contain about 65
percent of the U.S. population and are estimated to receive
collectively about two-thirds of the intergovernmental federal
assistance funds available through the Recovery Act. We selected these
states and the District on the basis of outlay projections, percentage
of the U.S. population represented, unemployment rates and changes, and
a mix of states' poverty levels, geographic coverage, and
representation of both urban and rural areas. In addition, we visited a
non-probability sample of about 60 localities within the 16 selected
states.[Footnote 3]
We collected documents from and conducted semi-structured interviews
with executive-level state and local officials and staff from
Governors' offices, "Recovery Czars," State Auditors, Controllers, and
Treasurers. We also interviewed staff from state legislatures. In
addition, our work focused on federal, state, and local agencies
administering programs receiving Recovery Act funds. We analyzed data
and interviewed officials from the federal Office of Management and
Budget (OMB). We also analyzed other federal guidance on programs
selected for this review and spoke with relevant program officials at
the Centers for Medicare & Medicaid Services (CMS), the U.S. Department
of Transportation and the U.S. Department of Education. We did not
review state legal materials for this report, but relied on state
officials and other state sources for description and interpretation of
relevant state constitutions, statutes, legislative proposals, and
other state legal materials.
We based our selection of the programs to review for this initial
report on Recovery Act funding and potential risks associated with
receipt of additional funds for these programs. An estimated 90 percent
of fiscal year 2009 Recovery Act funding provided to states and
localities will be for health, transportation and education programs.
The three largest programs in these categories are the Medicaid Federal
Medical Assistance Percentage (FMAP) awards, the State Fiscal
Stabilization Fund, and highways. These three programs are therefore
highlighted throughout this report. The information obtained from this
review cannot be generalized to all states and localities receiving
Recovery Act funding. A detailed description of our scope and
methodology can be found in Appendix I.
We conducted this performance audit from February 17, to April 20, 2009
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.
Background:
Recovery Act funds are being distributed to states, localities, other
entities, and individuals through a combination of formula and
competitive grants and direct assistance. Nearly half of the
approximately $580 billion associated with Recovery Act spending
programs will flow to states and localities affecting about 50 state
formula and discretionary grants as well as about 15 entitlement and
other countercyclical programs. As noted above, three of the largest
streams of funds flowing to states and localities are (1) the temporary
increase in FMAP funding which will provide states with approximately
$87 billion in assistance; (2) the State Fiscal Stabilization Fund,
which will provide nearly $54 billion to help state and local
governments avert budget cuts, primarily in education; and (3) highway
infrastructure investment funds of approximately $27 billion.
Medicaid FMAP:
Medicaid is a joint federal-state program that finances health care for
certain categories of low-income individuals, including children,
families, persons with disabilities, and persons who are elderly. The
federal government matches state spending for Medicaid services
according to a formula based on each state's per capita income in
relation to the national average per capita income. The amount of
federal assistance states receive for Medicaid service expenditures is
known as the FMAP. Across states, the FMAP may range from 50 to no more
than 83 percent, with poorer states receiving a higher federal matching
rate than wealthier states.
Under the Recovery Act, states are eligible for an increased FMAP for
expenditures that states make in providing services to their Medicaid
populations.[Footnote 4] The Recovery Act provides eligible states with
this 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.[Footnote 5] Generally, for fiscal year 2009 through the first
quarter of fiscal year 2011, the increased FMAP, which is calculated on
a quarterly basis, provides for: (1) the maintenance of states' prior
year FMAPs; (2) a general across-the-board increase of 6.2 percentage
points in states' FMAPs; and (3) a further increase to the FMAPs for
those states that have a qualifying increase in unemployment rates. For
the first two quarters of 2009, the increases in the FMAP for the 16
states and the District ranged from 7.09 percentage points in Iowa to
11.59 percentage points in California. (See table 1.)
Table 1: FMAP Changes from Fiscal Year 2008 to the First Two Quarters
of Fiscal Year 2009, for 16 states and the District:
State: Arizona;
Fiscal Year 2008 FMAP: 66.20;
Fiscal Year 2009 FMAP, first two quarters: 75.01;
Difference: 8.81.
State: California;
Fiscal Year 2008 FMAP: 50.00;
Fiscal Year 2009 FMAP, first two quarters: 61.59;
Difference: 11.59.
State: Colorado;
Fiscal Year 2008 FMAP: 50.00;
Fiscal Year 2009 FMAP, first two quarters: 58.78;
Difference: 8.78.
State: District of Columbia;
Fiscal Year 2008 FMAP: 70.00;
Fiscal Year 2009 FMAP, first two quarters: 77.68;
Difference: 7.68.
State: Florida;
Fiscal Year 2008 FMAP: 56.83;
Fiscal Year 2009 FMAP, first two quarters: 67.64;
Difference: 10.81.
State: Georgia;
Fiscal Year 2008 FMAP: 63.10;
Fiscal Year 2009 FMAP, first two quarters: 73.44;
Difference: 10.34.
State: Illinois;
Fiscal Year 2008 FMAP: 50.00;
Fiscal Year 2009 FMAP, first two quarters: 60.48;
Difference: 10.48.
State: Iowa;
Fiscal Year 2008 FMAP: 61.73;
Fiscal Year 2009 FMAP, first two quarters: 68.82;
Difference: 7.09.
State: Massachusetts;
Fiscal Year 2008 FMAP: 50.00;
Fiscal Year 2009 FMAP, first two quarters: 58.78;
Difference: 8.78.
State: Michigan;
Fiscal Year 2008 FMAP: 58.10;
Fiscal Year 2009 FMAP, first two quarters: 69.58;
Difference: 11.48.
State: Mississippi;
Fiscal Year 2008 FMAP: 76.29;
Fiscal Year 2009 FMAP, first two quarters: 83.62;
Difference: 7.33.
State: New Jersey;
Fiscal Year 2008 FMAP: 50.00;
Fiscal Year 2009 FMAP, first two quarters: 58.78;
Difference: 8.78.
State: New York;
Fiscal Year 2008 FMAP: 50.00;
Fiscal Year 2009 FMAP, first two quarters: 58.78;
Difference: 8.78.
State: North Carolina;
Fiscal Year 2008 FMAP: 64.05;
Fiscal Year 2009 FMAP, first two quarters: 73.55;
Difference: 9.50.
State: Ohio;
Fiscal Year 2008 FMAP: 60.79;
Fiscal Year 2009 FMAP, first two quarters: 70.25;
Difference: 9.46.
State: Pennsylvania;
Fiscal Year 2008 FMAP: 54.08;
Fiscal Year 2009 FMAP, first two quarters: 63.05;
Difference: 8.97.
State: Texas;
Fiscal Year 2008 FMAP: 60.56;
Fiscal Year 2009 FMAP, first two quarters: 68.76;
Difference: 8.20.
Source: GAO analysis of HHS data, as of April 16, 2009.
[End of table]
Highway Infrastructure Investment:
The Recovery Act provides approximately $48 billion to fund grants to
states, localities, regional authorities and others for transportation
projects of which the largest piece is $27.5 billion for highway and
related infrastructure investments. The Recovery Act largely provides
for increased transportation funding through existing programs-such as
the Federal-Aid Highway Surface Transportation Program--a federally
funded, state-administered program. Under this program, funds are
apportioned annually to each state department of transportation (or
equivalent) to construct and maintain roadways and bridges on the
federal-aid highway system. The Federal-Aid Highway Program refers to
the separately funded grant programs mostly funded by formula,
administered by the Federal Highway Administration (FHWA) in the U.S.
Department of Transportation.
State Fiscal Stabilization Fund:
The Recovery Act provided $53.6 billion in appropriations for the State
Fiscal Stabilization Fund (SFSF) to be administered by the U.S.
Department of Education. The Recovery Act requires that the Secretary
of Education set aside $5 billion for State Incentive Grants, referred
to by the department as the Reach for the Top program, and the
establishment of an Innovation Fund. After reserving these and certain
other funds, the remaining funds are to be distributed to states by
formula, with 61 percent of the state award based on the state's
relative share of the population aged 5 to 24 and 39 percent based on
the state's relative share of the total U.S. population. The Recovery
Act specifies that 81.8 percent (about $39.5 billion) of these
remaining funds are to be distributed to states for support of
elementary, secondary, and postsecondary education, and early childhood
education programs. The remaining 18.2 percent of SFSF (about $8.8
billion) is available for public safety and other government services
including for educational purposes. The Department of Education
announced on April 1, 2009 that it will award the SFSF in two phases.
The first phase--$32.6 billion--represents about two-thirds of the
SFSF.
Figure 1 shows the distribution of Recovery Act funds to states by
broad functional categories over the next several years.
Figure 1: State and Local Recovery Act Funding by Broad Functional
Category, Fiscal Years 2009-2019:
[Refer to PDF for image: pie-chart]
Education and training: 31%;
Health: 29%;
Transportation: 16%;
Income security: 10%;
Community development: 7%;
Energy and environment: 7%.
Source: GAO analysis of CBO and FFIS data.
[End of figure]
The timeline of Recovery Act spending has been a key issue in the
debate and design of the Recovery Act because of the elapsed time
between when policy changes are first proposed and actual spending
begins to flow from enacted changes. Figure 2 shows the projected
timing of state and local-administered Recovery Act spending.
Figure 2: Projected Timing of Federal Recovery Act Funding Made
Available to States and Localities by Fiscal Year:
[Refer to PDF for image: vertical bar graph]
Fiscal year: 2009;
Amount: $48.9 billion.
Fiscal year: 2010;
Amount: $107.7 billion.
Fiscal year: 2011;
Amount: $63.4 billion.
Fiscal year: 2012;
Amount: $23.3 billion.
Fiscal year: 2013;
Amount: $14.4 billion.
Fiscal year: 2014;
Amount: $9.1 billion.
Fiscal year: 2015;
Amount: $5.7 billion.
Fiscal year: 2016;
Amount: $2.5 billion.
Source: GAO analysis of CBO and FFIS data.
[End of figure]
Over time, the programmatic focus of Recovery Act spending will change.
As shown in figure 3, about two-thirds of Recovery Act funds expected
to be spent by states in the current 2009 fiscal year will be health
related, primarily temporary increases in Medicaid FMAP funding.
Health, education, and transportation is estimated to account for
approximately 90 percent of fiscal year 2009 Recovery Act funding for
states and localities. However, by fiscal year 2012, transportation
will be the largest share of state and local Recovery Act funding.
Taken together, transportation spending, along with investments in the
community development, energy, and environmental areas that are geared
more toward creating long-run economic growth opportunities will
represent approximately two-thirds of state and local Recovery Act
funding in 2012.
Figure 3: Composition of State and Local Recovery Act Funding, Fiscal
Years 2009 and 2012:
[Refer to PDF for image: two pie-charts]
Fiscal year 2009:
Health: 64%;
Education and training: 18%;
Transportation: 8%;
Income security: 6%;
Community development: 3%;
Energy and environment: 1%.
Fiscal year 2012:
Health: 1%;
Education and training: 19%;
Transportation: 30%;
Income security: 17%;
Community development: 16%;
Energy and environment: 17%.
Source: GAO analysis of CBO and FFIS data.
[End of figure]
The administration has stipulated that every taxpayer dollar spent on
economic recovery must be subject to unprecedented levels of
transparency and accountability. To that end, the Recovery Act
established the Recovery Accountability and Transparency Board to
coordinate and conduct oversight of funds distributed under the Act in
order to prevent fraud, waste and abuse. The Board includes a Chairman
appointed by the President, and ten Inspectors General specified by the
Act.[Footnote 6] The Board has a series of functions and powers to
assist it in the mission of providing oversight and promoting
transparency regarding expenditure of funds at all levels of
government. The Board will report on the use of Recovery Act funds and
may also make recommendations to agencies on measures to avoid problems
and prevent fraud, waste and abuse.
The Board is also charged under the Act with establishing and
maintaining a web site, [hyperlink, http://www.recovery.gov],
(Recovery.gov) to foster greater accountability and transparency in the
use of covered funds. The website currently includes overview
information about the Recovery Act, a timeline for implementation, a
frequently asked questions page, and an announcement page that is to be
regularly updated. The administration plans to develop the site to
encompass information about available funding, distribution of funds,
and major recipients. The website is required to include plans from
federal agencies; information on federal awards of formula grants and
awards of competitive grants; and information on federal allocations
for mandatory and other entitlement programs by state, county, or other
appropriate geographical unit.[Footnote 7] Eventually, prime recipients
of Recovery Act funding will provide information on how they are using
their federal funds. Currently, Recovery.gov features projections for
how, when, and where the funds will be spent, as well as which states
and sectors of the economy are due to receive what proportion of the
funds. As money starts to flow, additional data will become available.
In addition to Recovery.gov, OMB has also issued guidance directing
executive branch agencies to develop a dedicated portion of their web
sites for information related to the recovery.
To ensure a high level of accountability, OMB has issued guidance to
the heads of federal departments and agencies for implementing and
managing activities enacted under the Recovery Act.[Footnote 8] OMB has
also issued for comment detailed reporting requirements for Recovery
Act fund recipients that include the number of jobs created and jobs
retained as a result of Recovery Act funding.[Footnote 9] OMB's
guidance documents are available on Recovery.gov. In addition, the
Civilian Acquisition Council and the Defense Acquisition Regulations
Council have issued an interim rule revising the Federal Acquisition
Regulation (FAR) to require a contract clause that implements these
reporting requirements for contracts funded with Recovery Act dollars.
[Footnote 10]
The Recovery Act also assigns GAO a range of responsibilities to help
promote accountability and transparency. Some are recurring
requirements such as providing bimonthly reviews of the use of funds
made available under Division A of the Recovery Act by selected states
and localities and reviews of quarterly reports on job creation and job
retention as reported by Recovery Act fund recipients. Other
requirements include targeted studies in several areas such as small
business lending, education, and trade adjustment assistance. We
completed the first of these mandates on April 3, 2009, by announcing
the appointment of 13 members to the Health Information Technology
Policy Committee, a new advisory body established by the Recovery Act.
The committee will make recommendations on creating a policy framework
for the development and adoption of a nationwide health information
technology infrastructure, including standards for the exchange of
patient medical information. On April 16, 2009, we issued a report
completing a second mandate to report on the actions of the Small
Business Administration (SBA) to, among other things, increase
liquidity in the secondary market for SBA loans.[Footnote 11]
States' and Localities' Use of and Plans for Recovery Act Funds Focus
on Purposes of the Act and States' Fiscal Stresses:
Officials in the 16 selected states and the District indicated they
have used certain Recovery Act funds and continue planning for the use
of additional funds they have not yet received. States' existing
intergovernmental programs--such as Medicaid, transportation, and
education--have been among the first programs to receive Recovery Act
funds. Planning continues for the use of Recovery Act funds for these
and other program areas. States' planning actions include appointing
Recovery Czars; establishing task forces and other entities, and
developing public web sites to solicit input and publicize selected
projects. In some cases, according to state officials, state
legislation will be required to receive and expend funds or to make
required changes to programs for eligibility prior to using the funds.
States' approaches to planning for Recovery Act funds also vary in
response to state legislative and budget processes regarding the use of
federal funds and states' fiscal situations.
States' Use of Recovery Act Funds by Selected Program Areas:
The three largest programs making funds available to the state and
localities so far have been the Medicaid FMAP, highways funds, and the
SFSF. Table 2 shows the breakout of funding available for these three
programs in the 16 selected states and the District that GAO visited.
Recovery Act funding for these 17 jurisdictions accounts for a little
less than two-thirds of total Recovery Act funding for these three
programs.
Table 2: Notification of Recovery Act Funds for GAO Core States and the
District of Columbia for Select Programs (Dollars in thousands):
State: Arizona;
Medicaid FMAP: $534,576;
Highways: $521,958; States
Fiscal Stabilization Fund: $681,360.
State: California;
Medicaid FMAP: $3,331,167;
Highways: $2,569,568;
States Fiscal Stabilization Fund: $3,993,379.
State: Colorado;
Medicaid FMAP: $226,959;
Highways: $403,924;
States Fiscal Stabilization Fund: $509,363.
State: District of Columbia;
Medicaid FMAP: $87,831;
Highways: $123,508;
States Fiscal Stabilization Fund: $59,883.
State: Florida;
Medicaid FMAP: $1,394,945;
Highways: $1,346,735;
States Fiscal Stabilization Fund: $1,809,196.
State: Georgia;
Medicaid FMAP: $521,251;
Highways: $931,586;
States Fiscal Stabilization Fund: $1,032,684.
State: Illinois;
Medicaid FMAP: $992,042;
Highways: $935,593;
States Fiscal Stabilization Fund: $1,376,965.
State: Iowa;
Medicaid FMAP: $136,023;
Highways: $358,162;
States Fiscal Stabilization Fund: $316,467.
State: Massachusetts;
Medicaid FMAP: $1,182,968;
Highways: $437,865;
States Fiscal Stabilization Fund: $666,153.
State: Michigan;
Medicaid FMAP: $700,522;
Highways: $847,205;
States Fiscal Stabilization Fund: $1,066,733.
State: Mississippi;
Medicaid FMAP: $225,471;
Highways: $354,564;
States Fiscal Stabilization Fund: $321,131.
State: New Jersey;
Medicaid FMAP: $549,847;
Highways: $651,774;
States Fiscal Stabilization Fund: $891,424.
State: New York;
Medicaid FMAP: $3,143,641;
Highways: $1,120,685;
States Fiscal Stabilization Fund: $2,021,924.
State: North Carolina;
Medicaid FMAP: $657,111;
Highways: $735,527;
States Fiscal Stabilization Fund: $951,704.
State: Ohio;
Medicaid FMAP: $760,647;
Highways: $935,677;
States Fiscal Stabilization Fund: $1,198,882.
State: Pennsylvania;
Medicaid FMAP: $1,043,920;
Highways: $1,026,429;
States Fiscal Stabilization Fund: $1,276,766.
State: Texas;
Medicaid FMAP: $1,448,824;
Highways: $2,250,015;
States Fiscal Stabilization Fund: $2,662,203.
Total Case Study:
Medicaid FMAP: $16,937,745;
Highways: $15,550,776;
States Fiscal Stabilization Fund: $20,836,218.
Percent of National Total:
Medicaid FMAP: 70;
Highways: 58;
States Fiscal Stabilization Fund: 64.
National Total:
Medicaid FMAP: $24,233,145;
Highways: $26,660,000;
States Fiscal Stabilization Fund: $32,552,620.
Notifications as of:
Medicaid FMAP: April 3, 2009;
Highways: March 2, 2009;
States Fiscal Stabilization Fund: April 2, 2009.
Source: GAO analysis of agency data.
Note: For Medicaid FMAP amounts shown are the increased Medicaid FMAP
Grant Awards as of April 3, 2009. For Highways, the amounts shown are
the full state apportionment. For the SFSF, the amounts shown are the
initial release of the state allocation.
[End of table]
Medicaid FMAP:
Under the Recovery Act, states are eligible for an increased FMAP for
expenditures that states make in providing services to their Medicaid
populations.[Footnote 12] The Recovery Act provides eligible states
with an increased FMAP for 27 months between October 1, 2008 and
December 31, 2010. Generally, for fiscal year 2009 through the first
quarter of fiscal year 2011, the increased FMAP, which is calculated on
a quarterly basis, provides for: (1) the maintenance of states' prior
year FMAPs; (2) a general across-the-board increase of 6.2 percentage
points in states' FMAPs; and (3) a further increase to the FMAPs for
those states that have a qualifying increase in unemployment rates.
In our sample of 16 states and the District, officials from 15 states
and the District indicated that they had drawn down increased FMAP
grant awards, totaling $7.96 billion for the period of October 1, 2008
through April 1, 2009--47 percent of their increased FMAP grant awards.
In our sample, the extent to which individual states and the District
accessed these funds varied widely, ranging from 0 percent in Colorado
to about 66 percent in New Jersey. Nationally, the 50 states and
several territories combined have drawn down approximately $11 billion
as of April 1, 2009, which represents almost 46 percent of the
increased FMAP grants awarded for the first three quarters of federal
fiscal year 2009 (Table 3).[Footnote 13]
Table 3: FMAP Grant Awards and Funds Drawn Down, for 16 States and the
District: (Dollars in thousands)
State: Arizona;
FMAP grant awards: $534,576;
Funds drawn: $286,286;
Percentage of funds drawn: 53.6.
State: California;
FMAP grant awards: $3,331,167;
Funds drawn: $1,511,539;
Percentage of funds drawn: 45.4.
State: Colorado;
FMAP grant awards: $226,959;
Funds drawn: 0;
Percentage of funds drawn: 0.0.
State: District of Columbia;
FMAP grant awards: $87,831;
Funds drawn: $49,898;
Percentage of funds drawn: 56.8.
State: Florida;
FMAP grant awards: $1,394,945;
Funds drawn: $817,025;
Percentage of funds drawn: 58.6.
State: Georgia;
FMAP grant awards: $521,251;
Funds drawn: $311,515;
Percentage of funds drawn: 59.8.
State: Illinois;
FMAP grant awards: $992,042;
Funds drawn: $117,081;
Percentage of funds drawn: 11.8.
State: Iowa;
FMAP grant awards: $136,023;
Funds drawn: $81,663;
Percentage of funds drawn: 60.0.
State: Massachusetts;
FMAP grant awards: $1,182,968;
Funds drawn: $272,559;
Percentage of funds drawn: 23.0.
State: Michigan;
FMAP grant awards: $700,522;
Funds drawn: $462,982;
Percentage of funds drawn: 66.1.
State: Mississippi;
FMAP grant awards: $225,471;
Funds drawn: $114,112;
Percentage of funds drawn: 50.6.
State: New Jersey;
FMAP grant awards: $549,847;
Funds drawn: $362,235;
Percentage of funds drawn: 65.9.
State: New York;
FMAP grant awards: $3,143,641;
Funds drawn: $1,739,073;
Percentage of funds drawn: 55.3.
State: North Carolina;
FMAP grant awards: $657,111;
Funds drawn: $414,644;
Percentage of funds drawn: 63.1.
State: Ohio;
FMAP grant awards: $760,647;
Funds drawn: $420,630;
Percentage of funds drawn: 55.3.
State: Pennsylvania;
FMAP grant awards: $1,043,920;
Funds drawn: $330,811;
Percentage of funds drawn: 31.7.
State: Texas;
FMAP grant awards: $1,448,824;
Funds drawn: $665,665;
Percentage of funds drawn: 45.9.
Total:
FMAP grant awards: $16,937,745;
Funds drawn: $7,957,718;
Percentage of funds drawn: 47.0.
Source: GAO analysis of HHS data.
Note: FMAP grant awards are those funds awarded as of April 3, 2009,
and funds drawn down are as of April 1, 2009.
[End of table]
In order for states to qualify for the increased FMAP available under
the Recovery Act, they must meet certain requirements. In particular:
* Maintenance of Eligibility: In order to qualify for the increased
FMAP, states generally may not apply eligibility standards,
methodologies, or procedures that are more restrictive than those in
effect under their state Medicaid programs on July 1, 2008.[Footnote
14] In guidance to states, CMS noted that examples of restrictions of
eligibility could include (1) the elimination of any eligibility groups
since July 1, 2008 or (2) changes in an eligibility determination or
redetermination process that is more stringent than what was in effect
on July 1, 2008. States that fail to initially satisfy the maintenance
of eligibility requirements have an opportunity to reinstate their
eligibility standards, methodologies, and procedures before July 1,
2009 and become retroactively eligible for the increased FMAP.
* Compliance with Prompt Payment: Under federal law states are required
to pay claims from health practitioners promptly.[Footnote 15] Under
the Recovery Act, states are prohibited from receiving the increased
FMAP for days during any period in which that state has failed to meet
this requirement.[Footnote 16] Although the increased FMAP is not
available for any claims received from a practitioner on each day the
state is not in compliance with these prompt payment requirements, the
state may receive the regular FMAP for practitioner claims received on
days of non-compliance. CMS officials told us that states must attest
that they are in compliance with the prompt payment requirement, but
that enforcement is complicated due to differences across states in
methods used to track this information. CMS officials plan to issue
guidance on reporting compliance with the prompt payment requirement
and are currently gathering information from states on the methods they
use to determine compliance.
* Rainy Day Funds: States are not eligible for an increased FMAP if any
amounts attributable (either directly or indirectly) to the increased
FMAP are deposited or credited into any reserve or rainy day fund of
the state.[Footnote 17]
* Percentage Contributions from Political Subdivisions: In some states,
political subdivisions--such as cities and counties--may be required to
help finance the state's share of Medicaid spending. States that have
such financing arrangements are not eligible to receive the increased
FMAP if the percentage contributions required to be made by a political
subdivision are greater than what was in place on September 30, 2008.
[Footnote 18]
In addition to meeting the above requirements, states that receive the
increased FMAP must submit a report to CMS no later than September 30,
2011 that describes how the increased FMAP funds were expended, in a
form and manner determined by CMS.[Footnote 19] In guidance to states,
CMS has stated that further guidance will be developed for this
reporting requirement. CMS guidance to states also indicates that, for
federal reimbursement, increased FMAP funds must be drawn down
separately, tracked separately, and reported to CMS separately.
Officials from several states told us they require additional guidance
from CMS on tracking receipt of increased FMAP funds and on reporting
on the use of these funds.
The increased FMAP available under the Recovery Act is for state
expenditures for Medicaid services.[Footnote 20] However, the receipt
of this increased FMAP may reduce the state share for their Medicaid
programs. States have reported using these available funds for a
variety of purposes. In our sample, individual states and the District
reported that they would use the funds to maintain their current level
of Medicaid eligibility and benefits, cover their increased Medicaid
caseloads--which are primarily populations that are sensitive to
economic downturns, including children and families, and to offset
their state general fund deficits thereby avoiding layoffs and other
measures detrimental to economic recovery. Ten states and the District
reported using these funds to maintain program eligibility. Nine states
and the District reported using these funds to maintain benefits.
Specifically, Massachusetts reported that during a previous financial
downturn, the state limited the number of individuals eligible for some
services and reduced certain program benefits that were optional for
the state to cover. However, with the funds made available as a result
of the increased FMAP, the state did not have to make such reductions.
Similarly, New Jersey reported that the state used these funds to
eliminate premiums for certain children in its State Children's Health
Insurance Program, allowing it to retain coverage for children whose
enrollment in the program would otherwise have been terminated for non-
payment of premiums. Nine states and the District reported using these
funds to cover increases to their Medicaid caseloads, primarily to
populations that are sensitive to economic downturns, such as children
and families. For example, New Jersey indicated that these funds would
help the state meet the increased demand for Medicaid services.
According to a New Jersey official, due to significant job losses, the
state's proposed 2010 budget would not have accommodated all the
applicants newly eligible for Medicaid and that the funds available as
a result of the increased FMAP have allowed the state to maintain a
"safety net" of coverage for uninsured and unemployed people. In
addition, 10 states and the District indicated that the increased funds
made available would help offset deficits in their general funds.
Pennsylvania reported that because funding for its Medicaid program is
derived, in part, on state revenues, program funding levels fluctuate
as the economy rises and falls. However, the state was able to use
funds made available to offset the effects of lower state revenues.
Arizona officials also reported that the state used funds made
available as a result of the increased FMAP to pay down some of its
debt and make payroll payments, thus allowing the state to avoid a
serious cash flow problem.
Finally, six states in our sample also reported that they used funds
made available as a result of the increased FMAP to comply with prompt
payment requirements. Specifically, Illinois reported that these funds
will permit the state to move from a 90-day payment cycle to a 30-day
payment cycle for all Medicaid providers. Three states also reported
using these funds to restore or to increase provider payment rates.
In our sample, many states and the District indicated that they need
additional guidance from CMS regarding eligibility for the increased
FMAP funds. Specifically, 5 states raised concerns about whether
certain programmatic changes could jeopardize the state's eligibility
for these funds. For example Texas officials indicated that guidance
from CMS is needed regarding whether certain programmatic changes being
considered by Texas, such as a possible extension of the program's
eligibility period, would affect the state's eligibility for increased
FMAP funds. Similarly, Massachusetts wanted clarification from CMS as
to whether certain changes in the timeframe for the state to conduct
eligibility re-determinations would be considered a more restrictive
standard. Four states also reported that they wanted additional
guidance from CMS regarding policies related to the prompt payment
requirements or changes to the non-federal share of Medicaid
expenditures. For example, California officials noted that the state
reduced Medicaid payments for in-home support services, but that
counties could voluntarily choose to increase these payments without
altering the cost sharing arrangements between the counties and the
state. The state wants clarification from CMS on whether such an
arrangement would be allowable in light of the Recovery Act
requirements regarding the percentage of contributions by political
subdivisions within a state toward the non-federal share of
expenditures.
In response to states' concerns regarding the need for guidance, CMS
told us that it is in the process of developing draft guidance on the
prompt payment provisions in the Recovery Act. One official noted that
this guidance will include defining the term practitioner, describing
the types of claims applicable under the provision, and addressing the
principles that are integral to determining a state's compliance with
prompt payment requirements. Additionally, CMS plans to have a
reporting mechanism in place through which states would report
compliance under this provision. With regard to Recovery Act
requirements regarding political subdivisions, CMS described their
current activities for providing guidance to states. Due to the
variability of state operations, funding processes, and political
structures, CMS has been working with states on a case-by-case basis to
discuss particular issues associated with this provision and to address
the particular circumstances for each state. A CMS official told us
that if there were an issue(s) or circumstance(s) that had
applicability across the states, or if there were broader themes having
national significance, CMS would consider issuing guidance.
Highway Infrastructure Investment:
Of the $27.5 billion provided in the Recovery Act for highway and
related infrastructure investments, $26.7 billion is provided to the 50
states for restoration, repair, construction and other activities
allowed under the Federal-Aid Highway Surface Transportation Program
and for other eligible surface transportation projects. Nearly one-
third of these funds are required to be sub-allocated to metropolitan
and other areas. States must follow the requirements for the existing
program, and in addition, the Recovery Act requires that the Governor
must certify that the state will maintain its current level of
transportation spending, and the governor or other appropriate chief
executive must certify that the state or local government to which
funds have been made available has completed all necessary legal
reviews and determined that the projects are an appropriate use of
taxpayer funds. The certifications must include a statement of the
amount of funds the state planned to expend from state sources as of
the date of enactment, during the period beginning on the date of
enactment through September 30, 2010, for the types of projects that
are funded by the appropriation.
The U.S. Department of Transportation is reviewing the Governors'
certifications regarding maintaining their level of effort for
highways. According to the Department, of the 16 states in our review
and the District of Columbia, three states have submitted a
certification free of explanatory or conditional language--Arizona,
Michigan, and New York. Eight submitted "explanatory" certifications--
certifications that used language that articulated assumptions used or
stated the certification was based on the "best information available
at the time," but did not clearly qualify the expected maintenance of
effort on the assumptions proving true or information not changing in
the future. Six submitted a "conditional" certifications, which means
that the certification was subject to conditions or assumptions, future
legislative action, future revenues, or other conditions.[Footnote 21]
Recovery Act funding for highway infrastructure investment differs from
the usual practice in the Federal-aid Highway Program in a few
important ways. Most significantly, for projects funded under the
Recovery Act, the federal share is 100 percent; typically projects
require a state match of 20 percent while the federal share is
typically 80 percent. Under the Recovery Act, priority is also to be
given to projects that are projected to be completed within three
years. In addition, within 120 days after the apportionment by the
Department of Transportation to the states (March 2, 2009), and
specifically before June 30, 2009, 50 percent of the apportioned funds
must be obligated.[Footnote 22] Any amount of this 50 percent of
apportioned funding that is not obligated may be withdrawn by the
Secretary of Transportation and redistributed to other states that have
obligated their funds in a timely manner. Furthermore, one year after
enactment the Secretary will withdraw any remaining unobligated funds
and redistribute them based on states' need and ability to obligate
additional funds. These provisions are applicable only to those funds
apportioned to the state and not those funds required by the Recovery
Act to be suballocated to metropolitan, regional and local
organizations.
Finally, states are required to give priority to projects that are
located in economically distressed areas as defined by the Public Works
and Economic Development Act of 1965, as amended. In March 2009, FHWA
directed its field offices to provide oversight and take appropriate
action to ensure that states gave adequate consideration to
economically distressed areas in selecting projects. Specifically,
field offices were directed to discuss this issue with the states and
to document its review and oversight of this process.
States are undertaking planning activities to identify projects, obtain
approval at the state and federal level and move them to contracting
and implementation. However, because of the steps necessary before
implementation, states generally had not yet expended significant
amounts of Recovery Act funds. States are required to reach agreement
with the Department of Transportation (DOT) on a list of projects
reimbursement from DOT for these projects. States will then request
reimbursement from DOT as the state makes payments to contractors
working on approved projects.
As of April 16, 2009, the U.S Department of Transportation reported
that nationally $6.4 billion of the $26.6 billion in Recovery Act
highway infrastructure investment funding provided to the states had
been obligated - meaning Transportation and the states had reached
agreements on projects worth this amount. As shown in Table 4 below,
for the locations that GAO reviewed, the extent to which the Department
of Transportation had obligated funds apportioned to the states and
Washington D.C. ranged from 0 to 65 percent. For two of the states, the
Department of Transportation had obligated over 50 percent of the
states' apportioned funds, for 4 it had obligated 30 to 50 percent of
the states' funds, for 9 states it had obligated under 30 percent of
funds, and for three it had not obligated any funds.
Table 4: Highway Apportionments and Obligations as of April 16, 2009
(Dollars in millions):
State: Arizona;
Amount apportioned: $522;
Amount obligated: $148;
Percent of apportionment obligated: 28;
Number of projects: 26.
State: California;
Amount apportioned: $2,570;
Amount obligated: $261;
Percent of apportionment obligated: 10;
Number of projects: 20.
State: Colorado;
Amount apportioned: $404;
Amount obligated: $118;
Percent of apportionment obligated: 29;
Number of projects: 19.
State: District of Columbia;
Amount apportioned: $124;
Amount obligated: $37;
Percent of apportionment obligated: 30;
Number of projects: 1.
State: Florida;
Amount apportioned: $1,347;
Amount obligated: 0;
Percent of apportionment obligated: 0;
Number of projects: 0.
State: Georgia;
Amount apportioned: $932;
Amount obligated: 0;
Percent of apportionment obligated: 0;
Number of projects: 0.
State: Illinois;
Amount apportioned: $936;
Amount obligated: $606;
Percent of apportionment obligated: 65;
Number of projects: 214.
State: Iowa;
Amount apportioned: $358;
Amount obligated: $221;
Percent of apportionment obligated: 62;
Number of projects: 107.
State: Massachusetts;
Amount apportioned: $425;
Amount obligated: $64;
Percent of apportionment obligated: 15;
Number of projects: 19.
State: Michigan;
Amount apportioned: $847;
Amount obligated: $111;
Percent of apportionment obligated: 13;
Number of projects: 27.
State: Mississippi;
Amount apportioned: $355;
Amount obligated: $137;
Percent of apportionment obligated: 39;
Number of projects: 32.
State: New Jersey;
Amount apportioned: $652;
Amount obligated: $281;
Percent of apportionment obligated: 43;
Number of projects: 12.
State: New York;
Amount apportioned: $1,121;
Amount obligated: $277;
Percent of apportionment obligated: 25;
Number of projects: 108.
State: North Carolina;
Amount apportioned: $736;
Amount obligated: $165;
Percent of apportionment obligated: 22;
Number of projects: 53.
State: Ohio;
Amount apportioned: $936;
Amount obligated: 0;
Percent of apportionment obligated: 0;
Number of projects: 0.
State: Pennsylvania;
Amount apportioned: $1,026;
Amount obligated: $309;
Percent of apportionment obligated: 30;
Number of projects: 108.
State: Texas;
Amount apportioned: $2,250;
Amount obligated: $534;
Percent of apportionment obligated: 24;
Number of projects: 159.
Total:
Amount apportioned: $15,538;
Amount obligated: $3,269;
Percent of apportionment obligated: 21;
Number of projects: 905.
Source: FHWA.
Note: Totals may not add due to rounding.
[End of table]
In most states we visited, while they had not yet expended significant
funds, they were planning to solicit bids in April or May. They also
stated that they planned to meet statutory deadlines for obligating the
highway funds. A few states had already executed contracts. As of April
1, 2009, the Mississippi Department of Transportation (MDOT), for
example, had signed contracts for 10 projects totaling approximately
$77 million.[Footnote 23] These projects include the expansion of State
Route 19 in eastern Mississippi into a four-lane highway. This project
fulfills part of MDOT's 1987 Four-Lane Highway Program which seeks to
link every Mississippian to a four-lane highway within 30 miles or 30
minutes. Similarly, as of April 15, 2009, the Iowa Department of
Transportation had competitively awarded 25 contracts valued at $168
million. Most often, however, we found that highway funds in the states
and the District have not yet been spent because highway projects were
at earlier stages of planning, approval, and competitive contracting.
For example, in Florida, the Department of Transportation (FDOT) plans
to use the Recovery Act funds to accelerate road construction programs
in its preexisting 5-year plan which will result in some projects being
reprioritized and selected for earlier completion. On April 15, 2009,
the Florida Legislative Budget Commission approved the Recovery Act-
funded projects that FDOT had submitted.
For the most part, states were focusing their selection of Recovery Act-
funded highway projects on construction and maintenance, rather than
planning and design, because they were seeking projects that would have
employment impacts and could be implemented quickly. These included
road repairs and resurfacing, bridge repairs and maintenance, safety
improvements, and road widening. For example, in Illinois, the
Department of Transportation is planning to spend a large share of its
estimated $655 million in Recovery Act funds[Footnote 24] for highway
and bridge construction and maintenance projects in economically
distressed areas, those that are shovel-ready, and those that can be
completed by February 2012. In Iowa, the contracts awarded have been
for projects such as bridge replacements and highway resurfacing--
shovel-ready projects that could be initiated and completed quickly.
Knowing that the Recovery Act would include opportunities for highway
investment, states told us they worked in advance of the legislation to
identify appropriate projects. For example, in New York, the state DOT
began planning to manage anticipated federal stimulus money in November
2008. A key part of New York's DOT's strategy was to build on existing
planning and program systems to distribute and manage the funds.
State Fiscal Stabilization Fund:
The states and D.C. must apply to the Department of Education for SFSF
funds. Education will award funds once it determines that an
application contains key assurances and information on how the state
will use the funds. As of April 20, applications from three states had
met that determination-South Dakota, and two of GAO's sample states,
California and Illinois. The applications from other states are being
developed and submitted and have not yet been awarded. The states and
the District report that SFSF funds will be used to hire and retain
teachers, reduce the potential for layoffs, cover budget shortfalls,
and restore funding cuts to programs. The applications to Education
must contain certain assurances. For example, states must assure that,
in each of fiscal years 2009, 2010, and 2011, they will maintain state
support at fiscal year 2006 levels for elementary and secondary
education and also for public institutions of higher education (IHEs).
However, the Secretary of Education may waive maintenance of effort
requirements if the state demonstrates that it will commit an equal or
greater percentage of state revenues to education than in the previous
applicable year. The state application must also contain (1) assurances
that the state is committed to advancing education reform in increasing
teacher effectiveness, establishing state-wide education longitudinal
data systems, and improving the quality of state academic standards and
assessments; (2) baseline data that demonstrates the state's current
status in each of the education reform areas; and (3) a description of
how the state intends to use its stabilization allocation.
Within two weeks of receipt of an approvable SFSF application,
Education will provide the state with 67 percent of its SFSF
allocation. Under certain circumstances, Education will provide the
state with up to 90 percent of its allocation. In the second phase,
Education intends to conduct a full peer review of state applications
before awarding the final allocations.
After maintaining state support for education at fiscal year 2006
levels, states are required to use the education portion of the SFSF to
restore state support to the greater of fiscal year 2008 or 2009 levels
for elementary and secondary education, public IHEs, and, if
applicable, early childhood education programs. States must distribute
these funds to school districts using the primary state education
formula but maintain discretion in how funds are allocated to public
IHEs. If, after restoring state support for education, additional funds
remain, the state must allocate those funds to school districts
according to the funding formula found in Title I, Part A, of the
Elementary and Secondary Education Act of 1965 (ESEA), commonly known
as the No Child Left Behind Act. However, if a state's education
stabilization fund allocation is insufficient to restore state support
for education, then a state must allocate funds in proportion to the
relative shortfall in state support to public schools and IHEs.
Education stabilization funds must be allocated to school districts and
public IHEs and cannot be retained at the state level.
Once stabilization funds are awarded to school districts and public
IHEs, they have considerable flexibility over how they use those funds.
School districts are allowed to use stabilization funds for any
allowable purpose under the Elementary and Secondary Education Act
(ESEA), (commonly known as the No Child Left Behind Act), the
Individuals with Disabilities Education Act (IDEA), the Adult Education
and Family Literacy Act, or the Perkins Act, subject to some
prohibitions on using funds for, among other things, sports facilities
and vehicles. In particular, because allowable uses under the Impact
Aid provisions of ESEA are broad, school districts have discretion to
use Recovery Act funding for things ranging from salaries of teachers,
administrators, and support staff to purchases of textbooks, computers,
and other equipment. The Recovery Act allows public IHEs to use SFSF
funds in such a way as to mitigate the need to raise tuition and fees,
as well as for the modernization, renovation, and repair of facilities,
subject to certain limitations. However, the Recovery Act prohibits
public IHEs from using stabilization funds for such things as
increasing endowments, modernizing, renovating, or repairing sports
facilities, or maintaining equipment. According to Education officials,
there are no maintenance of effort requirements placed on local school
districts. Consequently, as long as local districts use stabilization
funds for allowable purposes, they are free to reduce spending on
education from local-source funds, such as property tax revenues.
States have broad discretion over how the $8.8 billion in SFSF funds
designated for basic government services are used. The Recovery Act
provides that these funds can be used for public safety and other
government services and that these services may include assistance for
education, as well as for modernization, renovation, and repairs of
public schools or IHEs, subject to certain requirements. Education's
guidance provides that the funds can also be used to cover state
administrative expenses related to the Recovery Act. However, the Act
also places several restrictions on the use of these funds. For
example, these funds cannot be used to pay for casinos (a general
prohibition that applies to all Recovery Act funds), financial
assistance for students to attend private schools, or construction,
modernization, renovation, or repair of stadiums or other sports
facilities.
States' expected that SFSF uses by school districts and public IHEs
would include retaining current staff and spending on programmatic
initiatives, among other uses. Some states' fiscal condition could
affect their ability to meet maintenance of effort (MOE) requirements
in order to receive SFSF monies, but they are awaiting final guidance
from Education on procedures to obtain relief from these requirements.
For example, due to substantial revenue shortages, Florida has cut
their state budget in recent years and the state will not be able to
meet the maintenance-of-effort requirement to readily qualify for these
funds. The state will apply to Education for a waiver from this
requirement; however, they are awaiting final instructions from
Education on submission of the waiver. Florida plans to use SFSF funds
to reduce the impact of any further cuts that may be needed in the
state education budget.
In Arizona, generally, state officials expect that SFSF recipients,
such as local school districts, will use their allocations to improve
the tools they use to assess student performance and determine to what
extent performance meets federal academic standards, rehire teachers
that were let go because of prior budget cuts, retain teachers, and
meet the federal requirement that all schools have equal access to
highly qualified teachers, among other things. Funds for the state
universities will help them maintain services and staff as well as
avoid tuition increases. Illinois officials stated that the state plans
to use all of the $2 billion in State Fiscal Stabilization funds,
including the 18.2 percent allowed for government services, for K-12
and higher education activities and hopes to avert layoffs and other
cutbacks many districts and public colleges and universities are facing
in their fiscal year 2009 and 2010 budgets. State Board of Education
officials also noted that U.S. Department of Education guidance allows
school districts to use stabilization funds for education reforms, such
as prolonging school days and school years, where possible. However,
officials said that Illinois districts will focus these funds on
filling budget gaps rather than implementing projects that will require
long-term resource commitments. While planning is underway, most of the
selected states reported that they have not yet fully decided how to
use the 18.2 percent of the SFSF which is discretionary.
Localities Report Limited Initial Use of Recovery Act Funds:
In addition to funds for Medicaid, transportation, and SFSF which flow
primarily directly to the states, the Recovery Act provided funds for
other program areas ranging from housing to training to alternative
energy. Localities' planning for the use of Recovery Act education
funds varied according to both the status of federal guidance in place
at the time of our review and individuals states' and localities' own
planning process. New Jersey state education officials said they were
initially limited in their ability to provide guidance to local
institutions because they were awaiting guidance from the U.S.
Department of Education. As a result, school district officials we
interviewed in Newark and Trenton said they are waiting for state
officials to tell them what their allocations are for each of the
federal Recovery Act education programs. The timing of the federal and
state guidelines for these funds are important as the local schools
districts are planning their upcoming fiscal year budgets and would
like to know how the Recovery Act funds would complement their upcoming
school spending. According to the governor's chief of staff, the state
already funds local school districts with $8.8 billion in state funds,
so ensuring accountability for the use of state funds to so many school
districts is not a new challenge to the state oversight agencies. On
April 1, 2009, the U.S. Department of Education issued guidance to the
states on how Recovery Act funds could be used for education. State
officials are continuing to review the guidance, and on April 16, 2009,
issued guidance to local school districts outlining each district's
allocation of additional funds made available under the Recovery Act
for programs authorized under Title I of the Elementary and Secondary
Education Act (ESEA) and the Individuals with Disabilities Education
Act. In Arizona, Tempe School District No. 3 plans to use the vast
majority of the Recovery Act funding for ESEA Title I for existing
programs, but it has tentative plans to use portions of it each year to
hire two temporary regional facilitators and to fund five existing
preschool programs, among other uses.
Officials from the selected states and the District said there were
plans in place to apply for and use Recovery Act funds. For example,
Michigan plans to apply for $67 million in Recovery Act funds for crime
control and prevention activities under the Department of Justice's
Edward Byrne Memorial Justice Assistance Grants. Michigan Department of
Community Health officials told us that about $41 million of these
funds will support, among other things, state efforts to reduce the
crime lab backlog, funding for multi-jurisdictional courts, and
localities' efforts regarding law enforcement programs, community
policing, and local correctional resources. An additional $26 million
in Recovery Act funds will go directly to localities to support efforts
against drug-related and violent crime. On April 13, 2009, Michigan
began accepting grant applications for the Byrne program and will
continue to accept them until May 11, 2009. In another example,
officials in the District told us that as of April 3, 2009, the
District Department of Employment Services had received about $1.5
million for adult Workforce Investment Act (WIA) programs, about $3.8
million for dislocated workers programs, and almost $4 million for
youth programs. They said that D.C. plans to use these Recovery Act
funds in accordance with the U.S. Department of Labor's guidance
stating the intent of the Recovery Act to use WIA Adult funds to
provide the necessary services to substantially increased numbers of
adults to support their entry or reentry into the job market, and that
WIA Dislocated Worker funds be used to provide the necessary services
to dislocated workers to support their reentry into the job market.
Recovery Act Funds Expected to Alleviate Some State Fiscal Pressures As
States Continue to Adjust Budget Plans to Address Current and Emerging
Challenges:
Officials in all of the selected states indicated they were able to
reduce or eliminate expected budget shortfalls through the inclusion of
Recovery Act funds in their budget projections. In Texas, some
representatives told us that absent the availability of Recovery Act
funds, state agencies likely would have been asked to make cuts of
about 10 percent for the state's fiscal year 2010-2011 biennial budget,
in addition to the state drawing upon the rainy day fund. However,
other officials representing the Texas Office of the Governor said that
budget deficit situations do not necessarily result in the state using
its rainy day fund. The officials stressed that--to meet the
requirement to pass a balanced budget--a variety of other solutions
could be considered, such as budget reallocations among state agencies
and programs, as well as spending cuts. Colorado officials said
Recovery Act funds will help prevent cuts to state programs such as
transportation. Illinois officials said the state hopes to avert
layoffs and create new jobs with Recovery Act funds.
Officials in Massachusetts also said that federal Recovery Act funds
are critical to addressing the Commonwealth's immediate fiscal
pressures. State officials expect to use a significant portion of funds
made available as a result of their state-projected $8.7 billion in
Recovery Act funds (over 2 years) for budget stabilization. As of April
2009, the Commonwealth is addressing a budget shortfall of
approximately $3.0 billion, driven largely by lower-than-anticipated
revenues. The combination of funds made available as a result of the
increased FMAP and state rainy day funds--a reserve fund built up
during more favorable economic conditions to be used during difficult
economic times--will help the state avoid cuts in several areas,
including health care, education, and public safety. Faced with
declining revenue projections since fiscal year 2008, Pennsylvania
officials believe that funds made available as a result of the Recovery
Act are critical to help alleviate the immediate fiscal pressure and
help balance the state budget. Based on February 2009 projections,
Pennsylvania faces a $2.3 billion shortfall in fiscal year 2009,
largely because of lower-than-expected revenues.
Despite the infusion of Recovery Act funds into state budgets, some
state officials reported that the current fiscal situation still
requires action to maintain balanced budgets. These actions include
budget reductions, fee increases and scaling back of state rebates of
local property taxes. In Georgia, officials amended the state budget by
reducing revenue estimates, using reserves, and cutting program
funding. These actions were necessary despite the inclusion of
additional Medicaid funds made available as a result of the Recovery
Act. The largest budget cuts in New Jersey come from scaling back of
state rebates of local property taxes by $500 million, and reducing
state payments to the pension funds by $895 million.
Officials in the selected states acknowledged the Recovery Act's
contributions to easing immediate fiscal pressures but remain wary of
continued fiscal pressures likely to remain after federal assistance
ends. Officials in several states reported that their planning efforts
focused on maintaining existing services rather than creating new
programs or staff positions which could extend their state's financial
liabilities beyond the end date for Recovery Act funds. Officials
generally expected to use Recovery Act funds to fill gaps in existing
programs rather than funding new initiatives. In the midst of program
budget cuts, state officials acknowledged the challenge of ensuring
that, where required to do so, they use Recovery Act funds to
supplement and not supplant current state program funds.[Footnote 25]
For example, in Arizona, programs receiving Recovery Act funds may have
a share of the state general fund reduced to help balance the fiscal
year 2010 budget, thus demonstrating the state has met the prohibition
on supplanting state funds could be a challenge. The Arizona
Treasurer's Office estimated that even with Recovery Act funding,
Arizona's expenditures were expected to exceed revenues through about
2014, and the state's "rainy day" fund has been depleted.[Footnote 26]
In California, even when the state Legislative Analyst's Office factors
in the state's anticipated Recovery Act funding and a package of state
budget solutions that will be voted on in a May 19, 2009 special
election, it estimates an $8 billion deficit in fiscal year 2009-10.
Further, since the release of the governor's budget in January 2009,
the state's economic condition continues to deteriorate, and the state
legislature and governor may need to develop additional budgetary
solutions to rebalance the 2009-10 budget following an update of the
budget in May.[Footnote 27]
States' Actions to Plan for Use of Recovery Act Funds Include New and
Existing Entities and Processes:
All of the 16 selected states and the District reported taking action
to plan for and monitor the use of Recovery Act funding. Some states
reported that Recovery Act planning activities for funds received by
the state are directed primarily by the governor's office. In New York,
for example, the governor provides program direction to the state's
departments and offices, and he established a Recovery Act Cabinet
comprised of representatives from all state agencies and many state
authorities to coordinate and manage Recovery Act funding throughout
the state. In North Carolina, Recovery Act planning efforts are led by
the newly created Office of Economic Recovery and Investment, which was
established by the governor to oversee the state's economic recovery
initiatives.
Other states reported that their Recovery Act planning efforts were
less centralized. In Mississippi, the governor has little influence
over the state Departments of Education and Transportation, as they are
led by independent entities. In Texas, oversight of federal Recovery
Act funds involves various stakeholders, including the Office of the
Governor, the Office of the Comptroller of Public Accounts, and the
State Auditor's Office as well as two entities established within the
Texas legislature specifically for this purpose--the House Select
Committee on Federal Economic Stabilization Funding and the House
Appropriations' Subcommittee on Stimulus.[Footnote 28]
Several states reported that they have appointed "Recovery Czars" or
identified a similar key official and established special offices, task
forces or other entities to oversee the planning and monitor the use of
Recovery Act funds within their states. In Michigan, the governor
appointed a recovery czar to lead a new Michigan Economic Recovery
Office, which is responsible for coordinating Recovery Act programs
across all state departments and with external stakeholders such as
GAO, the federal OMB, and others.
Some states began planning efforts before Congress passed the Recovery
Act. For example, the state of Georgia recognized the importance of
accounting for and monitoring Recovery Act funds and directed state
agencies to take a number of steps to safeguard Recovery Act funds and
mitigate identified risks. Georgia established a small core team in
December 2008 to begin planning for the state's implementation of the
Recovery Act. Within 1 day of enactment, the governor appointed a
Recovery Act Accountability Officer, and she formed a Recovery Act
implementation team shortly thereafter. The implementation team
includes a senior management team, officials from 31 state agencies, an
accountability and transparency support group comprised of officials
from the state's budget, accounting, and procurement offices, and five
cross-agency implementation teams. At one of the first implementation
team meetings, the Recovery Act Accountability Officer disseminated an
implementation manual to agencies, which included multiple types of
guidance on how to use and account for Recovery Act funds, and new and
updated guidance is disseminated at the weekly implementation team
meetings.
In contrast, officials in some states are using existing mechanisms
rather than creating new offices or positions to lead Recovery Act
efforts. For example, a District official stated that the District
would not appoint a Recovery Czar, and instead would use its existing
administrative structures to distribute and monitor Recovery Act funds
to ensure quick disbursement of funds. In Mississippi, officials from
the Governor's Office said that the state did not establish a new
office to provide statewide oversight of Recovery Act funding, in part
because they did not believe that the act provided states with funds
for administrative expenses--including additional staff. The Governor
did designate a member of his staff to act as a stimulus coordinator
for Recovery Act activities.
All 16 states we visited and the District have established Recovery Act
web sites to provide information on state plans for using Recovery
funding, uses of funds to date, and, in some instances, to allow
citizens to submit project proposals. For example, Ohio has created
[hyperlink, http://www.recovery.Ohio.gov], which represents the state's
efforts to create an open, transparent, and equitable process for using
Recovery Act funds. The state has encouraged citizens to submit
proposals for use of Recovery Act funds, and as of April 8, 2009,
individuals and organizations from across Ohio submitted more than
23,000 proposals. Iowa officials indicated they want to use the state's
recovery web site [hyperlink, http://www.recovery.Iowa.gov] to host a
"dashboard" function to report updated information on Recovery Act
spending that is easily searchable by the public. Also in Colorado, the
state plans to create a web-based map of projects receiving Recovery
Act funds to help inform the public about the results of Recovery Act
spending in Colorado.
States' Legislatures Approve Use of Recovery Act Funds:
In many states we spoke to, officials reported that their planning
efforts were affected by the need for the state legislature to approve
state agencies' use of Recovery Act funds.[Footnote 29] For example, in
Florida, the state legislature must authorize the use of all Recovery
Act funds received by the state; including those passed on to local
governments. In Colorado, some Recovery Act funds, including those
going to Child Care Development Block Grants (CDBG) and the Temporary
Assistance to Needy Families (TANF) Emergency Contingency Fund, must be
allocated by the Colorado General Assembly, which is in session only
through early May. Mississippi officials also plan to use Recovery Act
funds to address the state's fiscal challenges. Mississippi legislative
officials we met with told us that the state legislature was
considering adding escalation language to the current fiscal year's
appropriations bills that would authorize state agencies to spend any
Recovery Act funds received. The legislature normally conducts its
regular session between the beginning of January and the end of March.
However, the legislature recessed early during the 2009 regular session
in part because of uncertainty regarding how Recovery Act funds that
the state will receive should be spent. The legislature plans to
reconvene in early May 2009 to complete its work on the state's fiscal
year 2010 budget.
Selected States' and the District's Plans to Track Recovery Act Funds:
The selected states' and localities' tracking and accounting systems
are critical to the proper execution and accurate and timely recording
of transactions associated with the Recovery Act. OMB has issued
guidance to the states and localities that provides for separate
"tagging" of Recovery Act funds so that specific reports can be created
and transactions can be traced. Officials from all 16 of the selected
states and the District told us they have established or were
establishing methods and processes to separately identify (i.e., tag),
monitor, track, and report on the use of the Recovery Act funds they
receive. The states and localities generally plan on using their
current accounting system for recording Recovery Act funds, but many
are adding identifiers to account codes to track recovery act funds
separately. Many said this involved adding digits to the end of
existing accounting codes for federal programs. In California for
instance, officials told us that while their plans for tracking,
control, and oversight are still evolving, they intend to rely on
existing accountability mechanisms and accounting systems, enhanced
with newly created codes, to separately track and monitor Recovery Act
funds that are received by and pass through the state. Several
officials told us that the state's accounting system should be able to
track Recovery Act funds separately.
In one state, Arizona, officials told us that state agencies will
primarily be responsible for administering, tracking, reporting on and
overseeing Recovery Act funds for their respective programs because the
state government is highly decentralized. The state's existing
accounting system will have new accounting codes added in order to
segregate and track the Recovery Act funds separately from other funds
that will flow through the state government. Under Arizona's
decentralized government, some larger agencies, and program offices
within them, have their own accounting systems that will need to code
and track Recover Act funds as well. The Arizona General Accounting
Office has issued guidance to state agencies on their responsibilities,
including how they were to receive, disburse, tag or code in their
accounting systems, track separately, and to some extent report on
these federal resources.
A concern expressed by state officials is that agencies within the
state often use different accounting software making it difficult to
ensure consistent and timely reporting. For example, Georgia officials
stated that the majority of state agencies use the same software;
however, some agencies do not use this software and others have greatly
customized the software. Similarly, officials from the Illinois Office
of the Internal Auditor said that the state is assessing an issue that
could affect reporting --specifically that there are currently more
than 100 separate financial systems used throughout the Illinois state
government. Furthermore, Colorado state officials are concerned that
their accounting system is outdated and said they faced challenges in
meeting federal reporting requirements. Some state departments do not
use the state financial system grant module and therefore manually post
aggregate revenue and expenditure data. As a result, they may have to
compile a list of Recovery Act funding received outside of their
central financial management system. State officials are determining
what approach they will use in tracking funds, and told us they plan to
create an accounting fund and a centrally defined budget coding
structure through which to track state agencies' use of Recovery Act
funds.
State Concerns Over Accountability of Recovery Act Funds Going to Sub-
Recipients or Directly to Localities and Other Non-State Entities:
State officials reported a range of concerns regarding the federal
requirements to identify and track Recovery Act funds going to sub-
recipients, localities and other non-state entities. These concerns
include their inability to track these funds with existing systems,
uncertainty regarding state officials' accountability for the use of
funds which do not pass through state government entities, and their
desire for additional federal guidance to establish specific
expectations on sub-recipient reporting requirements.
Officials from many of the 16 selected states and the District told us
that they had concerns about the ability of sub-recipients, localities,
and other non-state entities to separately tag, monitor, track, and
report on the Recovery Act funds they receive. For example, in New
Jersey officials noted that certain towns and cities, as well as
regional planning organizations, can apply for and directly receive
federal funds under the terms of the Recovery Act. According to the
state Inspector General, the risk for waste, fraud and abuse increases
the farther removed an organization is from state government controls.
While some state officials said that they have statewide investigative
authority, they would not be able to readily track the funding going
directly to local and regional government organizations and nonprofits
as a result of the funding delivery and reporting requirements set up
in the Recovery Act. In addition, staff from the State Auditor's office
noted that some smaller cities and towns in New Jersey are not used to
implementing guidance from the state or federal government on how they
are using program funds and this could result in the localities
reporting using funds for ineligible purposes.
Officials in many states expressed concern about being held accountable
for funds flowing directly from federal agencies to localities or other
recipients. For example, officials in Colorado expressed concern that
they will be held accountable for all Recovery Act funds flowing to the
state, including those funds for which they do not have oversight or
even information about, because some funds flow directly to non-state
entities within Colorado (such as school districts and transportation
districts).
Officials in some states said they would like to at least be informed
about funds provided to non-state entities in order to facilitate
planning for the use of these funds and so they can coordinate Recovery
Act activities. For example, Georgia officials do not expect to track
and report on funds going directly to localities, but would like to be
informed about these funds so that the state can coordinate with
localities. They cited Recovery Act-funded broadband initiatives and
health funding to nonprofit hospitals as areas where a lack of
coordination could result in a duplication of services or missed
opportunities to leverage resources. Officials at the Colorado
Department of Public Safety told us that, because Colorado and other
states expressed interest in receiving data on localities' grant
funding, the federal Bureau of Justice Assistance in the U.S.
Department of Justice began providing data to the states on localities'
funding.
In another example, officials told us that the Ohio Administrative
Knowledge System (OAKS) will allow the state to tag Recovery Act
funding. However, they said in many cases state agencies will rely on
grantees and contractors to track the funds to their end use. Because
the state intends to code each Recovery Act funding stream separately
and recipients typically manage more than one funding stream at a time,
state officials said recipients should be able to track Recovery Act
funds separately from other funding sources. However, state and local
officials we interviewed raised concerns about the capacity of grantees
and contractors to track funds spent by sub-recipients. For example,
officials with the Ohio Department of Education said they can track
Recovery Act funds to school districts and charter schools, but they
have to rely on the recipients' financial systems to be able to track
funds beyond that. An official with the Columbus City Schools said that
while they could provide assurances that Recovery Act funds were spent
in accordance with program rules; they could not report back
systematically how each federal Recovery Act dollar was spent.
Officials with the Columbus Metropolitan Housing Authority also noted
limitations in how far they could reasonably be expected to track
Recovery Act funds. They said they could track Recovery Act dollars to
specific projects but could not systematically track funds spent by
subcontractors on materials and labor. These officials added, however,
that if they required the contractors to collect this information from
their subcontractors, they would be able to report back with great
detail. Still, they said, without additional guidance from the federal
government on specific reporting requirements, they were hesitant to
specify requirements for their contractors to collect the data.
Pennsylvania officials said that the state will rely on sub-recipients
to meet reporting requirements at the local level. Recipients and sub-
recipients can be local governments or other entities such as transit
agencies. For example, about $367 million in Recovery Act money for
transit capital assistance and fixed guideway (such as commuter rails
and trolleys) modernization was allocated directly to areas such as
Philadelphia, Pittsburgh, and Allentown. State officials also told us
that the state would not track or report Recovery Act funds that go
straight from the federal government to localities and other entities,
such as public housing authorities.
Officials in several states indicated that either their states would
not be tracking Recovery Act funds going to the local levels or that
they were unsure how much data would be available on the use of these
funds. For example, Massachusetts officials told us that the portion of
recovery funds going directly to recipients other than Massachusetts
state government agencies, such as independent state authorities, local
governments, or other entities, will not be tracked through the Office
of the Comptroller. While state officials acknowledged that the
Commonwealth lacks authority to ensure adequate tracking of these
funds, they also are concerned about the ability of smaller entities to
manage Recovery Act funds, particularly smaller municipalities that
traditionally do not receive federal funds and who are not familiar
with Massachusetts tracking and procurement procedures, and recipients
receiving significant increases in federal funds. In order to address
this concern, the state administration introduced emergency legislation
that, according to state officials, includes a provision requiring all
entities within Massachusetts that receive Recovery Act money to
provide information to the state on their use of Recovery Act funds.
Nevertheless, two large non-state government entities we spoke with--
the city of Boston and the Massachusetts Bay Transportation Authority
(an independent authority responsible for the metropolitan Boston's
transit system)--believe that their current systems, with some
modifications, will allow them to meet Recovery Act requirements. For
example, the city of Boston hosted the Democratic National Convention
in 2004 and officials said that their system was then capable of
segregating and tracking a sudden influx of temporary funds.
This response was common among the selected states. For example,
officials in Florida told us that the state's accounting system will
not track the portion of Recovery Act funds that flow directly to local
entities from federal agencies. Officials in Michigan's Auditor
General's Office told us that their oversight responsibilities do not
include most sub-recipients that receive direct federal funding, so any
upfront safeguards to track or ensure accountability have not been
determined.[Footnote 30] Mississippi officials also said that although
special accounting codes will be added to the Statewide Automated
Accounting System in order to track the expenditure of Recovery Act
funds, the system would not track Recovery Act funds allocated directly
to local and regional government organizations and nonprofit
organizations.
In Arizona, the portion of recovery funds going directly to recipients
other than Arizona government agencies, such as independent state
authorities, local governments, or other entities, may not be tracked
by the state. State officials expressed concern that they may not be
able to attest to localities' ability to tag, track, and report on
Recovery Act funds when these entities receive the moneys directly from
federal agencies rather than through state agencies. Department heads
and program officials generally expected that they could require sub-
recipients receiving funds from the state, through agreements, grant
applications, and revised contract provisions, to separately track and
report Recovery Act funding. For example, unemployment program managers
said they were issuing new intergovernmental agreements with localities
to cover new reporting requirements. However, several of the state
officials did raise questions about the ability of some local
organizations to do this, such as small, rural entities, boards or
commissions, or private entities not used to doing business with the
federal government. Furthermore, several of the state department
officials acknowledged that either some state agency information
systems have data reliability problems, which will have to be resolved,
or they had sub-recipients who in the past had problems providing
timely and accurate reporting, but said that they would work with these
entities to comply, and also had sanctions to use as a last resort.
Officials in Arizona, Florida, Georgia, and New York, also expressed
concern that the new requirement to provide reports on use of Recovery
Act funds within 10 days after a quarter ends may be challenging to
meet by both state and local entities. In some program areas, some
state officials raised concerns that the Recovery Act requirement will
create much shorter deadlines for processing financial data that local
areas will have difficultly meeting.
Selected States' and Localities' Internal Controls and Safeguards to
Manage and Mitigate the Risk of Mismanagement, Waste, Fraud, and Abuse
of Recovery Act Funds:
The selected states and the District are taking various approaches to
ensure that internal controls are in place to manage risk up-front,
rather than after problems develop and deficiencies are identified
after the fact, and have different capacities to manage and oversee the
use of Recovery Act funds. Many of these differences result from the
underlying differences in approaches to governance, organizational
structures, and related systems and processes that are unique to each
jurisdiction. A robust system of internal control specifically designed
to deal with the unique and complex aspects of the Recovery Act funds
will be key to helping management of the states and localities achieve
the desired results. Effective internal control can be achieved through
numerous different approaches, and, in fact, we found significant
variation in planned approaches by state. For example,
* New York's Recovery Act cabinet plans to establish a working group on
internal controls; the Governor's office plans to hire a consultant to
review the state's management infrastructure and capabilities to
achieve accountability, effective internal controls, compliance and
reliable reporting under the act; and, the state plans to coordinate
fraud prevention training sessions.
* Michigan's Recovery Office is developing strategies for effective
oversight and tracking of the use of Recovery Act funds to ensure
compliance with accountability and transparency requirements.
* Ohio's Office of Internal Audit plans to assess the adequacy and
effectiveness of the current internal control framework and test
whether state agencies adhere to the framework.
* Florida's Chief Inspector General established an enterprise-wide
working group of agency program Inspectors General who are updating
their annual work plans by including the Recovery Act funds in their
risk assessments and will leave flexibility in their plans to address
issues related to funds.
* Massachusetts's Joint Committee on Federal Recovery Act Oversight
will hold hearings regarding the oversight of Recovery Act spending.
* Georgia's State Auditor plans to provide internal control training to
state agency personnel in late April. The training will discuss basic
internal controls, designing and implementing internal controls for
Recovery Act programs, best practices in contract monitoring, and
reporting on Recovery Act funds.
States' and Localities' Internal Controls Will Be Critical to Ensuring
That Recovery Act Funds Are Used Appropriately:
Internal controls include management and program policies, procedures,
and guidance that help ensure effective and efficient use of resources;
compliance with laws and regulations; prevention and detection of
fraud, waste, and abuse; and the reliability of financial reporting.
Because Recovery Act funds are to be distributed as quickly as
possible, controls are evolving as various aspects of the program
become operational. Effective internal control is a major part of
managing any organization to achieve desired outcomes and manage risk.
GAO's Standards for Internal Control include five key elements: control
environment, risk assessment, control activities, information and
communication, and monitoring.[Footnote 31]
Control Environment:
The control environment should create a culture of accountability by
establishing a positive and supportive attitude toward improvement and
the achievement of established program outcomes. Control environment
includes the integrity and ethical values maintained and demonstrated
by management, the organizational structure, and management's
philosophy and operating style. As detailed earlier in this report,
although the implementation has varied, many locations we reviewed have
attempted to enhance their control environment through the appointment
of a Recovery czar or the establishment of boards or working groups
that focus on the Recovery Act. Also, as noted earlier, state officials
expressed concerns about the reliability and accuracy of data coming
from localities.
Risk Assessments:
The second feature of strong internal controls is risk assessment--that
is, performing comprehensive reviews and analyses of program operations
to determine if risks exist and the nature and extent of risks have
been identified. Some states told us that they are conducting such risk
assessments and the existing body of work by state auditors and others
provide a good roadmap for states to use to pinpoint key areas of
concern and to strengthen internal controls and subsequent oversight.
For example, the Illinois Office of Internal Audit is performing a risk
assessment of all programs related to the Recovery Act, and North
Carolina's Office of Internal Audit is assessing the risk of the state
department's financial management system and internal controls.
Michigan's major state departments are conducting self assessments of
controls, including identification of internal control and programmatic
weaknesses. In Georgia, the budget office is requiring state agencies
to complete a tool that assesses risk as part of the budget process for
the Recovery Act funds. Selected states have thus far identified
various risks that the Recovery Act funds and programs face, including
Georgia officials identifying three state departments with increased
risk--the Georgia Department of Labor that is on a different accounting
system than other state departments, the Georgia Department of
Transportation which had previously identified accounting problems and
is currently being reorganized, and the Georgia Department of Human
Resources, which is currently being divided into three parts, which
increases risk. Additionally, Massachusetts' fiscal year 2007 Single
Audit report also identified deficiencies, especially in the Department
of Education's sub-recipient monitoring.
Officials in several of the selected states told us that risk
assessment is being conducted to look at programs receiving Recovery
Act funds. Officials in Texas' State Auditor's Office noted that
relatively high risks generally can be anticipated with certain types
of programs such as new programs with completely new processes and
internal controls; programs that distribute significant amounts of
funds to local governments or boards, and programs that rely on sub-
recipients for internal controls and monitoring. Officials from New
York, North Carolina, and Pennsylvania commented that the
weatherization program was an example of a program at increased risk.
The results of recent audits are a readily available source of
information to use in the risk assessment process. Material weaknesses
and other conditions identified in an audit represent potential risks
that can be analyzed for their significance and occurrence that will
allow management and others to decide how to manage the risk and what
actions should be taken. A readily available source of information on
internal control weaknesses and other risks present in the states and
other jurisdictions receiving Recovery Act funding is the Single Audit
report, prepared to meet the requirements of the Single Audit Act, as
amended (Single Audit Act) and OMB's implementing guidance in OMB
Circular No. A-133, Audits of States, Local Governments, and Non-Profit
Organizations. The Single Audit Act adopted a single audit concept to
help meet the needs of federal agencies for grantee oversight and
accountability as well as grantees' needs for single, uniformly
structured audits. The Single Audit Act requires states, local
governments and nonprofit organizations expending over $500,000 in
federal awards in a year to obtain an audit in accordance with
requirements set forth in the Act. [Footnote 32] A single audit
consists of (1) an audit and opinions on the fair presentation of the
financial statements and the Schedule of Expenditures of Federal Awards
(SEFA); (2) gaining an understanding of and testing internal control
over financial reporting and the entity's compliance with laws,
regulations, and contract or grant provisions that have a direct and
material effect on certain federal programs (i.e., the program
requirements),[Footnote 33] and (3) an audit and an opinion on
compliance with applicable program requirements for certain federal
programs. The audit report also includes the auditor's schedule of
findings and questioned costs, and the auditee's corrective action
plans and a summary of prior audit findings that includes planned and
completed corrective actions. Auditors are also required to report on
significant deficiencies in internal control and on compliance
associated with the audit of the financial statements.
For example, in California, the most recent single audit conducted by
the State Auditor for fiscal year 2007 identified 81 material
weaknesses, 27 of which were associated with programs we reviewed for
purposes of this report.[Footnote 34] The State Auditor plans to use
past audit results to target state agencies and programs with a high
number and history of problems, including data reliability concerns,
and is closely coordinating with us on these efforts. For example, the
fiscal year 2007 State Single Audit Report identified 8 material
weaknesses pertaining to the ESEA Title I program and the Individuals
with Disabilities Education Act programs. The audit findings included a
material weakness in the California Department of Education's
management of cash because it disbursed funds without assurances from
LEAs that the time between the receipt and disbursement of federal
funds was minimized, contrary to federal guidelines. Education
officials told us that they have addressed some of these material
weaknesses and, in other cases, they are still working to correct them.
If these and other material weaknesses are not corrected, they may
affect the state's ability to appropriately manage certain Recovery Act
funds. The State Auditor's Office told us that it is in the process of
finalizing the fiscal year 2007 State Single Audit Report and plans to
issue the report within the next 30 days. In addition, the State
Auditor's Office is summarizing the results of the single audit to
identify those programs that continue to have material weaknesses.
Finally, the State Auditor's Office plans to use the results of other
audits it has conducted in conjunction with the single audit to develop
its approach for determining the state's readiness to receive the large
influx of federal funds and comply with the requirement regarding the
use of those funds under the Recovery Act.
Arizona's fiscal year 2007 Single Audit report identified a number of
material weaknesses related to the state Department of Education. The
report identified a material weakness involving IDEA where the state
department had not reviewed sub-recipients to ensure that federal
awards were used for authorized purposes in compliance with laws,
regulations, and the provisions of contracts or grant agreements. The
Audit report also identified one financial reporting material
weaknesses related to the state Department of Administration's ability
to prepare timely financial statements, including its Comprehensive
Annual Financial Report (CAFR). In fiscal year 2007, the CAFR was
issued in June 2008, approximately 6 months after the scheduled
deadline. According to the Auditor General's Office, the fiscal year
2008 CAFR will also be completed late as the last agency submitted its
financial statement on March 9, 2008. According to the Auditor
General's Office, this control deficiency affects the timeliness of
financial reporting which affects the needs of users. It is especially
important that Arizona try to address the timeliness issue with regard
to financial statements given the number and strict reporting timelines
that are imposed on states under the Recovery Act.
Control Activities:
The third element of a comprehensive system of internal controls is
that of control activities, which involve taking actions to address
identified risk areas and help ensure that management's decisions,
directives, and plans are carried out and program objectives met.
Various control activities already exist and are also being put in
place in the states related to the Recovery Act. Control activities for
states and localities consist of the policies, procedures, and guidance
that enforce management's directives and achieve effective internal
control over specific program activities. Examples of such policies and
procedures particularly relevant to the Recovery Act spending are (1)
proper execution and accurate and timely recording of transactions and
events, (2) controls to help ensure compliance with program
requirements, (3) establishment and review of performance measures and
indicators, and (4) appropriate documentation of transactions and
internal control.
Documented policies, procedures and guidance that are effectively
implemented will be critical tools for states and localities management
and staff as well as program recipients for achieving good management
of Recovery Act programs. Control activities are also key in helping to
achieve accurate, reliable reporting of information and results.
Effective control activities and monitoring are key to achieving this
objective. Pennsylvania's Auditor General also found potential
weaknesses and vulnerabilities in programs expected to receive Recovery
Act funds.[Footnote 35] For example, a recent Auditor General report
found, among other things, weak internal controls, weaknesses in
contracting, and inconsistent verification and inspection of
subcontractor work in the state's Weatherization Assistance Program.
States and localities that receive and administer the Recovery Act
funds will be expected to minimize fraud, waste, and abuse in
contracting.
According to Florida state officials, the state completed an initiative
to strengthen contracting requirements several years ago. For example,
the majority of state contracts greater than $1 million are required to
be reviewed for certain criteria by the Department of Financial
Services' Division of Accounting and Auditing before the first payment
is processed. The contract must also be negotiated by a contract
manager certified by the Florida Department of Management Services,
Division of State Purchasing Training and Certification Program. In
another example of efforts to enhancing contracting processes and
oversight, officials in New Jersey told us that the controls and
reports will be put into place by the state's centralized purchasing
department, the Division of Purchase and Property (DPP). The current
accounting system will be able to account for and control the use of
Recovery Act funds used for procurement because DPP will create special
accounting codes for these funds. New Jersey officials stated that
their accounting systems had the capability to track funds using
special accounting codes and that they were confident no special
enhancements were needed to their accounting software, although they
would monitor the accounting system to ensure it was functioning
properly. DPP will also publicly advertise bids for projects funded
with Recovery Act funds, include terms and conditions in each request
for proposals and contract for these projects stating detailed reports
required by the Act, and will post contract award notices for Recovery
Act-funded projects.
Information and Communication:
Information should be communicated to management and within the entity
to enable accountable officials and others throughout the entity to
carry out their responsibilities and determine whether they are meeting
their goals of accountability and efficient use of resources. The
states have undertaken a variety of information and communication
methods. For the Recovery Act, internal state communication is being
conducted through newly created task forces or working groups such as
those in California and the District, implementation teams such as in
Florida and Georgia, and state offices such as in North Carolina. Texas
also uses a periodic forum of the internal audit staff of Texas state
agencies for another statewide communication method. Various officials
are developing guidance related to the Recovery Act and dispensing the
information to state agencies.
Monitoring:
Monitoring activities include the systemic process of reviewing the
effectiveness of the operation of the internal control system. These
activities are conducted by management, oversight boards and entities,
and internal and external auditors. Monitoring enables stakeholders to
determine whether the internal control system continues to operate
effectively over time. It also improves the organization's overall
effectiveness and efficiency by providing timely evidence of changes
that have occurred, or might need to occur, in the way the internal
control system addresses evolving or changing risks.
Many of the boards or offices discussed in the control environment
above have responsibilities related to monitoring the Recovery Act
funds. States have undertaken various other activities to monitor
Recovery Act funds, including Arizona's budget director meeting with
the heads of programs potentially receiving Recovery Act funds to gauge
each programs' preparedness; Arizona's Comptroller conducting a survey
to inventory current internal controls at state agencies to help ensure
controls are in place to limit the risk of fraud, waste, abuse and
mismanagement of Recovery Act funds; California's Governor appointing
the state's first Inspector General specifically to oversee Recovery
Act funds as they are disbursed in the state; Massachusetts'
legislature creating the Joint Committee on federal Recovery Act
Oversight with the goals of ensuring compliance with federal
regulations and reviewing current state laws, regulations and policies
to ensure they allow access to Recovery Act funds and streamline the
processes to quickly stimulate the economy; and Texas State Auditor's
Office plans to hire 10 additional staff.
An important aspect of monitoring Recovery Act funding includes sub-
recipient monitoring. As noted, significant concerns exist regarding
sub-recipient monitoring, as this is an area where limited experience
and known vulnerabilities exist. Some state auditors do not have
authority to monitor local operations of internal controls. For
example, in Pennsylvania, officials from the Auditor General's office
have different views about what authority they have to audit federal
money that flows directly to localities, such as housing authorities
and municipalities.
In Texas, the State Auditor's Office made a recommendation regarding
the monitoring of sub-recipients in its most recent audit of the Texas
Education Agency.[Footnote 36] The audit report did not find that sub-
recipients were improperly spending federal funds or were not meeting
federal requirements, however the report did note that the agency had
"a limited number of resources available to monitor fiscal compliance."
The audit report recommended that the Texas Education Agency continue
to add resources, within its budget constraints, to increase the amount
of federal fiscal compliance performed. According to the State Auditor,
following the audit in February 2009, the Texas Education Agency
created a comprehensive correction plan to address this resource issue,
which the agency is implementing.
Current Single Audit Focus May Not Provide Timely Oversight Information
for Recovery Act Funds:
OMB's Circular No. A-133 sets out implementing guidelines for the
single audit and defines roles and responsibilities related to the
implementation of the Single Audit Act, including detailed instructions
to auditors on how to determine which federal programs are to be
audited for compliance with program requirements in a particular year
at a given grantee. The Circular No. A-133 Compliance Supplement is
issued annually to guide auditors on what program requirements should
be tested for programs audited as part of the single audit. OMB has
stated that it will use its Circular No. A-133 Compliance Supplement to
notify auditors of program requirements that should be tested for
Recovery Act programs, and will issue interim updates as necessary.
Both the Single Audit Act and OMB Circular No. A-133 call for a "risk-
based" approach to determine which programs will be audited for
compliance with program requirements as part of a single audit. In
general, the prescribed approach relies heavily on the amount of
federal expenditures during a fiscal year and whether findings were
reported in the previous period to determine whether detailed
compliance testing is required for a given program that year.[Footnote
37] Under the current approach for risk determination in accordance
with Circular No. A-133, certain risks unique to the Recovery Act
programs may not receive full consideration. Recovery Act funding
carries with it some unique challenges. The most significant of these
challenges are associated with (1) new government programs (2), the
sudden increase in funds or programs that are new for the recipient
entity, and (3) the expectation that some programs and projects will be
delivered faster so as to inject funds into the economy. This makes
timely and efficient evaluations in response to the Recovery Act's
accountability requirements critical. Specifically,
* new programs and recipients participating in a program for the first
time may not have the management controls and accounting systems in
place to help ensure that funds are distributed and used in accordance
with program regulations and objectives;
* Recovery Act funding that applies to programs already in operation
may cause total funding to exceed the capacity of management controls
and accounting systems that have been effective in past years;
* the more extensive accountability and transparency requirements for
Recovery Act funds will require the implementation of new controls and
procedures; and:
* risk may be increased due to the pressures of spending funds quickly.
In response to the risks associated with Recovery Act funding, the
single audit process needs adjustment to put appropriate focus on
Recovery Act programs to provide the necessary level of accountability
over these funds in a timely manner. The single audit process could be
adjusted to require the auditor to perform procedures such as the
following as part of the routine single audit:
* provide for review of the design and implementation of internal
control over compliance and financial reporting for programs under the
Recovery Act;
* consider risks related to Recovery Act-related programs in
determining which federal programs are major programs; and:
* specifically, test Recovery Act programs to determine whether the
auditee complied with laws and regulations.[Footnote 38]
The first two items above should preferably be accomplished during 2009
before significant expenditures of funds in 2010 so that the design of
internal control can be strengthened prior to the majority of those
expenditures. We further believe that OMB Circular No. A-133 and/or the
Circular No. A-133 Compliance Supplement could be adjusted to provide
some relief on current audit requirements for low-risk programs to
offset additional workload demands associated with Recovery Act funds.
OMB told us that it is developing audit guidance that would address the
above audit objectives. OMB also said that it is considering
reevaluating potential options for providing relief from certain
existing audit requirements in order to provide some balance to the
increased requirements for Recovery Act program auditing.
State and Local Capacity to Manage Risks:
Officials in several states expressed concerns regarding the lack of
funding provided to state oversight entities in the Recovery Act given
the additional federal requirements placed on states to provide proper
accounting, and ensure transparency. Due to fiscal constraints, many
states reported significant declines in the number of management and
oversight staff--limiting states' ability to ensure proper
implementation and management of Recovery Act funds. To the extent that
states' management infrastructures were already strained due to
resource issues, risks will be exacerbated by increased workloads and
new program implementation. While the majority of states indicated that
they lack the necessary resources to conduct additional management and
oversight related to the Recovery Act, some states indicated that they
are taking measures to either hire new staff or reallocate existing
staff to ensure adequate oversight of Recovery Act funds.
Officials we interviewed in several states said the lack of funding for
state oversight entities in the Recovery Act presents them with a
challenge, given the increased need for oversight and accountability.
According to state officials, state budget and staffing cuts have
limited the ability of state and local oversight entities to ensure
adequate management and implementation of the Recovery Act. For
example, Colorado's state auditor reported that state oversight
capacity is limited, noting that the Department of Health Care Policy
and Financing has had 3 controllers in the past 4 years and the state
legislature's Joint Budget Committee recently cut field audit staff for
the Department of Human Services in half. In addition, the Colorado
Department of Transportation's deputy controller position is vacant, as
is the Department of Personnel & Administration's internal auditor
position. Colorado officials noted that these actions are, in part, due
to administrative cuts during a past economic downturn in an attempt to
maintain program delivery levels.
In Massachusetts, the task forces the Governor convened in December
2008 concluded that it is critical the Inspector General and State
Auditor have resources to audit Recovery Act contracts and management
of Recovery Act funds, as well as recommended that the Attorney
General's office be provided with the resources to promptly and
effectively pursue fraud and abuse. Massachusetts officials explained
that the oversight community is facing budget cuts of about 10 percent
at a time when increased oversight and accountability is critically
needed. To illustrate the impact of the impending budget situation, the
Inspector General stated that his department does not have the
resources to conduct any additional oversight related to Recovery Act
funds. This significantly affects the Inspector General's capacity to
conduct oversight since the budget is almost entirely comprised of
salaries, and any cuts in funding would result in fewer staff available
to conduct oversight. In addition, the Massachusetts State Auditor
described how their department has had to resort to staff being
furloughed already for 6 days and is anticipating further layoffs
before the end of fiscal year 2009. Similarly, 94 percent of their
department's budget is labor and any cuts in funding generally result
in cuts in staff. Much like Colorado and Massachusetts, Arizona and
Florida state officials report significant declines in oversight staff.
The Florida Auditor General told us that the office has not been hiring
new staff for over a year and has about 10 percent of the office's
positions unfilled. In addition, the Office of Policy Analysis and
Government Accountability officials also told us their respective
staffs have decreased by 10 percent in the past two years. State
officials stated that these staff resource constraints may lead them to
reassesses priorities and reallocate staff to ensure adequate oversight
of Recovery Act funds.
Officials within Arizona state executive offices that are coordinating
oversight activities--such as the Office of Strategic Planning and
Budgeting, the Office of Economic Recovery, and the Comptroller's
Office--stated that they will need additional people to help ensure
compliance with Recovery Act funding requirements, but that the state
has a hiring freeze to help address budget deficits. For example, the
General Accounting Office within the state Department of Administration
has experienced a reduction from 74 to 50 staff, posing challenges to
its increased oversight responsibilities, and the state Department of
Economic Security that manages workforce investment programs had 8,214
staff on furloughs of five or nine days, depending on pay grade, and
has laid off about 800 staff members as well. Similarly, a state
Department of Housing official stated that the office currently has a
vacancy rate of about 15 percent because of the hiring freeze.
Furthermore, the state Auditor General reported that its staffing
levels are nearly 25 percent below the authorized staffing level of 229
full time equivalents.
Although most states indicated that they lack the resources needed to
provide effective monitoring and oversight, some states indicated they
will hire additional staff to help ensure the prudent use of Recovery
Act funds. For example, according to officials with North Carolina's
Governor's Crime Commission, the current management capacity in place
is not sufficient to implement the Recovery Act. Officials explained
that the Recovery Act funds for the Edward Byrne Memorial Justice
Assistance Grant program have created an increase in workload that the
department will have to hire additional staff to handle over the next 3
years. Officials explained that these staff will be hired for the short
term since the money will run out in 3 years. Additionally, officials
explained that they are able to use 10 percent of the Justice
Assistance Grants funding to pay for the administrative positions that
are needed.
In addition, officials from Ohio's Office of Budget and Management
(OBM) stated that its Office of Internal Audit plans to increase its
internal audit staff from 9 (current) to 33 by transferring internal
audit personnel from other state agencies and hiring new staff by July
2009. OBM officials say that the increase in Office of Internal Audit
staff will provide the needed resources to implement its objectives and
ensure that current safeguards are in place and followed as the state
manages its Recovery Act funded programs. Additionally, some Georgia
state officials that directly administer programs stated that
overseeing the influx of funds could be a challenge, given the state's
current budget constraints and hiring freeze. For example, the State
Auditor, whose fiscal year 2009 budget was cut by 11 percent, expressed
concerns about the lack of additional funds for Recovery Act oversight.
The Georgia State Auditor noted that, if state fiscal conditions do not
improve or federal funding does not become available for audit
purposes, additional budget and staffing cuts may occur within the
department. In some cases, state officials told us that they planned to
use Recovery Act funds to cover their administrative costs. Meanwhile,
other state officials want additional clarity on when they could use
program funds to cover such costs.
Hiring Freezes May Limit Some States' Capacity to Provide Effective
Management and Oversight:
A number of states expressed concerns regarding the ability to track
Recovery Act funds due to state hiring freezes, resulting from budget
shortfalls. For instance, New Jersey has not increased its number of
state auditors or investigators, nor has there been an increase in
funding specifically for Recovery Act oversight. In addition, the state
hiring freeze has not allowed many state agencies to increase their
Recovery Act oversight efforts. For example, despite an increase of
$469 million in Recovery Act funds for state highway projects, no
additional staff will be hired to help with those tasks or those
directly associated with the Recovery Act, such as reporting on the
number of jobs created. While the state's Department of Transportation
has committed to shift resources to meet any expanded need for internal
Recovery Act oversight, one person is currently responsible for
reviewing contractor-reported payroll information for disadvantaged
business enterprises, ensuring compliance with Davis-Bacon wage
requirements, and development of the job creation figures. State
education officials in North Carolina also said that greater oversight
capacity is needed to manage the increase in federal funding. However,
due to the state's hiring freeze, the agency will be unable to use
state funds to hire the additional staff needed to oversee Recovery Act
funds. The North Carolina Recovery Czar said that his office will work
with state agencies to authorize hiring additional staff when directly
related to Recovery Act oversight.
Michigan officials reported that the state's hiring freeze may not
allow state and local agencies to hire the additional staff needed to
increase Recovery Act oversight efforts. For example, an official with
the state's Department of Community Health said that because it has
been downsizing for several years through attrition and early
retirement, it does not have sufficient staff to cover its current
responsibilities and that further reductions are planned for fiscal
year 2010. However, state officials told us that they will take the
actions necessary to ensure that state departments have the capacity to
provide proper oversight and accountability for Recovery Act funds.
In contrast, two states indicated that they have or will have
sufficient levels of existing personnel to track funds. Texas state
officials noted that state agencies plan on using existing staff to
manage the stimulus funds. Agency officials will monitor the situations
and, as need arises, will determine whether additional staff should be
hired to ensure adequate oversight of the state Recovery Act funds.
Additionally, in preparation of the infusion of Recovery Act funds, the
Illinois Governor is seeking approximately 350 additional positions
state-wide in the fiscal year 2010 budget to help implement Recovery
Act programs, according to officials from the Governor's Office of
Management and Budget.
Local Oversight Capacity:
With respect to oversight of Recovery Act funding at the local level,
varying degrees of preparedness were reported by state and local
officials. While the California Department of Transportation (Caltrans)
officials stated that extensive internal controls exist at the state
level, there may be control weaknesses at the local level. Caltrans is
collaborating with local entities to identify and address these
weaknesses. Likewise, Colorado officials expressed concerns that
effective oversight of funds provided to Jefferson County may be
limited due to the recent termination of its internal auditor and the
elimination of its internal control audit function. Arizona state
officials expressed some concerns about the ability of rural, tribal,
and some private entities such as; boards, commissions, and nonprofit
organizations to manage, especially if the Recovery Act does not
provide administrative funding for some programs.
State Plans to Assess Recovery Act Spending Impact:
As recipients of Recovery Act funds and as partners with the federal
government in achieving Recovery Act goals, states and local units of
government are expected to invest Recovery Act funds with a high level
of transparency and to be held accountable for results under the
Recovery Act. As a means of implementing that goal, guidance has been
issued and will continue to be issued to federal agencies, as well as
to direct recipients of funding. To date, OMB has issued two broad sets
of guidance to the heads of federal departments and agencies for
implementing and managing activities enacted under the Recovery Act.
[Footnote 39] OMB has also issued for public comment detailed proposed
standard data elements that federal agencies will require from all
(except individuals) recipients of Recovery Act funding.[Footnote 40]
When reporting on the use of funds, recipients must show the total
amount of recovery funds received from a federal agency, the amount
expended or obligated to the project, project specific information
including the name and description of the project, an evaluation of its
completion status, the estimated number of jobs created and retained by
the project, and information on any subcontracts awarded by the
recipient, as specified in the Recovery Act. In addition, the Civilian
Acquisition Council and Defense Acquisition Regulations Council have
issued an interim rule revising the Federal Acquisition Regulation
(FAR) to require a contract clause that implements these reporting
requirements for contracts funded with Recovery Act dollars.[Footnote
41]
State reactions vary widely and often include a mixture of responses to
the reporting requirements. Some states will use existing federal
program guidance or performance measures to evaluate impact,
particularly for on-going programs. Other states are waiting for
additional guidance from federal departments or from OMB on how and
what to measure to assess impact. While Georgia is waiting on further
federal guidance, the state is adapting an existing system (used by the
State Auditor to fulfill its Single Audit Act responsibilities) to help
the state report on Recovery Act funds. The statewide web-based system
will be used to track expenditures, project status, and job creation
and retention. The Georgia governor is requiring all state agencies and
programs receiving Recovery Act funds to use this system. Some states
indicated that they have not yet determined how they will assess
impact.
Preserving existing jobs and stimulating job creation and promoting
economic recovery are among the Recovery Act's key objectives.[Footnote
42] Officials in 9 of the 16 states and the District expressed concern
about the definitions of jobs retained and jobs created under the
Recovery Act, as well as methodologies that can be used for estimation
of each. Officials from several of the states we met with expressed a
need for clearer definitions of "jobs retained" and "jobs created."
Officials from a few states expressed the need for clarification on how
to track indirect jobs,[Footnote 43] while others expressed concern
about how to measure the impact of funding that is not designed to
create jobs. Mississippi state officials suggested the need for a
clearly defined distinction for time-limited, part-time, full-time, and
permanent jobs; since each state may have differing definitions of
these two categories. Officials from Massachusetts expressed concern
that contractors may overestimate the number of jobs retained and
created. Some existing programs, such as highway construction, have
methodologies for estimating job creation. But other programs, existing
and new, do not have job estimation methodologies.
State officials that we spoke with are pursuing a number of different
approaches for measuring the effects of Recovery Act funding. For
example, Florida's state workforce agency is encouraging recipients of
Recovery Act funds throughout the state to list jobs created with the
funds in the state's existing online job bank. The Iowa Department of
Transportation tracks the number of worker hours by highway project on
the basis of contractor reports and will use these reports to estimate
jobs created. In New Jersey, state and local agencies will collect or
estimate data on the number of jobs created or retained as a result of
Recovery Act funds in different ways. For example, the Newark Housing
Authority will use payroll data to keep track of the exact number of
union tradesmen and housing authority residents employed to turn
damaged vacant units into rentable ones. In contrast, New Jersey
Transit is using an academic study that examined job creation from
transportation investment to estimate the number of jobs that are
created by contractors on its Recovery Act-funded construction
projects.[Footnote 44] Beyond employment issues, some Michigan state
universities and the state's economic development department are
expected to participate in analyses of the potential impact of Recovery
Act funds.
Some of the questions that states and localities have about Recovery
Act implementation may have been answered in part via the guidance
provided by OMB for the data elements and in the Federal Acquisition
Regulation, as well as by guidance issued by federal departments. For
example, OMB provided definitions for employment, as well as for jobs
retained and jobs created via Recovery Act funding. However, OMB did
not specify methodologies for estimating jobs retained and jobs
created, which has been a concern for some states. Data elements were
presented in the form of templates with section by section data
requirements and instructions. OMB provided a comment period during
which it is likely to receive many questions and requests for
clarifications from states, localities, and other direct recipients of
Recovery Act funding. OMB plans to update this guidance again within 30
to 60 days of its April 3, 2009 issuance. Some federal agencies have
also provided guidance to the states. The U.S. Departments of
Education, Housing and Urban Development, Justice, Labor,
Transportation, the Corporation for National and Community Service, the
National Institutes of Health, and the Centers for Medicare & Medicaid
Services have provided guidance for program implementation,
particularly for established programs. Although guidance is expected,
some new programs, such as the Broadband Deployment Grants, are
awaiting issuance of implementation instructions.
Concluding Observations and Recommendations: Moving Forward to Clarify
Recovery Act Roles and Responsibilities:
It has been a little over two months since enactment of the Recovery
Act and OMB has moved out quickly. In this period, OMB has issued two
sets of guidance, first on February 18 and next on April 3, with
another round to be issued within 60 days. OMB has sought formal public
comment on its April 3 guidance update and before this, according to
OMB, reached out informally to Congress, federal, state, and local
government officials, and grant and contract recipients to get a broad
perspective on what is needed to meet the high expectations set by
Congress and the Administration. In addition, OMB is standing up two
new reporting vehicles, Recovery.gov, which will be turned over to the
Recovery Accountability and Transparency Board and is expected to
provide unprecedented public disclosure on the use of Recovery Act
funds, and a second system to capture centrally information on the
number of jobs created or retained. As OMB's initiatives move forward
and it continues to guide the implementation of the Recovery Act, OMB
has opportunities to build upon its efforts to date by addressing
several important issues.
These issues can be characterized broadly in three categories: (1)
Accountability and Transparency Requirements, (2) Administrative
Support and Oversight, and (3) Communications.
Accountability and Transparency Requirements:
Recipients of Recovery Act funding face a number of implementation
challenges in this area. The Act includes many programs that are new or
new to the recipient and, even for existing programs; the sudden
increase in funds is out of normal cycles and processes. Add to this
the expectation that many programs and projects will be delivered
faster so as to inject funds into the economy and it becomes apparent
that timely and efficient evaluations are needed. The following are our
recommendations to help strengthen ongoing efforts to ensure
accountability and transparency.
Single Audit:
The single audit process is a major accountability vehicle but should
be adjusted to provide appropriate focus and the necessary level of
accountability over Recovery Act funds in a timelier manner than the
current schedule. OMB has been reaching out to stakeholders to obtain
input and is considering a number of options related to the single
audit process and related issues.
We Would Recommend: To provide additional leverage as an oversight tool
for Recovery Act programs, the Director of OMB should adjust the
current audit process to:
* focus the risk assessment auditors use to select programs to test for
compliance with 2009 federal program requirements on Recovery Act
funding;
* provide for review of the design of internal controls during 2009
over programs to receive Recovery Act funding, before significant
expenditures in 2010; and:
* evaluate options for providing relief related to audit requirements
for low-risk programs to balance new audit responsibilities associated
with the Recovery Act.
Reporting on Impact:
Responsibility for reporting on jobs created and retained falls to non-
federal recipients of Recovery Act funds. As such, states and
localities have a critical role in determining the degree to which
Recovery Act goals are achieved. Senior Administration officials and
OMB have been soliciting views and developing options for recipient
reporting. In its April 3 guidance, OMB took an important step by
issuing definitions, standard award terms and conditions, and clarified
tracking and documenting Recovery Act expenditures. Furthermore, OMB
and the Recovery Accountability and Transparency Board are developing
the data architecture for the new federal reporting system that will be
used to collect recipient reporting information. According to OMB,
state chief information officers commented on an early draft and OMB
expects to provide an update for further state review.
We Would Recommend: Given questions raised by many state and local
officials about how best to determine both direct and indirect jobs
created and retained under the Recovery Act, the Director of OMB should
continue OMB's efforts to identify appropriate methodologies that can
be used to:
* assess jobs created and retained from projects funded by the Recovery
Act;
* determine the impact of Recovery Act spending when job creation is
indirect;
* identify those types of programs, projects, or activities that in the
past have demonstrated substantial job creation or are considered
likely to do so in the future. Consider whether the approaches taken to
estimate jobs created and jobs retained in these cases can be
replicated or adapted to other programs.
There are a number of ways that the needed methodologies could be
developed. One option would be to establish a working group of federal,
state and local officials and subject matter experts.
State and Federal Data Collection:
Given that governors have certified to the use of funds in their
states, state officials are uncertain about their reporting
responsibilities when Recovery Act funding goes directly to localities.
Additionally, they have concerns about the capacity of reporting
systems within their states, specifically, whether these systems will
be capable of aggregating data from multiple sources for posting on
Recovery.gov. Some state officials are concerned that too many federal
requirements will slow distribution and use of funds and others have
expressed reservations about the capacity of smaller jurisdictions and
non-profits to report data. Even those who are confident about their
own systems are uncertain about the cost and speed of making any
required modifications for Recovery.gov reporting or further data
collection.
Problems also have been identified with federal systems that support
the Recovery Act as well. For example, questions have been raised about
the reliability of [hyperlink, http://www.USAspending.gov]
(USAspending.gov) and the ability of Grants.gov to handle the increased
volume of grant applications. OMB is taking concerted actions to
address these concerns. It plans to reissue USAspending guidance
shortly to include changes in operations that are expected to improve
data quality. In a memorandum dated March 9, OMB said that it is
working closely with federal agencies to identify system risks that
could disrupt effective Recovery Act implementation and acknowledged
that Grants.gov is one such system. A subsequent memorandum on April 8,
offered a short-term solution to the significant increase in Grants.gov
usage while longer-term alternative approaches are being explored. GAO
has work underway to review differences in agency policies and methods
for submitting grant applications using Grants.gov and will issue a
report shortly.
OMB addressed earlier questions about reporting coverage in its April 3
guidance. According to OMB there are limited circumstances in which
prime and sub recipient reporting will not be sufficient to capture
information at the project level. OMB stated that it will expand its
current model in future guidance. OMB guidance described recipient
reporting requirements under the Recovery Act's section 1512 as the
minimum which must be collected, leaving it to federal agencies to
determine whether additional information would be required for program
oversight.
We Would Recommend: In consultation with the Recovery Accountability
and Transparency Board and States, the Director of OMB should evaluate
current information and data collection requirements to determine
whether sufficient, reliable and timely information is being collected
before adding further data collection requirements. As part of this
evaluation, OMB should consider the cost and burden of additional
reporting on states and localities against expected benefits.
Administrative Support and Oversight:
At a time when states are experiencing cutbacks, state officials expect
the Recovery Act to incur new regulations, increase accounting and
management workloads, change agency operating procedures, require
modifications to information systems, and strain staff capacity,
particularly for contract management. Although federal program
guidelines can include a percentage of grants funding available for
administrative or overhead costs, the percentage varies by program. In
considering other sources, states have asked whether the portion of the
State Fiscal Stabilization Fund that is available for government
services could be used for this purpose. Others have suggested a global
approach to increase the percentage for all Recovery Act grants funding
that can be applied to administrative costs. As noted earlier, state
auditors also are concerned with meeting increased audit requirements
for Recovery Act funding with a reduced number of staff and without a
commensurate reduction in other audit responsibilities or increase in
funding. OMB and senior administration officials are aware of the
states' concerns and have a number of options under consideration.
We Would Recommend: The Director of OMB should timely clarify what
Recovery Act funds can be used to support state efforts to ensure
accountability and oversight, especially in light of enhanced oversight
and coordination requirements.
Communications:
State officials expressed concerns regarding communication on the
release of Recovery Act funds and their inability to determine when to
expect federal agency program guidance. Once funds are released, there
is no consistent procedure for ensuring that the appropriate officials
in states and localities are notified. According to OMB, agencies must
immediately post guidance to the Recovery Act web site and inform to
the "maximum extent practical, a broad array of external stakeholders."
In addition, since nearly half of the estimated spending programs in
the Recovery Act will be administered by non-federal entities, state
officials have suggested opportunities to improve communication in
several areas. For example, they wish to be notified when funds are
made available to prime recipients that are not state agencies.
Some of the uncertainty can be attributed to evolving reports and
timing of these reports at the federal level as well as the recognition
that different terms used by federal assistance programs add to the
confusion. A reconsideration of how best to publicly report on federal
agency plans and actions led to OMB's decision to continue the existing
requirement to report on the federal status of funds in the Weekly
Financial and Activity Reports and eliminate a planned Monthly
Financial Report. The Formula and Block Grant Allocation Report has
been replaced and renamed the Funding Notification Report. This
expanded report includes all types of awards, not just formula and
block grants, and is expected to better capture the point in the
federal process when funds are made available.
We Would Recommend: To foster timely and efficient communications, the
Director of OMB should develop an approach that provides dependable
notification to (1) prime recipients in states and localities when
funds are made available for their use, (2) states, where the state is
not the primary recipient of funds, but has a state-wide interest in
this information, and (3) all non-federal recipients, on planned
releases of federal agency guidance and, if known, whether additional
guidance or modifications are expected.
Agency Comments and Our Evaluation:
We provided the Director of the Office of Management and Budget with a
draft of this report for comment on April 20, 2009. OMB staff responded
the next day, noting that in its initial review, OMB concurred with the
overall objectives of our recommendations. OMB staff also provided some
clarifying information, adding that OMB will complete a more thorough
review in a few days. We have incorporated OMB's clarifying information
as appropriate. In addition, OMB said it plans to work with us to
define the best path forward on our recommendations and to further the
accountability and transparency of the Recovery Act. The Governors of
each of the 16 states and the Mayor of the District were provided
drafts for comment on each of their respective appendixes in this
report. Those comments are included in the appendixes.
We are sending copies of this report to the Office of Management and
Budget and relevant sections to the selected states and the District.
The report will also be available at no charge on the GAO Web site at
[hyperlink, http://www.gao.gov].
If you or your staffs have any questions about this report, please
contact me at (202) 512-5500. 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 III-XX.
Sincerely,
Signed by:
Gene L. Dodaro:
Acting Comptroller General of the United States:
List of Congressional Committees:
The Honorable Daniel K. Inouye:
Chairman:
The Honorable Thad Cochran:
Ranking Member:
Committee on Appropriations:
United States Senate:
The Honorable Joseph I. Lieberman:
Chairman:
The Honorable Susan M. Collins:
Ranking Member:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
The Honorable David R. Obey:
Chairman:
The Honorable Jerry Lewis:
Ranking Member:
Committee on Appropriations:
House of Representatives:
The Honorable Edolphus Towns:
Chairman:
The Honorable Darrell Issa:
Ranking Member:
Committee on Oversight and Government Reform:
House of Representatives:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
The Recovery Act specifies several roles for GAO, including conducting
bimonthly reviews of selected states' and localities' use of funds made
available under the act. As a result, our objectives for this report
were to describe (1) selected states' and localities' uses of and
planning for Recovery Act funds, (2) approaches taken by the selected
states and localities to ensure accountability for Recovery Act funds,
and (3) states' plans to evaluate the impact of the Recovery Act funds
they have received to date.
Selection of States:
To address our objectives, we selected a core group of 16 states and
the District that we will follow over the next few years to provide an
ongoing longitudinal analysis of the use of funds provided in
conjunction with the Recovery Act. The selected states are Arizona,
California, Colorado, Florida, Georgia, Iowa, Illinois, Massachusetts,
Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio,
Pennsylvania, and Texas. We selected these states and the District on
the basis of outlay projections, percentage of the U.S. population
represented, unemployment rates and changes, and a mix of states'
poverty levels, geographic coverage, and representation of both urban
and rural areas. These states and D.C. contain about 65 percent of the
U.S. population and are estimated to receive about two-thirds of the
intergovernmental grant funds available through the Recovery Act.
Furthermore, they strike a balance between covering a significant
portion of Recovery Act funding and obtaining a mix that reflects the
breadth of circumstances facing states and localities throughout the
country.
Selection of Programs:
To focus our analysis, we examined a set of programs receiving Recovery
Act funding that are administered by states and localities. To do this,
we reviewed analysis and estimates of Recovery Act funds flowing to
states and localities that were done by state and local associations
including the National Governors Association, the National Conference
of State Legislatures, and the Federal Funds Information for States
(FFIS). We also analyzed data from congressional appropriations
committees and the Congressional Budget Office (CBO) on the
distribution, allocation, and spend out rates of Recovery Act funding.
The programs we selected were streams of Recovery Act funding flowing
to states and localities through increased Medicaid Federal Medical
Assistance Percentage (FMAP) grant awards, funding for highway
infrastructure investment, and the State Fiscal Stabilization Fund
(SFSF). Together, they are expected to account for about 91 percent of
fiscal year 2009 Recovery Act spending by states and localities. For
the FMAP grant awards, we conducted a web-based inquiry, asking the 16
states and D.C. to provide data and information on enrollment,
expenditures, and changes to their Medicaid programs and to report
their plans to use state funds made available as a result of the
increased FMAP. We reviewed states' responses for internal consistency
and conducted follow-up with the states as needed. We also spoke with
individuals from the U.S. Department of Health and Human Services
regarding the changes to the FMAP and the disbursement of increased
FMAP funds. In addition, we spoke with individuals from the Centers for
Medicare & Medicaid regarding their oversight and guidance to states.
For highways infrastructure investment, we reviewed status reports and
guidance to the states and discussed these with the U.S. Department of
Transportation (DOT) and Federal Highways Administration (FHWA)
officials. To understand how the U.S. Department of Education is
implementing the SFSF, we reviewed relevant laws, guidance, and
communications to the states and interviewed Education officials. Our
review of related documents and interviews with federal agency
officials focused on determining and clarifying how states, school
districts, and public Institutions of Higher Education would be
expected to implement various provisions of the SFSF.
We considered programs with large amounts of funding, programs
receiving significant increases in funding, new programs, and those
with known risks. For example, the Medicaid program is on the GAO high
risk list. In addition, we consulted with our internal program experts
and outside experts including federal agency inspectors general, state
and local auditors, and state and local government associations.
Approach in States and Localities on Uses and Plans for Recovery Act
Funds:
Our teams visited the 16 selected states, localities within those
states, and D.C. during March and April 2009 to collect documentation
on the plans, uses, and tracking of Recovery Act funds and to conduct
interviews with state and local officials. The teams met with a variety
of state and local officials from executive-level offices including
Governors and their key staff, Comptrollers' Offices, Treasurers'
Offices, State Auditors' Offices, Recovery Czars, Inspectors Generals,
senior finance and budget officials, and local officials such as from
housing authorities, school districts, police departments, and other
key audit community stakeholders to determine how they planned to
conduct oversight of Recovery Act funds. The teams also met with state
and local agencies administering programs receiving Recovery Act funds,
including state Departments of Education, Transportation, and Health
and Human Services, and with selected legislative offices in the
states. In support of these interviews, we developed a series of
program review and semi-structured interview guides that addressed
state plans for management, tracking, and reporting of Recovery Act
funds and activities. These guides focused on identification of risk,
risk mitigation, contracting, the internal control environment and
safeguards against fraud, waste, and abuse. While in the 16 states and
D.C., the teams also met with and interviewed a number of local
government officials, whose offices are identified in Appendix 2.
Assessing Safeguards and Internal Controls:
To determine how states and localities plan to track the receipt of,
planning for, and use of Recovery Act funds, the state and D.C. teams
asked cognizant officials to describe the accounting systems and
conventions that would be used to execute transactions and to monitor
and report on expenditures. In addition, to assist in the planning of
the audit work and for inclusion in their risk assessment framework, we
provided the state and D.C. teams with fiscal year 2007 single audit
summary information, which was the most recent single audit information
available. Single audit information was obtained from the Federal Audit
Clearinghouse (FAC) single audit data collection forms and the single
audit reports. The single audit summary information provided included :
(1) total federal awards expended; (2) whether there were questioned
costs; (3) the financial statement audit opinion, number of material
weaknesses, and a brief description of each material weakness; and (4)
major federal program audit opinion, number of material weaknesses, and
a brief description of each material weakness. We examined the Single
Audit reports to identify these issues and used that information when
interviewing state officials in order to ascertain how they have
addressed or plan to address the weaknesses. We also asked auditors to
address how they planned to monitor and oversee the Recovery Act funds
and whether or not they felt their offices had sufficient capacity to
handle any new or increased responsibilities related to the Recovery
Act.
Recovery Act Reporting Requirements:
To understand the reporting requirements of the Recovery Act, we
reviewed the guidance issued by OMB on February 18 and April 3, 2009
and selective federal agency guidance related to grants and to states
and localities. We also reviewed an interim rule amending the Federal
Acquisition Regulation containing interim reporting requirements for
the Recovery Act, issued March 31, 2009.[Footnote 45] Additionally we
studied the OMB issued Information Collection Requirements: Proposed
Collection (April 1, 2009) that contains the data elements for the
quarterly recipient reports specified in Section 1512 of the Recovery
Act. Each of the states and D.C. provided information on its plans to
provide assessment data required by Section 1512.
We conducted this performance audit from February 17, 2009, through
April 20, 2009, 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.
Data on states' and localities' plans, uses, and tracking of Recovery
Act funds was provided during interviews and follow-up meetings with
state and local officials. Given that much of the Recovery Act funding
had not yet reached the states and localities, we could not validate
nor test the accuracy of the statements made by these officials
regarding their accounting and tracking systems. Overall, we determined
that the data were sufficiently reliable for the purposes of providing
the background information on Recovery Act funding for this report. Our
sample of selected states is not a random selection and therefore
cannot be generalized to the total population of state and local
governments.
[End of section]
Appendix II: Localities Visited by GAO in Selected States:
Table 5: States and Localities Visited by GAO:
State: Arizona;
Localities (or Associations Representing Localities): Regional Public
Transportation Authority, Maricopa Association of Governments, City of
Phoenix Public Transit Department, City of Phoenix Housing Department,
City of Glendale Housing Department, Tempe School District, Peoira
Accelerated High School, Maricopa Workforce Connections, City of
Phoenix Workforce Connection Division.
State: California;
Localities (or Associations Representing Localities): Sacramento
Housing and Redevelopment Agency.
State: Colorado;
Localities (or Associations Representing Localities): Denver Mayor's
Office, Denver City Auditor, Denver Housing Authority, Denver Office of
Economic Development.
State: District of Columbia;
Localities (or Associations Representing Localities): District of
Columbia Housing Authority, Washington Metropolitan Area Transportation
Authority.
State: Florida;
Localities (or Associations Representing Localities): Florida
Association of Counties, Workforce Plus (a regional workforce board for
Leon, Gadsden, and Wakulla Counties), Tallahassee Housing Authority,
Florida Association of School District Superintendents.
State: Georgia;
Localities (or Associations Representing Localities): Atlanta Housing
Authority, Atlanta Regional Workforce Board.
State: Iowa;
Localities (or Associations Representing Localities): City of Des
Moines.
State: Illinois;
Localities (or Associations Representing Localities): Chicago Transit
Authority.
State: Massachusetts;
Localities (or Associations Representing Localities): City of Boston,
Massachusetts Bay Transportation Authority.
State: Michigan;
Localities (or Associations Representing Localities): City of Detroit
Mayor's Office, City of Lansing Mayor's Office, City of Detroit Office
of Auditor General, Detroit Public Schools, Lansing School District.
State: Mississippi;
Localities (or Associations Representing Localities): Central
Mississippi Planning and Development District, The Housing Authority of
the City of Jackson.
State: New Jersey;
Localities (or Associations Representing Localities): Newark Mayor's
Office, New Jersey Transit in Newark, Newark Housing Authority, Newark
Public Schools, Trenton Mayor's Office, Trenton Police Department,
Trenton Housing Authority, Trenton Board of Education.
State: New York;
Localities (or Associations Representing Localities): New York City's
Mayor's Office, New York City Budget Director, New York City
Comptroller.
State: North Carolina;
Localities (or Associations Representing Localities): City of Raleigh,
Wake County, North Carolina Association of County Commissioners, North
Carolina League of Municipalities.
State: Ohio;
Localities (or Associations Representing Localities): Columbus
Metropolitan Housing Authority, Franklin County Government, City of
Columbus, Columbus City Schools, Local WIA.
State: Pennsylvania;
Localities (or Associations Representing Localities): Harrisburg
Housing Authority, South Central Workforce Investment Board.
State: Texas;
Localities (or Associations Representing Localities): City of Austin
Office of the City Auditor, City of Austin-Financial & Administrative
Services Department, The Housing Authority of the City of Austin.
Source: GAO.
[End of table]
[End of section]
Appendix III: Arizona:
Overview:
Use of funds: An estimated 90 percent of fiscal year 2009 Recovery Act
funding provided to states and localities will be for health,
transportation and education programs. The three largest programs in
these categories are the Medicaid Federal Medical Assistance Percentage
(FMAP) awards, the State Fiscal Stabilization Fund, and highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds:
* As of April 3, 2009, the Centers for Medicare & Medicaid Services
(CMS) have made about $534.6 million in Medicaid FMAP grant awards to
Arizona;
* As of April 1, 2009, the state has drawn down about $286.3 million,
or almost 54 percent of its initial increased FMAP grant awards;
* Officials plan to use a significant portion of funds made available
as a result of the increased FMAP to offset statewide general fund
shortfalls.
Transportation--Highway Infrastructure Investment:
* Arizona was apportioned about $522 million for highway infrastructure
investment on March 2, 2009, by the U.S. Department of Transportation;
* As of April 16, 2009, the U.S. Department of Transportation had
obligated $148.1 million for 26 Arizona projects;
* As of April 20, 2009, the Arizona Department of Transportation (ADOT)
had selected 41 highway transportation projects worth almost $350
million and had advertised competitive bids on 27 of these projects
totaling about $190 million. The earliest bids will close on April 24,
2009, with projects expected to begin work later this spring;
* These projects include activities such as preserving pavement,
widening lanes and adding shoulders, and repairing bridges and
interchanges;
* Arizona will request reimbursement from the Federal Highway
Administration as the state makes payments to contractors.
U.S. Department of Education State Fiscal Stabilization Fund (Initial
Release):
* Arizona was allocated about $681.4 million from the initial release
of these funds on April 2, 2009, by the U.S. Department of Education;
* Before receiving the funds, states are required to submit an
application that provides several assurances to the Department of
Education. These include assurances that they will meet maintenance of
effort requirements (or that they will be able to comply with waiver
provisions) and that they will implement strategies to meet certain
educational requirements, including increasing teacher effectiveness,
addressing inequities in the distribution of highly qualified teachers,
and improving the quality of state academic standards and assessments.
The state plans to submit its application by April 24, 2009, once
officials review the latest estimates for the state's fiscal year 2010
budget situation;
* The state expects funds to be used to improve student assessments,
obtain more teachers, and meet federal standards, among other things,
in compliance with federal requirements.
Arizona is also receiving additional Recovery Act funds under other
programs, such as programs under Title I, Part A of the Elementary and
Secondary Education Act (ESEA), (commonly known as No Child Left
Behind); programs under the Individuals with Disabilities Education Act
(IDEA); several housing programs such as the Low-Income Housing Tax
Credit (LIHTC) Assistance program; and programs under the Workforce
Investment Act to help provide employment-related services, among other
things. Plans to use these funds are discussed throughout this
appendix.
Safeguarding and transparency: The state government created a new
Office of Economic Recovery within the Office of the Governor, the
purpose of which is to coordinate the use of Recovery Act funds across
state agencies and to ensure accountability for and transparency in the
use of these funds. In addition, to meet Recovery Act requirements, the
state comptroller noted that Arizona intends to add new codes to its
central accounting system to track Recovery Act funds separately and
work with state agencies that have their own accounting systems to
ensure that they can also track funds separately. The state has issued
guidance on managing the funds, and has plans to publicly report its
Recovery Act spending, although officials have said that the state may
not be aware of all funds sent directly by federal agencies to other
entities, such as municipalities and independent authorities. The
officials also identified other challenges, such as ensuring that
recipients can report on their use of funds and that, where applicable,
funds are used to supplement and not supplant state funds that support
relevant affected programs. State and local officials noted that they
expect to use existing internal controls and monitoring techniques to
safeguard Recovery Act funds, but are concerned about having enough
resources to do so. State departments were in the early stages of
addressing some of these challenges, and are awaiting further guidance
from the federal government on these issues.
Assessing the effects of spending: Arizona state agencies and select
localities that we met with expect to use or enhance existing
performance metrics to assess the results achieved through Recovery Act
funding, unless the federal government requires new metrics that will
need to be developed. State officials were unclear, however, on how to
determine the number of jobs created and saved by certain Recovery Act
funds and were awaiting further guidance from the federal government.
Arizona Beginning to Use Recovery Act Funds:
Arizona has begun to use some of its Recovery Act funds as follows:
Increased Federal Medical Assistance Percentage Funds: Medicaid is a
joint federal-state program that finances health care for certain
categories of low-income individuals, including children, families,
persons with disabilities, and persons who are elderly. The federal
government matches state spending for Medicaid services according to a
formula based on each state's per capita income in relation to the
national average per capita income. The amount of federal assistance
states receive for Medicaid service expenditures is known as the
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP
may range from 50 to no more than 83 percent, with poorer states
receiving a higher federal matching rate than wealthier states. The
Recovery Act provides eligible states with an increased FMAP for 27
months between October 1, 2008, and December 31, 2010.[Footnote 46] On
February 25, 2009, the Centers for Medicare & Medicaid Services (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.[Footnote 47] Generally, for
federal fiscal year 2009 through the first quarter of federal fiscal
year 2011, the increased FMAP, which is calculated on a quarterly
basis, provides for (1) the maintenance of states' prior year FMAPs;
(2) a general across-the-board increase of 6.2 percentage points in
states' FMAPs; and (3) a further increase to the FMAPs for those states
that have a qualifying increase in unemployment rates. The increased
FMAP available under the Recovery Act is for state expenditures for
Medicaid services. However, the receipt of the increased FMAP may
reduce the funds that states must use for their Medicaid programs, and
states have reported using these available funds for a variety of
purposes.
As of April 1, 2009, Arizona has drawn down $286.3 million in increased
FMAP grant awards, which is almost 54 percent of its total awards of
$534.5 million. Officials plan to use a significant portion of funds
made available as a result of the increased FMAP to offset shortfalls
created by reductions implemented to balance the budget. The state used
the initial funds made available as a result of the increased FMAP to
meet payroll and to avoid serious cash-flow problems.
Transportation--Highway Infrastructure Investment: The Recovery Act
provides additional funds for highway infrastructure investment using
the rules and structure of the existing Federal-Aid Highway Surface
Transportation Program, which apportions money to states to construct
and maintain eligible highways and to undertake other surface
transportation projects. States must follow the requirements for the
existing programs, and in addition, the governor must certify that the
state will maintain its current level of transportation spending, and
the governor or other appropriate chief executive must certify that the
state or local government to which funds have been made available has
completed all necessary legal reviews and determined that the projects
are an appropriate use of taxpayer funds. Arizona has provided this
certification.
As of April 20, 2009, the Arizona Department of Transportation (ADOT)
had selected 41 highway transportation projects to be funded with
Recovery Act dollars.[Footnote 48] These projects are worth
approximately $350 million of the state's total $521.9 million
apportionment. These include projects such as pavement preservation,
widening lanes and adding shoulders, and bridge and interchange repair.
As of April 20, 2009, the state had advertised 27 projects worth about
$190 million with the earliest bids to close on April 24, 2009, and
projects expected to begin work this spring. Among the projects that
have been advertised for bid are the widening of Interstate 10 in
Maricopa County, repaving of state routes, making safety improvements
to a state route, and improving intersections. Among the first
advertisements to close will be the widening of a shoulder within the
Tonto National Forest, on State Route 87. The cost of this project is
estimated at approximately $6.8 million, and is estimated to take 150
days to complete. Bids will close on April 24, 2009.
U.S. Department of Education State Fiscal Stabilization Fund: The
Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be
administered by the U.S. Department of Education (Education). The SFSF
provides funds to states to help avoid reductions in education and
other essential public services. The initial award of SFSF funding
requires each state to submit an application to Education that assures
it will take action to meet certain educational requirements, such as
increasing teacher effectiveness and addressing inequities in the
distribution of highly qualified teachers.
Arizona's initial SFSF allocation is $681.4 million. The state plans to
submit its application for funds by May 4, 2009, but according to state
education officials, they are waiting for the legislature to propose a
2010 budget for their programs before they can definitely decide how
they will spend the funds. Generally, the state expects that
recipients, such as local school boards, will use their allocations to
improve the tools they use to assess student performance and determine
to what extent performance meets federal academic standards, rehire
teachers that were let go because of prior budget cuts, retain
teachers, and meet the federal requirement that all schools have equal
access to highly qualified teachers, among other things. Funds for the
state universities will help them maintain services and staff as well
as avoid tuition increases.
Recovery Act Funds Supporting Other Programs:
In addition to stabilization funding to support education through the
state fiscal stabilization fund, a senior official from the Arizona
Department of Education noted that, as of April 3, 2009, Arizona had
received $97.5 million for programs under Title I, Part A of ESEA. The
funds will be used to improve assessments to meet federal standards,
enrich teacher qualifications, avoid more teacher layoffs, improve
poorer performing schools, and ultimately improve student performance,
among other things. The state had also received about $89.2 million for
programs under IDEA, Part B, which provides funds for public education
to children with disabilities. According to state Department of
Education officials, these funds will be used to hire more teachers to
serve students with special needs, among other things. se programs, The
state education officials said that they had prepared estimated
allocations for the No Child Left Behind Recovery Act funds to the
local school districts, which in turn will prepare and submit
applications before they can use the funds.
Arizona is also eligible to receive Recovery Act funds for several
housing programs including the Low-Income Housing Tax Credit (LIHTC)
Assistance program. The Arizona Department of Housing received notice
that it will receive approximately $32 million to provide gap financing
for LIHTC projects which provide funding for development of low income
housing. Finally, the state Department of Economic Security had
received approximately $43 million in Recovery Act funding anticipated
for Workforce Investment Act programs to be used for adult, youth
(including a summer youth program), and dislocated worker services.
State Agencies and Select Localities Will Use Recovery Act Funds to
Restore Programs That Suffered Past Budget Cuts and Will Track These
Funds Separately, but Expect Some Challenges:
Faced with deteriorating revenue projections, declining consumer
confidence, a depressed real estate market, and a requirement to
balance its budget, Arizona officials believe that much of the money
the state will receive in Recovery Act funds will relieve some of the
state's immediate fiscal pressures. State officials envision that funds
made available as a result of the Recovery Act will be used to support
program budgets that had been reduced in the state's efforts to balance
the budget. Arizona has about $7 billion in its General Fund with a
current budget of about $10 billion. State officials are working to
close a budget gap of about $1.3 billion for fiscal year 2008, an
estimated budget gap of about $2.1 billion for state fiscal year 2009
and about $2.8 billion for fiscal year 2010 through reductions and
other strategies. These strategies were limited to some extent, because
voter propositions protect major programs from significant cuts,
including Medicaid, education, and corrections, meaning other programs
must absorb the cuts. The state's budget imbalance has been complicated
by lower-than-anticipated revenues. For example, state fiscal year 2009
revenue is significantly lower than estimated and has left the state
unable to support previously approved spending levels. Arizona's Budget
Office has estimated its future revenues and expenditures for each
fiscal year through 2014. It projects an increasing deficit in each
fiscal year, from $2.1 billion in 2009 to $4.1 billion in 2014, a
situation which most likely would mean continued cuts. The state's
Budget Stabilization Fund, known as its "rainy day" fund--a reserve
fund built up during more favorable economic conditions to be used
during difficult economic times--has been depleted.
As of April 13, 2009, decisions about finalizing the fiscal year 2010
budget were still in flux in part because Governor Brewer--only in
office since January after the former Governor, Janet Napolitano,
became Secretary of the U.S. Department of Homeland Security--has not
issued a formal budget proposal. The Governor recognized that further
reductions in government services may be necessary to help close the
significant deficit between state revenues and expenditures. Given
this, in early March, the Governor certified that the state would
accept the funds made available by the Recovery Act and use certain
funds to create jobs and promote economic growth within the state.
Because of the state's economic and budgetary challenges, some state
agency and local officials we met with expected to use the funds as
they had been using them under their existing programs and did not
expect to use Recovery Act funding on new initiatives. They also were
confident recipients had sufficient critical uses for the funds and
could use them immediately.
However, state officials expressed concerns that using Recovery Act
funds to make longer term operational and program commitments would
mean higher future state spending that would not be sustainable once
Recovery Act funds were no longer available, given the state of the
economy. As a result, officials from one state agency explained that
they are advising subrecipients to spend their funds on shorter term
projects. Furthermore, with program budgets being cut to help relieve
fiscal pressures, some state officials have said it may be challenging
to ensure compliance with provisions requiring certain Recovery Act
funds to be used to supplement and not supplant FY 2010 program funds.
Officials with the state Department of Education, however, had one
concern about passing the supplanting test. They said that it was
unclear whether states could treat Recovery Act funds provided under
the fiscal stabilization program as "state" funds versus "federal"
funds. If they could use the funds as state resources, they would be
able to meet the supplanting restrictions, but if not, they would have
serious challenges in complying, jeopardizing the use of the funds. On
the other hand, some state officials and program managers did not think
it would be difficult to demonstrate they were not supplanting state
funds in part because state funding for the programs had already been
cut so significantly--in other words, there were few state funds to
supplant. For example, they did not think it would be difficult to show
that activities supported with Recovery Act resources, such as keeping
teachers, could only be accomplished with federal support.
One issue raised by officials in the Office of the Governor and within
some state and local program offices was covering the costs to oversee
and track the use of the Recovery Act funds, given past budget cuts,
staff reductions, and increasing workloads--for example, increasing
numbers of unemployed individuals who want services. These officials
noted that their service delivery capacity will be challenged to
administer funds flowing into eligible programs. Some of the officials
wondered what flexibility they had to use some of the Recovery Act
funds to cover administrative costs. On the other hand, some state
agency officials said that they expected to be able to oversee and
track Recovery Act funds with existing resources because funding to
current programs that had administrative processes in place would be
increased. In still other cases, Recovery Act funds will be disbursed
through existing grant programs that may provide for a certain
percentage of funds to be used for administration.
The State Has a System to Track How It Is Using Recovery Act Funds but
Cannot Ensure Localities Will Be Able to Meet the Act's Reporting
Requirements:
The state comptroller told us that the state's existing accounting
system will have new accounting codes added in order to segregate and
track the Recovery Act funds separately from other funds that will flow
through the state government. Because some larger agencies and program
offices maintain their own accounting systems, the Arizona General
Accounting Office has issued guidance to state agencies on their
responsibilities, including how they are to receive, disburse, tag, or
code funds in their accounting systems; track funds separately; and, to
some extent, report on these federal resources. State officials we
spoke with noted that they do not foresee that it will be difficult to
track Recovery Act funds separately from other funds. However, an
official in the state Department of Economic Security noted that the
Recovery Act funds will stress the tracking and reporting capacity of
the financial management systems they use because the systems are old,
are not very flexible, and were not designed for these purposes. The
official said that the systems must be enhanced to provide the capacity
needed for Recovery Act funds and that they are working to design a
solution for this problem.
Department heads and program officials generally expect that they will
require subrecipients, through agreements, grant applications, and
revised contract provisions, to track and report Recovery Act funding
separately. For example, unemployment program managers said they were
issuing new intergovernmental agreements with localities to cover new
reporting requirements. However, several of the state officials raised
questions about the tracking and reporting abilities of some local
organizations, such as small, rural entities, boards or commissions, or
private entities not used to doing business with the federal
government. Furthermore, several of the state department officials
acknowledged that either some state agency information systems have
data reliability problems that will have to be resolved, or they had
subrecipients that in the past had problems providing timely and
accurate reporting, but said that they would work with these entities
to comply, and also had sanctions to use as a last resort. Furthermore,
state officials expressed some concern that the new requirement to
provide financial reports on subrecipients' use of funds within 10 days
after a quarter ends may be challenging to meet by both state and local
entities, because they may not have actual data in time to meet this
reporting time frame.
Finally, the state may lack the ability to track the portion of
Recovery Act funds going directly to recipients other than Arizona
government agencies, such as independent state authorities, local
governments, or other entities. State officials expressed concern that
they may not be able to track and report Recovery Act funds when these
entities receive the monies directly from federal agencies rather than
through state agencies.
State Agencies and Localities Are Expecting to Use Existing Internal
Controls to Safeguard Recovery Act Funds, Although in Some Cases,
Resource Constraints Could Affect Oversight:
Overall, the state agency and local officials that we spoke with expect
that their existing internal controls and techniques to manage any
potential risks posed to Recovery Act funding will be sufficient and
effective to safeguard Recovery Act funds, unless additional
requirements are mandated by the federal government that generate the
need to change business processes. These controls and techniques
include submitting financial and performance reports for review, as
well as conducting supervisory and compliance reviews, on-site
inspections, external audits, and audits by the state Auditor General.
Although Arizona is largely decentralized--state agencies and
localities have responsibility for monitoring and are accountable for
their respective Recovery Act funds--the state executives are reaching
out to the state agencies to help ensure they are ready. For example,
the state budget director met with the heads of the programs
potentially receiving Recovery Act funds to gauge each program's
preparedness. In addition, a number of state agencies were conducting
or had plans to conduct meetings, training, and outreach to funding
recipients to help them understand the goals and objectives of the act
and their responsibilities for managing the funding it would provide.
Similarly, in early April 2009, the state's General Accounting Office
released a technical bulletin, the purpose of which was to establish
consistent policies and procedures that all state agencies receiving
Recovery Act funds must "immediately implement in order to effectively
manage activities under the act." A senior official in the state
comptroller's office said that office plans to conduct a survey to
inventory current internal controls at state agencies to help ensure
controls are in place to limit the risk of fraud, waste, abuse, and
mismanagement of Recovery Act funds.
Several risks still to be addressed have been identified as a result of
using audits as an internal control. For example, Arizona's fiscal year
2007 Single Audit report[Footnote 49] identified a number of material
weaknesses related to the state Department of Education. The report
identified a material weakness involving IDEA in which the state
department had not reviewed subrecipients to ensure that federal awards
were used for authorized purposes in compliance with laws, regulations,
and the provisions of contracts or grant agreements. The audit report
also identified one financial reporting material weakness related to
the state Department of Administration's ability to prepare timely
financial statements, including its Comprehensive Annual Financial
Report (CAFR). This is mostly because many of the larger state agencies
maintain separate accounting systems and submit financial data to the
Department of Administration for inclusion in its consolidated
financial statements. In fiscal year 2007, the CAFR was issued in June
2008, approximately 6 months after the scheduled deadline. According to
the Auditor General's Office, the fiscal year 2008 CAFR will also be
completed late, as the last agency submitted its financial statement on
March 9, 2008. According to the Auditor General's Office, this control
deficiency affects the timeliness of financial reporting, which affects
the needs of users. It is especially important that Arizona try to
address the timeliness issue with regard to financial statements given
the number and strict reporting timelines that are imposed on the state
under the Recovery Act. For most of the other programs, managers stated
that they had no outstanding material weaknesses and that any past
weaknesses had been brought into compliance.
According to state officials, another area of risk that the state
agency is trying to manage is that some Recovery Act funds,
particularly in the transportation area, are reimbursable, meaning that
either ADOT or localities will have to spend funds from their own
budgets until they are reimbursed by Recovery Act funds. Because of the
state's challenging financial situation, it may be a challenge for some
state and local government entities to spend the funds up front with
the limited cash they have on hand. This is particularly true for rural
transit projects. According to an ADOT official, to address this risk,
they are vetting applications for rural transit funds closely, with an
eye toward granting funds only to those localities that have shown they
have the cash on hand to pay up front for the costs of the rural
transit projects.
State Agencies and Localities Will Continue or Enhance Current
Monitoring Techniques to Oversee Recovery Act Funds, but in Some Cases,
Reduced Resources Could Pose Challenges:
Representatives of a number of state executive offices, state agencies,
and select localities reported that they would at a minimum continue to
monitor Recovery Act funding as they had monitored federal funding
provided to these same programs in the past. They expected to meet the
financial monitoring, performance measurement, and accountability
requirements using existing systems and reports, unless the federal
government institutes any new requirements that would require changes
to their systems and processes. The entities were still waiting for
further guidance from the federal government to determine any needed
changes. In some cases, agencies had plans to increase monitoring. For
example, according to officials for the Arizona Division of the Federal
Highway Administration (FHWA), they plan on increasing the number of
site visits on projects that use Recovery Act funds. Similarly, state
transportation officials will require that contractors report the
Recovery Act dollars spent and the jobs they created as part of their
regular reports to the state.
To some extent, Arizona is providing the public an opportunity to
monitor how the state is using Recovery Act funding and what it is
achieving with these funds through a Web site, [hyperlink,
http://www.azrecovery.gov], where the state has posted links to program
funding levels, guidance, and intended uses of Recovery Act money, and
intends to post reports on the use of funds, among other things.
However, several state officials expressed concern that the Recovery
Act did not provide funding specifically for state oversight
activities, despite their importance in ensuring that the Recovery Act
funds are used appropriately and effectively. Officials within state
executive offices that are coordinating oversight activities--such as
the Office of Economic Recovery and the Comptroller's Office--stated
that they will be challenged to oversee compliance with Recovery Act
funding requirements within their existing staffing levels, given that
the state currently has a hiring freeze to help relieve its budget
deficits. For example, the Arizona General Accounting Office within the
state Department of Administration has experienced a reduction of staff
from 74 to 50, posing challenges to its increased oversight
responsibilities. The Department of Economic Security, which manages
workforce investment programs and human services programs, among other
responsibilities, has an estimated 8,214 staff on furloughs and has
laid off about 800 staff members as well. Similarly, a Department of
Housing official stated that the office currently has a vacancy rate of
about 15 percent because of the hiring freeze. Furthermore, the state
Auditor General reported that its staffing levels are nearly 25 percent
below the authorized staffing level of 229 full time equivalents.
State Agencies and Localities Will Use Existing Performance Measures to
Gauge the Impacts of Recovery Act Funding and Are Waiting for Federal
Guidance on How to Implement New Measures the Act Requires, Especially
on Jobs Created and Saved:
State agencies and the select localities that we spoke with expected to
use existing performance metrics to assess results achieved through
Recovery Act funding, but were also looking for more guidance from the
federal government on how to comply with new assessment requirements
under the act. Agency officials generally stated that because the
Recovery Act funds are for pre-existing programs, they will continue to
use their existing performance metrics to assess impacts. For example,
the Arizona Criminal Justice Commission, which oversees among other
things the Edward Byrne Memorial Justice Assistance Grants, tracks a
wide list of both short-term and long-term performance measures that
assess the effectiveness of law enforcement projects funded by the
grants. Short-term measures include increasing the number of units that
report high program quality, while long-term measures include changing
crime rate percentages in communities. Commission officials stated that
they will continue to track these measures for Recovery Act funding, in
addition to any new measures required under the act. Likewise,
administrators at a local school district we visited stated that they
have a department that uses a system to track the performance for every
school and every student in the school district. The officials stated
that they will use the same measures to track school and student
performance improvements using Recovery Act funds.
However, officials were unclear as to how to determine the number of
jobs created and saved by certain Recovery Act funds, new measures
required by the act. State education officials noted that the act is
vague about determining the number of teachers who would have been laid
off in the absence of Recovery Act funding. Although a state housing
official expected that her office would have the capabilities to assess
results, such as job creation and economic output, local housing
officials stated they may have difficulty doing so. State and local
officials were waiting for additional guidance from the federal
government on how to implement measures for jobs created and saved, as
well as any new measures required under the act.
Arizona's Comments on This Summary:
We provided the Governor of Arizona with a draft of this appendix on
April 17, 2009. The Director of the Office of Economic Recovery
responded for the Governor on April 20, 2009. In general, the state
agreed with our draft and provided some clarifying information which we
incorporated. The state also provided technical suggestions that were
incorporated, as appropriate.
GAO Contacts:
Eileen Laurence, (202) 512-6510 or larencee@gao.gov:
Charles Jeszeck, (202) 512-7036 or jeszeckc@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Kirk Kiester, Assistant
Director; Joseph Dewechter, analyst-in-charge; Lisa Brownson; Aisha
Cabrer; Alberto Leff; Jeff Schmerling; and Margaret Vo made major
contributions to this report.
[End of section]
Appendix IV: California:
Overview:
Use of funds: An estimated 90 percent of fiscal year 2009 Recovery Act
funding provided to states and localities will be for health,
transportation and education programs. The three largest programs in
these categories are the Medicaid Federal Medical Assistance Percentage
(FMAP) awards, the State Fiscal Stabilization Fund, and highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds:
* As of April 3, 2009, Centers for Medicare & Medicaid Services (CMS)
had made about $3.331 billion in increased Federal Medical Assistance
Percentage (FMAP) grant awards to California;
* As of April 1, 2009, the state has drawn down about $1.5 billion, or
45.4 percent of its initial increased FMAP grant awards;
* Funds made available as a result of increased FMAP will help offset
the state's general fund budget deficit, according to California
officials.
Transportation--Highway Infrastructure Investment:
* California was apportioned about $2.570 billion for highway
infrastructure investment on March 2, 2009 by the U.S. Department of
Transportation;
* Under a state law enacted in late March 2009, 62.5 percent of funds
($1.606 billion) will go to local governments for projects of their
selection;
* Of the remaining 37.5 percent ($964 million), $625 million will go to
State Highway Operation and Protection Program (SHOPP) projects for
highway rehabilitation, eligible maintenance and repair; $29 million
will fund Transportation Enhancement projects; and $310 million will be
loaned to fund stalled capacity expansion projects;
* As of April 16, 2009, the U.S. Department of Transportation had
obligated $261.4 million for 20 California projects;
* California will request reimbursement from the U.S. Department of
Transportation as the state makes payments to contractors.
U.S. Department of Education State Fiscal Stabilization Fund (Initial
Release):
* California was allocated about $3.993 billion from the initial
release of these funds on April 2, 2009 by the U.S. Department of
Education;
* Before receiving the funds, states are required to submit an
application that provides several assurances to the Department of
Education. These include assurances that they will meet maintenance of
effort requirements (or that they will be able to comply with waiver
provisions) and they will implement strategies to meet certain
educational requirements, including teacher effectiveness, addressing
inequities in the distribution of highly qualified teachers, and
improving the quality of state academic standards and assessments.
California's application was approved by the U.S. Department of
Education on April 17, 2009 and the state is now eligible to draw funds
for local school districts and universities;
* Approximately $3.266 billion of the $3.993 billion (81.8 percent)
must be spent on education. The remaining $727 million (18.2 percent)
can be spent at the Governor's discretion and is expected to be
directed to public safety. Of the funds devoted to education, the
majority will be spent on primary and secondary education.
California is receiving additional Recovery Act funds under other
programs, such as Title I, Part A of the Elementary and Secondary
Education Act of 1965 (ESEA), (commonly known as No Child Left Behind);
the Individuals with Disabilities Education Act, Part B, and workforce
training programs under the Workforce Investment Act (WIA).
Safeguarding and transparency: The Governor established the California
Federal Economic Stimulus Task Force to ensure both accountability and
transparency in how funds are spent, consistent with the Recovery Act
and the state's own goals. The Task Force will also manage California's
recovery Web site [hyperlink, http://www.recovery.ca.gov], the state's
principal vehicle for reporting on the use and status of Recovery Act
funds. In addition, on April 3, 2009, California appointed a Recovery
Act Inspector General to make sure Recovery Act funds are used as
intended and to identify instances of waste, fraud, and abuse.
California intends to use its existing accounting system to track funds
flowing through the state government. Although California will publicly
report its Recovery Act spending, officials have said that the state
may not be aware of all federal funds sent directly to other entities,
such as municipalities and independent authorities. The California
State Auditor has raised concerns about internal controls at various
state agencies that could affect accountability for Recovery Act funds,
and will take this into account when assessing risk during her current
audit planning efforts.
Assessing the effects of spending: According to state officials,
California has begun to develop plans to assess the effects of Recovery
Act spending. However, they are waiting for further guidance from the
federal government, particularly related to measuring job creation.
California Beginning to Use Recovery Act Funds:
California has begun to use some of its Recovery Act funds, as follows:
Increased Federal Medical Assistance Percentage Funds: Medicaid is a
joint federal-state program that finances health care for certain
categories of low-income individuals, including children, families,
persons with disabilities, and persons who are elderly. The federal
government matches state spending for Medicaid services according to a
formula based on each state's per capita income in relation to the
national average per capita income. The amount of federal assistance
states receive for Medicaid service expenditures is known as the
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP
may range from 50 to no more than 83 percent, with poorer states
receiving a higher federal matching rate than wealthier states. The
Recovery Act provides eligible states with an increased FMAP for 27
months between October 1, 2008, and December 31, 2010.[Footnote 50] On
February 25, 2009, the Centers for Medicare & Medicaid Services (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.[Footnote 51]
Generally, for federal fiscal year 2009 through the first quarter of
federal fiscal year 2011, the increased FMAP, which is calculated on a
quarterly basis, provides for (1) the maintenance of states' prior year
FMAPs; (2) a general across-the-board increase of 6.2 percentage points
in states' FMAPs; and (3) a further increase to the FMAPs for those
states that have a qualifying increase in unemployment rates. The
increased FMAP available under the Recovery Act is for state
expenditures for Medicaid services. However, the receipt of the
increased FMAP may reduce the funds that states must use for their
Medicaid programs, and states have reported using these available funds
for a variety of purposes.
Under the Recovery Act, California will receive increased FMAP grant
awards of at least 61.6 percent, up from 50 percent. As of April 1,
2009, California has drawn down $1.5 billion, or 45.4 percent of its
initial FMAP grant awards. Initially, the state could not obtain
increased FMAP funds because the state reduced its eligibility period
for children from 12 months of continuous eligibility to 6 months,
effective January 1, 2009. However, because this change was suspended
on March 27, 2009 and eligibility was restored to any children
affected, the state has been able to draw down increased FMAP funds.
Officials plan to use funds made available as a result of the increased
FMAP to offset the state's general fund budget deficit.
Transportation--Highway Infrastructure Investment: The Recovery Act
provides funds for highway infrastructure investment using the rules
and structure of the existing Federal-Aid Highway Surface
Transportation Program, which apportions money to states to construct
and maintain eligible highways and for other surface transportation
projects. States must follow the requirements for the existing
programs, and in addition, the governor must certify that the state
will maintain its current level of transportation spending, and the
governor or other appropriate chief executive must certify that the
state or local government to which the funds have been made available
has completed all necessary legal reviews and determined that the
projects are an appropriate use of taxpayer funds. California provided
these certifications but noted that the state's level of funding was
based on the best information available at the time of the state's
certification.[Footnote 52]
According to state sources, under a state law enacted in late March
2009, 62.5 percent of funds ($1.606 billion) will go to local
governments for projects of their selection. Of the remaining 37.5
percent ($964 million), $625 million will go to State Highway Operation
and Protection Program (SHOPP) projects for highway rehabilitation,
eligible maintenance and repair; $29 million will fund transportation
enhancement projects; and $310 million will be loaned to fund stalled
capacity expansion projects.[Footnote 53] As of April 16, 2009, the
U.S. Department of Transportation had obligated $261.4 million for 20
California projects.[Footnote 54] These projects consist of
rehabilitating roadways, pavement, and rest areas as well as upgrading
median barriers and guardrails. For example, a $33 million project is
being funded to rehabilitate a road in San Jose.
U.S. Department of Education State Fiscal Stabilization Fund: The
Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be
administered by the U.S. Department of Education (Education). The SFSF
provides funds to states to help avoid reductions in education and
other essential public services. The initial award of SFSF funding
requires each state to submit an application to Education that assures
it will take action to meet certain educational requirements, such as
increasing teacher effectiveness and addressing inequities in the
distribution of highly qualified teachers.
California's initial SFSF allocation is $3.993 billion. Approximately
$3.266 billion of this money (81.8 percent) must be spent on education.
The remaining $727 million (18.2 percent) can be spent on public safety
and other government services (including education). California
officials told us that the Governor plans to recommend to the State
Legislature that the funds be spent on the Department of
Corrections.[Footnote 55] Like other states, California will receive
its SFSF funds in two phases. California's application was approved by
the U.S. Department of Education on April 17, 2009, and the state is
now eligible to draw funds for local school districts and universities.
Of the $3.266 billion for education, the state plans to spend the
maximum amount possible under Recovery Act formulas--approximately
$2.57 billion on primary and secondary education and $537 million on
higher education, for the purpose of restoring funding to 2008-2009
levels. The remaining $164 million will be used to restore education
funding in future years. These funds will help ensure that primary and
secondary schools and institutions of higher education have the
resources they need to avert cuts and retain teachers and professors.
Overall Management and Reporting of Recovery Act Funds Are Being
Centrally Coordinated:
The Governor and his administration are setting the overall policy for
coordination of and accountability for Recovery Act funds. Prior to the
enactment of the Recovery Act, the Governor's office formed nine
working groups organized around broad program areas (e.g.,
transportation, environment, etc.) and comprising representatives of
the Department of Finance, program departments, the legislative branch,
and California's Washington, D.C. office. The working groups worked
with the California congressional delegation to estimate the effects of
the Recovery Act and to lobby for changes helpful to the state. The
Recovery Act was enacted on February 17, 2009, and California signed a
state certification letter on March 5 stating that the state would
request and use certain Recovery Act funds to create jobs and promote
economic growth (California was the first state to do so).
Initially, the Department of Finance, the Director of which is
appointed by the Governor, was the focal point for working with state
agencies to prepare to meet Recovery Act accountability and reporting
requirements. In late March 2009, the Governor's office established the
California Federal Economic Stimulus Task Force, which is responsible
both for tracking Recovery Act funds that come into the state and
ensuring that those funds are spent efficiently and effectively. The
task force is chaired by the Deputy Chief of Staff to the Governor and
Director of the Governor's Office of Planning and Research, and will
include one representative from the administration for each of the main
program areas that will receive funds. The Chief Deputy Director of
Finance will serve as deputy coordinator of the task force and will be
responsible for, among other things, tracking the funds coming into the
state. The Chief Operating Officer of the Department of Finance will
oversee the accountability and auditing functions of the task force.
State Agencies and Localities Are Developing Spending Plans, but in
Some Cases Are Awaiting Further Guidance and Final Determination of
Amounts to Be Received:
In total, as of March 27, 2009, the state of California estimates that
the state and its localities will receive approximately $48.3 billion
for various programs, including health, education, and infrastructure.
(see figure 4.) Of this, about $14 billion will go directly to local
governments and the other $34 billion will go to the state.
Figure 4: California State and Local Recovery Act Funding (dollars in
millions):
[Refer to PDF for image: stacked vertical bar graph]
Health and human services:
State: $11,565.4;
Local: $3,293.
Education:
State: $8,300.7;
Local: $3,307.6.
Labor:
State: $8,360.9;
Local: $0.
Infrastructure:
State: $3,814.2;
Local: $3,483.5.
Energy and climate:
State: $317.7;
Local: $3,055.
Public safety:
State: $1,084.8;
Local: $433.2.
Science and technology:
State: $0;
Local: $880.
Housing:
State: $167.4;
Local: $276.2.
Source: Department of Finance @ [hyperlink, http://www.recovery.ca.gov]
(March 27, 2009).
[End of figure]
The extent to which spending decisions have been made varies by program
in California, with some uses determined while others are still
unknown. For example, for some funding, like the $10 billion made
available as a result of the increased FMAP, all or most is formula
driven, and the application of funds is already determined. Likewise,
for public transit investment grants and fixed-guideway infrastructure
programs (due to receive approximately $1.019 billion in Recovery Act
funds, according to Federal Transit Administration officials), all or
most of the funding is formula driven, but local priority-setting
processes will determine which projects will be funded. For education
(receiving about $11.8 billion in Recovery Act funds), while the
majority of allocations to school districts are based on formulas,
education officials told us that spending decisions will largely be
made at the local level.[Footnote 56] Officials from the Sacramento
Housing and Redevelopment Agency (SHRA)--one of the state's 55 public
housing authorities hoping to receive a portion of Recovery Act funding
from the formula-based Public Housing Capital Fund--stated that they
have begun to prioritize how funds will be used. Contracts will be
awarded by SHRA for bids received within 120 days on projects listed in
its 5-year Capital Fund Plan. State officials from the Department of
Housing and Community Development are not sure how much funding another
program, the Neighborhood Stabilization Program, will receive.
Officials told us that their plans for spending the money will be
determined by the amount received.
In some instances, state officials have sought federal guidance on the
use of certain funds. For example, California Employment Development
Department (EDD) officials told us that they hoped to receive
additional federal guidance clarifying whether California, through its
legislative budget process, can use all discretionary Workforce
Investment Act funding through Recovery Act funds to offset employment
and training program general fund costs in either the California
Department of Corrections and Rehabilitation or the California
Conservation Corps. EDD officials noted that using the discretionary
funds in this way might contradict recent U.S. Department of Labor
guidance, which only allows funds to be used for new programs and not
to replace state or local funding for existing programs. State
officials are also seeking guidance from CMS regarding policies on
payments for in home support services funded by Medicaid. State
officials are also uncertain whether Recovery Act funds can help pay
for the increased costs of administering, overseeing, and auditing
Recovery Act program funds and stated that federal guidance, thus far,
has not addressed these questions.
In some cases, state agencies face deadlines for using their funds.
Caltrans must obligate at least half of certain Recovery Act funds
within 120 days of when the funds were apportioned by the Department of
Transportation or the funds will be redistributed to other states.
[Footnote 57] Caltrans did not foresee problems meeting this deadline.
Caltrans officials further stated that most projects could be completed
within 1 year; however, project completion time lines and specific
project funding outlays by year have not been finalized. Caltrans
officials stated that some project construction may begin by early-May
2009. In another case, the Tax Credit Allocation Committee (TCAC) must
commit at least 75 percent of the $325.9 million in Recovery Act's Tax
Credit Assistance Program funds by February 17, 2010. TCAC did not
foresee problems meeting this deadline. TCAC officials told us that
they have a system in place to quickly identify recipients and that
they are planning to make sure to comply with the timeline as reflected
in regulations.
Recovery Act Funds Will Help but Not Resolve California State Budgetary
Pressures:
The state's economy and California state revenues have been severely
affected by the national recession and financial market credit crunch.
In March 2009, California's unemployment rate rose to 11.2 percent, 2.7
percentage points higher than the national average. In February,
according to RealtyTrac, California posted the nation's third highest
state foreclosure rate, behind Nevada and Arizona, with 1 in every 165
housing units in foreclosure. On March 19, Fitch Investor Services
downgraded California General Obligation bonds to an "A" rating, the
lowest current rating of any state.
State general fund revenues are projected to fall in state fiscal year
2008-2009 by $15.1 billion, or 14.7 percent, from fiscal year 2007-
2008.[Footnote 58] In January 2009, the fiscal year 2009-2010
Governor's Budget projected that the state would end the state fiscal
year with a $41.6 billion deficit if no corrective actions were taken.
In response, the State Legislature and the Governor agreed to a $42
billion package of solutions. As described by state sources, this
package includes reducing spending, temporarily increasing taxes, using
funds made available as a result of the Recovery Act, and borrowing
from future lottery profits.[Footnote 59] The budget package depends,
in part, on voter approval of six different propositions at a May 19,
2009, special election. If three of these propositions are approved,
the state Legislative Analyst's Office (LAO) estimates the package will
reduce the state's budget deficit by $6 billion.
Unfortunately, the state's economic condition since the release of the
Governor's budget in January 2009 has continued to deteriorate. Even if
the May 19, 2009, propositions pass, and the state uses $8.2 billion in
funds made available as a result of the Recovery Act, the LAO estimates
an $8 billion deficit in 2009-2010. Consequently, the State Legislature
and the Governor may need to work on additional budgetary solutions to
rebalance the 2009-2010 budget following the May 2009 budget update. On
February 3, 2009, the California State Auditor added the state's budget
condition to its list of high-risk issues facing the state.
Plans for Oversight and Control of Recovery Funds Are Still Evolving:
State officials are working to get the necessary guidance and systems
up and running that will allow for a comprehensive and accurate
accounting of California Recovery Act funds. As previously mentioned,
the California Federal Economic Stimulus Task Force is responsible for
tracking Recovery Act funds and ensuring that they are spent
efficiently and effectively. The state's new recovery Web site
[hyperlink, http://www.recovery.ca.gov] will serve as the primary tool
to fulfill federal reporting and accountability requirements
consistently throughout the state. A representative from each state
agency is tasked with ensuring that data required by federal Recovery
Act reporting requirements are available on the state Web site.
Development of the related processes and procedures to accumulate and
consolidate the spending data is underway. State officials also plan to
use the Web site to provide the public with up-to-date information
about federal funds received by the state, how those dollars are being
spent, and, through the use of digital mapping, the geographic
distribution of expenditures.
Internal Control and Tracking Is Expected to Be Achievable for State-
Level Funds, but Concerns Exist Over Funds Provided to Localities:
The state intends to rely heavily on existing systems to track and
account for Recovery Act funds. State agency officials generally told
us that their existing accounting systems, enhanced with newly created
codes for Recovery Act funds, will enable them to separately track and
monitor how state and local agencies spend Recovery Act funds that pass
through the state. For example, California Department of Education
officials told us that the department already has a consistent
accounting structure in place for tracking and reporting on how federal
funds are used. The department plans to create separate accounting
codes within that structure to track and report how the different
programmatic funds received through the Recovery Act are used.
According to the officials, the department will provide those codes to
the local education agencies (LEA), as well as instruct them on what
the codes mean. However, some officials still expressed concerns about
the ability of LEAs to consistently maintain accountability for funds.
For example, a Department of Finance official with responsibility for
education program budgets stated that there are over 1,000 school
districts in California, and they possess varying levels of
sophistication in their accounting systems. While the state will be
providing guidance to help ensure proper accountability, this official
expects some districts may face challenges complying.
Most state program officials told us that they will apply the same
controls and oversight processes that they currently apply to other
program funds. For example, the California Employment and Development
Department has an independent division that conducts monitoring,
audits, and evaluations to guard against mismanagement, waste, fraud,
and abuse. The effectiveness of internal controls at the local level,
however, is unknown for some programs. Caltrans officials, for example,
stated that while extensive internal controls exist at the state level,
there may be control weaknesses at the local level.[Footnote 60]
Caltrans is collaborating with local entities to identify and address
these weaknesses. Additionally, Caltrans has conducted workshops and
other outreach activities to ensure that regions and localities are
fully informed regarding requirements for the tracking and expenditure
of Recovery Act funds, and would like to increase its capacity to
provide oversight, particularly at the local level.
Various Audit Functions Will Provide Oversight:
California intends to use existing internal and independent audit
functions and a new inspector general to oversee Recovery Act funds
received by the state. The Office of State Audits and Evaluations
(OSAE) is an internal audit function within the Department of Finance
which performs audits of various state funds and programs, including
those receiving Recovery Act funds. According to state officials, OSAE
is also responsible for ensuring compliance with the state's Financial
Integrity and State Manager's Accountability Act of 1983 (FISMA) and
oversees the activities of internal audit functions within most state
agencies. According to state sources, FISMA requires each state agency
to maintain effective systems of internal accounting and administrative
control, to evaluate the effectiveness of these controls on an ongoing
basis, and to review and report biennially on the adequacy of the
agency's systems of internal accounting and administrative control.
OSAE has not yet determined the scope or approach for its review of
Recovery Act funds or the extent to which it can utilize FISMA in
assessing compliance with Recovery Act requirements. In addition, the
State Controller audits claims for payment submitted by state agencies
and provides internal audit services to some state agencies, such as
Caltrans, for Recovery Act funds.
The State Auditor, California's independent audit and evaluation
office, conducts financial and performance audits as authorized or
required by law and requested by the State Legislature. The State
Auditor is also annually responsible for conducting California's
statewide single audit of numerous federal programs administered in
California.[Footnote 61] Based on the State Auditor's initial analysis
of Recovery Act funds the state expects to receive and the formula for
determining which programs require an audit, the State Auditor
anticipates it will likely need to expand single audit coverage to
capture additional programs receiving Recovery Act funds. Finally, on
April 3, 2009, the Governor appointed the nation's first Recovery Act
Inspector General, whose role is to make sure Recovery Act funds are
used as intended and to identify instances of waste, fraud, and abuse.
Prior Work of State Auditor Indicates Areas Requiring Additional
Oversight:
The most recent single audit, conducted by the State Auditor for fiscal
year 2007, identified 81 material weaknesses, 27 of which were
associated with programs we reviewed for purposes of this report.
[Footnote 62] The State Auditor plans to use past audit results to
target state agencies and programs with a high number and history of
problems, including data reliability concerns, and is closely
coordinating with us on these efforts. For example, the fiscal year
2007 State Single Audit Report identified eight material weaknesses
pertaining to the ESEA Title I program and the Individuals with
Disabilities Education Act programs. The audit findings included a
material weakness in the California Department of Education's
management of cash because it disbursed funds without assurances from
LEAs that the time between the receipt and disbursement of federal
funds was minimized, contrary to federal guidelines. Education
officials told us that they have addressed some of these material
weaknesses and, in other cases, they are still working to correct them.
If these and other material weaknesses are not corrected, they may
affect the state's ability to appropriately manage certain Recovery Act
funds. The State Auditor's Office told us that it is in the process of
finalizing the fiscal year 2008 State Single Audit Report and plans to
issue the report within the next 30 days. In addition, the State
Auditor's Office is summarizing the results of the single audit to
identify those programs that continue to have material weaknesses.
Finally, the State Auditor's Office plans to use the results of other
audits it has conducted in conjunction with the single audit to assess
risk and develop its approach for determining the state's readiness to
receive the large influx of federal funds and comply with the
requirement regarding the use of those funds under the Recovery Act.
State Officials Expressed Concerns about Lack of Guidance and Ability
to Measure the Impacts of Recovery Act Funds:
State officials with whom we spoke have not yet established plans or
processes for assessing the impacts of Recovery Act funds. According to
Department of Finance officials, the newly created California Federal
Economic Stimulus Task Force will assume this responsibility. Several
state agency officials and a local public housing authority believe
that additional guidance is needed from the U.S. Office of Management
and Budget (OMB) before they can fully address the issue of impact
assessments. State officials told us that assessing the impact of
Recovery Act funds on job creation in particular will be difficult.
That is, while they believe that tracking the impact for contracts,
grants, or discrete projects is possible, it is extremely difficult to
separate out the specific impact of Recovery Act funds when they are
combined with other federal, state, or local funds, as they will be in
many situations.
The state program officials with whom we spoke raised a number of
specific concerns about their ability to measure the impact of Recovery
Act funds. For example,
* California education officials told us they did not yet know how the
state will measure the impact of the Recovery Act funds spent on
education. The officials said that, although it should be possible to
track Recovery Act education spending separately from non-Recovery Act
money, this does not mean that they will be able to report on specific
outcomes that result from this spending. One concern mentioned by
several officials is that it may not be possible to link the spending
categories used in the accounting system to specific outcomes.
Furthermore, even if such links could be made, another difficulty would
be determining the extent to which an outcome was the result of the
Recovery Act funds received in April 2009 versus the non-Recovery Act
funds received earlier in the year for the same program. Finally,
officials expressed concern about the incompatibility between desired
Recovery Act outcomes and Recovery Act funding. One of the Recovery
Act's desired outcomes is job creation and preservation, which requires
ongoing funds, but the Recovery Act provides only temporary funds.
* According to Caltrans officials, measuring the full economic impact
of highway funds presents challenges. Caltrans officials told us that
since Recovery Act funds may be combined with other funds to complete
projects, isolating the number of jobs created using just the Recovery
Act funds may be difficult. In addition, Caltrans officials told us
that guidance on measuring and reporting the effect of Recovery Act
funds for transit and fixed-guideway investments has not yet been
issued, however they anticipate it will be difficult to report on jobs
preserved or created.
* California Employment Development Department officials told us that
its existing accounting system can report output, such as how many more
participants are registered and enrolled in Workforce Investment Act
programs and the level of program services increased due to the
Recovery Act. They also said that the existing system can track certain
performance indicators for program participants, such as successful
employment, wage increases, and job retention. However, these officials
noted that they anticipate challenges determining whether such outcomes
are specifically due to services supported by the additional Recovery
Act funds versus services previously or currently provided to program
participants through existing Workforce Investment Act funds.
California's Comments on This Summary:
We provided the Governor of California with a draft of this appendix on
April 17, 2009. Members of the California Federal Economic Stimulus
Task Force responded for the Governor on April 20, 2009. These
officials provided clarifying and technical comments that we
incorporated where appropriate.
GAO Contacts:
Linda Calbom, (206) 287-4809 or calboml@gao.gov:
Randy Williamson, (206) 287-4860 or williamsonr@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Paul Aussendorf, Candace
Carpenter, Joonho Choi, Brian Chung, Nancy Cosentino, Kerry Dunn,
Michelle Everett, Chad Gorman, Richard Griswold, Bonnie Hall, Delwen
Jones, Brooke Leary, Jeff Schmerling, Steve Secrist, and Eddie Uyekawa
made major contributions to this report.
[End of section]
Appendix V: Colorado:
Overview:
Use of funds: An estimated 90 percent of Recovery Act funding provided
to states and localities nationwide in fiscal year 2009 (through Sept.
30, 2009) will be for health, transportation and education programs.
The three largest programs in these categories are the Medicaid Federal
Medical Assistance Percentage awards, the State Fiscal Stabilization
Fund, and highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds:
* As of April 3, 2009, the Centers for Medicare & Medicaid Services had
made about $227 million in increased FMAP grant awards to Colorado;
* As of April 16, 2009, the state had not drawn down any of its
increased FMAP grant awards;
* State officials noted they are working to ensure that the state is in
compliance with Recovery Act provisions governing eligibility for the
increased FMAP.
Transportation--Highway Infrastructure Investment:
* Colorado was apportioned about $404 million for highway
infrastructure investment on March 2, 2009, by the U.S. Department of
Transportation;
* As of April 16, 2009, the U.S. Department of Transportation had
obligated $118.4 million for 19 projects; the Colorado Department of
Transportation had advertised 17 of these projects, and 5 of the 17 had
been awarded;
* Colorado's Recovery Act transportation funds are being directed to
projects that can be advertised within 90 to 180 days of the passage of
the act, can be completed within 3 years, and will result in job
creation;
* Projects include resurfacing roads and replacing highway bridges in
the Denver metropolitan area, as well as improvements to mountain
highways;
* Colorado will request reimbursement from the U.S. Department of
Transportation as the state makes payments to contractors.
U.S. Department of Education State Fiscal Stabilization Fund (Initial
Release):
* Colorado was allocated about $509 million from the initial release of
these funds on April 2, 2009, by the U.S. Department of Education;
* Before receiving the funds, states are required to submit an
application that provides several assurances to the U.S. Department of
Education. These include assurances that they will meet maintenance of
effort requirements (or that they will be able to comply with waiver
provisions) and that they will implement strategies to meet certain
educational requirements, including increasing teacher effectiveness,
addressing inequities in the distribution of highly qualified teachers,
and improving the quality of state academic standards and assessments;
* The Governor is working with the state legislature on a plan for
spending the fiscal stabilization funds Colorado will receive to
support education. Once legislative concurrence is obtained, the plan
will be submitted to the U.S. Department of Education. A state official
estimated that could happen as early as the week of April 20, 2009.
Colorado is also receiving additional Recovery Act funds under other
programs, such as those under Title I, Part A of the Elementary and
Secondary Education Act of 1965 (ESEA) (commonly known as No Child Left
Behind); programs under the Individuals with Disabilities Education Act
(IDEA), Part B; programs under the Workforce Investment Act; and Edward
Byrne Memorial Justice Assistance Grants. These are described
throughout this appendix.
Safeguarding and transparency: As the state makes its plans, some
officials raised concerns about how well the state is positioned to
track and oversee Recovery Act expenditures and identified general
areas of vulnerability in spending Recovery Act funds. For example,
Colorado's accounting system is 18 years old, which will make it
challenging for the state to tag and track Recovery Act funds,
according to state officials. State officials are determining what
approach they will use in tracking funds and told us they currently
plan to create an accounting fund to track state agencies' use of
Recovery Act funds, employing a centrally defined budget-coding
structure to distinguish between Recovery Act and non-Recovery Act
federal funds. State officials were also concerned about tracking funds
that bypass the state and flow directly to local entities.
Assessing the effects of spending: The state is making plans to assess
the effects of Recovery Act spending on Colorado's economy. Some
agencies plan to use their existing performance indicators to assess
the effects of recovery, while others have received guidance including
new indicators. Some officials identified concerns with recipients'
ability to submit reports more quickly or more frequently than normal,
while some questioned how precisely economic effects can be measured.
Colorado Beginning to Use Recovery Act Funds:
Colorado has begun to use some of its Recovery Act funds, as follows:
Increased Federal Medical Assistance Percentage Funds: Medicaid is a
joint federal-state program that finances health care for certain
categories of low-income individuals, including children, families,
persons with disabilities, and persons who are elderly. The federal
government matches state spending for Medicaid services according to a
formula based on each state's per capita income in relation to the
national average per capita income. The amount of federal assistance
states receive for Medicaid service expenditures is known as the
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP
may range from 50 percent to no more than 83 percent, with poorer
states receiving a higher federal matching rate than wealthier states.
The Recovery Act provides eligible states with an increased FMAP for 27
months between October 1, 2008, and December 31, 2010.[Footnote 63] On
February 25, 2009, the Centers for Medicare & Medicaid Services (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.[Footnote 64] Generally, for
fiscal year 2009 through the first quarter of fiscal year 2011, the
increased FMAP, which is calculated on a quarterly basis, provides for
(1) the maintenance of states' prior year FMAPs; (2) a general across-
the-board increase of 6.2 percentage points in states' FMAPs; and (3) a
further increase to the FMAPs for those states that have a qualifying
increase in unemployment rates. The increased FMAP available under the
Recovery Act is for state expenditures for Medicaid services. However,
the receipt of this increased FMAP may reduce the funds that states
must use for their Medicaid programs, and states have reported using
these available funds for a variety of purposes.
As of April 3, 2009, CMS had made about $227 million in increased FMAP
grant awards to Colorado. As of April 16, 2009, state officials had not
drawn down any of the state's increased FMAP grant awards. State
officials noted they are working to ensure that the state is in
compliance with Recovery Act provisions governing eligibility for the
increased FMAP. Officials also indicated that, in order to account for
the increased FMAP funds available through the Recovery Act, the state
has created unique codes that will calculate the additional federal
reimbursement. The state will use these codes to assist with the proper
drawing down and reporting of these expenditures on quarterly Medicaid
reports.
Transportation--Highway Infrastructure Investment: The Recovery Act
provides additional funds for highway infrastructure investment using
the rules and structure of the existing Federal-Aid Highway Surface
Transportation Program, which apportions money to states to construct
and maintain eligible highways and to undertake other surface
transportation projects. States must follow the requirements for the
existing programs, and in addition, the Governor must certify that the
state will maintain its current level of transportation spending, and
the Governor or other appropriate chief executive must certify that the
state or local government to which funds have been made available has
completed all necessary legal reviews and determined that the projects
are an appropriate use of taxpayer funds. Colorado provided this
certification but noted that the state's level of funding was based on
"planned nonbond state expenditures" and represented the best
information available at the time of the state's certification.
[Footnote 65]
Colorado was apportioned about $404 million in Highway Infrastructure
Investment Recovery Act funds by the U.S. Department of Transportation
on March 2, 2009. As of April 16, 2009, the U.S. Department of
Transportation had obligated $118.4 million for 19 Colorado
projects.[Footnote 66] Seventeen of these projects, which include
resurfacing roads and replacing highway bridges in the Denver
metropolitan area and improvements to mountain highways, had been
advertised for bid, and 5 of the 17 projects had been awarded.
According to Colorado Department of Transportation officials, the
department has a well-established process for distributing funds and
contracting projects and has already begun to use this process in
applying for Recovery Act funds. In order to spend funds quickly and
create jobs, Colorado is directing Recovery Act transportation funds to
projects that can be advertised within 90 to 180 days of the passage of
the Recovery Act, can be completed within 3 years, and will result in
job creation. Department officials told us they are emphasizing
construction projects rather than projects in planning or design
phases, in order to maximize job creation.
U.S. Department of Education State Fiscal Stabilization Fund: The
Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be
administered by the U.S. Department of Education (Education). The SFSF
provides funds to states to help avoid reductions in education and
other essential public services. The initial award of SFSF funding
requires each state to submit an application to Education that assures
it will take action to meet certain educational requirements such as
increasing teacher effectiveness and addressing inequities in the
distribution of highly qualified teachers.
The Governor has proposed a plan for spending the majority of the $760
million in stabilization funds Colorado will receive to support
education, focusing on offsetting current and planned reductions in
state funding for higher education. Officials told us that funding cuts
were directed primarily toward higher education rather than
kindergarten through 12th grade education because of a state
constitutional provision requiring guaranteed annual increases in state
funding of kindergarten through 12th grade education[Footnote 67]--and
as a result, SFSF funds are more urgently needed in higher education.
The state will receive its first allocation of funds--$509 million or
67 percent of the total--after it has applied to Education, which it
plans to do once the Governor's office and legislature agree on the
plan and the state's budget. As of April 20, 2009, the state's General
Assembly was negotiating the final budget and a school finance bill
that could affect the specific use of the SFSF funds. A Colorado
official said that if the state approves a budget the week of April 20,
2009, the proposal could go to Education soon after that date. The
Governor is also developing a plan for the Government Services Fund, a
component of the SFSF, which will provide $138 million of SFSF funds
that may be used for public safety and other government services.
Colorado Will Manage Recovery Act Funds through an Oversight Board and
State Executive Departments:
Following passage of the Recovery Act, Colorado's Governor established
an oversight board, the Colorado Economic Recovery Accountability
Board, to oversee Colorado's Recovery Act funding and ensure funds are
spent effectively and transparently. The board is chaired by the
Director of the Colorado Office of Economic Development, who has also
been charged with being Colorado's recovery coordinator. The board is
composed of 12 public-and private-sector leaders from across the state,
including the state treasurer, a state senator and a state
representative, and a number of business leaders. To date, the board
has held three public meetings during which members discussed the short
time frames for disbursing Recovery Act funds and a lack of federal
guidance, among other issues. The board has also developed a Web site
to publicize information about the Recovery Act.[Footnote 68]
Management of and decisions about Recovery Act funds are the
responsibility of the Governor, according to state officials. The
Governor's office is directly responsible for exercising discretion
with regard to certain funds such as portions of the SFSF. The Governor
is working in consultation with the executive directors of Colorado's
state departments and agencies to develop plans for spending Recovery
Act funds, which are to be publicly available on the state's Web site.
Officials told us the Governor has directed that all departmental
decisions on spending Recovery Act funds are to be made in line with
the original charge of the Recovery Act to promote job creation or
preservation and economic development, as well as the Governor's
agenda. The decision process for using Recovery Act funds depends on
the program, consistent with federal and state statutes and guidance.
Officials from several departments, such as the Departments of Public
Safety, Labor and Employment, and Local Affairs, told us they have made
initial programmatic decisions for Recovery Act funds. Other programs
have not made such decisions; for example, Colorado Department of
Education officials told us the department will distribute funds such
as those under the ESEA and IDEA programs directly to local school
districts to make programmatic decisions about the funds.
Many Colorado officials said the Recovery Act would increase their
departments' workloads and said they would like to add personnel and
perhaps systems to manage the funds, but the overall extent to which
Recovery Act funds are permitted to be used for those costs is
uncertain. While some officials we interviewed said their departments
had received or would receive Recovery Act funds to cover
administrative or management activities, officials in other departments
did not know whether they would receive funds for that purpose.
Officials at the Colorado Department of Labor and Employment, for
example, said they can spend about $1.5 million in Recovery Act funding
to cover administrative costs associated with Workforce Investment Act
programs,[Footnote 69] consistent with their normal procedures for
administration of the programs, while officials from the Colorado
Department of Education said they were uncertain what, if any, funds
they were going to receive to administer and manage recovery programs.
State officials told us they believe the government services portion of
the SFSF can be used by the Colorado Department of Education and other
state departments to cover administrative costs.[Footnote 70]
Colorado Officials Expressed Concerns Related to Tracking of, Internal
Controls over, and Safeguards for Recovery Act Funds:
Colorado officials identified general areas of vulnerability in
spending Recovery Act funds, as well as specific concerns about their
ability to oversee Recovery Act funds coming into the state. Areas of
vulnerability include new programs and localities that may be ill-
equipped to manage the influx of new funds. In addition, state
officials are concerned about their ability to oversee Recovery Act
funds because of three primary challenges: (1) the state's accounting
system is 18 years old, which may make it challenging to tag and track
Recovery Act funds; (2) adequate resources to administer and audit
expenditures of Recovery Act funds may not be available; and (3) state
officials are still determining what they will be required to track and
report on and are particularly concerned about tracking funds that
bypass the state and flow directly to local entities.
Colorado Officials Identified Potential Areas of Vulnerability in
Spending Recovery Act Funds:
The state's departments have begun to identify potential areas of
vulnerability in spending Recovery Act funds, according to officials.
One area that officials identified is the influx of new Recovery Act
funds that must be adequately managed as they are spent quickly. For
example, some programs, such as Medicaid, already have known weaknesses
in managing existing funds (identified, for example, in audits
conducted by the Colorado state auditor) and may be challenged in
managing large amounts of additional funds. A second vulnerable area,
according to officials, involves new programs that do not have well-
established processes, or programs that will need to establish
additional processes, to accommodate significant funding increases,
such as the state's energy program, which will receive funds for
weatherization and other energy projects. Funds that go directly to
localities are a third area that may be vulnerable because, according
to officials, the state does not currently oversee these funds and
cannot provide assistance to local entities, some of which may not be
well-equipped to manage the increased funds.
Colorado's Accounting System Is Outdated:
State officials were concerned that Colorado's accounting system--the
Colorado Financial Reporting System (COFRS)--is 18 years old, which may
make it difficult for the state to use and track Recovery Act funds.
For example, state officials are concerned about Colorado's ability to
report quickly on Recovery Act expenditures. Because of limitations
associated with COFRS, officials told us the state will have
difficulties meeting reporting requirements established for certain
Recovery Act expenditures, such as the requirement in section 1512 of
Title I, Division A of the Recovery Act calling for recipient reports
within 10 days of the end of the calendar quarter. In addition, some
individual state departments do not use the COFRS grant module and
therefore must manually post aggregate revenue and expenditure data to
COFRS. Consequently, given the state's current capabilities, data on
total Recovery Act funding received by the state may not be able to be
drawn from COFRS and may have to be compiled through a manual exercise
outside of the central financial management system, raising internal
control concerns among some officials we talked with. These concerns
include inadequate audit documentation on how the information is
compiled, potential human error in inputting and aggregating
information, and potentially inconsistent or duplicative reporting from
various agencies on the extent and nature of Recovery Act funding
received and used. Finally, state officials also voiced concerns that
COFRS uses Catalog of Federal Domestic Assistance numbers to track
grants from each federal agency, but some federal departments are not
establishing unique Catalog of Federal Domestic Assistance numbers for
some Recovery Act funds, which will make automated reporting difficult.
Procurement and Audit Resources May Be Inadequate:
Officials with the Colorado Department of Personnel & Administration
were concerned that vacancies in procurement positions posed an
impediment to effective tracking and control over the state's Recovery
Act funds. Many Colorado state agencies have vacancies for procurement
officers, which have been left unfilled due to the state budget
shortfall and a consequent hiring freeze. For example, the Department
of Personnel & Administration, which administers statewide contracts
and supports several state agencies that have little or no purchasing
authority, currently has three vacancies in its purchasing agent and
contracting positions. Filling these vacancies would enable this
department to better assist state agencies receiving Recovery Act
funds, according to department officials. Similar purchasing agent
vacancies exist, according to these officials, in the Colorado
Departments of Corrections, Education, Human Services, Labor and
Employment, and Local Affairs. Colorado Department of Personnel &
Administration officials hope to hire former or retired state employees
with procurement experience on a 6-month basis to alleviate this
problem, but additional funding--and possibly legislative and budgetary
approval--may be needed in order to hire temporary procurement
personnel, which could potentially delay hiring if the state needs to
await legislative action.
State officials were also concerned with the amount of audit coverage
throughout the state. For example, officials with the Colorado state
auditor's office told us their office would have difficulty absorbing
additional work associated with the Recovery Act, and believed that
state oversight capacity was limited. For example, according to these
officials, the Department of Health Care Policy and Financing (the
state's Medicaid agency) has had three controllers in the past 4 years;
these officials also told us the state legislature's Joint Budget
Committee recently cut field audit staff levels for the state
Department of Human Services in half. Officials with the Department of
Personnel & Administration told us their department's internal auditor
position is vacant, while officials with the Colorado Department of
Transportation told us that two of their department's financial
management positions, including the deputy controller position, are
vacant. At the county level, Jefferson County recently terminated its
internal auditor and eliminated its internal control audit office.
The reduced number of staff in oversight positions resulted in part
from budget cuts and staffing decisions during the state's last
economic downturn, and state officials told us certain positions would
be difficult to fill because of the state's current hiring freeze.
Officials said because the "ratchet effect" of Colorado's
constitutional and legislative requirements limits the growth of
spending, it can be difficult to re-establish and fill positions that
are eliminated during economic downturns.[Footnote 71] Officials told
us, for example, that some state agencies have not refilled all of the
staff positions they lost to budget cuts during Colorado's 2001-2003
downturn.
Colorado Officials Are Still Determining State Reporting Requirements:
Colorado officials said they have not received state-specific guidance
on Recovery Act reporting from the federal Office of Management and
Budget. They said the guidance provided in February and April 2009 was
addressed to federal departments and agencies, and it was necessary to
determine whether and how this guidance applied to state governments.
Officials wondered, for example, whether the state would be required to
report centrally on all funds coming through the state or whether state
agencies will report as normal through federal departments, or both;
what the frequency and form of reports will be; and the level to which
funds will need to be tracked and reported (e.g., at the recipient
level, subrecipient level, etc.). Officials were especially concerned
that a substantial portion of funds provided to Colorado will go
directly to local entities, making it difficult for state officials to
be aware of and track all funds within the state.
In the absence of state-specific guidance, state officials were taking
some steps on their own to track the use of Recovery Act funds.
Department of Personnel & Administration officials said they
anticipated that statewide reporting on the use of Recovery Act funds
will be necessary, in addition to having individual state departments
and agencies reporting directly to their respective federal granting
agencies. The department discussed various tracking and reporting
methodologies with state department controllers to determine what
tracking method would be the most effective and least disruptive; the
department determined that the state would create an accounting fund
through which it could track state agencies' use of Recovery Act funds
and would employ a centrally defined budget-coding structure for
Recovery Act funds, which should be able to distinguish between
Recovery Act funds and other federal non-Recovery Act funds. This
accounting process would capture only those funds flowing through state
agencies. State officials said they are still determining how they will
capture funds that do not flow through the state and said that guidance
will be important in order to prevent duplicate reporting of Recovery
Act funds by state and federal agencies. Although they are moving
forward, state officials are hesitant to establish statewide reporting
requirements for fear they could waste state resources developing and
implementing an approach that is not consistent with the federal
guidance ultimately established.
Colorado Is Developing Plans to Assess the Effects of Recovery Act
Funds:
Colorado's state departments with responsibility for the funds we
examined described a range of approaches to assess and report on the
effects of recovery spending in the state. Some agencies plan to use
their existing performance indicators to assess the effects of Recovery
Act funding, as they have not yet received reporting guidance from the
federal departments involved. For example, Colorado Housing and Finance
Authority officials said they plan to use existing indicators, such as
the number of affordable housing units created and the relative income
levels of populations served by those units, to assess the effects of
Recovery Act funding for the Low-Income Housing Tax Credit. Other
agencies, such as the Colorado Department of Transportation, have
received guidance to report on existing and new indicators, such as
direct jobs associated with Recovery Act projects; the indicators will
involve a significant increase in data collection and reporting by the
department, including gathering data from more entities and reporting
more frequently than the department has reported in the past, according
to department officials. In another example, the Colorado Department of
Public Safety, which did not report on jobs in the past, will report on
the jobs created or retained with the spending of justice assistance
grants. In addition, it will report on a set of new performance
measures being developed by the federal Department of Justice Bureau of
Justice Assistance. Department of Public Safety officials are concerned
about the timing of reporting job creation and retention data, however,
because the Recovery Act requires states to report 10 calendar days
after the end of each quarter, which is faster than the normal
reporting time frames and, according to officials, will necessitate
that recipients report to the department within 5 calendar days of the
end of the quarter. Some grantees will have difficulty reporting within
such short time frames, according to one department official, because
they still mail or hand deliver their reports.
State and local officials raised other concerns about tracking the
economic effects of Recovery Act funds. Officials with the state
auditor's office, for example, said that tying specific funding to the
creation of particular jobs is problematic. One state official pointed
out that increased FMAP available under the Recovery Act would reduce
the amount of funds that Colorado will need to spend on its Medicaid
program, allowing the state to use these funds for other purposes and
avoid cutting other programs to balance the state budget. However,
because specific program cuts were not determined, identifying the
preserved programs and their economic effects is impossible. While some
state departments have received guidance on counting jobs created or
retained, officials from at least one local department said they needed
more guidance about how to measure the number of new jobs created.
Another official said that her department will report jobs created or
retained but questioned how indirect jobs would be counted. According
to this official, spending Recovery Act funds to purchase items such as
equipment or vehicles will have substantial economic effects,
particularly the creation of indirect jobs, but she was not certain how
these jobs would be counted and asked whether clarification would come
through Office of Management and Budget or other guidance. To measure
such impacts for the state, an economic impact assessment would need to
be conducted, according to a member of the Colorado Economic Recovery
Accountability Board. The board is considering contracting for such an
assessment, according to the member, but has not yet decided on whether
or when to do it.
Colorado's Comments on This Summary:
We provided the Governor of Colorado with a draft of this appendix on
April 17, 2009. State officials from the Governor's office responded
for the Governor on April 20, 2009. In general, they agreed with this
summary of Colorado's recovery efforts to date. The officials also
provided technical comments that were incorporated, as appropriate.
GAO Contacts:
Robin M. Nazzaro, (202) 512-3841 or nazzaror@gao.gov:
Brian Lepore, (202) 512-4523 or leporeb@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Steve Gaty, Susan Iott, Tony
Padilla, Ellen Phelps Ranen, Lesley Rinner, Glenn Slocum, and Mary
Welch made significant contributions to this report.
[End of section]
Appendix VI: Florida:
Overview:
Use of funds: An estimated 90 percent of Recovery Act funding provided
to states and localities nationwide in fiscal year 2009 (through Sept.
30, 2009) will be for health, transportation and education programs.
The three largest programs in these categories are the Medicaid Federal
Medical Assistance Percentage (FMAP) awards, the State Fiscal
Stabilization Fund, and highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds:
* As of April 3, 2009, the Centers for Medicare & Medicaid Services
(CMS) had made about $1.4 billion in increased FMAP grant awards to
Florida;
* As of April 1, 2009, Florida has drawn $817 million, or 58.6 percent
of its increased FMAP grant awards to date;
* From January 2008 to January 2009, the state's Medicaid enrollment
increased from 2,151,917 to 2,391,569, with most enrollment changes
attributable to two population groups: (1) children and families and
(2) other individuals, including those with disabilities;
* While funds are made available as a result of the increased FMAP, the
state legislature is still determining how to make use of these funds.
Transportation--Highway Infrastructure Investment;
* Florida was apportioned about $1.3 billion for highway infrastructure
investment on March 2, 2009, by the U.S. Department of Transportation;
* As of April 16, 2009, the U.S. Department of Transportation had not
obligated any Recovery Act funds for Florida projects;
* On April 1, 2009, the Florida Department of Transportation (FDOT)
prepared a final listing of potential Recovery Act funded projects and
on April 15, 2009, the Florida Legislative Budget Commission approved
the list of projects. The U.S. Department of Transportation, Federal
Highway Administration must also approve the final listing of projects
before the state can advertise bids for contracts;
* These projects include activities such as resurfacing roads,
expanding existing highways, repairing bridges and installing
sidewalks.
U.S. Department of Education State Fiscal Stabilization Fund (Initial
Release):
* Florida was allocated about $1.8 billion from the initial release of
these funds on April 2, 2009, by the U.S. Department of Education;
* Before receiving the funds, states are required to submit an
application that provides several assurances to the Department of
Education. These include assurances that they will meet maintenance-of-
effort requirements (or that they will be able to comply with waiver
provisions) and that they will implement strategies to meet certain
educational requirements, including increasing teacher effectiveness,
addressing inequities in the distribution of highly qualified teachers,
and improving the quality of state academic standards and assessments.
According to Florida officials, Florida plans to apply for a waiver to
obtain these funds after the Department of Education issues final
instructions for waiver applications.
Florida is also receiving Recovery Act funds under other programs, such
as programs under Title I, Part A of the Elementary and Secondary
Education Act of 1965 (ESEA) (commonly known as No Child Left Behind);
programs under the Individuals with Disabilities Education Act (IDEA);
and Workforce Investment Act employment and training programs. The
status of plans for using these funds is described throughout this
appendix.
Safeguarding and transparency: The Governor has created the Florida
Office of Economic Recovery to oversee, track and provide transparency
in how Recovery Act funds are spent. In addition, according to Florida
officials, Florida's accounting system will be able to separately track
the Recovery Act funds flowing through the state government. Florida
plans to publicly report its Recovery Act spending on a state Web site.
Florida state accountability organizations have identified areas where
Recovery Act funds may be at greater risk of fraud, waste, and abuse,
such as Medicaid, and have begun to collaborate in developing plans for
oversight.
Assessing the effects of spending: Florida state officials are in the
early stages of developing plans to assess the effects of Recovery Act
spending and told us that guidance from the federal government would be
instrumental in developing their plans. On April 3, 2009, the U.S.
Office of Management and Budget (OMB) issued guidance indicating that
it will be developing a comprehensive system to collect information,
including jobs retained and created, on Recovery Act funds sent to all
recipients. Florida state officials told us that they will ask OMB to
allow the state to obtain data from this system on local entities in
Florida that receive Recovery Act funds directly from federal agencies.
Florida Beginning to Use Recovery Act Funds:
Florida has begun to use some of its funds made available as a result
of the Recovery Act, as follows:
Increased Federal Medicaid Assistance Percentage Funds: Medicaid is a
joint federal-state program that finances health care for certain
categories of low-income individuals, including children, families,
persons with disabilities, and persons who are elderly. The federal
government matches state spending for Medicaid services according to a
formula based on each state's per capita income in relation to the
national average per capita income. The amount of federal assistance
states receive for Medicaid service expenditures is known as the
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP
may range from 50 percent to no more than 83 percent, with poorer
states receiving a higher federal matching rate than wealthier states.
The Recovery Act provides eligible states with an increased FMAP for 27
months between October 1, 2008 and December 31, 2010.[Footnote 72] On
February 25, 2009, the Centers for Medicare & Medicaid Services (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.[Footnote 73] Generally, for
federal fiscal year 2009 through the first quarter of federal fiscal
year 2011, the increased FMAP, which is calculated on a quarterly
basis, provide for: (1) the maintenance of states' prior year FMAPs;
(2) a general across-the-board increase of 6.2 percentage points in
states' FMAPs; and (3) a further increase to the FMAPs for those states
that have a qualifying increase in unemployment rates. The increased
FMAP available under the Recovery Act is for state expenditures for
Medicaid services. However, the receipt of this increased FMAP may
reduce the funds that the state must use for their Medicaid programs,
and states have reported using these available funds for a variety of
purposes.
As of April 1, 2009, Florida has drawn down $817 million in increased
FMAP grant awards, which is about 58.6 percent of its awards to date.
[Footnote 74] The state is determining how to make use of the state
funds made available as a result of the increased FMAP grant awards.
Officials told us that each state agency with a budget impact resulting
from Recovery Act funding has prepared budget amendments for the
current state fiscal year (July 1, 2008, to June 30, 2009) for
consideration by the Executive Office of the Governor and the
Legislative Budget Commission (LBC). On April 15, 2009, the LBC
approved 17 amendments to the 2008-2009 state appropriation to
authorize the use of Recovery Act funds. The state has drawn down funds
that are for Medicaid expenditures retroactive to October 1, 2008.
Florida officials told us they require additional guidance from CMS on
the prompt payment requirements, and for CMS to provide the state
guidance, if applicable, on any additional reporting requirements.
[Footnote 75]
Transportation--Highway Infrastructure Investment: The Recovery Act
provides additional funds for highway infrastructure investment using
the rules and structure of the existing Federal-Aid Highway Surface
Transportation Program, which apportions money to states to construct
and maintain eligible highways and for other surface transportation
projects. States must follow the requirements for the existing
programs, and in addition, the governor must certify that the state
will maintain its current level of transportation spending, and the
governor or other appropriate chief executive must certify that the
state or local government to which funds have been made available has
completed all necessary legal reviews and determined that the projects
are an appropriate use of taxpayer funds. Florida provided this
certification, but conditioned it, noting that state funding for the
transportation programs is provided from dedicated funding sources that
are subject to fluctuations resulting from economic conditions.
[Footnote 76]
On April 15, 2009, the Florida LBC approved the Recovery Act funded
projects that the FDOT had submitted. As of April 16, 2009, the U.S.
Department of Transportation had not obligated any Recovery Act funds
for Florida projects.[Footnote 77] The Federal Highway Administration
must approve this final listing of projects before the FDOT can
advertise bids or request reimbursement from the Federal Highway
Administration. The state's projects include activities such as
resurfacing roads, expanding existing highways, repairing bridges, and
installing sidewalks.
U.S. Department of Education State Fiscal Stabilization Fund: The
Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be
administered by the U.S. Department of Education (Education). The SFSF
provides funds to states to help avoid reductions in education and
other essential public services. The initial award of SFSF funding
requires each state to submit an application to Education that assures,
among other things, it will take actions to meet certain educational
requirements such as increasing teacher effectiveness and addressing
inequities in the distribution of highly qualified teachers. Florida's
initial SFSF allocation is about $1.8 billion. However, according to
Florida officials, the state will not be able to meet the maintenance-
of-effort requirement to readily qualify for these funds because
revenue declines led to cuts in the state's education budget in recent
years. The state will apply to Education for a waiver from this
requirement; however, they are awaiting final instructions from
Education on submission of the waiver. Florida plans to use SFSF funds
to reduce the impact of any further cuts that may be needed in the
state's education budget.
Florida's Planning Process Has Set the Stage for Decisions on Spending
of Recovery Act Funds:
Florida state officials began preparing for the use of Recovery Act
funds prior to the receipt of the funds. Florida officials believe that
Recovery Act funds are critical to addressing the state's budgetary
crisis and maintain necessary services to its citizens. According to
state officials, the state plans to use about $3 billion of Recovery
Act funds to reduce the state's $6 billion budget shortfall for state
fiscal year 2009-2010. One reason for this shortfall is the significant
declines in revenue Florida has faced in recent years--23 percent since
state fiscal year 2005-2006, from about $27.1 billion to $20.9 billion
in state fiscal year 2008-2009--due to such factors as the recession
and housing crisis. State officials estimate that Florida will receive
about $15 billion in Recovery Act funds over 3 state fiscal years.
Florida estimates that approximately $14.1 billion of this amount will
flow through state agencies, with at least $4.7 billion of this amount
allocated to local entities. In addition, approximately $1.2 billion in
funding will be directly allocated to local entities from federal
agencies.
On March 3, 2009, the Governor established the Florida Office of
Economic Recovery that is responsible for overseeing, tracking and
providing transparency of Florida's Recovery Act funds. The office is
headed by the Special Advisor to the Governor for the Implementation of
the American Recovery and Reinvestment Act (Recovery Czar) and includes
three other staff members on loan from state agencies. The Florida
Office of Economic Recovery also established an implementation team
that meets twice a week and includes representatives from each of the
state's program agencies and administrative offices, such as the Office
of Policy and Budget, the Chief Inspector General, the State Auditor
General, the Department of Financial Services, as well as
representatives from the Florida Association of Counties and the
Florida League of Cities. On March 17, 2009, pursuant to Section 1607
of division A, title XVI of the Recovery Act, the Governor certified
that the state would request and use funds provided by the act.
Additional certifications for transportation, energy, and unemployment
compensation have also been submitted.
According to state officials, before Florida agencies can use the
Recovery Act funds, the Florida legislature must authorize the use of
all funds received by state agencies, including those passed-through to
local governments. On April 15, 2009, the joint Legislative Budget
Commission met and approved 17 amendments to the 2008-2009 state budget
authorizing appropriations totaling almost $4 billion in Recovery Act
funds. The Florida state legislature is still in session and developing
the state's fiscal year 2009-2010 budget. As explained by state
officials, if the legislature does not pass the authorization for the
Recovery Act funds before the end of the session (May 1, 2009), a joint
legislative budget committee can later amend the Appropriation Act and
authorize the use of the Recovery Act funds or the legislature can
reconvene.
To promote transparency, the Florida Office of Economic Recovery
implemented a state Recovery Act Web site that became operational on
March 19, 2009.[Footnote 78] The Web site is intended to provide
information to the public on the amount and uses of Recovery Act funds
the state receives and on resources being made available to citizens,
such as unemployment compensation and workforce training.
Florida Has a System to Track Recovery Act Funds but Anticipates
Challenges in Obtaining Timely Data from Localities:
Officials from Florida's Department of Financial Services said that the
state's accounting system--Florida Accounting Information Resource
(FLAIR)--will be used to track Recovery Act funds that will flow
through the state government. The state agencies will record the
Recovery Act funds separately from other state and federal funds using
selected identifiers in FLAIR such as grant number or project number.
Officials in some Florida state program agencies raised concerns that
local areas will not be able to provide timely data to enable state
agencies to meet financial reporting deadlines for the quarterly
reports required by the Recovery Act. These reports on the uses of
Recovery Act funds are due 10 days after the end of each quarter.
[Footnote 79] In addition, Florida officials and a group representing
local school superintendents were particularly concerned about the
ability of school districts to meet these deadlines after having
experienced reductions in administrative staff due to recent budget
cuts.
Florida officials submitted feedback to OMB suggesting that OMB
consider providing guidance on reconciling the information provided in
the Recovery Act quarterly reports with other federal reporting
requirements to avoid confusion. According to Florida officials,
quarterly reports on many federal grants are due 45 days after the end
of the quarter and reporting systems are currently oriented towards
these requirements. Florida officials added that it is likely that
meeting the Recovery Act quarterly reporting requirement will
necessitate the submission of preliminary reports.
State Agencies Are Providing Guidance to Localities on Use of Funds:
Some state agencies have issued or are developing guidance to assist
local areas in planning for the use of Recovery Act funds that will be
passed through the state to local areas. For example, on April 1, 2009,
Florida received about $580 million for Title I, Part A of ESEA and for
IDEA, which will be passed through to local school districts. In
anticipation of these funds, the Florida Department of Education
provided guidance to school districts on strategies for using education
funds, such as assigning high-performing teachers to low-performing
schools, providing reading coaches to schools, and investing in
intensive professional development for teachers.
On March 19, 2009, Florida received almost $143 million for the
Workforce Investment Act Adult, Youth, and Dislocated Worker employment
and training programs and made $121 million available to regional
workforce areas the next day. As of April 13, 2009, regional workforce
areas had drawn down about $744,000 of these funds, according to a
Florida official. Florida's Agency for Workforce Innovation had
previously established various task teams, composed of state and
regional workforce officials that created action plans for implementing
these funds. For example, to facilitate the rapid expansion of summer
youth employment programs, the state plans to develop a local
implementation checklist and a toolkit of summer youth materials.
Plans for Safeguards and Controls Being Developed at State Level:
Florida has various oversight entities responsible for monitoring,
tracking, and overseeing financial expenditures, assessing internal
controls and ensuring compliance with state and federal laws and
regulations: the Office of the Chief Inspector General, Auditor
General, Office of Program Policy Analysis and Government
Accountability (OPPAGA), and the Department of Financial Services. Each
state agency has an Office of Inspector General (OIG) that is
responsible for conducting audits, investigations, and technical
assistance, and promoting accountability, integrity and efficiency in
the state government. The Auditor General has broad audit authority
with respect to audits of government agencies in Florida and routinely
conducts Single Audits of the State of Florida reporting entities and
of the state's district school boards. The single audits include
determining if federal and state expenditures are in compliance with
applicable laws and regulations and assessing the effectiveness of key
internal controls. Florida's OPPAGA--the research unit of the state's
legislature--is responsible for conducting studies on the performance
of state agencies and programs to identify ways to improve services and
cut costs. In addition, the Florida Department of Financial Services is
responsible for overseeing state expenditures and financial reporting.
Independent certified public accountants also conduct annual financial
audits of local governmental entities, such as counties and
municipalities. According to state officials, Florida law requires that
the scope of such audits encompass federal and state Single Audit
requirements, as applicable.
Potential Areas of Vulnerability with Florida Recovery Act Funds:
Past experience has highlighted financial management vulnerabilities in
agencies that will receive Recovery Act funds. Auditor General and
state OIG reports identified several high-risk areas that are
vulnerable to fraud, waste, and abuse. For example, in 2008:
* State officials identified Medicaid as the highest risk program. The
Auditor General reported breakdowns in internal controls over the
Medicaid program because state Medicaid program officials failed to
properly document and verify recipients' income, which increased the
risk of ineligible individuals receiving program benefits.
* The Auditor General reported that, for some federal programs, the
Florida Department of Education failed to provide monitoring that
reasonably ensured sub-recipient adherence to program requirements.
* The Auditor General reported that the Florida Department of Community
Affairs failed to provide information that was needed to assess the
success or progress of its federal low-income housing community
development block grant program.
* The agency OIGs continue to provide oversight through audits and
investigations of contracting and grant activities associated with
federal funds. For instance, FDOT and Florida's Department of Education
OIG reported on contractors' inaccurate reporting of expenditures and
inadequate oversight of sub-contractors. Moreover, in July 2008, the
FDOT OIG reported their review of contract files disclosed that
differences between the state's accounting system payments and the
recipient expenditures were not adequately explained.
State officials also expressed some broader concerns about other
potential risks. For example, state officials identified new programs
in the Recovery Act as potentially risky and noted that the state's
fiscal year 2009 Single Audit report that will cover such new programs
will not be completed until spring 2010. State officials also expressed
concern about potential risk in programs receiving large funding
increases under the Recovery Act. For example, Florida Department of
Law Enforcement officials stated that the amount of Recovery Act funds
received for the Edward Byrne Memorial Justice Assistance Grant
Program, which is designed to help prevent and control crime and
improve the operations of the criminal justice system will be four to
five times the amounts received in prior years. For these programs,
they estimate that about $52 million will be passed through to 67 local
Florida counties, which have had grants collectively totaling only $12
million to $15 million in past years.
Plans for Oversight of Florida Recovery Act Funds:
In response to the Recovery Act, Florida's Chief Inspector General
established an enterprisewide working group of agency OIG's to evaluate
risk assessments, and promote fraud prevention, awareness, and
training. The group members are updating their annual work plans by
including the Recovery Act funds in their risk assessments and will
leave flexibility in their plans to address issues related to these
funds. In preparing to conduct the Single Audits for 2008-2009 and
subsequent fiscal years, the Auditor General is monitoring the state's
plans for accounting for and expending Recovery Act funds, tracking the
expected changes in OMB's Single Audit requirements, and participating
in the National State Auditors Association's efforts to provide input
on Recovery Act accounting, reporting, and auditing issues. The Auditor
General expects the number of major federal programs to increase as a
result of the large infusion of Recovery Act funds into the state, thus
increasing the number of federal programs that the Auditor General must
audit as part of the state's annual Single Audit. Officials from
Florida's OPPAGA expect an increase in the number of legislative
requests for their studies--particularly those focused on education
programs--as Recovery Act funds are disbursed to recipients.
The OIGs are developing and refining strategies to ensure oversight of
Recovery Act funds. For example, the FDOT OIG is developing plans to
increase its up-front monitoring activities for transportation funds to
mitigate the potential risk of fraud, waste, and abuse. Some of these
activities include:
* Designating a team of seven auditors to monitor Recovery Act
expenditures and other related activities;
* Developing fraud awareness training specifically for Recovery Act
projects;
* Conducting risk assessments of Recovery Act transportation projects;
and:
* Monitoring and providing oversight for the pre-construction,
advertisement, bid, award, and contract-letting activities for Recovery
Act projects.
Florida officials told us that separate accounts have been established
for receipt of increased FMAP grant awards. The OIG in the Agency for
Health Care Administration will follow established recovery protocol
and processes to prevent and detect Medicaid overpayments by conducting
detection analyses and audits, imposing sanctions, and making referrals
to the Medicaid Fraud Control Unit and other regulatory and
investigative agencies as appropriate.
According to Florida state officials, the state completed an initiative
to strengthen contracting requirements several years ago. For example,
the majority of state contracts greater than $1 million are required to
be reviewed for certain criteria by the Department of Financial
Services' Division of Accounting and Auditing before the first payment
is processed. The contract must also be negotiated by a contract
manager certified by the Florida Department of Management Services,
Division of State Purchasing Training and Certification Program.
Availability of Resources for Oversight:
In light of decreased state budgets that have resulted in prior staff
reductions, Florida state auditing officials expressed concern about
the adequacy of staff resources to provide oversight of Recovery Act
funds beyond that required under existing federal Single Audit Act
requirements. For example, the Auditor General told us that the office
has not hired new staff for over a year and about 10 percent of the
office's positions remain unfilled. In addition, OPPAGA officials told
us their staff has decreased by 10 percent in the past 2 years. State
officials told us that the efficient use of existing and projected
resource levels will require an ongoing assessment of risks and
priorities and the allocation of staff resources to ensure the required
oversight of state and federal funds, including Recovery Act funds.
Plans to Assess Impact of Recovery Act Funds Are in Initial Stages:
Florida state agencies were in the early stages of developing plans to
assess the effects of the Recovery Act spending because they were
waiting for guidance from OMB on how to measure jobs retained and
created with Recovery Act funds. For example, Florida Department of Law
Enforcement (FDLE) officials said that they could count the number of
staff hired to implement a new program, but they did not know how to
count the number of jobs retained or created if Recovery Act funds are
used for purchases of goods such as new police cruisers. In addition,
FDLE and other state officials said they needed clear OMB guidance in
order to build this information upfront into the data reporting
requirements. Florida's Department of Education has created a new form
that school districts will use to report quarterly Recovery Act
expenditures and the number of jobs retained and created, but they need
additional guidance from OMB to develop instructions for school
districts on how to count these jobs.
Florida's Agency for Workforce Innovation is encouraging recipients of
Recovery Act funds throughout the state to list jobs created with the
funds in the state's existing online job bank. By including tags in the
system to identify the jobs linked to Recovery Act funds, the agency
expects to be able to count specific jobs created with the funds. A
local workforce investment board official told us that the board is
publicizing the use of the job bank for Recovery Act jobs through radio
and town hall appearances and mailings to potential recipients of
Recovery Act funds.
Because Florida is only required to collect data on jobs created with
Recovery Act funds for which Florida is the recipient, Florida
officials plan to include data on the state Recovery Act Web site on
all jobs created with Recovery Act funds in Florida. On April 3, 2009,
OMB issued guidance indicating that it will be developing a
comprehensive system to collect information, including jobs retained
and created, from all recipients of Recovery Act funds. The state plans
to ask OMB if they can obtain data relevant to Florida collected by the
national reporting system on jobs retained and created with Recovery
Act funds. According to Florida officials, this will reduce duplication
and increase the efficiency of their reporting.
Florida's Comments on This Summary:
We provided the Governor of Florida with a draft of this appendix on
April 17, 2009. The Special Advisor to Governor Charlie Christ, Florida
Office of Economic Recovery, responded for the Governor on April 20,
2009. In general, the Florida official concurred with the information
in the appendix. The official also provided technical suggestions that
were incorporated, as appropriate.
GAO Contacts:
Andrew Sherrill, (202) 512-7252 or sherrilla@gao.gov:
Zina Merritt, (202) 512-5257 or merrittz@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Fannie Bivins, Carmen Harris,
Kathy Peyman, Robyn Trotter, and Cherie' Starck made major
contributions to this report.
[End of section]
Appendix VII: Georgia:
Overview:
Use of funds: An estimated 90 percent of Recovery Act funding provided
to states and localities nationwide in fiscal year 2009 (through Sept.
30, 2009) will be for health, transportation and education programs.
The three largest programs in these categories are the Medicaid Federal
Medical Assistance Percentage (FMAP) awards, the State Fiscal
Stabilization Fund, and highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds:
* As of April 3, 2009, the Centers for Medicare & Medicaid Services
(CMS) had made about $521 million in increased FMAP grant awards to
Georgia;
* As of April 1, 2009, Georgia had drawn down about $312 million, or 60
percent of its initial increased FMAP grant awards;
* State officials plan to use funds made available as a result of the
increased FMAP to address increased caseloads, offset general fund
needs, and maintain current benefit levels and provider reimbursement
rates in the state's Medicaid program.
Transportation--Highway Infrastructure Investment:
* Georgia was apportioned about $932 million for highway infrastructure
investment on March 2, 2009, by the U.S. Department of Transportation;
* As of April 16, 2009, the U.S. Department of Transportation had not
obligated any Recovery Act funds for Georgia projects;
* On April 7, 2009, the Governor certified that the Georgia Department
of Transportation plans to spend $208 million on 67 projects throughout
the state. The department plans to award contracts for most of these
projects by May 22, 2009;
* These projects include maintenance, bridge work, and other
activities.
U.S. Department of Education State Fiscal Stabilization Fund (Initial
Release):
* Georgia was allocated about $1 billion from the initial release of
these funds on April 2, 2009, by the U.S. Department of Education;
* Before receiving the funds, states are required to submit an
application that provides several assurances to the Department of
Education. These include assurances that they will meet maintenance of
effort requirements (or that they will be able to comply with waiver
provisions) and that they will implement strategies to meet certain
educational requirements, including increasing teacher effectiveness,
addressing inequities in the distribution of highly qualified teachers,
and improving the quality of state academic standards and assessments.
Georgia plans to submit its application in late April or early May;
* The state's fiscal year 2010 budget, which passed on April 3, 2009,
included $521 million in state fiscal stabilization funds for
education.
Georgia also is receiving Recovery Act funds under other programs, such
as Title I, Part A of the Elementary and Secondary Education Act of
1965 (ESEA) (commonly known as No Child Left Behind); the Individuals
with Disabilities Education Act, Part B; and the Tax Credit Assistance
Program. The status of plans for using these funds is discussed
throughout this appendix.
Safeguarding and transparency: A small core team consisting of
representatives from the Office of Planning and Budget, State
Accounting Office, and Department of Administrative Services (the
department responsible for procurement) is taking steps to establish
safeguards for Recovery Act funds and mitigate identified areas of
risk. For example, the State Accounting Office has issued guidance on
tracking Recovery Act funds separately, and the Office of Planning and
Budget is developing a state-level strategy to monitor high-risk
agencies. The State Auditor and Inspector General will monitor the use
of Recovery Act funds.
Assessing the effects of spending: While waiting for additional federal
guidance, the state has taken some steps to assess the impact of
Recovery Act funds on the state, including adapting an automated system
currently used for financial management to meet Recovery Act reporting
requirements.
Georgia Beginning to Use Recovery Act Funds:
Although Georgia is still awaiting final information from the federal
government, the state estimates it will receive about $7.3 billion in
funding under the Recovery Act. Of that amount, about $467 million (or
6 percent) will be awarded by federal agencies directly to localities
and other nonstate entities. As shown in figure 5, the majority of
Recovery Act funds will support education (36 percent), health programs
(35 percent, of which 23 percent will go toward Medicaid), and
transportation (15 percent). The Governor completed the blanket
certification for Recovery Act funds on March 25, 2009, confirming that
the state will use the funds to create jobs and promote economic
growth.[Footnote 80]
Figure 5: Georgia's Estimated Recovery Act Funding, by Major Programs,
as of April 17, 2009:
[Refer to PDF for image: pie-chart]
Education: 36%;
Health: 35% (Medicaid: 23%);
Transportation: 15%;
Other programs: 14%.
Source: Georgia Office of Planning and Budget.
Note: Other programs include those for housing, energy, and employment
and training. The Office of Planning and Budget estimates are based on
federal announcements and estimates from Federal Funds Information for
States. The primary mission of Federal Funds Information for States is
to track and report on the fiscal impact of federal budget and policy
decisions on state budgets and programs.
[End of figure]
The state has begun to use or plans to use funds for the following
purposes:
Increased Federal Medical Assistance Percentage Funds: Medicaid is a
joint federal-state program that finances health care for certain
categories of low-income individuals, including children, families,
persons with disabilities, and persons who are elderly. The federal
government matches state spending for Medicaid services according to a
formula based on each state's per capita income in relation to the
national average per capita income. The amount of federal assistance
states receive for Medicaid service expenditures is known as the
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP
may range from 50 percent to no more than 83 percent, with poorer
states receiving a higher federal matching rate than wealthier states.
The Recovery Act provides eligible states with an increased FMAP for 27
months between October 1, 2008, and December 31, 2010.[Footnote 81] On
February 25, 2009, the Centers for Medicare & Medicaid Services (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.[Footnote 82] Generally, for
fiscal year 2009 through the first quarter of fiscal year 2011, the
increased FMAP, which is calculated on a quarterly basis, provides for
(1) the maintenance of states' prior year FMAPs, (2) a general across-
the-board increase of 6.2 percentage points in states' FMAPs, and (3) a
further increase to the FMAPs for those states that have a qualifying
increase in unemployment rates. The increased FMAP available under the
Recovery Act is for state expenditures for Medicaid services. However,
the receipt of this increased FMAP may reduce the funds that states
must use for their Medicaid programs, and states have reported using
these available funds for a variety of purposes.
As of April 1, 2009, Georgia had drawn down $311.5 million in increased
FMAP grant awards, which is about 59.8 percent of its awards to date.
[Footnote 83] Officials noted that these funds were drawn down
retroactively for the period October 1, 2008, through February 25,
2009, but funds can now be drawn down on a more frequent basis. Georgia
officials reported they plan to use funds made available as a result of
the increased FMAP to address increased caseloads, offset general fund
deficits, and maintain current eligibility and benefit levels in the
state Medicaid program.
Transportation--Highway Infrastructure Investment: The Recovery Act
provides additional funds for highway infrastructure investment using
the rules and structure of the existing Federal-Aid Highway Surface
Transportation Program, which apportions money to states to construct
and maintain eligible highways and for other surface transportation
projects. States must follow the requirements for the existing
programs, and in addition, the governor must certify that the state
will maintain its current level of transportation spending, and the
governor or other appropriate chief executive must certify that the
state or local government to which funds have been made available has
completed all necessary legal reviews and determined that the projects
are an appropriate use of taxpayer funds. Georgia provided these
certifications, but qualified its maintenance of effort certification,
noting that the Georgia General Assembly still was considering the
Georgia Department of Transportation's (GDOT) fiscal year 2010 budget,
which could impact the state's highway spending plans for that year.
[Footnote 84]
Georgia has been apportioned $932 million for highway infrastructure.
On April 7, 2009, the Governor certified the first round of projects to
be funded with Recovery Act funds. As of April 16, 2009, the U.S.
Department of Transportation had not obligated any Recovery Act funds
for Georgia projects.[Footnote 85] Georgia plans to spend $208 million
on 67 projects throughout the state. Of that amount, $97 million will
be spent in economically distressed areas. The funds will be spent on
maintenance (53 percent), bridges (23 percent), capacity projects (17
percent), safety projects (6 percent), and enhancements (1 percent).
The Georgia Department of Transportation plans to award contracts for
the majority of these projects (73 percent) by May 22, 2009.[Footnote
86] Figure 6 illustrates the implementation time line for Recovery Act
highway projects.
Figure 6: Georgia Department of Transportation's Project Implementation
Schedule:
[Refer to PDF for image: illustration]
Federal Appropriation of Funds;
Board Approval of Projects;
STIP Amendments/Modifications;
FHWA Approval;
Governor Certification;
Authorization: FHWA Funding Authorization for projects; 0-30 days;
Bid Advertisement: Projects posted on Web site. Contractors prepare
bids; 4 weeks;
Bid Opening: GDOT opens contractors’ bids on projects; 1 day;
Contract Awarded: GDOT reviews bids. Project awarded to contractor. 1
week;
Contract Documents to Awardee: Includes sub-contractor approval if
required; 1 week;
Contractor Execution: Contractor signs agreement; 1 week;
GDOT Execution: GDOT signs agreement; 0-30 days;
Notice to Proceed: Document sent to contractor; 1 week;
Pre-Construction Conference: Contractor assembles materials and
workers; 0-30 days;
Construction Begins.
Source: Georgia Department of Transportation.
[End of figure]
U.S. Department of Education State Fiscal Stabilization Fund: The
Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be
administered by the U.S. Department of Education (Education). The SFSF
provides funds to states to help avoid reductions in education and
other essential public services. The initial award of SFSF funding
requires each state to submit an application to Education that assures,
among other things, it will take actions to meet certain educational
requirements such as increasing teacher effectiveness and addressing
inequities in the distribution of highly qualified teachers.
Georgia's initial SFSF allocation was about $1 billion. According to
state officials, the state's fiscal year 2010 budget passed on April 3,
2009, and included $521 million in state fiscal stabilization funds for
education and $140 million in state fiscal stabilization funds for
public safety.[Footnote 87] Georgia plans to use the education funds
for elementary, secondary, and public higher education. For instance,
Georgia intends to use three established formulas to allocate funds to
local education agencies, universities, and technical colleges. Georgia
plans to use the public safety funds to help maintain safe staffing
levels at state prisons, appropriately staff the state's forensic
laboratory system, and avoid cuts in the number of state troopers.
Georgia plans to submit its application for fiscal stabilization funds
in late April or early May.
In addition to the major programs we discussed earlier, table 6 shows
how Georgia and two local entities plan to use Recovery Act funds for
other selected programs.[Footnote 88]
Table 6: Planned Uses of Selected Recovery Act Funds:
Transportation:
Selected programs: Transit Capital Assistance Grants;
Anticipated funds (in millions of dollars)[A]: $144;
Examples of planned uses: Funds will be used to help with needs that
were deferred as a result of budget cuts, such as bus replacement and
the purchase of cleaner fuel vehicles.
Selected programs: Fixed-Guideway Infrastructure;
Anticipated funds (in millions of dollars)[A]: $7;
Examples of planned uses: Funds will go to the Metropolitan Atlanta
Rapid Transit Authority.
Education:
Selected programs: Title I of the Elementary and Secondary Education
Act of 1965 (commonly known as No Child Left Behind);
Anticipated funds (in millions of dollars)[A]: $351 (grants to local
education agencies); $104 (school improvement);
Examples of planned uses: State will encourage local education agencies
to focus on professional learning opportunities for staff and
intervention programs for students who need help with math and writing.
Selected programs: Individuals With Disabilities Education Act, Parts B
and C;
Anticipated funds (in millions of dollars)[A]: $339;
Examples of planned uses: Among other things, the state plans to
encourage local education agencies to (1) provide professional
development for special education teachers, (2) expand the availability
and range of inclusive placement options for preschoolers, and (3)
obtain state-of-the-art assistive technology devices and provide
training in their use to enhance access to the general curriculum for
students with disabilities.
Other programs:
Selected programs: Workforce Investment Act programs;
Anticipated funds (in millions of dollars)[A]: $88;
Examples of planned uses: State plans to use a portion for
administration, oversight of local workforce agencies, as well as rapid
response during major layoffs; the majority of the funds will be
allocated to the 20 local areas within the state for adult, youth, and
dislocated worker programs. The Atlanta Regional Workforce Board--the
local workforce board for seven counties in the Atlanta metropolitan
area--is concentrating on plans for using the $3.1 million it will
receive for summer youth programs.[B]
Selected programs: Tax Credit Assistance Program;
Anticipated funds (in millions of dollars)[A]: $54;
Examples of planned uses: State will focus on fiscal year 2008 projects
that received tax credits and those on the waiting list; for projects
that received tax credits but are having difficulty using them, the
state will either provide gap financing or exchange the tax credits for
grants.
Selected programs: Public Housing Capital Fund;
Anticipated funds (in millions of dollars)[A]: $112[C];
Examples of planned uses: The Atlanta Housing Authority will use $18.6
million to rehabilitate 13 public housing developments and an
additional $8 million to complete the demolition of 3 public housing
developments.
Selected programs: Neighborhood Stabilization Program;
Anticipated funds (in millions of dollars)[A]: To be determined;
Examples of planned uses: State plans to apply, but the competition
criteria have not yet been published.
Selected programs: Edward Byrne Memorial Justice Assistance Grants;
Anticipated funds (in millions of dollars)[A]: $36;
Examples of planned uses: State is currently developing a strategy to
allocate the funds that must be passed through to local governments.
Source: GAO.
[A] The anticipated funds are based on federal agency announcements as
of April 17, 2009.
[B] The Atlanta Regional Workforce Board is administered by the Atlanta
Regional Commission.
[C] These funds go directly to local public housing authorities.
[End of table]
In Addition to Addressing Specific Program Areas, Recovery Act Funding
Also Will Help Mitigate Ongoing Fiscal Challenges:
The recent economic downturn adversely affected Georgia in a number of
ways:
* Higher unemployment rate--as of February 2009, the state's
unemployment rate was 9.3 percent. This rate surpassed the national
unemployment rate (8.1 percent) and was almost double the state
unemployment rate from a year earlier (5.4 percent).
* Increases in Medicaid enrollment--from January 2008 to January 2009,
the state's Medicaid enrollment increased from 1,265,136 to 1,314,689,
with increased enrollment attributable to three population groups: (1)
children and families, (2) disabled individuals, and (3) other
populations, which includes refugees and women with breast and/or
cervical cancer.
* Declining revenue--through March 2009, the state's net revenue
collections for fiscal year 2009 were 8 percent less than they were for
the same time period in fiscal year 2008, representing a decrease of
approximately $1 billion in total taxes and other revenues collected.
[Footnote 89]
* Use of reserves--to offset shortages in revenue, the state used $200
million from its Revenue Shortfall Reserve, or "rainy day" fund, in
fiscal year 2009 and will use an additional $259 million in fiscal year
2010.
* Recent budget cuts--overall, the state's budget was cut by 8 percent
from fiscal year 2008 to fiscal year 2009.[Footnote 90] As shown in
table 2, some individual agencies were cut more significantly than
others. Georgia officials plan to use Recovery Act funds to limit
additional budget cuts.
Table 7: Budget for Selected State Agencies in Georgia, Fiscal Years
2008 and 2009:
Selected state agencies: Department of Community Affairs;
Amended fiscal year 2008 budget[A]: $35,718,525;
Amended fiscal year 2009 budget[A]: $17,011,787;
Percentage change from fiscal years 2008 to 2009: -52.4.
Selected state agencies: Criminal Justice Coordinating Council;
Amended fiscal year 2008 budget[A]: $898,061;
Amended fiscal year 2009 budget[A]: $472,465;
Percentage change from fiscal years 2008 to 2009: -47.4.
Selected state agencies: State Accounting Office;
Amended fiscal year 2008 budget[A]: $7,205,916;
Amended fiscal year 2009 budget[A]: $4,089,053;
Percentage change from fiscal years 2008 to 2009: -43.3.
Selected state agencies: Department of Administrative Services;
Amended fiscal year 2008 budget[A]: $9,707,880;
Amended fiscal year 2009 budget[A]: $7,767,003[B];
Percentage change from fiscal years 2008 to 2009: -20.0.
Selected state agencies: Department of Community Health;
Amended fiscal year 2008 budget[A]: $2,347,794,015;
Amended fiscal year 2009 budget[A]: $1,879,185,744;
Percentage change from fiscal years 2008 to 2009: -20.0.
Selected state agencies: State Inspector General;
Amended fiscal year 2008 budget[A]: $833,534;
Amended fiscal year 2009 budget[A]: $679,410;
Percentage change from fiscal years 2008 to 2009: -18.5.
Selected state agencies: State Housing Finance Agency;
Amended fiscal year 2008 budget[A]: $3,287,829;
Amended fiscal year 2009 budget[A]: $2,700,020;
Percentage change from fiscal years 2008 to 2009: -17.9.
Selected state agencies: Department of Human Resources;
Amended fiscal year 2008 budget[A]: $1,631,068,194;
Amended fiscal year 2009 budget[A]: $1,394,208,017;
Percentage change from fiscal years 2008 to 2009: -14.5.
Selected state agencies: Department of Labor;
Amended fiscal year 2008 budget[A]: $55,081,172;
Amended fiscal year 2009 budget[A]: $47,934,616;
Percentage change from fiscal years 2008 to 2009: -13.0.
Selected state agencies: Office of Planning and Budget;
Amended fiscal year 2008 budget[A]: $9,474,735;
Amended fiscal year 2009 budget[A]: $8,419,050;
Percentage change from fiscal years 2008 to 2009: -11.1.
Selected state agencies: Department of Audits and Accounts;
Amended fiscal year 2008 budget[A]: $34,429,800;
Amended fiscal year 2009 budget[A]: $30,654,383;
Percentage change from fiscal years 2008 to 2009: -11.0.
Selected state agencies: Office of the Governor;
Amended fiscal year 2008 budget[A]: $7,653,328;
Amended fiscal year 2009 budget[A]: $7,113,270;
Percentage change from fiscal years 2008 to 2009: -7.1.
Selected state agencies: Department of Education;
Amended fiscal year 2008 budget[A]: $7,973,900,641;
Amended fiscal year 2009 budget[A]: $7,506,343,096;
Percentage change from fiscal years 2008 to 2009: -5.9.
Selected state agencies: Department of Transportation;
Amended fiscal year 2008 budget[A]: $832,725,819;
Amended fiscal year 2009 budget[A]: $865,193,794;
Percentage change from fiscal years 2008 to 2009: 3.9.
Source: GAO analysis of Georgia Office of Planning and Budget data.
Notes: The state agencies in the table are those we interviewed or
surveyed during this first reporting period. The Department of
Administrative Services serves as the state's procurement office. The
State Accounting Office serves as the state's controller. The Office of
Planning and Budget is the state's budget office. The Department of
Audits and Accounts is the state auditor.
[A] The amended budgets for fiscal years 2008 and 2009 represent state
funds only.
[B] The fiscal year 2009 amount for the Department of Administrative
Services includes $5,424,149 in agency reserves used to supplement
appropriations.
[End of table]
Georgia Has Adapted Existing Processes to Approve Uses of Recovery Act
Funding:
Georgia moved quickly to implement an infrastructure to manage Recovery
Act funds. A small core team was in place as of December 2008 to begin
planning for implementation. Within 1 day of enactment, the Governor
had appointed a Recovery Act Accountability Officer, and she formed a
Recovery Act implementation team shortly thereafter. The implementation
team includes a senior management team, officials from 31 state
agencies, a group to support accountability and transparency, and cross-
agency teams (see figure 7).[Footnote 91] The Recovery Act
Accountability Officer and senior management team are responsible for
analyzing and disseminating federal and state guidance to the state
agencies receiving Recovery Act funds. The accountability and
transparency support group comprises representatives from the Office of
Planning and Budget, State Accounting Office, and Department of
Administrative Services. The State Auditor will serve as the primary
auditor of the funds, and the Inspector General will provide
investigative support and respond to complaints of fraud. The first
implementation team meeting was held on February 24, 2009. Since then,
the implementation team has met almost every week.
Figure 7: Organizational Chart of Georgia's Recovery Act Implementation
Team:
[Refer to PDF for image: organizational chart]
Recovery Act Accountability Officer;
* Recovery Act Management Team;
- Cross Agency Implementation Teams (5 Teams);
- Recovery Act Implementation Team (31 State Agencies);
- Accountability and Transparency Support: Office of Planning and
Budget; State Accounting Office; Department of Administrative Services.
Oversight:
* Department of Audits and Accounts;
* Office of the Inspector General.
Source: Georgia Recovery Act Accountability Officer.
[End of figure]
According to state officials, each year the Governor is required to
present to the General Assembly a recommended state budget for the
upcoming fiscal year and an amended budget for the current fiscal year.
Prior to submitting the budget for the upcoming year, the Governor sets
the state's revenue estimate, which when added to surplus and reserve
funds, determines the size of the forthcoming appropriations bill.
Furthermore, state officials told us that the Governor has the
authority to approve the appropriations bill in its entirety or choose
individual expenditure items to veto.[Footnote 92]
To approve the use of Recovery Act funds, Georgia has enhanced its
existing budget process. The majority of Recovery Act funds will be
added into state budgets via an amendment process through the
Governor's Office of Planning and Budget. A monthly Recovery Act
budgeting and amendment process has been established to account for
federal dollars. The Recovery Act approval process requires that each
state agency submit an action plan to the Office of Planning and Budget
that includes information on the agency, funding sources,
accountability measures, and details on individual projects funded (see
figure 8).[Footnote 93] For Recovery Act funds the state government
receives, the budget office also is requiring state agencies to
complete a tool that assesses risk. The budget office then reviews the
plans submitted by the agency, provides feedback to the agency, and, in
conjunction with the agency, finalizes the plans and risk assessment
tool. The Governor, the Recovery Act Accountability Officer, budget
office staff, and agency officials meet to vet the action plan and make
a final decision on applying for funding. As of April 17, 2009, all
state agencies had submitted action plans, and the budget office had
begun its review of these plans.[Footnote 94]
Figure 8: State of Georgia Review Process for Recovery Act Funds:
[Refer to PDF for image]
1) State agency completes Recovery Act action plan.
2) Office of Planning and Budget reviews action plan.
3) Questions:
No: continue;
Yes: Request for additional information (step 1).
4) Executive team/agency head review;
No: continue;
Yes: Request for additional information (step 1).
5) Agency head meeting with governor;
No: continue;
Yes: Request for additional information (step 1).
6) Decision;
Yes: continue;
No: Process end. No funding application.
7) Agency applies for federal funding.
Source: Georgia Office of Planning and Budget.
Note: The executive team for the action plan process includes the
Recovery Act Accountability Officer, the Chief Financial Officer, the
Chief Operating Officer, the Governor's policy staff, Office of
Planning and Budget staff, and agency officials.
[End of figure]
Georgia Has Been Establishing Internal Controls for Recovery Act Funds:
Georgia's most recent Single Audit Act report identified a number of
material weaknesses. Recognizing the risks associated with the influx
of Recovery Act funds, the state has taken a number of steps to
establish internal controls and safeguards for these funds.
Georgia's Most Recent Single Audit Report Identified Material
Weaknesses:
Georgia's most recent Single Audit Act findings indicate that the state
may have difficulty accounting for the use of some Recovery Act funds.
In its fiscal year 2008 Single Audit report, the State Auditor
identified 28 financial material weaknesses and 7 compliance material
weaknesses. Three state agencies that expect to receive a substantial
amount of Recovery Act funds were cited for most of the financial
material weaknesses--the Department of Transportation (10), Department
of Labor (4), and Department of Human Resources (2). For example, the
Department of Transportation's financial accounting system was deemed
unsuitable for day-to-day management. It also did not have a system in
place to correctly identify fund sources, and as a result, auditors
found that $138 million of federal funds were misclassified.
In addition, auditors found that the Department of Labor was unable to
provide detailed account balances for the Unemployment Insurance
Program because it maintained an inadequate general ledger that
consisted of manually updated spreadsheets.[Footnote 95] The auditors
also found that the Department of Human Resources' process of
allocating indirect costs to programs had multiple deficiencies. They
noted that inadequate internal controls and failure to follow
established policies increases the risk of material misstatement in the
financial statements, including misstatements due to fraud and
noncompliance with federal regulation. In addition, the Department of
Human Resources was cited for four compliance material weaknesses, such
as requesting federal funds in excess of program expenditures.
To ensure that the affected state agencies will address these material
weaknesses, the State Accounting Office will be monitoring corrective
action plans developed in response to the Single Audit report. The
office plans to issue guidance on the monitoring process by the end of
April 2009 and has asked agencies to start tracking actions taken to
address material weaknesses.
State Agencies Are Taking Steps to Safeguard and Oversee Recovery Act
Funds:
Georgia recognizes the importance of accounting for and monitoring
Recovery Act funds and, despite recent budget cuts, has directed state
agencies to safeguard Recovery Act funds and mitigate identified risks.
At one of the first implementation team meetings, the Recovery Act
Accountability Officer disseminated an implementation manual to
agencies, which included multiple types of guidance on how to use and
account for Recovery Act funds. For example, the Office of Planning and
Budget provided details on the budgeting process for Recovery Act
funds. New and updated guidance is disseminated at the weekly
implementation team meetings. At the direction of the Recovery Act
Accountability Officer, the three agencies tasked with accountability
support--the Office of Planning and Budget, State Accounting Office,
and Department of Administrative Services--and other state agencies
have instituted the following safeguards:
* The Office of Planning and Budget, in collaboration with the State
Accounting Office and others, is developing a state-level strategy to
monitor high-risk agencies.[Footnote 96] Additional risk-mitigation
strategies will be developed and implemented for these agencies.
* The State Accounting Office issued two accounting directives to all
state agencies. The first provides guidance on accounting for Recovery
Act funds separately from other funds. The state plans to use Catalog
of Federal Domestic Assistance numbers to track Recovery Act funds
separately. Funds will also be segregated through a set of unique
Recovery Act fund sources in the state's financial accounting system.
For example, the state is tracking increased FMAP funds for Medicaid
through the development of a unique identifier for each grant award.
The second accounting directive supplies language that should be
included in all contracts issued under the Recovery Act. In addition,
the office is reviewing the current accounting internal controls and
assessing how they can be enhanced for Recovery Act funds.[Footnote 97]
* The Georgia Department of Administrative Services plans to issue a
communication alert stating that any state agency planning to award
contracts with Recovery Act funds should contact the department for
guidance. The department has developed standard contract language that
should be included in all Recovery Act contracts and plans to publicize
and offer training for state agency contracting staff. Further, the
department plans to continue its compliance reviews of agencies with
delegated purchasing authority to ensure they are following proper
policies and procedures.[Footnote 98]
* All of the agencies we met with that directly administer programs had
monitoring processes in place that they plan to adapt or enhance for
Recovery Act oversight. For example, the Georgia Department of
Community Affairs' plans for monitoring the Tax Credit Assistance
Program include a front-end analysis of costs, third-party inspections
prior to the release of funds, and an audit of the general contractor
by a certified public accountant. The last requirement is unique to
projects funded with Recovery Act tax credits.
In addition, the State Auditor, Inspector General, and internal audit
divisions within state agencies have taken or plan to take the
following steps to mitigate risk and oversee the use of Recovery Act
funds:
* The State Auditor issued two audit risk alerts. One urged all agency
officials to include appropriate contractual provisions in Recovery Act
contracts and to not rush the distribution of Recovery Act funds before
adhering to proper internal control processes and understanding federal
guidelines. The other alert discussed limits on the use of funds. The
State Auditor also plans to provide internal control training to state
agency personnel in late April. The training will discuss basic
internal controls, designing and implementing internal controls for
Recovery Act programs, best practices in contract monitoring, and
reporting on Recovery Act funds.
* Currently, the State Auditor conducts routine statewide risk
assessments as a means of identifying high-risk agencies and
determining where to best focus audit resources.[Footnote 99] Officials
plan to target future risk assessments on programs receiving Recovery
Act funding and are awaiting additional audit guidance from the Office
of Management and Budget (OMB).
* The Inspector General issued a directive requiring all state agencies
to insert new contractual language in any contracts, subcontracts,
grants, and bid solicitations financed with Recovery Act funds.
[Footnote 100] The new language specifically gives her the right to
inspect all records of outside vendors, subcontractors, and
consultants.
* In conjunction with the State Accounting Office, the Inspector
General plans to conduct unannounced visits to state agencies receiving
Recovery Act funding.
* The Inspector General also developed a database to specifically track
Recovery Act complaints and a public service announcement to alert the
public of how to report fraud, waste, and abuse.
* Some state agencies, such as the Departments of Human Resources and
Transportation, have internal audit divisions that plan to monitor the
use of Recovery Act funds. For instance, the Department of Human
Resources' internal auditor has developed a plan to assess the risk of
each program prior to receiving Recovery Act funding.
Resources Available for Oversight May Be Limited:
As these actions and plans indicate, Georgia recognizes the importance
of instituting safeguards for Recovery Act funds. However, state
officials also stressed the costs of such efforts. Both the Governor's
Office and the State Auditor noted that they had not received
additional funding for Recovery Act oversight. As shown in table 2,
several agencies with oversight responsibilities experienced
significant budget reductions in fiscal year 2009, including the State
Accounting Office (43 percent), Inspector General (19 percent), Office
of Planning and Budget (11 percent), and State Auditor (11 percent).
The State Auditor noted that, if state fiscal conditions do not improve
or federal funding does not become available for audit purposes,
additional budget and staffing cuts may occur within the department.
Directives from OMB, due by May 1, will provide guidance on the audit
requirements for Recovery Act programs. Officials noted that the scope
of pending audit requirements may greatly impact the State Auditor's
ability to audit Recovery Act programs on top of existing audit
requirements. In addition, some state officials that directly
administer programs told us that overseeing the influx of funds could
be a challenge, given the state's current budget constraints and hiring
freeze. In some cases, state agencies told us that they planned to use
Recovery Act funds to cover their administrative costs. Other state
agencies wanted additional clarity on when they could use program funds
to cover such costs.
Plans to Assess Impact of Recovery Act Funds Are in Initial Stages:
In general, Georgia is awaiting additional federal guidance on
reporting requirements before making detailed plans to assess impact.
However, the State Auditor is adapting an existing system (used to
fulfill its Single Audit Act responsibilities) to help the state report
on Recovery Act funds. The statewide Web-based system will be used to
track expenditures, project status, and job creation and retention. The
state will make data from this system available on its Recovery Web
site. The Governor is requiring all state agencies and programs
receiving Recovery Act funds to use this system. State officials do not
expect to track and report on funds going directly to localities, but
some said they would like to be informed of these funds so that the
state can coordinate with localities. They cited broadband initiatives
and health funding to nonprofit hospitals as areas where a lack of
coordination could result in a duplication of services or missed
opportunities to leverage resources.
In addition, some state agencies appear to have more experience
tracking jobs than others. For example, the Georgia Department of
Community Affairs has experience tracking jobs for the Community
Development Block Grant program; therefore, agency officials do not
expect to have difficulty tracking jobs for the Neighborhood
Stabilization Program. For another program it will administer, the Tax
Credit Assistance Program, Community Affairs surveyed potential
applicants in March 2009 to gain a better understanding of performance
measures that could be tracked as a part of its monitoring efforts,
including job creation. In contrast, officials from other programs,
such as the Edward Byrne Memorial Justice Assistance Grant program and
the Transit Capital Assistance Grant program expressed concerns about
identifying appropriate measures of job creation and retention within
the purpose of their programs and were waiting for more guidance from
federal agencies and OMB.
Georgia's Comments on This Summary:
We provided the Governor of Georgia with a draft of this appendix on
April 17, 2009. The Recovery Act Accountability Officer responded for
the Governor on April 19, 2009. In general, she noted that the report
accurately and succinctly captures the implementation status of the
Recovery Act process in Georgia.
GAO Contacts:
Terri Rivera Russell, (404) 679-1925 or russellt@gao.gov:
Alicia Puente Cackley, (202) 512-7022 or cackleya@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Paige Smith, Assistant
Director; Nadine Garrick, analyst-in-charge; Stephanie Gaines; Alma
Laris; Marc Molino; Barbara Roesmann; Robyn Trotter; and Mark Yoder
made major contributions to this report.
[End of section]
Appendix VIII: Illinois:
Overview:
Use of funds: An estimated 90 percent of Recovery Act funding provided
to states and localities nationwide in fiscal year 2009 (through Sept.
30, 2009) will be for health, transportation and education programs.
The three largest programs in these categories are the Medicaid Federal
Medical Assistance Percentage (FMAP) awards, highways, and the State
Fiscal Stabilization Fund.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds:
* As of April 3, 2009, the Centers for Medicare & Medicaid Services
(CMS) had made about $992 million in increased FMAP grant awards to
Illinois;
* As of April 1, 2009, Illinois has drawn down about $117.1 million, or
about 12 percent of its initial increased FMAP grant awards;
* Illinois plans to use funds made available as a result of the
increased FMAP in fiscal years 2009 and 2010 to fill a Medicaid budget
gap, permitting the state to move from an average 90-day payment cycle
to a cycle of no more than 30 days for all of its providers, including
payments hospitals and nursing homes.
Transportation--Highway Infrastructure Investment:
* Illinois was apportioned about $936 million for highway
infrastructure investment on March 2, 2009, by the U.S. Department of
Transportation;
* As of April 16, 2009, the U.S. Department of Transportation had
obligated $606.3 million for 214 Illinois projects. Illinois Department
of Transportation officials stated that they will award most contracts
based on a competitive bidding process, but they will use a quality
based selection process for approximately $27 million in engineering
services contracts;
* These projects include activities such as resurfacing highways and
repairing bridge decks;
* Illinois will request reimbursement from the U.S. Department of
Transportation as the state makes payments to contractors.
U.S. Department of Education State Fiscal Stabilization Fund (Initial
Release):
* Illinois was allocated about $1.4 billion from the initial release of
these funds on April 2, 2009 by the U.S. Department of Education. On
April 20, 2009, these funds became available to the state. Illinois is
expecting to receive an additional $678 million by September 30, 2009;
* Before receiving the funds, states are required to submit an
application that provides several assurances to the Department of
Education. These include assurances that they will meet maintenance of
effort requirements (or that they will be able to comply with waiver
provisions) and that they will implement strategies to meet certain
educational requirements, including increasing teacher effectiveness,
addressing inequities in the distribution of highly qualified teachers,
and improving the quality of state academic standards and assessments.
The state submitted its application on April 10, 2009;
* Illinois plans to use all of its $2 billion in State Fiscal
Stabilization funds for K-12 and higher education activities to address
the layoffs and other cutbacks many district and public colleges and
universities are facing in their fiscal year 2009 and 2010 budgets.
Illinois is also receiving additional Recovery Act funds under other
programs, such as programs under Title I, Part A of the Elementary and
Secondary Education Act of 1965 (ESEA) (commonly known as No Child Left
Behind); programs under the Individuals with Disabilities Education Act
(IDEA); and two programs of the U.S. Department of Agriculture--one for
administration of the Temporary Food Assistance Program and one for
competitive equipment grants targeted to low income districts from the
National School Lunch Program.
Safeguarding and transparency: To provide accountability and
transparency in how these funds are being spent, the state has
established a high level Executive Committee and a separate working
group to oversee Recovery Act compliance across agencies and
departments. It has also developed a Web site [hyperlink,
http://www.recovery.illinois.gov] that contains information about the
use of Recovery Act funds. The state is in the process of performing a
risk assessment of all state programs receiving Recovery Act funds to
identify potential vulnerabilities. It will use the state's Single
Audit--a state-level audit of the largest programs receiving federal
money--as a tool in identifying these risks. State agencies also
reported that they are capable of tracking their Recovery Act funds
separately from other program funds by tagging them with a special
accounting or funding code. For the most part, these codes will permit
agencies to then rely on existing processes to monitor and report on
how these funds are being spent.
Assessing the effects of spending: Officials at several state agencies
indicated that they can track various performance measures for projects
funded through the Recovery Act by utilizing existing systems. However,
according to officials in the Governor's office and other state
agencies, more guidance is needed on definitions for job creation and
retention measures to adequately measure their impact.
Illinois Beginning to Use Recovery Act Funds:
Illinois has started to use some of its Recovery Act funds, and high
level state officials we spoke with described several overarching
priorities and goals that the state plans to achieve through use of
these funds. These include averting layoffs and creating new jobs,
concentrating resources on economically distressed areas, and funding
infrastructure improvements, as described below.
Increased Federal Medical Assistance Percentage Funds: Medicaid is a
joint federal-state program that finances health care for certain
categories of low-income individuals, including children, families,
persons with disabilities, and persons who are elderly. The federal
government matches state spending for Medicaid services according to a
formula based on each state's per capita income in relation to the
national average per capita income. The amount of federal assistance
states receive for Medicaid service expenditures is known as the
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP
may range from 50 percent to no more than 83 percent, with poorer
states receiving a higher federal matching rate than wealthier states.
The Recovery Act provides eligible states with an increased FMAP for 27
months between October 1, 2008, and December 31, 2010.[Footnote 101] On
February 25, 2009, the Centers for Medicare & Medicaid Services (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.[Footnote 102] Generally, for
federal fiscal year 2009 through the first quarter of federal fiscal
year 2011, the increased FMAP, which is calculated on a quarterly
basis, provides for (1) the maintenance of states' prior year FMAPs;
(2) a general across-the-board increase of 6.2 percentage points in
states' FMAPs; and (3) a further increase to the FMAPs for those states
that have a qualifying increase in unemployment rates. The increased
FMAP available under the Recovery Act is for state expenditures for
Medicaid services. However, the receipt of the increased FMAP may
reduce the funds that states must use for their Medicaid programs, and
states have reported using these available funds for a variety of
purposes.
From January 2008 to January 2009, Illinois's Medicaid enrollment
increased slightly from 2,184,963 to 2,298,802, with the highest share
of the enrollment increase attributable to two population groups: (1)
children and families and (2) non-disabled non-elderly adults. Illinois
is estimated to receive a total of $2.9 billion in increased FMAP
funding, of which $992 million has already been awarded to the state
for the first three quarters of federal fiscal year 2009. For the
second quarter of federal fiscal year 2009, Illinois received an FMAP
of 60.48 percent--an increase of 10.48 percentage points over its
fiscal year 2008 FMAP. As of April 1, 2009, Illinois has drawn down
$117.1 million in Recovery Act funds, which is almost 12 percent of the
amount awarded to Illinois to date. Illinois state officials indicated
that the main focus in using funds made available as a result of the
Recovery Act will be to meet financial obligations and to ensure
compliance with the prompt payment provisions of the Recovery
Act.[Footnote 103] Specifically, Illinois is using funds made available
as a result of the Recovery Act to fill a Medicaid budget gap,
permitting the state to move from a 90-day payment cycle to a 30-day
cycle for all of its providers, including payments to hospitals and
nursing homes. The state has also decided to include pharmacists in its
prompt payment initiative. These actions will also help avoid potential
layoffs in provider organizations.
Transportation--Highway Infrastructure Investment: The Recovery Act
provides additional funds for highway infrastructure investment using
the rules and structure of the existing Federal-Aid Highway Surface
Transportation Program, which apportions money to states to construct
and maintain eligible highways and for other surface transportation
projects. States must follow the requirements for the existing
programs, and in addition, the governor must certify that the state
will maintain its current level of transportation spending. The
governor or other appropriate chief executive must also certify that
the state or local government to which funds have been made available
has completed all necessary legal reviews and determined that the
projects are an appropriate use of taxpayer funds. Illinois provided
the first of these certifications but noted that the state's level of
funding was based on the best information available at the time of the
state's certification.[Footnote 104]
The Illinois Department of Transportation (IDOT) is planning to spend a
large share of its estimated $655 million in Recovery Act
funds[Footnote 105] for highway and bridge construction and maintenance
projects in economically distressed areas. Equally important criteria
are that projects must be shovel-ready and can be completed by February
2012. These funds will expand the amount of money the state can invest
in highway projects beyond the amounts the state had listed in its
State Transportation Improvement Program. The projects will include
resurfacing roads across the state, repairing bridge decks, replacing
guardrail sections, and improving pavement markings. As of April 16,
2009, the U.S. Department of Transportation had obligated $606.3
million for 214 Illinois projects.[Footnote 106] IDOT officials stated
that they will award most contracts based on a competitive bidding
process, but they will use a quality based selection process for
approximately $27 million in engineering services contracts.
U.S. Department of Education State Fiscal Stabilization Fund: The
Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be
administered by the U.S. Department of Education (Education). The SFSF
provides funds to states to help avoid reductions in education and
other essential public services. The initial award of SFSF funding
requires each state to submit an application to Education that assures,
among other things, it will take actions to meet certain educational
requirements, such as increasing teacher effectiveness and addressing
inequities in the distribution of highly qualified teachers. The
Illinois Office of the Governor submitted the state's application for
these funds to Education on April 10, 2009. On April 20, 2009, these
funds became available to the state. Illinois is expecting to receive
an additional $678 million by September 30, 2009.
The U.S. Department of Education has allocated a total of about $2
billion in SFSF monies to Illinois. Approximately $1.4 billion of this
amount was allocated in an initial release on April 2, 2009. Illinois
plans to use all of the $2 billion from the SFSF for K-12 and higher
education activities and hopes to avert layoffs and other cutbacks many
districts and public colleges and universities are facing in their
fiscal year 2009 and 2010 budgets. State Board of Education officials
also noted that U.S. Department of Education guidance allows school
districts to use stabilization funds for education reforms, such as
prolonging school days and school years, where possible. However,
officials said that Illinois districts will focus these funds on
filling budget gaps rather than implementing projects that will require
long-term resource commitments.
Additional Plans for Use of Funds Made Available as a Result of the
Recovery Act Include Offsetting State's Budget Deficit and Implementing
New Capital Plan:
The State of Illinois has been in a recession since December 2007 and
continues to face financial difficulties. The state's unemployment rate
surged by 46 percent from 5.9 percent in February 2008 to 8.6 percent
in February 2009. Major job losses are expected to continue in
manufacturing, construction, and retail. On the housing front,
foreclosure filings in February 2009 were up 62 percent over 2008.
While state general fund revenue grew 4.5 and 5.7 percent in fiscal
years 2007 and 2008, respectively, revenues declined by 0.5 percent in
fiscal year 2009. The state estimates that it faces a projected $11.6
billion operating budget deficit for fiscal years 2009 and 2010. To
address this deficit, the Governor has proposed a number of measures in
the state's 2010 budget proposal, including the following:
* Spending cuts, including 4 furlough days for state employees and a 2-
percent spending reduction in grant programs;[Footnote 107]
* State employee pension reform, including provisions that would align
the state's eligible age for full benefits with that of Social
Security, adjust benefit formulas, and increase contribution rates for
current employees;
* Creation of a taxpayer board to improve accountability and efficiency
across state programs; and:
* Revenue increases, including income tax increases that would raise an
estimated $2.8 billion from individuals and $350 million from
corporations in fiscal year 2010; higher health care contributions from
current and retired state employees; and higher vehicle registration,
title, and license fees.
Illinois officials expect that the state will receive at least $9
billion in direct Recovery Act funds to the state, and those local
entities--such as public housing and transit authorities--will receive
additional Recovery Act funds. State officials said they have
identified about $4.3 billion of Recovery Act funds, including use of
the previously mentioned SFSF, that could be utilized to address the
operating budget shortfall for fiscal years 2009 and 2010.[Footnote
108] They noted that these funds would potentially reduce pressure on
the state for further tax increases and spending cuts. In addition, the
state plans to use some of the remaining Recovery Act funds to help
launch the Governor's proposed infrastructure building program--a $26.5
billion proposal to fund schools, roads and bridges, public transit,
and energy and environmental capital projects during Illinois fiscal
years 2010 through 2015. The $26.5 billion plan would be paid for with
funds from the state ($10.6 billion), federal sources ($11.6 billion),
local sources ($2.4 billion), and the Recovery Act ($2.0 billion).
[Footnote 109]
In addition to funds administered by state agencies, local entities
will also receive funds through the Recovery Act for programs
administered at the local level. We met with one local agency that will
receive Recovery Act funds and will use its funds to address overdue
capital improvements. The Chicago Transit Authority (CTA), an
independent governmental agency that provides rail and bus service in
the greater Chicago area, has already put plans in place to spend its
$240 million. CTA has a backlog of $6.8 billion in unfunded capital
projects necessary to update its infrastructure and fleet. The agency
has begun work on an $87.8 million project that will replace rails,
ties, and fasteners for one subway line. The agency also expects to
complete hybrid bus purchases, a bus and rail car fleet overhaul, and
numerous facility improvements by the end of 2009. Finally,
reconstruction of at least one rail station is expected to be completed
by late 2010.
While we found examples of programs that have received Recovery Act
funds and have projects that are already underway, we spoke with state
officials who said they needed more guidance about how they should use,
track, and report on these funds at their agencies. State Board of
Education officials said that understanding the reporting requirements
and eligible uses for Recovery Act funds is the biggest challenge they
face as they prepare to disseminate funds to the local school
districts. They also expressed concern with the Recovery Act's dual
emphases on accountability and quick expenditure of funds. The Illinois
Criminal Justice Information Authority expressed similar concerns about
the need for federal guidance in regard to reporting time frames that
may not completely align with previous reporting procedures.
Illinois Is Taking Steps to Assess Risk and Develop Plans for
Safeguards Related to Recovery Act Funds:
During our meetings with high-level state officials, they said that
efforts are underway to ensure accountability and transparency in the
use of Recovery Act funds. The Governor's office has established an
Executive Committee and working group to identify concerns across state
agencies and help them implement Recovery Act provisions. Also, state
internal audit officials are developing a variety of internal control
techniques to assure compliance with the Recovery Act's requirements.
To properly track funds, state agency officials explained that they
plan to use unique identifiers or codes so that these funds can be
separately tracked in their existing financial or grants management
systems.
Illinois Has Established a Recovery Act Executive Committee and Working
Group:
To ensure accountability and transparency in the use of Recovery Act
funds, the state has established an Executive Committee, a Recovery Act
Working Group, and an Illinois Recovery Web site. The Executive
Committee is comprised of state executives, including the Deputy Chief
of Staff for Economic Recovery, the Chief Internal Auditor, the Budget
Director, and the Chief Information Officer. According to state
officials we spoke with, the Executive Committee is working to identify
common risks to all state agencies in the use of Recovery Act funds. To
address crosscutting Recovery Act issues, such as legal matters and
procurement, the committee is also establishing subcommittees with
agency subject matter experts to review critical information and
develop policies on these subject matters.[Footnote 110] The Recovery
Act Working Group consists of a contact point for each state agency for
Recovery Act related matters and, according to state officials, meets
to communicate requirements, guidance, and implementation related to
the act.
The Governor's Office has also established an Illinois Recovery Web
site at [hyperlink, http://www.recovery.illinois.gov], which contains
information on the programs receiving Recovery Act funds, amounts
available through the act, and certifications signed by the Governor.
[Footnote 111] The Web site will also include reports on Recovery Act
program expenditures, and eventually users will have the ability to
download raw data on project or program descriptions, budgets,
spending, and job creation. Another feature of Illinois's Web site is
that it allows the public to submit suggestions for projects that the
state could fund through the Recovery Act.
State Audit Officials Are Developing Internal Control Measures:
Every state is required to have an annual Single Audit in accordance
with U.S. Office of Management and Budget (OMB) requirements. This
audit is required when $500,000 or more in federal funds is expended in
any fiscal year. Officials from the Illinois Office of Internal Audit
(OIA) stated that they will utilize the Office of the Auditor General's
(OAG) single audits to identify programs that may require additional
scrutiny. In Illinois's fiscal year 2007 Single Audit, the OAG
identified four material weaknesses in internal controls over financial
reporting and classified 46 findings as significant deficiencies and
material weaknesses in internal controls related to compliance.
Significant agency findings classified as a material weakness that are
relevant to the Recovery Act and recipients of Recovery Act funds
included:
* The State Board of Education not sanctioning a Local Education Agency
that did not meet the comparability of services requirement under the
Title I Grants to Local Educational Agencies Program;
* IDOT not obtaining certifications from subrecipients for not having
been suspended or debarred from participation for the Airport
Improvement Program;
* Multiple agencies inadequately conducting or failing to conduct on-
site monitoring of subrecipient awards for federal programs; and:
* Multiple agencies inadequately monitoring subrecipient audit reports
for federal programs.
The OAG explained that to the extent that federal programs receiving
Recovery Act funds are addressed in the OMB compliance supplement, it
will be performing its required audit procedures. The OAG stated that
OMB guidance will be critical for planning future audits of federal
funds. Furthermore, the OAG conducted an analysis of programs receiving
Recovery Act funds, and found that a few additional programs will
likely be included in future single audits. OIA officials told us that
they are using the Single Audit results to assist in conducting a risk
assessment of all state-administered programs receiving Recovery Act
funds. OIA officials said that they will use the results of this risk
assessment to target their audit efforts to programs that demonstrate a
high level of risk. OIA and OAG officials said that they plan to follow
up on their respective prior audit findings to make sure that state
agencies have taken appropriate corrective action. OIA officials said
that in addition to large programs, they plan to follow up on prior
internal audit findings on federal Recovery Act programs under $30
million that are not covered by the statewide single audit.
State Agencies Plan to Use Unique Identifiers or Codes to Track
Recovery Act Funds:
Most agency officials we spoke with stated that their systems are
capable of tracking Recovery Act funds separately from other funds for
the same programs. For example, IDOT officials stated that Recovery Act
projects are being noted in different systems, typically with special
funding codes. In addition, when IDOT officials access Recovery Act
funds, those transactions will have special codes and notations.
Similarly, officials at the Illinois Department of Human Services told
us that any funds the agency receives through the Recovery Act for the
Neighborhood Stabilization Program will have accounting codes separate
from any previous funds received through the program. In order to track
increased FMAP funds, Illinois officials said they will use the state's
existing accounting systems and will use existing processes to review
and reconcile expenditures. For example, state officials will record
draw downs of increased FMAP funds separately from other Medicaid
funds. State officials will also use special receipt, expenditure, and
contract codes for all increased FMAP funds and related Medicaid
expenditures. A CTA official we spoke with stated that his agency will
use its existing financial system to track Recovery Act funds by unique
project numbers or descriptions. Finally, officials from the State
Comptroller's Office told us that separate appropriation codes will
likely be used to track Recovery Act expenditures statewide. One agency
official indicated that while funds can easily be tagged at the state
level, he was concerned that this might not be the case once funds are
distributed to subrecipients.
Agencies Are Considering Ways to Assess Impacts, but Additional
Guidance Is Needed:
Officials at several state agencies we spoke with indicated that they
can use various performance measures for projects funded through the
Recovery Act by utilizing existing systems. For example, IDOT officials
stated that they will track and monitor data for Recovery Act projects
in the same manner as they do for regular program reporting, and should
be able to report on and provide evidence regarding the status of
project goals and objectives. Officials with the Illinois Housing
Development Authority stated that they also track performance and goals
for each project through current systems and should be able to build on
these systems to customize reports as necessary for the Recovery Act.
On the other hand, several state officials said that additional
guidance is needed for measuring the potential impact of Recovery Act
funds. According to officials from the Governor's office and state
agencies we spoke with, additional guidance is needed on definitions of
"jobs saved," "jobs created," "jobs sustained," and other similar terms
included in the Recovery Act. Illinois Department of Commerce and
Economic Opportunity officials stated that they had concerns regarding
the evaluation of job retention as it relates to the Workforce
Investment Act program. Specifically, they said OMB Recovery Act
guidance focuses on quick job placement, but jobs created through the
act may have lower retention than those under past program grants.
Furthermore, while officials at most agencies we visited stated that
they are considering plans to track the impact of Recovery Act funds,
none of these plans have been finalized. Officials at two state
agencies said that their systems do not track such specific performance
measures, and they may need to develop additional mechanisms to link
Recovery Act funds with their performance results.
Illinois's Comments on This Summary:
We provided the Governor of Illinois with a draft of this appendix on
April 17, 2009. The Deputy Chief Of Staff responded for the Governor on
April 20, 2009. In general, the state concurred with our statements and
observations. The official also provided technical suggestions that
were incorporated, as appropriate.
GAO Contacts:
Leslie Aronovitz, (312) 220-7712 or aronovitzl@gao.gov:
Cynthia Bascetta, (202) 512-7114 or bascettac@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Paul Schmidt, Assistant
Director; Tarek Mahmassani, Analyst-in-Charge; Rick Calhoon; Katherine
Iritani; David Lehrer; Lisa Reynolds; and Mark Ryan made major
contributions to this report.
[End of section]
Appendix IX: Iowa:
Overview:
Use of funds: An estimated 90 percent of Recovery Act funding provided
to states and localities nationwide in fiscal year 2009 (through Sept.
30, 2009) will be for health, transportation, and education programs.
The three largest programs in these categories are the Medicaid Federal
Medical Assistance Percentage (FMAP) awards, the State Fiscal
Stabilization Fund, and highways.
Medicaid Federal Medical Assistance Percentage Funds:
* As of April 3, 2009, Centers for Medicare and Medicaid Services (CMS)
had made about $84 million in increased FMAP grant awards to Iowa;
* From January 2008 to January 2009, Iowa's Medicaid enrollment
increased from 358,112 to 392,813, with the highest enrollment increase
attributable to two population groups: (1) children and families and
(2) nondisabled nonelderly individuals;
* As of April 15, 2009, Iowa had drawn down about $86 million, or 63
percent of its increased FMAP grant awards;
* Officials plan to use funds made available as a result of the
increased FMAP to cover increased caseloads, maintain existing
populations of recipients, and avoid reductions to benefits for
Medicaid recipients.
Transportation--Highway Infrastructure Investment:
* Iowa was apportioned about $358 million for highway infrastructure
investment on March 2, 2009, by the U.S. Department of Transportation;
* As of April 16, 2009, the U.S. Department of Transportation had
obligated $221.2 million for 107 Iowa projects;
* As of April 15, 2009, the Iowa Department of Transportation had
competitively awarded 25 contracts valued at $168 million, or 47
percent of the Recovery Act funds apportioned;
* Contracts were awarded for projects such as bridge replacements and
highway resurfacing--"shovel ready" projects that could be initiated
and completed quickly.
U.S. Department of Education State Fiscal Stabilization Fund (Initial
Release):
* Iowa was allocated about $316 million from the initial release of
these funds on April 2, 2009, by the U.S. Department of Education;
* Before receiving the funds, states are required to submit an
application that provides several assurances to the Department of
Education. These include assurances that they will meet maintenance of
effort requirements (or that they will be able to comply with waiver
provisions) and that they will implement strategies to meet certain
educational requirements, including increasing teacher effectiveness,
addressing inequities in the distribution of highly qualified teachers,
and improving the quality of state academic standards and assessments;
* Iowa plans to submit its application as soon as it can be accurately
completed;
* Iowa's Department of Education plans to use these funds to maintain
spending for grades K-12 and postsecondary education at fiscal year
2009 levels for fiscal years 2010 and 2011.
In addition, Iowa estimates that other funding will be provided to the
state under the Recovery Act for the following program areas:
* Education--$214 million (includes programs such as those to provide
grants to local education agencies and assist individuals with
disabilities).
* Housing and infrastructure--$252 million (includes programs such as
the Weatherization Assistance Program).
* Agriculture/natural resources--$152 million (includes programs such
as the clean water state revolving fund).
* Economic development--$94 million (includes programs such as the
unemployment insurance program).
The status of plans for using these funds is discussed throughout this
appendix.
Safeguarding and transparency: Iowa has a foundation of safeguards and
controls that could help assure proper spending of Recovery Act funds.
For example, the State Auditor is responsible for audits of state and
local entities, such as counties, cities, and school districts, and
must provide guidelines to public accounting firms that perform such
audits. In addition, many state agencies have internal audit groups
that focus on programmatic and financial issues. Furthermore, according
to state officials, administrative and statutory mechanisms are in
place that could oversee Recovery Act funds and provide information to
the public on how these funds are being spent. For example, while
previous audits have shown few financial weaknesses, the State Auditor
is updating its 2009 audit plan risk assessment to reflect the
increased risk associated with Recovery Act funding. Iowa is also
enhancing its accounting systems to track all Recovery Act funds that
will flow through the state government to ensure that the state can
adjust its spending plans as needed. Furthermore, Iowa is developing or
planning systems to track funds provided to cities, counties, local
governments, and other entities. Finally, Iowa is working to establish
a framework that will provide transparency on the use of Recovery Act
funds. This framework includes the state's Recovery Act Web site, which
is designed to provide up-to-date information on the use of Recovery
Act funds by program, a state board to recommend improvements to
existing practices to prevent fraud, waste, and abuse and oversee the
spending of Recovery Act funds, and mechanisms provided through the
state's Accountable Government Act.
Assessing the effects of spending: State agencies have begun to
consider how to measure outcomes and assess the effect of the Recovery
Act. Some agencies have mechanisms in place to collect data in order to
calculate outcomes. Other state agencies are awaiting guidance such as
a consistent approach to quantifying the number of jobs created and
sustained. In the meantime, Iowa's Legislative Services Agency plans to
work closely with the Iowa Department of Management to create outcome
measures for the Recovery Act and report results.
Iowa Beginning to Use Recovery Act Funds:
Most Iowa state officials said they plan to follow established
allocation formulas while waiting for federal guidance on the use and
tracking of Recovery Act funds. For example, the Iowa Department of
Economic Development, which manages the state's Community Development
Block Grants and Neighborhood Stabilization Program, intends to follow
the state-established allocation formula for the Community Development
Block Grants program. This formula allocates funding in thirds: one-
third to affordable housing, one-third to economic development, and one-
third to infrastructure.
Some agencies have gone even further in their spending of Recovery Act
funds. For example, the Iowa Department of Transportation has funded
some "shovel ready" projects within 3 days of the enactment of the
Recovery Act. Additionally, the Iowa Department of Economic Development
has already established guidance for allocating Neighborhood
Stabilization Program funding to eligible entities, should the state be
awarded competitive grant funds.
As of April 15, 2009, Iowa had drawn down about $86 million of its
increased FMAP grant awards for the Medicaid program, which is 63
percent of its awards to date. The state plans to use funds made
available as a result of the increased FMAP to cover increased
caseloads and maintain current levels of benefits, noting that without
these funds, the program would have faced budget shortfalls.
Additionally, the state plans to use $110 million of funds made
available as a result of the increased FMAP to fully fund Medicaid in
the current fiscal year and $145 million of these funds to fully fund
Medicaid in fiscal year 2010.
Iowa has begun to use some of its Recovery Act funds, as follows.
Increased Federal Medical Assistance Percentage Funds: Medicaid is a
joint federal-state program that finances health care for certain
categories of low-income individuals, including children, families,
persons with disabilities, and persons who are elderly. The federal
government matches state spending for Medicaid services according to a
formula based on each state's per capita income in relation to the
national average per capita income. The amount of federal assistance
states receive for Medicaid service expenditures is known as the
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP
may range from 50 percent to no more than 83 percent, with poorer
states receiving a higher federal matching rate than wealthier states.
The Recovery Act provides eligible states with an increased FMAP for 27
months between October 1, 2008, and December 31, 2010.[Footnote 112] 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.[Footnote 113]
Generally, for fiscal year 2009 through the first quarter of fiscal
year 2011, the increased FMAP, which is calculated on a quarterly
basis, provides for (1) the maintenance of states' prior year FMAPs;
(2) a general across-the-board increase of 6.2 percentage points in
states' FMAPs; and (3) a further increase to the FMAPs for those states
that have a qualifying increase in unemployment rates. The increased
FMAP available under the Recovery Act is for state expenditures for
Medicaid services. However, the receipt of this increased FMAP may
reduce the funds that states must use for their Medicaid programs, and
states have reported using these available funds for a variety of
purposes.
For the first two quarters of 2009, Iowa's FMAP rate was 68.82 percent,
a 7.09 percentage point increase over fiscal year 2008. Iowa has
received increased FMAP grant awards of $136 million for fiscal year
2009, and, as of April 15, 2009, Iowa had drawn down $86 million in
increased FMAP grant awards, which is about 63 percent of its awards to
date. Iowa officials indicated they will use funds made available as a
result of the increased FMAP to cover increased caseloads, maintain
existing populations of recipients, avoid cuts to eligibility, and
maintain current levels of benefits. In addition, such funds will
provide Iowa officials with the means to offset budget shortfalls,
including shortfalls for the state's Medicaid program. Iowa officials
indicated that they expect the recession to continue longer for the
state than for the nation as a whole, and if the increased FMAP funds
are not available for all of federal fiscal year 2011, the resulting
deficit will likely be addressed through the use of reserve funds or
cuts in program funding. According to state officials, the use of FMAP
funds requires an appropriation from the state legislature.
Transportation--Highway Infrastructure Investment: The Recovery Act
provides additional funds for highway infrastructure investment using
the rules and structure of the existing Federal-Aid Highway Surface
Transportation Program, which apportions money to states to construct
and maintain eligible highways and for other surface transportation
projects. States must follow the requirements for existing programs,
and in addition, the Governor must certify that the state will maintain
its current level of transportation spending, and the Governor or other
appropriate chief executive must certify that the state or local
government to which funds have been made available has completed all
necessary legal reviews and determined that the projects are an
appropriate use of taxpayer funds. Iowa's Governor certified that the
state would "maintain its efforts" for Department of Transportation
programs funded under the Recovery Act. However, Iowa noted in its
certification that transportation spending would be influenced by the
difference in the definition of the word "expend" for different covered
programs; the uncertainty of the amount collected from state user fees
to fund the programs; and variables (such as weather) that may affect
the state's timeline for spending Recovery Act transportation funds.
[Footnote 114]
Within 3 days of the enactment of the Recovery Act, the Iowa Department
of Transportation competitively awarded contracts for 19 highway and
bridge projects valued at about $56 million. Contracts were awarded for
projects such as bridge replacements and highway resurfacing--shovel-
ready projects that could be initiated and completed quickly. As of
April 15, 2009, Iowa had competitively awarded a total of 25 contracts
valued at $168 million, or 47 percent of the Recovery Act funds
apportioned. As of April 16, 2009, the U.S. Department of
Transportation had obligated $221.2 million for 107 Iowa projects.
[Footnote 115] According to Iowa transportation officials, the agency
could begin spending Recovery Act funds quickly because it maintained
an inventory of shovel-ready projects and its accounting system needed
few changes to track the projects.
U.S. Department of Education State Fiscal Stabilization Fund: The
Recovery Act created a State Fiscal Stabilization Fund (SFSF), to be
administered by the U.S. Department of Education. The SFSF provides
funds to states to help avoid reductions in education and other
essential public services. The initial award of SFSF funding requires
each state to submit an application to the U.S. Department of Education
that assures, among other things, that it will take actions to meet
certain educational requirements, such as increasing teacher
effectiveness and addressing inequities in the distribution of highly
qualified teachers.
On April 2, Iowa was allocated $316 million for the education portion
of the SFSF. Overall, Iowa expects that the state's total SFSF
allocation will be $472 million. In April, the Governor proposed using
almost 82 percent of this amount, or $386 million, to support
elementary, secondary, and higher education, as required. These funds
will be used for activities such as updating standards and implementing
a new data system. For the remaining 18 percent of the SFSF allocation,
or $86 million, the Governor proposes to fund universities and
community colleges, law enforcement, and corrections in fiscal year
2010. The Governor also proposed using $600,000 of the $86 million to
oversee Recovery Act funds. Iowa plans to submit its application as
soon as the application can be accurately completed.
Iowa Has Established a Strategy for Spending Recovery Act Funds:
Beginning in April 2008, unemployment began to rise and in October
2008, state revenues began to slow. As of February 2009, Iowa's
unemployment rate was 4.9 percent, up from 3.9 percent in February
2008. According to a March 27, 2009, report by the Rural Policy
Research Institute, the nation's rural economy is losing jobs at a rate
faster than the rest of the United States. Iowa state budget officials
estimated that the state's unemployment rate could increase to 7
percent by December 2009.
Regardless of this economic downturn, Iowa's Governor and General
Assembly have statutory responsibility to balance the budget and meet
expenditure limitations and are required to use the revenue estimates
agreed to by Iowa's Revenue Estimating Conference, which convenes
quarterly, as the basis for determining the budget for the general
fund, according to state officials. If revenue estimates are revised
downward for the current fiscal year, state officials explained that
the law still requires the budget to be balanced. In the current fiscal
year, and for the first time since fiscal year 2003, Iowa's general
fund revenues of almost $6 billion are expected to be lower than in the
previous fiscal year, a decrease of 1.9 percent from fiscal year 2008
to fiscal year 2009.[Footnote 116] In response to this downturn, in
December 2008, the Governor directed an across-the-board 1.5 percent
reduction in the state's general fund appropriations, effective
December 22, 2008. On April 3, 2009, the Governor released a revised
budget for fiscal year 2010 of $5.9 billion for the state's general
fund, representing a 7.9 percent reduction for many state programs,
even with the addition of more than $535 million in Recovery Act funds.
According to state officials, decisions regarding the use of Recovery
Act funds require approval by the General Assembly. Since the Iowa
General Assembly is scheduled to adjourn on or around May 1, 2009, it
may have to develop strategies if funding decisions are necessary after
adjournment. For example, the Governor may request that the General
Assembly return for a special session.
In March 2009, the Governor established a Recovery Act implementation
working group to provide a coordinated process for (1) reporting on
Recovery Act funds available to Iowa through various federal grants and
(2) tracking the federal requirements and deadlines associated with
those grants. The implementation working group comprises
representatives from nearly two dozen state agencies, led by an
executive-level working group, and assisted by groups that will focus
on implementation issues such as budget and tracking, intergovernmental
coordination, and communications. The implementation working group
includes several issue-specific small groups focusing on key program
areas: education, energy, environment, health care, housing,
information technology, public safety, transportation and
infrastructure, and workforce. On April 14, 2009, the working group
issued a progress report on Recovery Act funds in Iowa. For example,
the working group reported on the planned and spent funding of the
state's energy program to reduce per capita energy consumption, loans
for wastewater infrastructure projects, and neighborhood stabilization
programs to provide emergency assistance to acquire and redevelop
foreclosed properties.
In addition to FMAP, Transportation, and the State Fiscal Stabilization
Fund programs, the Governor's office estimates that the state will
receive Recovery Act funding as follows:
* Education: Of $214 million, a large majority involves two formula
grant programs--grants to local education agencies ($52 million) and
special education grants to assist individuals with disabilities ($122
million).
* Housing and infrastructure: Of $252 million, 32 percent ($81 million)
is for the Weatherization Assistance Program to provide energy-related
improvements to homes and educate residents about energy conservation.
* Agriculture/natural resources: Of $152 million, more than one-third
(36 percent or $54 million) is for the clean water state revolving
fund.
* Economic development: Of $94 million, more than three-quarters (76
percent or $71 million) is to modernize the unemployment insurance
program.
To supplement Recovery Act funds, Iowa is considering other stimulus
proposals, such as the Iowa Infrastructure Investment Initiative, or I-
JOBS, and another bonding initiative. I-JOBS is designed to create
jobs, strengthen the state's economy, and rebuild the state's
infrastructure over 3 years. If approved by the General Assembly, I-
JOBS, as described by state officials, is expected to provide funding
for various infrastructure projects, such as transportation, public
buildings, and wastewater improvements, and will be funded through 20-
year tax-exempt bonds paid for by gaming revenue, current tax revenue,
or both. The General Assembly is also considering another bonding
initiative to provide economic stimulus. As of April 17, 2009, the Iowa
General Assembly had not authorized the issuance of bonds for either of
these initiatives.
In the absence of OMB and program-specific guidance, associations and
organizations have provided guidance and assistance to Iowa on the use
and reporting of Recovery Act funds. Among these associations are the
National Association of Crime Victim Compensation Boards, the National
Association of Victims of Crime Act Assistance Administrators, and the
Association for Stop Violence Against Women Administrators. For
example, justice associations have helped the Iowa Attorney General's
Office complete grant applications.
Iowa Is Developing Systems to Track Recovery Act Funds:
Many Iowa agencies expect that they will be able to track the Recovery
Act funds they use through the state's central accounting system. The
state is also evaluating options for reporting Recovery Act funds
provided to cities, counties, local governments, and other entities
that will help satisfy reporting requirements for these funds.
Specifically, state accounting officials are developing special codes
to track Recovery Act funds and have begun to train state agencies'
accounting officials in the use of these new codes. However, Iowa's
central accounting system does not track Recovery Act funds provided
directly to some agencies because they are not part of the system. For
example, the central accounting system does not track Recovery Act
funding provided to the Iowa Department of Transportation. In this
case, Iowa transportation officials said the agency is establishing
separate accounting codes to track Recovery Act funds by project.
Similarly, the central accounting system does not track Recovery Act
funds provided to state-funded universities. The state and Board of
Regents are discussing how to track these funds. While local governing
authorities are not required to report through the state, the Iowa
Department of Management is in discussions with these entities to
report Recovery Act spending on the state's Web site. At the local
level, some agencies can track these funds, while others are developing
guidance to require such tracking, according to state officials.
In order to track increased FMAP funds, Iowa is adapting its existing
systems. In addition, Iowa's state Medicaid agency uses a data
warehouse for Medicaid payments made to counties, subcontractors, and
medical facilities, and U.S. Health and Human Services' Office of
Inspector General has audited the state's data warehouse.
The General Assembly may also track Recovery Act spending. In
particular, the assembly's Legislative Services Agency--a nonpartisan
analysis and research agency serving the Iowa General Assembly--
assisted members in interpreting the Recovery Act and provided
preliminary estimates of funds provided to the state. Furthermore, the
Legislative Services Agency will be able to access Iowa's central
accounting system to monitor agencies' spending in real time.
Even as Iowa plans for tracking Recovery Act funds, state officials
said that they continue to have some questions about how to report
Recovery Act funds. For example, Iowa officials noted that they need
additional guidance on reporting increased FMAP funds to CMS.
Specifically, Iowa officials said that they need guidance on the timing
for drawing down increased FMAP grant awards, reporting receipts and
expenditures, and submitting claims for expenditures made retroactively
to October 2008.
Iowa Has a Foundation of Safeguards and Controls That Could Help Assure
Proper Spending of Recovery Act Funds:
There are various entities in Iowa that are responsible for monitoring,
tracking, and overseeing financial expenditures, including the Iowa
State Accounting Enterprise (collects and reports state financial
information and processes financial transactions); the State Auditor
(audits state and local entities, such as counties, cities, and school
districts, and provides guidelines to public accounting firms that
perform such audits); and the Attorney General (prevents and prosecutes
fraud). Finally, many state agencies have internal audit groups that
focus on programmatic and financial issues.
While Prior Audits Indicate Few Financial Weaknesses, State Auditor Is
Identifying Potential Areas Needing Oversight:
Prior years' audits indicate few weaknesses in Iowa's financial
management systems and controls. Iowa's fiscal year 2007 single audit
found one material weakness in internal controls related to a public
assistance grant provided to the Iowa Department of Transportation: a
computer program error resulted in a $3.6 million overpayment to the
agency by the Federal Emergency Management Agency for materials related
to disaster recovery. In 2009, Iowa refunded the $3.6 million. Iowa's
fiscal year 2008 single audit did not identify any material weaknesses.
While prior audits indicate few financial weaknesses, the Office of the
State Auditor is updating its 2009 audit plan risk assessment to
reflect the increased risk associated with Recovery Act funding. Of
great concern to officials of the State Auditor's office are possible
limits on the ability to charge fees for audit services. According to
state officials, these limits would significantly reduce the
effectiveness of the State Auditor to audit federal funds received,
including those under the Recovery Act, as required by the Single Audit
Act. If limits on audit fees were enacted, officials said that the
state's comprehensive annual financial report and the single audit
report are likely to result in qualified opinions.
Iowa Has Administrative and Statutory Mechanisms in Place That Could
Help Oversee Iowa's Recovery Act Funds:
The Iowa state government is working to establish a framework to
provide transparency on the use of Recovery Act funds. In March 2009,
the Governor's office launched an economic Recovery Act Web site--
[hyperlink, http://www.recovery.iowa.gov] --to provide information on
Recovery Act funding by program. Iowa plans to add a "dashboard"
feature to the Web site--a user-friendly search capability that will
provide detailed information on how and where Recovery Act funds are
spent. The Governor's office expects OMB to provide guidance on how to
report information on Iowa's Recovery Act Web site, including the
dashboard feature, and how to forward that information to the national
Recovery Act Web site. In addition, the state is developing a system
that will allow information on Recovery Act funding that does not come
through the state government, such as grants federal agencies provide
directly to localities, to be available on the state's Web site.
On April 14, the Governor created the Iowa Accountability and
Transparency Board--which has similarities to the federal Recovery
Accountability and Transparency Board--to, among other duties, assess
existing practices to prevent fraud, waste, and abuse; recommend
opportunities for improvement in these areas; and oversee real-time
audits and reporting. The board will be made up of 14 members. Voting
members include the Governor or his designee, the State Auditor or his
designee, the State Treasurer or his designee, three local government
members, and three citizens. Nonvoting members of the board include the
Director of Iowa's Department of Management or his designee and four
members of the state's General Assembly. The Iowa Accountability and
Transparency Board will recommend improvements and oversee the spending
of Recovery Act funds.
Iowa's Accountable Government Act could serve as a mechanism to
safeguard Recovery Act funding. Under this act, Iowa is required to
provide for the efficient and effective use of state funds. Among other
things, Iowa's Accountable Government Act requires grant recipients to
certify that information on internal controls relating to processes are
available for inspection by the state agency, and the Legislative
Services Agency if the recipients provide a service of more than
$500,000 that is paid for with local, state, or federal funds. In
addition, recipients must report on financial information, reportable
conditions in internal control or material noncompliance, and
corrective actions taken or planned in response to these reportable
conditions. State agencies can enforce this monitoring by terminating
payments and recovering any expended government funds. Furthermore, the
Legislative Services Agency tracks personnel services contracts--that
is, contracts for consulting services or temporary hires--within all
state agencies (except the Iowa Department of Transportation and the
Iowa Board of Regents) regardless of the value of the contract. State
officials could require a similar certification and monitoring of
Recovery Act funds.
Iowa officials said that they recognize the need for greater oversight
and proper management of programs in light of the infusion of
significant funds under the Recovery Act. According to state officials,
the Recovery Act did not provide funds for oversight. For example, one
state agency official in the Iowa Department of Education expressed
concern about the adequacy of resources available for ensuring the
appropriate use of the Recovery Act funds--an estimated $386 million
from the state fiscal stabilization program for education--particularly
because the agency anticipates further state-imposed staff reductions.
Recognizing that the Recovery Act did not specifically provide funds
for state oversight, the Governor proposed using $600,000 of the $86
million in fiscal stabilization funds in his 2010 budget to be made
available for general government services to oversee Recovery Act
funds.
Iowa officials indicated that they are identifying ways to use the
state's internal audit functions to address Recovery Act-related
issues. Iowa state audit officials indicated that state programs that
receive significant Recovery Act funds while maintaining a high level
of discretion over use of those funds--such as the state's Medicaid
program--present an increased risk to the state and will receive
greater scrutiny during internal state audits.
State Agencies Are Considering How to Assess the Effects of Recovery
Act Funds:
Iowa has just begun to consider how to measure outcomes and assess the
effect of Recovery Act funding while it awaits federal guidance on a
consistent approach to measuring the number of jobs created and
sustained. State officials identified Iowa's Accountable Government Act
as a mechanism that has familiarized state agencies with results-
oriented management and could help them assess the impact of Recovery
Act funds. The Iowa Accountable Government Act requires each state
agency to measure and monitor progress toward achieving program goals
and report the progress toward those goals. In addition, the Iowa
Department of Management, in consultation with the Legislative Services
Agency, the State Auditor, and agencies, must periodically conduct
performance reviews to assess the effectiveness of programs and make
recommendations to improve agency performance.
State agency officials said that they expect to be able to track
information on the number of jobs created while others said they need
further guidance. For example, the Iowa Department of Transportation
tracks the number of worker hours by highway project on the basis of
contractor reports. An Iowa Transportation official said that this
information may be used to calculate the number of jobs created. Iowa
education officials, in contrast, may need more guidance. Iowa teachers
are notified by school districts in mid-March whether their jobs are
guaranteed for the next school year, pending passage of school budgets.
Once the budgets are passed, teachers are asked to return for the
following school year. Officials said that they believed that federal
guidance would help them determine how to characterize whether these
jobs would be created or sustained.
According to Iowa's Department of Management, once it receives federal
guidance on how to assess the impact of Recovery Act funding, it plans
to disseminate the information across state agencies. It intends to
measure the impact of Recovery Act funds through the state's Recovery
Act Web site and current tracking software. The Legislative Services
Agency plans to work closely with the Department of Management to
create outcome measures for the Recovery Act and report the results.
Additionally, the Iowa Department of Economic Development has already
established output and outcome measures for the Neighborhood
Stabilization Program.
Although most state agencies are waiting for federal guidance on how to
assess results from Recovery Act funding, officials from some state
agencies told us that they have accounting systems in place to measure
programmatic outcomes. For example, the Iowa Department of Economic
Development will monitor its Recovery Act funds by using systems
adopted for tracking federal disaster recovery funds, including systems
that the federal Department of Housing and Urban Development uses to
monitor and report on funding spent to recover from natural disasters.
The Iowa Department of Economic Development plans to put in place
procedures for working with the State Auditor to leverage oversight of
stimulus funds. Similar procedures have been established to oversee
funding the state expects to receive to recover from disastrous floods
in 2008. The Department of Economic Development expects a 20-fold
increase in Community Development Block Grants in 2009 to help the
recovery effort from these floods.
Officials noted the potential difficulty of measuring Recovery Act
outcomes separately from other recovery initiatives, such as Iowa's
proposed I-JOBS program. While state officials said that they believe
there are benefits to supplementing federal efforts, the state may find
it difficult to separate outcomes among the recovery programs.
Iowa's Comments on This Summary:
We provided the Governor of Iowa with a draft of this appendix on April
17, 2009. The Director, Iowa Office of State-Federal Relations and the
Director for Performance Results, Department of Management responded
for the Governor on April 20, 2009. In general, officials agreed with
our findings and conclusions. The officials also offered several
technical suggestions that we have incorporated, as appropriate.
GAO Contacts:
Lisa Shames (202) 512-3841 or shamesl@gao.gov:
Belva Martin (202) 512-4285 or martinb@gao.gov:
Staff Acknowledgments:
In addition to the individuals named above, Thomas Cook, Assistant
Director; Christine Frye, Analyst-in-Charge; Alisa Beyninson; Gary
Brown; Daniel Egan; Nancy Glover; Marietta Mayfield; Mark Ryan; and
Carol Herrnstadt Shulman made key contributions to this appendix.
[End of section]
Appendix X: Massachusetts:
Overview:
Use of funds: An estimated 90 percent of fiscal year 2009 Recovery Act
funding provided to states and localities will be for health,
transportation, and education programs. The three largest programs in
these categories are the Medicaid Federal Medical Assistance Percentage
(FMAP) awards, the State Fiscal Stabilization Fund, and highways.
Medicaid Federal Medical Assistance Percentage Funds:
* As of April 1, 2009, Centers for Medicare & Medicaid Services (CMS)
had made about $1.2 billion in increased FMAP grant awards to
Massachusetts;
* As of April 1, 2009, the state had drawn down about $273 million, or
23 percent, of its initial increased FMAP grant awards;
* Officials plan to use funds made available as a result of the
increased FMAP to avoid additional cuts in health care and social
service programs, restore certain provider rates, and provide caseload
mitigation for Medicaid and Commonwealth Care (an expansion of its
Medicaid program).
Transportation--Highway Infrastructure Investment:
* Massachusetts was apportioned about $425 million for highway
infrastructure investment as of April 16, 2009, by the U.S. Department
of Transportation;
* As of April 16, 2009, the U.S. Department of Transportation had
obligated about $63.9 million for 19 projects in Massachusetts;
* As of April 4, 2009, the Massachusetts Executive Office of
Transportation had advertised 19 projects for competitive bids totaling
more than $62 million; the earliest announcements were scheduled to
close on April 14, 2009, and work on the projects is expected to begin
this spring;
* These projects include activities such as road repaving and sign
replacement;
* Massachusetts will request reimbursement from the U.S. Department of
Transportation as project phases are completed by contractors.
U.S. Department of Education State Fiscal Stabilization Fund (Initial
Release):
* Massachusetts was allocated about $666 million from the initial
release of these funds on April 2, 2009, by the U.S. Department of
Education;
* Before receiving the funds, states are required to submit an
application that provides several assurances to the Department of
Education. These include assurances that they will meet maintenance of
effort requirements (or that they will be able to comply with waiver
provisions) and that they will implement strategies to meet certain
educational requirements, including increasing teacher effectiveness,
addressing inequities in the distribution of highly qualified teachers,
and improving the quality of state academic standards and assessments.
In early April 2009, state officials reported that the commonwealth
will file its application for this money around April 15, 2009, when it
would better understand the state fiscal year 2010 budget situation;
* The Governor has announced that he intends to provide funds to 166
school districts to help them increase spending to prior levels and
avoid program cuts and teacher layoffs in fiscal year 2010. He also
intends to use some of these funds at public colleges and universities
to reduce layoffs, program cuts, and student fee hikes.
The commonwealth of Massachusetts is also receiving additional Recovery
Act funds under programs, such as Title I, Part A of the Elementary and
Secondary Education Act of 1965 (ESEA, commonly known as No Child Left
Behind); the Individuals with Disabilities Education Act, Part B
(IDEA); and two programs of the U.S. Department of Agriculture--one for
administration of the Temporary Food Assistance Program and one for
competitive equipment grants targeted to low-income districts from the
National School Lunch Program. The status of plans for using Recovery
Act funds is discussed throughout this appendix.
Safeguarding and transparency: Task forces, established by the
Governor, encouraged the state to adopt accountability and transparency
measures. Further, Massachusetts is expanding its accounting system to
track funds flowing through the state government. Although
Massachusetts has plans to publicly report its Recovery Act spending,
officials have said that the state may not be aware of all funds sent
directly to other entities, such as municipalities and independent
authorities. The commonwealth's oversight community has identified
situations that raise concerns about the adequacy of safeguards, such
as funding for larger projects and new programs, but is waiting for
further information on what specific programs will receive funding
before developing plans to address those concerns.
Assessing the effects of spending: Massachusetts agencies are in the
early stages of developing plans to assess the effects of Recovery Act
spending. According to state officials, they are awaiting further
guidance from the federal government, particularly related to measuring
job creation.
Massachusetts Beginning to Use Recovery Funds:
Massachusetts has begun to use some of its Recovery Act funds, as
follows.
Increased Federal Medical Assistance Percentage Funds: Medicaid is a
joint federal-state program that finances health care for certain
categories of low-income individuals, including children, families,
persons with disabilities, and persons who are elderly. The federal
government matches state spending for Medicaid services according to a
formula based on each state's per capita income in relation to the
national average per capita income. The amount of federal assistance
states receive for Medicaid service expenditures is known as the
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP
may range from 50 percent to no more than 83 percent, with poorer
states receiving a higher federal matching rate than wealthier states.
The Recovery Act provides eligible states with an increased FMAP for 27
months between October 1, 2008, and December 31, 2010.[Footnote 117] On
February 25, 2009, the Centers for Medicare & Medicaid Services (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.[Footnote 118] Generally, for
fiscal year 2009 through the first quarter of fiscal year 2011, the
increased FMAP, which is calculated on a quarterly basis, provides for
(1) the maintenance of states' prior year FMAPs; (2) a general across-
the-board increase of 6.2 percentage points in states' FMAPs; and (3) a
further increase to the FMAPs for those states that have a qualifying
increase in unemployment rates. The increased FMAP available under the
Recovery Act are for state expenditures for Medicaid services. However,
the receipt of the increased FMAP may reduce the funds that states must
use for their Medicaid programs, and states have reported using these
available funds for a variety of purposes.
Under the Recovery Act, the commonwealth's FMAP will increase to at
least 56.2 percent, up from 50 percent. As of April 1, 2009,
Massachusetts had drawn down $272.6 million, or 23 percent, of its
increased FMAP grant awards. In fiscal years 2009 and 2010, officials
plan to use a significant portion of funds made available as a result
of the increased FMAP funds to avoid additional cuts in health care and
social service programs, restore certain provider rates, and provide
caseload mitigation for Medicaid and Commonwealth Care.
Transportation--Highway Infrastructure Investment: The Recovery Act
provides additional funds for highway infrastructure investment using
the rules and structure of the existing Federal-Aid Highway Surface
Transportation Program, which apportions money to states to construct
and maintain eligible highways, and for other surface transportation
projects. States must follow the requirements for the existing
programs, and in addition, the governor must certify that the state
will maintain its current level of transportation spending, and the
governor or other appropriate chief executive must certify that the
state or local government to which funds have been made available has
completed all necessary legal reviews and determined that the projects
are an appropriate use of taxpayer funds. Massachusetts provided these
certifications, but conditioned the state's level of funding for these
programs, noting that this spending will be financed through issuing
bonds and may need to be decreased, depending on the state of the
economy. The commonwealth's debt affordability policy will determine
the amount of debt that can be issued.[Footnote 119]
As of April 4, 2009, the Massachusetts Executive Office of
Transportation had advertised 19 projects for competitive bid totaling
more than $62 million. These projects included, for example, replacing
traffic and guide signs along sections of Route I-95 and paving Route 6
in southeastern Massachusetts. As of April 16, 2009, the U.S.
Department of Transportation had obligated about $63.9 million for 19
projects in Massachusetts.[Footnote 120] Massachusetts will request
reimbursement from the U.S. Department of Transportation as project
phases are completed by contractors.
U.S. Department of Education State Fiscal Stabilization Fund: The
Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be
administered by the U.S. Department of Education (Education). The SFSF
is intended to help states avoid reductions in education and other
essential public services. The initial award of SFSF funding requires
each state to submit an application to Education that assures, among
other things, it will take actions to meet certain educational
requirements, such as increasing teacher effectiveness and addressing
inequities in the distribution of highly qualified teachers.
Massachusetts' initial SFSF allocation is $666,152,997. In early April
2009, state officials reported that the state would file its
application for this money around April 15, 2009, when it would better
understand the state's revenue projections and after the Massachusetts
House issues its fiscal year 2010 budget proposal. In March 2009, the
Governor of Massachusetts had announced he intended to fund $168
million in SFSF to 166 school districts to help them increase funding
and avoid program cuts and teacher layoffs in fiscal year 2010. He also
announced he intended to provide $162 million in SFSF to public
university and college campus budgets to reduce layoffs, program cuts,
and student fee hikes.
Massachusetts' Planning Process Has Set the Stage for Decisions on
Spending of Recovery Act Funds:
Massachusetts officials began preparing for receipt of federal Recovery
Act funds prior to enactment of the act. Faced with deteriorating
revenue projections, the potential for expanding caseloads in some
safety net programs, such as Medicaid, and a requirement to balance the
budget, Massachusetts officials believe that funds made available as a
result of the Recovery Act are critical to addressing the
commonwealth's immediate fiscal pressures. State officials envision a
sizable portion of the state-projected $8.7 billion in Recovery Act
funds (over 2 years) going directly toward budget stabilization.
According to state officials, as of April 2009, the state is addressing
a budget gap of approximately $3.0 billion. This gap is driven largely
by lower-than-anticipated revenues. State fiscal year 2009 revenue is
significantly lower than budgeted and has left the state unable to
support previously approved spending levels, and revenues are expected
to fall short of planned expenditures for 2010, as well.
In December 2008, anticipating a major infusion of federal funding,
especially for infrastructure projects, the Governor established task
forces to identify "shovel-ready" projects and address obstacles to
project implementation. Ten task forces were created--seven focused on
specific types of infrastructure investment, such as transportation,
energy, and information technology, and three focused on crosscutting
issues like workforce mobilization and procurement. In conducting their
work, the task forces were guided by several principles, including
investing for the long term and limiting investments to those that
would not add to the state's operating budget.
Although other program areas, such as Medicaid and education, likely
will receive more funding than will infrastructure, the work of the
task forces was influential. The task forces developed work plans for
projects that could be implemented using the anticipated funding and
were instrumental in the appointment of a director of infrastructure
investment (a "recovery czar") to coordinate and monitor state
agencies' and municipalities' implementation of projects. The task
forces also encouraged the creation of a central Web site to enhance
transparency, called for the involvement of the oversight community in
contract oversight to ensure accountability, and prompted the
introduction of legislation (now being considered by the legislature)
intended to ease some of the procurement and contracting processes that
might delay quick implementation of construction projects. The task
force efforts helped prepare the state to submit several certifications
required under the Recovery Act to the federal government. In late
February, the Governor certified that the state would request and use
all funds provided by the act. Additional certifications for
transportation and energy have also been submitted.
Revenue from the state's "rainy-day" fund,[Footnote 121] a reserve fund
built up during more favorable economic conditions to be used during
difficult economic times, will give the commonwealth additional
flexibility to avoid some cuts in fiscal year 2010. The commonwealth's
budget already calls for using about $925 million from the rainy-day
fund in fiscal year 2009, and the Governor's proposed 2010 budget calls
for using about $489 million of the rainy-day funds. According to
budget documents, the combination of funds made available as a result
of the increased FMAP and rainy-day funds will help the state avoid
cuts in several areas, including health care, education, and public
safety.
State documents suggest that officials are concerned about using one-
time federal and rainy-day funds to make longer-term operational and
program commitments that could require additional revenue in the future
to avoid job and service cuts.[Footnote 122] State officials note that
using temporary funds, such as Recovery Act and rainy-day funds, make
budgeting uncertain and require strategic fiscal management.
Massachusetts Has a System to Track Recovery Act Funds but Cannot
Ensure Local Entities' Ability to Meet Recovery Act Reporting
Requirements:
The commonwealth is expanding the use of its existing accounting system
to track all Recovery Act funds that will flow through the state
government. New codes are being added to the existing system in order
to segregate and track the Recovery Act funds. The Office of the
Comptroller has issued guidance on the required use of these newly
created account codes for all Recovery Act transactions and has
stipulated that all the Recovery Act-funded contracts include
provisions to segregate Recovery Act money. While these changes have
been made, officials were still testing the system and developing
reporting capabilities as of April 13, 2009.
The portion of Recovery Act funds going directly to recipients other
than Massachusetts government agencies, such as independent state
authorities, local governments, or other entities, will not be tracked
through the state comptroller's office. While state officials
acknowledged that the commonwealth lacks authority to ensure adequate
tracking of these funds, they are concerned about the ability of
smaller entities to manage Recovery Act funds--particularly
municipalities that traditionally do not receive federal funds and that
are not familiar with Massachusetts' tracking and procurement
procedures, as well as recipients receiving significant increases in
federal funds. In order to address this weakness, the administration
introduced emergency legislation that, according to state officials,
includes a provision requiring all entities within Massachusetts that
receive Recovery Act money to provide information to the state on their
use of Recovery Act funds. Alternatively, the two large nonstate
government entities we spoke with to date--the city of Boston and the
Massachusetts Bay Transportation Authority (MBTA, a quasi-independent
authority responsible for metropolitan Boston's transit system)--
believe that their current systems, with some modifications, will allow
them to meet Recovery Act requirements. For example, the city of Boston
hosted the Democratic National Convention in 2004, and city officials
said that their system was then capable of segregating and tracking a
sudden influx of one-time funds.
State Agencies Have Made Some Spending Decisions:
Some state programs have received actual allocations of federal
Recovery Act funds, while for other state programs, officials have
developed spending plans based on preliminary figures provided by
federal departments. The U.S. Department of Transportation, through the
Federal Transit Administration, published apportionment amounts for the
Transit Capital Assistance and the Fixed Guidance Infrastructure
Investment Programs on March 5, 2009.[Footnote 123] The Massachusetts
Executive Office of Transportation (EOT) and the MBTA have been able to
develop spending plans with a degree of certainty and EOT has
advertised requests for bids on 19 projects totaling about $62 million.
Other program officials have had to develop plans with preliminary
estimates. For example, as of mid-March 2009, state officials from the
Department of Elementary and Secondary Education said that local
education officials reported that one of their biggest challenges was a
lack of reliable information on federal Recovery Act allocations that
they could use to plan their budgets. However, on April 1, 2009,
Education announced the release of state allocations of ESEA Title I
and IDEA funds, along with more detailed guidance for these programs.
Some state and local officials said that while clear, specific guidance
takes time to develop, the lack of guidance from federal agencies had
limited their ability to make spending decisions. Officials from some
of the entities we spoke with, including the state Department of
Elementary and Secondary Education, the Department of Housing and
Community Development, and the city of Boston, said they are
comfortable making spending decisions with money slated to flow through
pre-existing grant programs. However, the lack of specific guidance for
federal Recovery Act funds for some programs has presented challenges,
according to some state officials. An area of significant challenge for
education officials concerns how to use federal Recovery Act funding to
supplement state and local revenues for existing educational programs,
rather than use these funds to supplant state and local revenue. State
education officials said they anticipated that to prove funds have not
been supplanted will be very challenging for local school districts and
have requested additional guidance from the U.S. Department of
Education to help them make better decisions about spending priorities.
For example, state housing officials are seeking clarification from the
U.S. Department of Housing and Urban Development (HUD) on whether the
Tax Credit Assistance Program can be used to provide loans rather than
grants to subrecipients, and state transportation officials are waiting
for guidance on whether competitive grants can be used for "signature
projects."
Some state agencies told us they anticipate they will be able to manage
additional Recovery Act funding coming through well-established grant
programs with existing agency resources but, in some cases, will hire
additional staff to manage Recovery Act programs. For example, the
state's Department of Housing and Community Development (DHCD) reported
it is expecting to receive significant Recovery Act funds and has plans
to hire staff to help manage the programs. DHCD has well-established
methods for managing expenditures and accomplishments, so agency
officials believe they can effectively administer Recovery Act funds
using existing structures. MBTA officials told us that given the
enhanced transparency and reporting requirements associated with an
additional $230 million in project spending, they anticipate that
managing these Recovery Act projects will present some new challenges
and will require that they hire a project management firm. Finally, a
Department of Elementary and Secondary Education official told us they
anticipate a need to hire additional staff, for a limited term, to
manage competitive grant programs funded under the Recovery Act.
Plans for Safeguards and Controls Being Developed at State Level:
The commonwealth has entities responsible for monitoring, tracking, and
overseeing financial expenditures. The comptroller, who is responsible
for implementing accounting policies and practices, oversees fiscal
management functions, including internal controls. The State Auditor
audits the administration and expenditure of state funds, ands partners
with an accounting firm to perform the state's annual Single Audit--a
comprehensive review of all state agencies' accounts and activities.
The state Inspector General, with a broad mandate to prevent fraud,
waste, and abuse, conducts operational and management reviews and has
authority to examine independent authorities and municipalities. The
Attorney General also plays a role, including preventing and
prosecuting fraud. Further, according to state officials, some state
departments have internal audit groups that focus on programmatic
issues. In addition to these entities, the commonwealth has laws that
provide further safeguards.
Potential Areas of Vulnerability with Massachusetts Recovery Act Funds:
Past experience has shown financial management vulnerability involving
organizations that will receive funds under the Recovery Act. The
Office of the Attorney General has documented improper Medicaid
payments and has concerns regarding the funds from the Recovery Act
going to the Medicaid program. They plan to take a risk-based approach,
but are waiting for firm information on which programs and recipients
will receive Recovery Act funds. The Inspector General stated that his
office will need to emphasize oversight of larger procurement projects,
which may be vulnerable. In addition, officials pointed to the
multibillion-dollar cost overruns on a federally funded highway project
in Boston (the "Big Dig") as an example of what can go wrong when a
large project lacks sufficient oversight. The Massachusetts fiscal year
2007 Single Audit report identified vulnerabilities that included
insufficient monitoring of subrecipients of federal grants to the
state. For example, the Massachusetts Department of Early Education and
Care programs, which will receive Recovery Act funds, did not conduct
any on-site monitoring of the Child Care Resource and Referral Agencies
(subrecipients), which received approximately $11 million in child care
development funds and $122 million in Temporary Assistance for Needy
Families funds. Since that audit, the department has implemented
numerous improvements and controls to address these issues. The State
Auditor has also identified financial management concerns with
nonprofit entities that receive federal funds and will receive
additional funds under the Recovery Act.
In addition, oversight officials noted some more general situations
raising concerns. For example, some oversight officials identified new
programs as potentially risky; however, new programs would have little
impact on the fiscal year 2009 Single Audit report. New programs would
probably be included on the fiscal year 2010 Single Audit report, which
typically comes out some months after the end of the state's fiscal
year. Oversight officials also expressed concern about programs
receiving large increases under the Recovery Act, and recipients that
do not typically receive federal funds--and therefore may not have
systems in place to track them--are also at risk.
In order to better understand areas of potential vulnerability, the
Governor asked all commonwealth agencies in late January 2009 to
conduct self-assessments identifying existing oversight and
accountability mechanisms. Most agencies submitted reports, which
included varying levels of detail. The reports we reviewed showed that
the agencies are generally comfortable with the mechanisms currently in
place. One report expressed a need for additional resources to oversee
any new funding. The self-assessments were shared with the State
Auditor, Inspector General, and Comptroller's offices. The State
Auditor has provided comments to the Governor's office, noting that
while the self-assessments indicated existing control mechanisms in
place to manage, account for, and monitor the spending of the Recovery
Act funds, he expressed two areas of concern. He was concerned about
tracking funds that bypass the state government and, based on past
audits, about subgrantee monitoring. The Inspector General plans to
provide comments on the needs assessments to the Governor's office by
the end of April. The Comptroller is using the assessments to monitor
agencies' controls over Recovery Act funds on an ongoing basis.
Plans for Oversight of Massachusetts' Recovery Act Funds:
While the commonwealth's oversight community has come together to
discuss issues such as avoiding areas of duplication and preventing
oversight gaps, as a whole, it has yet to develop a coordinated plan
describing which programs and departments it will focus on or how it
will conduct critically needed oversight. Both the Inspector General
and Attorney General recognize the need for training for local
officials, specifically related to procurement. The Inspector General
stated that his department would continue its training of local
procurement officials and announced in its March 2009 Procurement
Bulletin that his office should be contacted regarding any questions on
procurement or Recovery Act expenditures. While the Inspector General
identified the need for increased oversight, particularly related to
procurements, oversight officials generally stated that once they
determine the total distribution of Recovery Act money, they then would
begin selecting areas for review. The Attorney General has convened a
task force to coordinate on oversight issues with the federal and state
oversight community.
The state legislature will also provide oversight of the Recovery Act
funds through the newly created Joint Committee on Federal Stimulus
Oversight. This committee has already held three hearings with plans to
hold more regarding the oversight of Recovery Act spending. According
to committee members, the impetus for creating this committee was
Massachusetts' failure to control fraud, waste, and abuse in the
federally funded "Big Dig" construction project. The purpose of the
joint committee is to ensure compliance with federal regulations and to
review current state laws, regulations, and policies to ensure they
allow the commonwealth to access Recovery Act funding and streamline
processes to quickly stimulate the economy. In addition to the co-
chairmen having the capability to subpoena individuals, a co-chairman
said that the Joint Committee has broad authority and its jurisdiction
extends to wherever public federal, state, and local money is spent.
[Footnote 124]
Massachusetts' administration has emphasized transparency of Recovery
Act spending and identified the state recovery Web site as a
transparency tool. In addition, the Web site has links to planning
documents, guidance, and intended uses of Recovery Act money, and
officials are planning to enhance the Web site with a goal of making it
the central portal for all Recovery Act information and reporting.
Their goal is to include the ability to track Recovery Act money by
town and by project, as well as to include each project's budget,
schedule, awarded contracts (with contract details), and its on-time
status. In addition, the public can send e-mails regarding stimulus
issues to this site and the Recovery czar's staff is responsible for
replying.
Availability of Resources for Oversight:
Several Massachusetts officials expressed concern that the Recovery Act
did not provide funding specifically for state oversight activities,
despite the importance of ensuring that Recovery Act funds are used
appropriately and effectively. In addition, the task forces the
Governor convened in December 2008 concluded that it is critical the
Inspector General and State Auditor have resources to audit Recovery
Act contracts and management of Recovery Act funds, as well as
recommended that the Attorney General's office should be provided with
the resources to promptly and effectively pursue fraud and abuse.
However, due to the present economic conditions, state officials said
the Massachusetts oversight community is facing budget cuts of about 10
percent at a time when increased oversight and accountability is
critically needed. To illustrate the impact of the impending budget
situation, the Inspector General told us that his department does not
have the resources to conduct any additional oversight related to
Recovery Act funds. This significantly impacts the Inspector General's
capacity to conduct oversight since the budget of the Inspector
General's office is almost entirely composed of salaries, and any cuts
in funding would result in fewer staff available to conduct oversight.
In addition, the State Auditor described how his office has already
furloughed staff for 6 days and anticipates further layoffs before the
end of fiscal year 2009. Similar to the Inspector General's office, 94
percent of his department's budget is for labor and any cuts in funding
generally result in cuts in staff.
Some of these vulnerabilities may be mitigated by emergency legislation
that the Governor recently filed, which included a provision to allow
the pooling of administrative costs. This new legislation may make some
Recovery Act funds available to the audit community for oversight, as
long as federal law permits. Meanwhile, officials stated they are
moving forward with developing and implementing enhancements to the
Massachusetts recovery Web site, yet they are doing so without any
Recovery Act funds. One senior state official stated she did not
believe the Recovery Act provided funding for any state-level
centralized information technology planning or development but noted
that the Recovery Act provided a considerable level of funding for
information technology development at the program level.
Plans to Assess Impact of Recovery Act Funds Are in Initial Stages:
Although they are awaiting federal guidance on how to assess the impact
of the Recovery Act, Massachusetts agencies are in the process of
considering how to assess the number of jobs that will be created. For
example, officials from DHCD are examining different methodologies for
identifying job creation, while the city of Boston is using an economic
forecasting model to evaluate job creation and other economic effects
of projects. In addition, DHCD officials told us that they asked Tax
Credit Assistance Program project managers to report estimates on the
number of jobs, by trade, that will be needed to complete projects and
are also looking for a reliable economic forecasting model to use for
this reporting objective. DHCD officials also said they are waiting for
guidance from HUD on how to calculate and document job creation for
programs funded under the Neighborhood Stabilization Program. DHCD
officials said they plan to use a pre-existing process developed for
community action programs to collect information on job creation for
projects funded by the Weatherization Program. MBTA officials said they
feel confident they can estimate the number of new jobs created using
Recovery Act funds; however, they are waiting for specific guidance
from the U.S. Federal Transit Administration or the Office of
Management and Budget on what to include in job creation calculations,
as well as how to track indirect (jobs created to manufacture goods
used in the project) and leveraged jobs (jobs created by new building
projects that result from transportation improvements). MBTA officials
also said they are looking to outsource some of the required oversight,
including documenting job creation. Finally, state transportation
officials are concerned that incentives may encourage contractors to
overinflate the number of jobs created by their projects. They told us
that, in the absence of specific guidance on how to account for job
creation, some smaller contractors might overreport the number of jobs
created. Furthermore, the cold weather conditions in the commonwealth
can prohibit construction from continuing during the winter months.
Officials suggested the pressure to show that the projects are
contributing to the recovery may encourage some contractors to inflate
the number of jobs created in some months when weather conditions
decrease employment.
Massachusetts's Comments on This Summary:
We provided the Governor of Massachusetts and representatives of
oversight agencies with a draft of this appendix on April 17, 2009, and
representatives from the Governor's office and the oversight agencies
responded that day. In general, they agreed with our draft and provided
some clarifying information, which we incorporated. The officials also
provided technical suggestions that were incorporated, as appropriate.
GAO Contacts:
Stanley J. Czerwinski, (202) 512-6806 or czerwinskis@gao.gov:
Denise de Bellerive Hunter, (617) 788-0575 or hunterd@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Carol L. Patey, Assistant
Director; Ramona L. Burton, analyst-in-charge; Kathleen M. Drennan;
Salvatore F. Sorbello, Jr.; and Robert D. Yetvin made major
contributions to this report.
[End of section]
Appendix XI: Michigan:
Overview:
Use of funds: In estimated 90 percent of fiscal year 2009 Recovery Act
funding provided to states and localities nationwide will be for
health, transportation, and education programs. The three largest
programs in these categories are the Medicaid Federal Medical
Assistance percentage (FMAP) awards, the State Fiscal Stabilization
Fund, and highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds:
* As of April 3, 2009, the Centers for Medicare & Medicaid Services
(CMS) had made about $701 million in increased FMAP grant awards to
Michigan;
* From January 2008 to January 2009, the state's Medicaid enrollment
increased from 1,547,259 to 1,624,245 with the highest share of
increased enrollment attributable to two population groups: (1)
children and families and (2) disabled individuals;
* As of April 1, 2009, Michigan has drawn down about $463 million--
which represents funds drawn down for two quarters--or 66.1 percent of
its initial increased FMAP grant awards;
* Officials plan to use funds made available as a result of the
increased FMAP to cover increased caseloads, offset general fund
shortfalls, ensure compliance with prompt payment provisions, maintain
existing populations of Medicaid recipients, avoid eligibility
restrictions, increase provider payments, maintain current levels of
benefits, and avoid benefit cuts.
Transportation--Highway Infrastructure Investment:
* Michigan was apportioned about $847 million for highway
infrastructure investment on March 2, 2009, by the U.S. Department of
Transportation;
* As of April 16, 2009 the U.S. Department of Transportation had
obligated $110.8 million for 27 Michigan projects;
* As of April 13, 2009, the Michigan Department of Transportation had
advertised 16 projects for competitive bid totaling more than $41
million. These projects included resurfacing I-196 in Grand Rapids and
M-13 in Genesee County.
U.S. Department of Education State Fiscal Stabilization Fund (Initial
Release):
* Michigan was allocated about $1.1 billion from the U.S. Department of
Education's initial release of these funds on April 2, 2009;
* Before receiving the funds, states are required to submit an
application that provides several assurances to the Department of
Education. These include assurances that they will meet maintenance of
effort requirements (or that they will be able to comply with waiver
provisions) and that they will implement strategies to meet certain
educational requirements, including increasing teacher effectiveness,
addressing inequities in the distribution of highly qualified teachers,
and improving the quality of state academic standards and assessments.
Michigan plans to submit its application on or after May 15, 2009, once
it completes its review of all program priorities for which it intends
to use stabilization funds;
* Michigan Department of Education officials told us they consulted
with local education agencies to develop plans and establish priorities
for the use of State Fiscal Stabilization Fund funds that were
consistent with the state's priorities, policies and programs, such as
increasing support for the lowest performing schools.
Michigan is receiving additional Recovery Act funds under other
programs, such as programs under Title I, Part A of the Elementary and
Secondary Education Act of 1965 (ESEA) (commonly known as No Child Left
Behind); the Individuals with Disabilities Education Act (IDEA), Part
B; Federal Transit Administration Transit Grants; and the Edward Byrne
Justice Assistance Grants. These are described in this appendix.
Safeguarding and transparency: All of the state and local agency
officials we interviewed indicated they plan to use existing systems to
separately identify and track Recovery Act funding. State officials
were confident that their existing processes, modified to incorporate
specific Recovery Act codes, would be sufficient to allow them to
separately account for funds as required by the act. However, officials
were uncertain whether local entities have the capacity to similarly
track federal funds that go directly to local entities rather than
through the state.
Michigan also plans to continue using existing internal controls and
processes to provide assurances over Recovery Act spending. Michigan
has established a new Recovery Office to, among other things, provide
oversight and enhance transparency over the availability and use of
funds and maintain a Web site on Michigan's Recovery and Reinvestment
Plan [hyperlink, http://www.michigan.gov/recovery]. Michigan's existing
processes also include ongoing risk-based self-assessments of controls
by major state agencies that are next due on May 1, 2009. However,
these assessments are limited to state agencies. In addition, the state
Auditor General has identified material weaknesses in two key
departments that have received Recovery Act funds--Michigan's
Department of Human Services and Department of Community Health. The
state Auditor General plans to continue working on a biennial basis,
reviewing and reporting on about one-half of the state agencies each
year. The state Auditor General's oversight responsibilities do not
include efforts to ensure accountability over federal funds going
directly to localities. For example, the U.S. Department of Education's
Inspector General identified weak internal controls that resulted in
problems in how the city of Detroit school district used federal funds
for programs under Tile I of ESEA.[Footnote 125] Specifically, its July
2008 report found that Detroit Public Schools, among other things, did
not always properly support compensation charges against ESEA Title I
funds. Detroit Public Schools officials told us that in the spring of
2009 they hired new staff to develop corrective action plans for
addressing existing internal control weaknesses.
Assessing the effects of spending: Michigan officials have some
experience in measuring the impact of funds in creating jobs and
promoting economic growth. The state plans to rely on experts in
economic modeling. The state's financial management system, however, is
old and does not have the capability to track impacts, so the state
will have to rely upon its agencies for this. State officials also told
us that the state information technology group will implement a
database system at the end of April 2009 that will support its
financial management system in recording the impact of Recovery Act
funds.
Michigan Beginning to Use Recovery Act Funds:
Faced with the highest unemployment rate of all the states (as of
February 2009), heavy reliance on the deteriorating car manufacturing
sector, and declining tax revenue, Michigan officials plan to use
Recovery Act funds to address the state's immediate fiscal needs as
well as to help develop long-term capacity. From an employment peak in
June 2000, Michigan had lost about 520,000 jobs as of December 2008.
Unemployment sharply increased from 7.4 percent in February 2008 to 12
percent in February 2009, and several local communities had even higher
rates. For example, since domestic auto manufacturing dominates
Detroit's economy, the unemployment levels in the city have been
consistently higher than in the rest of the state. As of December 2008,
the city's jobless rate was 18.6 percent and according to Detroit
officials reached nearly 22.8 percent in March 2009. To help address
these issues, prior to the enactment of the Recovery Act on February
17, 2009, the federal government provided $23.7 billion to two auto
companies and two financing companies operating in Michigan as part of
the Troubled Asset Relief Program.[Footnote 126]
Michigan has been experiencing declines in state revenues. In January
2009, Michigan reported an expected budget gap of approximately $1.4
billion for fiscal year 2010. In response, the Governor has proposed
budget cuts for fiscal year 2010 of $670 million in key state programs
such as public education, corrections, and community health; $232
million in revenue enhancements, such as tax increases and elimination
of tax exemptions; and using funds made available as a result of $500
million in increased FMAP funds to offset the budget gap.
In March 2009, Michigan's legislature estimated that the state would
receive approximately $7 billion in Recovery Act funding. These
estimates show that the majority of Recovery Act funds would support
education (36 percent), Medicaid (32 percent), and transportation (14
percent), with smaller amounts of funding available for other programs
(18 percent).
Michigan has begun to use some of its Recovery Act funds, as follows.
Increased Federal Medical Assistance Percentage Funds: Medicaid is a
joint federal-state program that finances health care for certain
categories of low-income individuals, including children, families,
persons with disabilities, and persons who are elderly. The federal
government matches state spending for Medicaid services according to a
formula based on each state's per capita income in relation to the
national average per capita income. The amount of federal assistance
states receive for Medicaid service expenditures is known as the
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP
may range from 50 percent to no more than 83 percent, with poorer
states receiving a higher federal matching rate than wealthier states.
The Recovery Act provides eligible states with an increased FMAP for 27
months between October 1, 2008, and December 31, 2010.[Footnote 127] On
February 25, 2009, the Centers for Medicare & Medicaid Services (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.[Footnote 128] Generally, for
federal fiscal year 2009 through the first quarter of federal fiscal
year 2011, the increased FMAP, which is calculated on a quarterly
basis, provides for (1) the maintenance of states' prior year FMAPs;
(2) a general across-the-board increase of 6.2 percentage points in
states' FMAPs; and (3) a further increase to the FMAPs for those states
that have a qualifying increase in unemployment rates. The increased
FMAP available under the Recovery Act is for state expenditures for
Medicaid services. However, the receipt of this increased FMAP may
reduce the funds that states must use for their Medicaid programs, and
states have reported using these available funds for a variety of
purposes.
Under the Recovery Act, Michigan's FMAP will increase to at least 69
percent, up from 58 percent in 2008. From January 2008 to January 2009,
the state's Medicaid enrollment increased from 1,547,259 to 1,624,245,
with the highest share of increased enrollment attributable to two
population groups: (1) children and families and (2) disabled
individuals. As of April 1, 2009, Michigan has drawn down $463 million,
66.1 percent, of its awards to date.[Footnote 129] Michigan officials
indicated that they will use funds made available as a result of the
increased FMAP to cover increased caseloads, offset general fund
shortfalls, ensure compliance with prompt payment provisions, maintain
existing populations of Medicaid recipients, avoid eligibility
restrictions, increase provider payments, maintain current levels of
benefits, and avoid benefit cuts.
Transportation--Highway Infrastructure Investment: The Recovery Act
provides additional funds for highway infrastructure investment using
the rules and structure of the existing Federal-Aid Highway Surface
Transportation Program, which apportions money to states to construct
and maintain eligible highways and for other surface transportation
projects. States must follow the requirements for the existing
programs, and in addition, the governor must certify that the state
will maintain its current level of transportation funding, and the
governor or other appropriate chief executive must certify that the
state or local government to which funds have been made available has
completed all necessary legal reviews and determined that the projects
are an appropriate use of taxpayer funds. Michigan has submitted these
certifications.
As of April 16, 2009, the U.S. Department of Transportation had
obligated $110.8 million for 27 Michigan projects.[Footnote 130] On
March 31, 2009, the Governor signed state legislation authorizing the
use of federal Recovery Act funds for transportation projects that are
expected to create about 25,000 jobs.[Footnote 131] As of April 13,
2009, the Michigan Department of Transportation (MDOT) had advertised
16 projects totaling more than $41 million for competitive bidding.
These projects included resurfacing I-196 in Grand Rapids and M-13 in
Genesee County. Michigan was apportioned about $982 million for
transportation projects, including $847 million for highway
infrastructure investment projects and $135 million for urban and rural
transit projects. MDOT was apportioned about 75 percent of Recovery Act
highway infrastructure investment funds and remaining funds will be
suballocated to metropolitan, regional, and local organizations.
MDOT identified 178 road and bridge projects that would, among other
things, improve road pavement conditions on 1,300 lane miles of
roadways, add lanes to four major roads to reduce congestion, and
perform work on 112 bridges, of which 41 are structurally deficient.
According to MDOT officials, the priority was to select shovel-ready
projects that could be initiated and completed quickly. In Michigan,
Recovery Act funds are being used primarily to fund transportation
projects in fiscal year 2009 that were originally scheduled to begin in
fiscal year 2010 or beyond, as well as some projects that had been
identified but had no source of funding. MDOT officials told us they
intend to complete selecting and approving specific road and bridge
projects to be funded with Recovery Act money by May 1, 2009.
U.S. Department of Education State Fiscal Stabilization Fund: The
Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be
administered by the U.S. Department of Education (Education). The SFSF
provides funds to states to help avoid reductions in education and
other essential public services. The initial award of SFSF funding
requires each state to submit an application to Education that assures,
among other things, it will take action to meet certain educational
requirements, such as increasing teacher effectiveness and addressing
inequities in the distribution of highly qualified teachers.
Michigan's initial SFSF allocation is $1.1 billion. The Recovery Act
provided State Fiscal Stabilization Funds to increase funding for
education over the next several years and avoid program cuts and
teacher layoffs in fiscal year 2010. The amount of funding for each of
the initiatives has not yet been determined. Michigan plans to submit
its application for SFSF funds on or after May 15, 2009, once the state
completes its review of all program priorities for which it intends to
use stabilization funds. Michigan Department of Education officials
told us they consulted with local education agencies to develop plans
and establish priorities for the use of SFSF funds that were consistent
with the state's priorities, policies, and programs, such as increasing
support for the lowest performing schools.
U.S Department of Education ESEA Title I and Individuals with
Disabilities Education Act (IDEA) Funds: Michigan Department of
Education officials told us that although the amount of funding for
each of these two initiatives has not yet been determined they
anticipate that Recovery Act funds for ESEA Title I ($390 million) and
IDEA ($426 million) will generally be used to support the same
priorities that are funded in part by U.S. Department of Education
funds that the state now receives. The state plans to use Recovery Act
funds to support specified educational outcomes--reading, mathematics,
and other learning proficiencies--and foster enhanced access to
education programs for special needs students. Michigan's Department of
Education also intends to use Recovery Act funds to support
professional development among teachers that can help sustain
achievement of educational outcomes beyond the time limits of Recovery
Act funding.
U.S. Department of Justice Edward Byrne Memorial Justice Assistance
Grant Program: Michigan plans to apply for $67 million in Recovery Act
funds for crime control and prevention activities. Michigan Department
of Community Health officials told us that about $41 million of these
funds will support, among other things, state efforts to reduce the
crime lab backlog, funding for multi-jurisdictional courts, and
localities' efforts regarding law enforcement programs, community
policing, and local correctional resources. An additional $26 million
in Recovery Act funds will go directly to localities to support efforts
against drug-related and violent crime. On April 13, 2009, Michigan
began accepting grant applications from local Michigan jurisdictions
for Byrne Justice Assistance grants funding administered by the state
and will continue to accept them until May 11, 2009.
Michigan Is Augmenting Its Approach to Safeguarding and Transparency of
Recovery Act Funds but Gaps Exist:
All state and local agency officials we interviewed indicated that they
plan to use their existing systems to tag and track Recovery Act
funding, including increased FMAP funds. State officials were confident
that their existing processes for receiving, coding, and monitoring
federal funds could be used to separately account for the use of
Recovery Act funds as required by the Act. For example, Michigan's
Department of Education has used the Michigan Electronic Grants System
since 2001 to generate recipient reports on the use of ESEA Title I,
IDEA, and State Fiscal Stabilization Funds. According to its officials,
Michigan Department Education plans to continue to use the grants
system for reporting on recipients' use of Recovery Act funds by
creating new accounting codes for Recovery Act funds.
Although state government officials told us they believed that their
departments have sufficient capabilities to segregate Recovery Act
funds, many expressed less confidence in the capabilities of sub-
recipients to separately account for the use of Recovery Act funds.
State officials expressed concerns about the capacity of smaller
agencies and organizations to separately track and monitor Recovery Act
funds. For example, Detroit Public Schools officials told us that the
school district has not had a clearly specified process for segregating
funds from different funding streams and for how it intends to use
Recovery Act funds. According to the officials, in the last several
years, the district has commingled ESEA Title I funds with its general
funds, making it difficult to track the use of ESEA Title I funds and
show that they were used only for allowable expenditures. In addition,
according to Detroit Public Schools officials, without improvements to
its oversight of these funds, Detroit Public Schools may continue
experiencing oversight challenges with respect to Recovery Act funds
provided through ESEA Title I and IDEA funding streams. For example,
according to a July 2008 report from the U.S. Department of Education's
Office of Inspector General, the Detroit Public Schools district, among
other things, did not always properly support compensation expenses
charged to ESEA Title I funds.[Footnote 132] District officials told us
that in April 2009 they hired new staff to develop corrective action
plans for addressing existing internal control weaknesses.
Safeguarding Recovery Act Funds:
In anticipation of the opportunity to receive additional federal
funding and the need to act quickly, Michigan began preparations before
the Recovery Act was enacted. For example, the Governor established a
working group of executive branch officials from Michigan state
agencies and departments, known as Economic Recovery Coordinators
(ERC), to plan for the use of anticipated Recovery Act funds.
On February 13, 2009, the Governor established a Recovery Office for
coordination of all Recovery Act activities, including communication
with stakeholders within and outside the state. The Recovery Office is
responsible for helping develop priorities for the use of Recovery Act
funds by the state consistent with the objectives of the Recovery Act
and with the state's priorities identified to fully maximize the impact
of these federal funds.[Footnote 133] Similarly, Detroit officials told
us that they began planning in November 2008 for the receipt of
Recovery Act funds and identified over 160 city projects that could be
funded by working closely with city departments and community action
organizations. Lansing Schools District officials told us that they
began planning early for use of Recovery Act funding for the district's
34 schools. The Recovery Office has also been working with state
agencies to develop strategies for overseeing and tracking the use of
Recovery Act funds to comply with requirements of the act and minimize
fraud, waste, and abuse of funds and to help ensure consistent, timely,
and accurate compliance with all reporting and certification
requirements under the Recovery Act. Michigan is also maintaining a Web
site on Michigan's Recovery and Reinvestment Plan [hyperlink,
http://www.michigan.gov/recovery].
According to state officials, Recovery Act funds must be appropriated
by the state legislature before the state is authorized to spend the
money. In addition, the Michigan Senate created a special committee,
known as the Senate Federal Stimulus Oversight subcommittee, to oversee
Recovery Act funds.
Michigan Department of Management and Budget officials told us that
they are prepared to manage Recovery Act funds because they plan to use
existing processes for purchasing goods and services. For example,
Michigan will use existing processes to obtain competitive bids for
contracts awarded by state agencies under the Recovery Act in
accordance with state law, which state officials described as requiring
competitive bids (other than certain exceptions such as emergencies or
imminent protection).[Footnote 134] In January 2009, Michigan created a
prequalification program for vendors to provide an inventory of
prequalified vendors ready to quickly respond to bids for work that
will spend Recovery Act funds. As part of preparing to spend Recovery
Act funds, Michigan Department of Management and Budget officials also
told us they have been looking at ways to further streamline awarding
contracts. Michigan also allows local units of government to join state
contracts to leverage the state's negotiating and purchasing power.
Michigan Using Existing Internal Controls:
Michigan will continue to use existing internal controls to provide
assurances over Recovery Act spending, including ongoing self-
assessments of controls by major state departments that are next due to
the state Auditor General on May 1, 2009. The self-assessments include
identification of internal controls and programmatic weaknesses and
developing and tracking actions taken in response to corrective action
plans.
The state Auditor General told us his office will include specific
audit procedures to address Recovery Act funding as part of the planned
procedures for its ongoing federal Single Audits of state departments
which will start again in July 2009. However the state Auditor General
does not yet have specific plans to audit Recovery Act funds. The state
Auditor General's Single Audit approach is to audit and report on
individual state departments. Approximately one-half of Michigan's 18
departments are audited each year, with the audits covering 2 fiscal
years of departmental activity.
Recent state Auditor General Single Audit Act reports identified
numerous material weaknesses in key state operations that are slated to
receive significant amounts of Recovery Act funds. For example, the
state Auditor General reported in August 2007 that, for fiscal years
2005 and 2006, Michigan's Department of Human Services did not
materially comply with federal program requirements regarding allowed
or unallowed costs, subrecipient monitoring, and eligibility. The
October 2008 Single Audit report on Michigan's Department of Community
Health stated that internal controls were not sufficient to ensure the
accuracy of financial accounting and reporting and compliance with
federal requirements for 10 of 11 major programs.
The Michigan Auditor General's oversight responsibilities do not
include most subrecipients[Footnote 135] that receive federal funding,
so any upfront safeguards to track or ensure accountability over
Recovery Act funds going directly to localities have not been
determined. Officials from Detroit's Office of the Auditor General told
us that they intend to audit the use of Recovery Act funds. The
superintendent of the Lansing school district told us the district,
along with all the other 840 local school districts in the state,
contract with independent public accountants to perform annual
financial statement audits.
State Has Identified Staffing and Resource Constraints as a Significant
Challenge in Monitoring the Use of Recovery Act Funds:
A lack of staff and uncertainty of funding available under the Recovery
Act to oversee the use of federal funds may pose challenges for
Michigan. Michigan officials reported that a hiring freeze may not
allow some state agencies to hire staff to increase their Recovery Act
oversight efforts. Officials with the state's Departments of Community
Health and Education and the Lansing School District are concerned
about available administrative resources to cover increased oversight
activities on the use of Recovery Act funds. For example, the state
Department of Community Health said that because it has been downsizing
for several years through attrition and early retirement, it does not
have sufficient staff to cover its current responsibilities and that
further reductions are planned for fiscal year 2010. However, state
officials told us that they will take the actions necessary to ensure
that state departments have the capacity to provide proper oversight
and accountability for Recovery Act funds.
Michigan Officials Concerned about the Lack of Federal Guidance:
Michigan officials we spoke with in March 2009 wanted additional
federal guidance related to state responsibilities and reporting
requirements under the Recovery Act and expressed concern about
spending funds before they had received such guidance. For example,
officials were unclear about the state's responsibilities concerning
tracking or reporting on funds that go directly to local entities, such
as transportation funding going directly to localities for urban
transit. In addition, Michigan Department of Education officials
expressed concern about the lack of guidance from the U.S. Department
of Education regarding several aspects of how to manage the receipt,
allocation, use, and reporting of Recovery Act funds. In particular,
state officials said they had not yet received guidance on tracking
funds under IDEA, Part C and were concerned that recipients of grant
funds might report information inconsistently. On April 1, 2009, the
U.S. Department of Education issued additional guidance on the use of
Recovery Act funds.
Plans to Assess Impact of the Recovery Act Are Preliminary:
Michigan may face challenges in assessing the impact of Recovery Act
funds because the state's financial management system is old and does
not have the capability to track impacts, so the state will have to
rely upon its agencies for this. Furthermore, state officials said they
are aware of the requirement that the state measure the extent that
certain Recovery Act funds create jobs and promote economic growth and
have identified prospective participants to estimate the impact of
Recovery Act funds. State officials also told us that the state
information technology group will implement a database system at the
end of April 2009 that will support its financial management system in
recording the impact of Recovery Act funds. They told us that the
Michigan Economic Development Corporation, universities in the state
and other experts in economic modeling are expected to participate in
prospective analysis supporting the potential impact of Recovery Act
funds on a project basis. Additionally, the Department of Energy, Labor
and Economic Growth and the state Treasurer will also be involved in
analysis related to the impact of Recovery Act's funds.
Michigan's Comments on This Summary:
We provided the Governor of Michigan with a draft of this appendix on
April 17, 2009. Michigan's Recovery Czar responded for the Governor on
April 20, 2009, stating that staff in the Michigan Governor's office
and the Michigan Economic Recovery Office have reviewed the draft
appendix and, in general, agree with its overview of the state's
preparations for receiving and spending Recovery Act funding. These
officials provided technical comments on the draft which were
incorporated, as appropriate.
GAO Contacts:
Susan Ragland, (202) 512-8486 or raglands@gao.gov:
Revae Moran, (202) 512-3863 or moranr@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Robert Owens, Assistant
Director; Jeffrey Isaacs, Analyst-in-Charge; Manuel Buentello; Leland
Cogliani; Anthony Patterson; and Mark Ward made major contributions to
this report.
[End of section]
Appendix XII: Mississippi:
Overview:
Use of funds: An estimated 90 percent of Recovery Act funding provided
to states and localities nationwide in fiscal year 2009 (through Sept.
30, 2009) will be for health, transportation and education programs.
The three largest programs in these categories are the Medicaid Federal
Medical Assistance Percentage (FMAP) awards, the State Fiscal
Stabilization Fund, and highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds:
* As of April 1, 2009, Centers for Medicare and Medicaid Services (CMS)
had made about $225.5 million in increased FMAP grant awards to
Mississippi;
* As of April 1, 2009, the state had drawn down $114.1 million, or just
more than 50 percent of its initial increased FMAP grant awards;
* State officials reported that they plan to use funds made available
as a result of the increased FMAP to cover their increased Medicaid
caseload and to offset expected state budget deficits due to lower
general fund revenue collections.
Transportation--Highway Infrastructure Investment:
* On March 2, 2009, the U.S. Department of Transportation apportioned
Mississippi about $355 million for highway infrastructure investment;
* As of April 16, 2009, the U.S. Department of Transportation had
obligated approximately $137 million for 32 Mississippi projects;
* As of April 1, 2009, Mississippi had signed contracts for 10 projects
totaling approximately $77 million. The Mississippi Department of
Transportation (MDOT) used a competitive and transparent process to
select projects. These projects include activities such as road
construction and road maintenance.
U.S. Department of Education State Fiscal Stabilization Fund (Initial
Release):
* On April 2, 2009, the U.S. Department of Education allocated
Mississippi about $321 million from the initial release of these funds;
* Before receiving the funds, states are required to submit an
application that provides several assurances to the Department of
Education. These include assurances that they will meet maintenance of
effort requirements or will be able to comply with waiver provisions
and that they will implement strategies to meet certain educational
requirements, including increasing teacher effectiveness, addressing
inequities in the distribution of highly qualified teachers, and
improving the quality of state academic standards and assessments.
Mississippi plans to submit its application for state fiscal
stabilization funds after it receives and reviews the final program
guidance;
* Mississippi expects to use these funds to help restore funding for
elementary, secondary, and public higher education to prior levels in
order to minimize reductions in education services in fiscal years
2009, 2010, and 2011. The state does not foresee having leftover funds
for additional subgrants to local education agencies.
Mississippi is receiving additional Recovery Act dollars to fund other
programs, including employment and training programs under the
Workforce Investment Act, capital and management activities under the
Public Housing Capital Fund, and gap financing for low-income housing
tax credit projects under the Taxpayer Credit Assistance Program. The
status of Mississippi's plans for using these funds is described
throughout this appendix.
Safeguarding and transparency: The State Auditor's office has taken
steps to ensure accountability. For example, the office hosted a
meeting with state agency heads to discuss accountability requirements
and expectations, and the office plans to conduct training seminars on
accounting for and controlling the use of Recovery Act funds. In
addition, officials with the auditor's office said Mississippi plans to
add special accounting codes to the statewide accounting system in
order to track the expenditure of Recovery Act funds. The state also
plans to publicly report Recovery Act spending that state agencies
receive directly. State officials noted that the statewide accounting
system would not capture those funds that the federal government
allocates directly to local and regional governmental organizations,
nonprofit organizations, or higher education entities. According to the
Governor's office, the state is developing a framework that would
require these entities to report Recovery Act revenues and expenses to
a central website.
Assessing the effects of spending: According to state officials, they
are waiting for the federal government to provide more specific
guidance for measuring job creation and retention. For example, the
officials noted that the federal government's Office of Management and
Budget (OMB) should provide more guidance for estimating job creation
and retention.
Mississippi Beginning to Use Recovery Act Funds:
Mississippi has begun to use some of its Recovery Act funds, as
follows.
Increased Federal Medical Assistance Percentage Funds: Medicaid is a
joint federal-state program that finances health care for certain
categories of low-income individuals, including children, families,
persons with disabilities, and persons who are elderly. The federal
government matches state spending for Medicaid services according to a
formula based on each state's per capita income in relation to the
national average per capita income. The amount of federal assistance
states receive for Medicaid service expenditures is known as the
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP
may range from 50 percent to no more than 83 percent, with poorer
states receiving a higher federal matching rate than wealthier states.
The Recovery Act provides eligible states with an increased FMAP for 27
months between October 1, 2008, and December 31, 2010.[Footnote 136] On
February 25, 2009, the Centers for Medicare & Medicaid Services (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.[Footnote 137] Generally, for
federal fiscal year 2009 through the first quarter of federal fiscal
year 2011, the increased FMAP, which is calculated on a quarterly
basis, provides for (1) the maintenance of states' prior year FMAPs;
(2) a general across-the-board increase of 6.2 percentage points in
states' FMAPs; and (3) a further increase to the FMAPs for those states
that have a qualifying increase in unemployment rates. The increased
FMAP available under the Recovery Act is for state expenditures for
Medicaid services. However, the receipt of the increased FMAP may
reduce the funds that states must use for their Medicaid programs, and
states have reported using these available funds for a variety of
purposes.
Under the Recovery Act, Mississippi's FMAP will increase to 83.62
percent, an increase of 7.33 percentage points over its fiscal year
2008 FMAP. As of April 1, 2009, Mississippi had drawn down $114.1
million or just more than 50 percent of its initial increased FMAP
grant awards. Mississippi officials plan to use funds made available as
a result of the increased FMAP to cover their increased Medicaid
caseload and to offset expected state budget deficits due to lower
general fund revenue collections, avoiding cuts in services.
Mississippi officials indicated that simplifications to CMS expenditure
reporting systems are needed to automatically generate the increased
FMAP applicable to qualifying expenditures. Officials also reported a
need for CMS guidance regarding programmatic changes that were made to
its Family Planning Waiver since July 1, 2008, and whether these
changes affect the state's ability to draw down the increased FMAP.
Transportation--Highway Infrastructure Investment: The Recovery Act
provides additional funds for highway infrastructure investment using
the rules and structure of the existing Federal-Aid Highway Surface
Transportation program, which apportions money to states to construct
and maintain eligible highways and for other surface transportation
projects that could affect highways. States must follow the
requirements for the existing programs, and in addition, the governor
must certify that the state will maintain its current level of
transportation spending, and the governor or other appropriate chief
executive must certify that the state or local government to which
funds have been made available has completed all necessary legal
reviews and determined that the projects are an appropriate use of
taxpayer funds. Mississippi's Governor provided this certification in a
letter dated March 17, 2009. The Governor noted that transportation
spending authority in Mississippi is granted annually by the state
Legislature to the Mississippi Department of Transportation (MDOT),
which operates under the guidance of independently elected
transportation commissioners. As such, MDOT's Executive Director also
provided this certification.
As of April 1, 2009, MDOT had signed contracts for 10 projects totaling
approximately $77 million.[Footnote 138] The agency used a transparent
and competitive process for awarding contracts for these projects. MDOT
issued an advance notice on its Web site to inform contractors of the
opportunity to bid on the projects. Furthermore, MDOT used cost as a
key criterion for awarding contracts. MDOT awarded the contract to the
lowest bid, provided that the lowest bid did not exceed the state's
cost estimate for the project by more than 10 percent. These projects
include the expansion of State Route 19 in eastern Mississippi into a
four-lane highway. This project fulfills part of MDOT's 1987 Four-Lane
Highway Program, which seeks to link every Mississippian to a four-lane
highway within 30 miles or 30 minutes. In addition, MDOT plans to
upgrade a section of a major road, US-78, which runs across northern
Mississippi. An MDOT official anticipated the project would have major
economic benefits for Mississippi.
U.S. Department of Education State Fiscal Stabilization Fund: The
Recovery Act created a State Fiscal Stabilization Fund (SFSF), to be
administered by the U.S. Department of Education (Education). The SFSF
provides funds to states to help avoid reductions in education and
other essential public services. The initial award of SFSF funding
requires each state to submit an application to Education that assures,
among other things, it will take actions to meet certain educational
requirements, such as increasing teacher effectiveness and addressing
inequities in the distribution of highly qualified teachers.
Mississippi's initial SFSF allocation is about $321 million. The
Recovery Act specifies that 81.8 percent is to be used for support of
elementary, secondary and postsecondary education, and early childhood
programs. The Recovery Act also authorizes the Governor to use 18.2
percent of these funds for "public safety and other government
services," which may include education. Mississippi's Governor has not
yet announced specific plans for the use of these other government
services funds. According to state education officials, Mississippi
will file its application for these funds after receiving and reviewing
sufficient guidance. The funds will be appropriated to the state
education agencies by the Mississippi State Legislature when it returns
to session later this spring. The funding is expected to be used to
stabilize education budgets in fiscal years 2009, 2010, and 2011 to
help avoid reductions in education services. Restoring funding in those
years to required levels is expected to consume all of the
stabilization funds to be received by the state.
Mississippi Is Planning for Recovery Act Funding:
Mississippi began planning for how the state would provide oversight of
Recovery Act funding in February 2009. Officials from the Governor's
Office said that the state did not establish a new office to provide
statewide oversight of Recovery Act funding, in part because they did
not believe that the act provided states with funds for administrative
expenses--including additional staff. The Governor's Director of
Federal Policy is serving as the stimulus coordinator for the state
with support from a loaned executive from a statewide business
development association. The stimulus coordinator told us she met
individually with state agency heads to discuss their plans for
spending funds allocated under the Recovery Act. In late March 2009,
the Governor submitted a letter certifying that Mississippi would
request funds available under the Recovery Act and such funds will be
used to create jobs and promote economic growth. The Governor added in
the certification letter that the state would continue to examine the
various guidelines and fund-specific requirements associated with the
Recovery Act funds. In April 2009, the Governor hosted a Mississippi
Stimulus Summit where state agency heads provided information on the
detailed steps that were already being taken or were planned regarding
the use of Recovery Act funds. Finally, the Governor established a
state stimulus Web site [hyperlink, http://www.stimulus.ms.gov] to
provide information to the public on the Recovery Act funding received
by the state.
Addressing State's Fiscal Challenges Is Mississippi's Goal for Using
Recovery Act Funding:
Mississippi officials plan to use the anticipated $2.8 billion in
Recovery Act funding to address fiscal challenges the state has
experienced due to a weakened economy. State officials reported that
Mississippi entered a recession in late 2008. One indicator of
Mississippi's weakened economy is the state's unemployment rate, which
was 8.7 percent in January 2009 compared with 6.9 percent in June 2008.
The state's weakened economy has also resulted in lower-than-expected
tax revenues for the state's current fiscal year. According to the
Governor, Mississippi's Revenue Estimating Committee projected that the
state's fiscal year 2009 general fund revenue will fall $301 million,
or 5.9 percent, short of expectations. In response to anticipated
budget shortfalls, the Governor made two cuts to most state agency
budgets. In November 2008, the Governor cut most agency budgets by 2
percent, or $42 million. In January 2009, the Governor cut state
agencies' budgets by an additional $158.3 million, bringing the total
cuts to date for the fiscal year to $200 million. Each agency or
department received a budget cut of up to 5 percent (see table
8).[Footnote 139] Although the Governor anticipated that Congress would
pass a stimulus package, he ordered the cuts in agency budgets to
comply with state law that requires a balanced budget for the fiscal
year, which ends on June 30.
Table 8: Budget Reductions for Selected State Agencies in Mississippi
for Fiscal Year 2009:
Selected agency: Corrections;
Appropriations for fiscal year 2009: $328,180,918;
Total budget cuts in fiscal year 2009: $16,409,046;
Percentage change during fiscal year 2009: -5.0.
Selected agency: Highway Safety Patrol;
Appropriations for fiscal year 2009: $48,440,661;
Total budget cuts in fiscal year 2009: $2,422,033;
Percentage change during fiscal year 2009: -5.0.
Selected agency: Judiciary and Justice;
Appropriations for fiscal year 2009: $63,799,714;
Total budget cuts in fiscal year 2009: $3,189,985;
Percentage change during fiscal year 2009: -5.0.
Selected agency: Economic Development;
Appropriations for fiscal year 2009: $25,748,751;
Total budget cuts in fiscal year 2009: $1,287,438;
Percentage change during fiscal year 2009: -5.0.
Selected agency: Higher Education;
Appropriations for fiscal year 2009: $961,063,754;
Total budget cuts in fiscal year 2009: $46,649,166;
Percentage change during fiscal year 2009: -4.9.
Selected agency: Fiscal Affairs;
Appropriations for fiscal year 2009: $72,724,225;
Total budget cuts in fiscal year 2009: $3,577,428;
Percentage change during fiscal year 2009: -4.9.
Selected agency: Hospitals and Hospital Schools;
Appropriations for fiscal year 2009: $278,480,866;
Total budget cuts in fiscal year 2009: $13,226,449;
Percentage change during fiscal year 2009: -4.7.
Selected agency: Public Education;
Appropriations for fiscal year 2009: $2,517,323,677;
Total budget cuts in fiscal year 2009: $92,021,567;
Percentage change during fiscal year 2009: -3.7.
Selected agency: Public Health;
Appropriations for fiscal year 2009: $61,264,961;
Total budget cuts in fiscal year 2009: $1,705,331;
Percentage change during fiscal year 2009: -2.8.
Selected agency: Social Welfare;
Appropriations for fiscal year 2009: $692,477,684;
Total budget cuts in fiscal year 2009: $6,603,119;
Percentage change during fiscal year 2009: -1.0.
Source: GAO analysis of Mississippi Department of Finance and
Administration data.
[End of table]
To mitigate the impact of economic fluctuations on state revenues,
Mississippi has historically set aside 2 percent of projected revenues
into a budget stabilization fund. In 2008, however, the state did not
set aside any revenues for this fund, which made available an
additional $100 million for Mississippi's 2009 fiscal year budget.
Going forward, Mississippi faces budgetary challenges for fiscal year
2010. According to the Governor, the state's Revenue Estimating
Committee projects that Mississippi's revenues will be $402.7 million,
or 7.9 percent, short of expectations. State officials anticipate that
the recession will increase the demand for certain government services,
including unemployment benefits, Medicaid, food stamps, and rental
assistance. Some Mississippi officials believe that the state's
recession could continue through fiscal year 2012.
Most of the Recovery Act funds that Mississippi will receive are
directed toward education, Medicaid, and transportation programs (see
figure
9). According to the Governor's office, state law provides for state
agencies to escalate their spending plans to account for federal funds
received under the Recovery Act. State officials also told us that the
Legislature was considering adding further escalation language to the
current fiscal year's appropriations bills that would authorize state
agencies to spend any Recovery Act funds received. The Legislature
normally conducts its regular session between the beginning of January
and the end of March. However, the Legislature recessed early during
the 2009 regular session in part because of uncertainty regarding how
the state's portion of Recovery Act funds should be spent. The
Legislature plans to reconvene in early May 2009 to complete its work
on the state's fiscal year 2010 budget.
Figure 9: Estimated Allocation of Mississippi's Recovery Act Funding by
Major Programs:
[Refer to PDF for image: pie-chart]
Education: 46% (Fiscal Stabilization Fund: Government Services Fund[A]:
3%0;
Medicaid: 27%;
Transportation: 14%;
Other programs: 13%.
Source: GAO analysis of data provided by Mississippi Joint Committee on
Performance Evaluation and Expenditure Review.
[A] A portion of the Fiscal Stabilization Fund is allocated for the
Government Services Fund. The Government Services Fund may be used for
public safety and other government services, including assistance for
elementary and secondary education and public institutions of higher
education.
[End of figure]
Mississippi Has an Accounting System to Track Recovery Act Spending:
Officials with the State Auditor's office told us that special
accounting codes will be added to the Statewide Automated Accounting
System (SAAS) in order to track the expenditure of Recovery Act funds.
The state also plans to publicly report Recovery Act spending that
state agencies receive directly. However, state officials noted that
SAAS would not track Recovery Act funds allocated directly to local and
regional governmental organizations, nonprofit organizations, or higher
education entities. For example, cities with a population of more than
50,000 residents can apply directly to federal agencies for certain
programs, such as Community Development Block Grants. In addition,
Mississippi has 10 regional planning and development districts that may
receive funding directly from federal agencies. Finally, Mississippi
localities may receive Recovery Act funds directly from the Appalachian
Regional Commission or Delta Regional Authority, federally chartered
regional commissions charged with promoting economic development in
certain parts of the state. According to the Governor's office, the
state is developing a framework that would require these entities to
report Recovery Act revenues and expenses to a central website.
Some State Agencies Have Made Spending Decisions for Recovery Act
Funds:
A few state agencies have made spending decisions for Recovery Act fund
apportionments received:
* The Mississippi Department of Employment Security (MDES) received
about $40.7 million in Recovery Act funding for adult, dislocated
worker, and youth activity programs under the Workforce Investment Act.
MDES officials told us they planned to use the youth activity funding
to provide summer youth programs across the state.
* The Jackson Public Housing Authority received a $1.1 million
allocation to its Public Housing Capital Fund from the Department of
Housing and Urban Development (HUD) for capital and management
activities, including modernization and development of public housing
projects. The officials told us they planned to use the Recovery Act
allocation to fund projects already included in their 5-year Capital
Fund Plan--for instance, one project will redevelop housing in
Jackson's North Midtown Community.
* The Mississippi Home Corporation (MHC) was allocated approximately
$21.9 million to provide additional gap financing to Low Income Housing
Tax Credit (LIHTC) projects under the Taxpayer Credit Assistance
Program (TCAP). MHC officials told us they had provided an initial
notice to developers of LIHTC projects in the state about the
additional funding provided under the Recovery Act for the TCAP but
were waiting for HUD to issue final guidance before releasing details
on their plans for administering the Recovery Act funding.
State Auditor Coordinating Plans for Safeguards and Controls:
The State Auditor's office has taken and plans to take a number of
steps to establish accountability. For example, in March 2009 the
office hosted a meeting with staff from state agencies that are
expected to receive Recovery Act funds to discuss accountability
requirements and expectations. The office is planning to conduct
training seminar for local officials and others concerned about
accounting for and controlling the use of Recovery Act funds. Overall,
the State Auditor believes the state has adequate controls for the use
of Recovery Act funds but is concerned that the funding of new programs
and the significant increase in funding of current programs will stress
the control system. In addition to the State Auditor, a legislative
oversight committee and internal audit offices within each agency may
provide oversight of Recovery Act funds. For example, the legislative
committee staff in March 2009 said they began tracking the Recovery Act
and the state's Recovery Act-related legislation and funding provided
to Mississippi.
Mississippi's most recent Single Audit Act findings highlight two
material weaknesses in internal control over financial reporting at one
state agency that will receive Recovery Act funds. In its Single Audit
report for fiscal year 2008, the State Auditor found that the
Mississippi Department of Employment Security did not record the tax
liens receivable account and corresponding Unemployment Insurance
Premiums revenue account on the department's financial statements in
accordance with generally accepted accounting principles. As a result,
the State Auditor proposed, and management made an audit adjustment of,
approximately $35.5 million to properly state the department's current
year financial statements. In addition, the State Auditor found that
the department's internal controls over its tax lien receivable system
were inadequate, and management proposed audit adjustments totaling
approximately $6.4 million to properly state the department's tax lien
receivables. The State Auditor also identified one material weakness in
internal control over compliance at the Mississippi Department of Human
Services for the department's failure to verify and document compliance
with the Davis-Bacon Act requirements for the Social Services Block
Grant, which could result in questioned costs and funds due back to the
federal granting agency.
Resources for Conducting Oversight Are Limited:
State officials stated that the Recovery Act does not provide funding
to oversight entities, but the federal government expects states to
ensure accountability and transparency over expenditures. For example,
officials from the State Auditor's office told us they had experienced
significant staff turnover in recent years and relied on less-
experienced staff to conduct audit work. In addition, the Lieutenant
Governor expressed concern about whether the State Auditor could be
funded to conduct additional Recovery Act-related auditing
responsibilities, as was done for Hurricane Katrina related oversight.
Officials from the State Auditor's office added that they normally
charged the audit agency for the cost of audit services provided, but
they were not sure whether Recovery Act funds could be used for this
purpose. The State Auditor noted that the office would like to hire
certified public accounting firms to conduct Recovery Act oversight
work rather than increase staff. Further, the officials noted that OMB
should provide guidance regarding state level oversight, auditing, and
administrative costs--such as how costs should be paid for and with
what funds.
The legislative oversight committee also expressed concerns about the
capabilities of the State Auditor's office and some state agency
internal audit functions. For example, in a recent report, the
committee noted that low staffing levels and high turnover in the
office's Department of Audit's Financial and Compliance Audit Division
had resulted in a decreased experience level of audit staff and reduced
institutional knowledge to use in forming auditor judgment.[Footnote
140] In addition, the committee noted there were limitations in the
internal audit functions of some state agencies--for instance, state
law required 19 agencies to establish an internal audit function; 13
had done so as of December 2008. Further, the committee reviewed the
internal audit functions of 8 agencies and found that most focused on
reviewing agency programs rather than testing internal controls.
Finally, the committee found that the Executive Director for these
agencies reviewed and approved the plans for their internal audit
function, but this could limit the internal auditor's freedom to
determine the internal controls tested and programs reviewed.
Assessing the Impact of Recovery Act Funds Requires Clear Federal
Guidance:
Officials from the State Auditor's office recommended that the federal
government provide specific guidance for reporting on the use of
Recovery Act funds to support job creation or retention because the
reliability of such estimates depends critically on using a solid
methodology. Furthermore, the officials recommended that OMB provide a
clear definition of time-limited, part-time, full-time, and permanent
jobs. Another concern was how to report on jobs created from the use of
funds for programs, such as unemployment, food stamps, and Medicaid.
These funds make up a large portion of the Recovery Act funding, but,
according to state officials, the purpose of these programs is not job
creation and retention.
The State Auditor's office also expressed concerns about data
reliability. For example, staff noted that standardization of data was
lacking and the various decentralized reporting mechanisms, while
certainly cheaper and less burdensome on state agencies, will not
likely provide meaningful data on the impact of Recovery Act funds.
Additionally, the staff noted that, if state agencies require their
subrecipients to provide nonstandardized and nonuniform data, it will
be difficult to identify trends at the state level. They also expressed
concern that decentralized reporting would bypass the state-level
efforts of accountability. Ultimately, they said state-level,
centralized reporting using standardized and uniform data collection
elements would be beneficial for state and federal oversight and would
raise both the actual and perceived level of accountability.
As an example of state efforts to assess the impact of Recovery Act
funds, MDOT hired a contractor to conduct an economic impact analysis
of projects MDOT had preselected to receive Recovery Act funding.
According to one of the contractor's staff, these projects were
preselected on the basis that they were "shovel ready" during the first
90 days of the state receiving stimulus funds. The contractor used a
forecasting model to measure the impact that an estimated $726 million
in transportation stimulus funding would have on the state of
Mississippi with regard to increased economic spending and the number
of jobs from 2009 through 2011.[Footnote 141]
Mississippi's Comments on This Summary:
We provided the Governor of Mississippi with a draft of this appendix
on April 17, 2009. The Director of Federal Policy, who serves as the
stimulus coordinator, responded for the Governor on April 20, 2009. The
official provided technical suggestions that were incorporated, as
appropriate.
GAO Contacts:
John K. Needham, (202) 512-5274 or needhamjk1@gao.gov:
Norman J. Rabkin, (202) 512-9723 or rabkinn@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Chris Keisling, assistant
director; Marshall Hamlett, analyst-in-charge; David Adams; Michael
O'Neill; Carrie Rogers, and Erin Stockdale made major contributions to
this report.
[End of section]
Appendix XIII: New Jersey:
Overview:
Use of funds: An estimated 90 percent of Recovery Act funding provided
to states and localities nationwide in fiscal year 2009 (through Sept.
30, 2009) will be for health, transportation and education programs.
The three largest programs in these categories are the Medicaid Federal
Medical Assistance Percentage (FMAP) awards, the State Fiscal
Stabilization Fund, and highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds:
* As of April 3, 2009, the Centers for Medicare & Medicaid Services
(CMS) had made about $550 million in increased FMAP grant awards to New
Jersey. As of April 1, 2009, the state has drawn down $362.2 million,
which is almost 66 percent of its awards to date;
* Officials stated that the funds made available as a result of the
increased FMAP allow the state to cover the increase in caseload and
maintain current populations and benefits. In addition, these funds
will help balance the state's budget and allow the state to eliminate
premiums for children in families with incomes less than 200 percent of
the federal poverty level in New Jersey's State Children's Health
Insurance Program.
Transportation--Highway Infrastructure Investment:
* New Jersey was apportioned about $652 million for highway
infrastructure investment on March 2, 2009, by the U.S. Department of
Transportation. As of April 16, 2009, the U.S. Department of
Transportation had obligated $280.8 million for 12 projects. Under the
Recovery Act, highway funds are reimbursable, and New Jersey will
receive funds after all or part of each project is completed;
* As of April 16, 2009, the New Jersey Department of Transportation
(NJDOT) had advertised competitive bids on 10 projects totaling about
$269.5 million. New Jersey has determined that it can meet Recovery Act
requirements for obligating highway infrastructure investment funds;
* These projects included road improvements, pavement and signal
rehabilitation, bridge deck repairs, and major design elements for
major projects.
U.S. Department of Education State Fiscal Stabilization Fund (SFSF):
* New Jersey was allocated about $891 million from the initial release
of these funds on April 2, 2009, by the U.S. Department of Education;
* Before receiving the funds, states are required to submit an
application that provides several assurances to the Department of
Education. These include assurances that they will meet maintenance of
effort requirements (or that they will be able to comply with waiver
provisions) and that they will implement strategies to meet certain
educational requirements, including increasing teacher effectiveness,
addressing inequities in the distribution of highly qualified teachers,
and improving the quality of state academic standards and assessments.
State officials estimated that most of the SFSF funds will have an
impact on the state's fiscal year 2010 budget, which will start on July
1, 2009. As of April 16, 2009, New Jersey had not applied for SFSF
funds;
* State officials stated that, pending a New Jersey Supreme Court
decision on the state's new education funding formula, the SFSF funds
for primary education would follow that formula. The state's use of
SFSF funds for higher education is unclear. State officials are
currently trying to determine what portion of these funds will be
allocated to higher education. New Jersey expects to make that
determination in late April.
New Jersey is also receiving additional Recovery Act funds under other
programs, such as transit capital assistance and fixed guideway
modernization funds, Edward Byrne Memorial Justice Assistance Grants,
and housing capital assistance. The status of plans for using these
funds are described throughout this appendix.
Safeguarding and transparency: New Jersey plans to use several entities
to oversee its Recovery Act funds. The Governor has established a state
Recovery Accountability Task Force to coordinate and review how state
and local agencies use Recovery Act funds as well as provide guidance
and best practices for project selection and internal controls, among
other things. The state has several accountability agencies that will
undertake different aspects of Recovery Act oversight. New Jersey's
agencies are adding capabilities to their accounting systems to track
Recovery Act funds. Although New Jersey will publicly report the
state's Recovery Act spending, state officials said they might not be
aware of all federal funds sent directly to other entities, such as
public housing authorities. State officials have some concerns about
the use of some Recovery Act funds, such as by independent local
entities in the state, and they are developing some strategies to
mitigate those risks.
Assessing the effects of spending: New Jersey state agencies are in the
early stages of developing plans to assess the effects of Recovery Act
spending. Different state and local agencies will have different ways
of collecting or estimating jobs created or retained. New Jersey is
planning to develop a methodology to collect this data but is waiting
to see what federal guidance requires.
New Jersey Beginning to Use Recovery Act Funds:
New Jersey has begun to use some of its Recovery Act funds, as follows.
Increased Federal Medical Assistance Percentage Funds: Medicaid is a
joint federal-state program that finances health care for certain
categories of low-income individuals, including children, families,
persons with disabilities, and persons who are elderly. The federal
government matches state spending for Medicaid services according to a
formula based on each state's per capita income in relation to the
national average per capita income. The amount of federal assistance
states receive for Medicaid service expenditures is known as the
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP
may range from 50 percent to no more than 83 percent, with poorer
states receiving a higher federal matching rate than wealthier states.
The Recovery Act provides eligible states with an increased FMAP for 27
months between October 1, 2008, and December 31, 2010.[Footnote 142] On
February 25, 2009, the Centers for Medicare & Medicaid Services (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.[Footnote 143] Generally, for
fiscal year 2009 through the first quarter of fiscal year 2011, the
increased FMAP, which is calculated on a quarterly basis, provides for
(1) the maintenance of states' prior year FMAPs; (2) a general across-
the-board increase of 6.2 percentage points in states' FMAPs; and (3) a
further increase to the FMAPs for those states that have a qualifying
increase in unemployment rates. The increased FMAP available under the
Recovery Act is for state expenditures for Medicaid services. However,
the receipt of the increased FMAP may reduce the funds that states must
use for their Medicaid programs, and states have reported using these
available funds for a variety of purposes.
As of April 1, 2009, New Jersey has drawn down $362.2 million in
increased FMAP grant awards, which is almost 66 percent of its awards
to date.[Footnote 144] New Jersey officials reported that they plan to
use funds made available as a result of the increased FMAP to offset
state general fund deficits, cover the state's increased Medicaid
caseload and maintain current populations and benefits.[Footnote 145]
This funding will also be used to help ensure that the Medicaid prompt
payment requirements are met.[Footnote 146] Additionally, state
officials noted that the funds made available as a result of the
increased FMAP are allowing them to eliminate premiums for children in
families with incomes less than 200 percent of the Federal Poverty
Level in New Jersey's State Children's Health Insurance Program
(SCHIP).[Footnote 147] This will help the state retain children in
SCHIP who would otherwise be terminated from the program for nonpayment
of premiums.
Transportation--Highway Infrastructure Investment: The Recovery Act
provides additional funds for highway infrastructure investment using
the rules and structure of the existing Federal-Aid Highway Surface
Transportation Program, which apportions money to states to construct
and maintain eligible highways and for other surface transportation
projects that could affect highways. States must follow the
requirements for the existing programs, and in addition, the governor
must certify that the state will maintain its current level of highway
spending and the governor or other appropriate chief executive must
certify that the state or local government to which funds have been
made available has completed all necessary legal reviews and determined
that the projects are an appropriate use of taxpayer funds. New Jersey
provided these certifications but noted that the state's level of
funding was based on the best information available at the time of the
state's certification.[Footnote 148]
At the Governor's direction, NJDOT had begun planning for a federal
stimulus package for federal-aid eligible highway projects in November
2008. NJDOT originally developed a list of highway projects worth about
$1.4 billion, which was pared down to meet the actual apportioned
amount. NJDOT selected 40 total projects that it could deliver as
quickly as possible. As of April 16, the U.S. Department of
Transportation had obligated $280.8 million for 12 New Jersey projects.
[Footnote 149] The projects that were selected concentrated mainly on
replacing in-kind projects that require little or no environmental
clearance or extensive design work, such as pavement and signal
rehabilitation and highway bridge painting and deck replacement. Of the
40 projects selected, 5 are in the design stage, while the rest are in
the construction or right-of-way acquisition phases. NJDOT staff
indicated they were allocating over a third of their Recovery Act
transportation funding to 3 large projects, including one in an
economically distressed area. As of April 16, 2009, 10 projects
totaling about $269.5 million have been put out for bid through a
competitive process. NJDOT officials estimate that Recovery Act funds
will save the state about $100 million in interest charges over 12
years for one of the selected projects, as the state will not have to
borrow to start and complete it. Not all of the selected projects were
on the State Transportation Improvement Plan (STIP), but New Jersey, in
consultation with the Federal Highway Administration, amended its STIP
to include all of the selected projects.
U.S. Department of Education State Fiscal Stabilization Fund: The
Recovery Act created a State Fiscal Stabilization Fund (SFSF), to be
administered by the U.S. Department of Education (Education). The SFSF
provides funds to states to help avoid reductions in education and
other essential public services. The initial award of SFSF funding
requires each state to submit an application to Education that assures,
among other things, it will take actions to meet certain educational
requirements, such as increasing teacher effectiveness and addressing
inequities in the distribution of highly qualified teachers.
The state expects to receive $891.4 million in SFSF funds, about 82
percent of which is for education and about 18 percent of which is for
the state to use for "public safety and other government services."
State officials said that, pending a New Jersey Supreme Court decision
on the state's new education funding formula, the SFSF funds for
primary education would follow that formula. The state's use of SFSF
funds for higher education is unclear. The Governor's Chief of Staff
stated that New Jersey is currently trying to determine what portion of
the SFSF education and other government services funds will be used for
higher education and will not submit its application for SFSF funding
until it completes this determination. New Jersey expects those
determinations to be made sometime in April. The state expects that the
receipt of stabilization funds will help balance its fiscal year 2009
budget and avoid layoffs or tax increases.
New Jersey state education officials said in March that the lack of
clear, specific guidance from Education limited their ability to
provide guidance to local institutions. As a result, school district
officials we interviewed in Newark and Trenton in late March stated
that they are waiting for state officials to tell them what their
allocations are for each of the federal Recovery Act education
programs. The timing of the federal and state guidelines for these
funds are important as the local schools districts are currently
planning their upcoming fiscal year budgets and would like to know how
the Recovery Act funds would complement their upcoming school spending.
On April 1, 2009, Education issued guidance to the states on how
Recovery Act funds could be used for education. State officials are
continuing to review the guidance and on April 16, 2009, issued
guidance to local school districts outlining each district's allocation
of additional funds made available under the Recovery Act for programs
authorized under Title I of the Elementary and Secondary Education Act
and the Individuals with Disabilities Education Act.
Transportation--Urban/Rural Transit Capital Assistance and Fixed
Guideway Modernization Grants: New Jersey Transit (NJT), the primary
public operator of bus and commuter rail transit lines in the state,
was apportioned all of the Recovery Act funds for transit for New
Jersey, which amounted to about $425 million in three pre-existing
federal transit programs. NJT has selected 15 projects that will use
Recovery Act funds, all of which were on their 20-year capital plan.
About 70 percent of the funds are allocated to capacity expansion and
improvement projects, with the remainder allocated to maintenance
projects, as its regular funds are concentrated on safety, security and
maintenance needs. According to NJT officials, NJT can move quickly to
use these funds as the Federal Transit Administration (FTA), through
its preaward authority, will reimburse the agency for funds expended
for the selected projects, even though the funding for those projects
has not yet been obligated by the FTA. The largest allocation of NJT's
Recovery Act funds ($130 million) will be used toward designing and
undertaking some construction activity for new train tunnels under the
Hudson River. The tunnels are expected to double the number of NJT
trains going into and out of New York City.
Housing and Urban Development--Housing Capital Assistance: HUD
allocated approximately $104 million to 86 public housing authorities
in New Jersey for capital and management activities, including
modernization and development of public housing developments. Officials
from the Newark Housing Authority (NHA), which is receiving an
allocation of about $27.4 million, told us they planned to use the
allocation to fund projects already included in their 5-year capital
plan--including rehabbing 700 vacant units and 300 occupied units--
which will generate income and additional HUD subsidies to NHA and
provide new and improved affordable units for additional families.
Justice--Edward Byrne Memorial Justice Assistance Grants: State
officials expect to receive a Recovery Act allocation of $48 million
from the Byrne Justice Assistance Grant Program.[Footnote 150] Local
law enforcement officials stated that this program may provide for some
additional facilities and other law enforcement equipment. For example,
the Trenton Police Department is planning to use its Byrne Justice
Assistance Grant funds on projects that will enhance its crime
reduction efforts by sharing information with Mercer County's
Prosecutor's Office and enhancing the department's forensic crime
analysis capabilities. In contrast, according to Newark's Chief of
Police, the amount of Byrne Justice Assistance Grants allocated to the
Newark Police Department may be sufficient to provide some new
equipment but not fund a major capital program.
New Jersey's Plans for Spending Recovery Act Funds Are Forming As Funds
Are Being Distributed:
New Jersey revenues for fiscal year 2009 fell short of expectations by
about $3 billion. As a result, New Jersey had to rebalance the state's
budget by cutting spending and taking personnel actions in January and
February 2009 before the Recovery Act was enacted. In addition, as part
of its actions in February, the state used $450 million of its $600
million surplus.[Footnote 151] New Jersey's Office of Management and
Budget is accounting for Recovery Act funds that come into state
agencies, but there is no concerted effort to independently aggregate
estimates of total funding across state agencies.[Footnote 152] As of
April 3, 2009, the state had received about $583.8 million in Recovery
Act funds, mainly for increased FMAP grant awards and unemployment
insurance. Other funds have been allocated but are not yet available,
such as for some education and energy efficiency programs.
Anticipating even less revenue in fiscal year 2010, which begins on
July 1, 2009, the Governor has proposed a $29.8 billion budget.
According to the Governor, if New Jersey did nothing to curtail growth
in state spending or adjust its mandatory obligations, the fiscal year
2010 budget would be about $36 billion, or $7 billion above anticipated
revenues. In response to declining revenue, the Governor has proposed
about $4 billion in cuts to programs, rebates, pension payments, and
state worker personnel costs. In all, more than 850 line items in the
budget have been cut. The largest cuts will come from scaling back
state rebates of local property taxes by $500 million and reducing
state payments to the pension fund by $895 million. The Governor is
also proposing to save $400 million in personnel costs through a wage
freeze and furloughs for state employees, avoiding an otherwise
anticipated layoff of up to 7,000 state workers.
Some New Jersey officials began preparing for receipt of Recovery Act
funds prior to passage of the Recovery Act. Anticipating federal
stimulus spending for infrastructure, the Governor asked NJDOT to
identify projects that could be ready for federal funding and quick
implementation in November 2008. NJDOT officials identified about $1.4
billion in potential eligible projects but had to scale this list back
to meet New Jersey's eventual apportionment of Recovery Act
transportation funds. The city of Newark also prepared a process with
evaluative criteria for selecting local projects for Recovery Act funds
before the Recovery Act was enacted.
New Jersey officials stated that New Jersey's plans for spending
Recovery Act funds have been complicated by not having guidance from
federal agencies immediately available and by preparations for the
state's upcoming fiscal year 2010 budget. For example, the state
Department of Education could not determine how the state could
distribute its allocation of Recovery Act education funds until the
U.S. Department of Education released its guidance on April 1, 2009.
Officials from the state's Department of Community Affairs (DCA), which
is responsible for housing and urban development programs in the state,
stated that they lacked guidance from federal agencies for most of the
programs that they administer, which hindered their preparation for use
of those funds.[Footnote 153] The Governor's Chief of Staff stated that
some of the federal funds, especially the state's allocation of the
SFSF funds, will be disbursed to the state in its fiscal year 2010
budget, which is currently being debated by the state legislature.
New Jersey officials have been and are planning to continue submitting
certifications for the state's use of Recovery Act funds. The Governor
issued a certification memo to the Secretary of the U.S. Department of
Transportation that the state would maintain its efforts with regard to
state funding for the types of projects funded under the Recovery Act.
Other local officials told us they would issue or had issued similar
certifications for Recovery Act funds for which they are directly
responsible. For example, NHA staff told us their Executive Director
signed a certification letter for the Recovery Act funds that the NHA
was responsible for.
New Jersey Will Use Existing Resources for Recovery Act Oversight, but
Lack of Additional State Funding May Hinder Its Efforts:
According to state officials, the Governor and executive branch
agencies have primary responsibility for controlling the state's
receipt of Recovery Act funds, with legislative approval.[Footnote 154]
To this end, the Governor has created the state Recovery Accountability
Task Force, co-chaired by the Governor's Chief of Staff and the state's
Comptroller and consisting of active and former state and federal
officials. The task force will, among other things, monitor the
distribution of Recovery Act funds in the state and promote the
effective and efficient use of those funds. The task force has
established a public Web site and will provide guidance for internal
controls for complying with Recovery Act provisions. As part of the
task force, the state Comptroller has responsibility for coordinating
all of the oversight agencies in the state. These entities will have
different roles in the state's Recovery Act oversight efforts:
* the state Auditor, who is appointed by the legislature and handles
financial and some performance audits of state agencies;
* the state Comptroller, who is generally responsible for performance
audits at the state and local levels of government and reviews
government contracts over $2 million;
* the state Inspector General, who is responsible for investigations of
fraud related to state government; and:
* the internal audit offices that exist within most agencies, including
the state Medicaid Inspector General and the contract compliance audit
units within the Division of Purchase and Property (DPP) ad the
Division of Property Management and Construction (DPMC).
According to the state's Comptroller, the legislature's State
Commission on Investigation, which is concerned with investigations on
enforcement of state law, particularly regarding racketeering and
organized crime, will also be among the agencies helping to ensure that
the state's public employees who administer Recovery Act funds do so
effectively and in compliance with federal or state requirements. In
addition, the state legislature, state agencies, and many local
entities (e.g., housing authorities, school districts, and metropolitan
planning organizations) also have a role in overseeing these funds.
As described by state officials, Recovery Act funds must be used by
state agencies pursuant to appropriation by the state legislature, and
Recovery Act funds were appropriated in legislation enacted in March
2009.Under that legislation, the specific programs and activities
conducted by those agencies with Recovery Act funds are also subject to
approval by the legislature's Joint Budget Oversight Committee.
However, according to state officials, any Recovery Act funds directly
received by local governments or other entities in the state would not
be budgeted or appropriated by the state legislature. State officials
describe New Jersey as a strong "home rule" state and its constitution
as giving localities many rights and responsibilities for providing
local services. Therefore, New Jersey has more than 1,900 cities,
counties, towns, townships, and local authorities or taxing districts,
including 86 housing authorities, 566 municipal governments, and 616
school districts that can apply for, use, and potentially be held
accountable for Recovery Act funds.
The Governor's Chief of Staff stated there is oversight of certain
local activities at the state level. For example, state oversight of
local public school districts has been enhanced in recent years in part
through state mandated limitations on compensation practices[Footnote
155] and proficiency targets for state assessments have been raised.
Additionally, the state has a significant amount of oversight over the
three districts that are under state control to review and control
their budgets. The U.S. Department of Education and the county
superintendent have the authority to review these school districts
budgets, as well. Further, according to the Governor's Chief of Staff,
because the state already funds local school districts with $8.8
billion in state funds, ensuring accountability for the use of state
funds by school districts is not a new challenge to the state oversight
agencies.
Many of the state and local agencies interviewed stated that their
current accounting systems can track Recovery Act funds by program and
project and can generate reports showing the use of those funds:
* Both the Newark and Trenton Housing Authorities stated that they use
the Line of Credit Control System (LOCCS) accounting system, which HUD
uses to provide funds to public housing authorities. LOCCS includes
special accounting codes under which housing authorities can track
Recovery Act funds by program and by type of use. Housing authorities
can also use LOCCS to generate the required reports back to HUD showing
how they have used Recovery Act funds.
* Both NJDOT and NJT stated that their accounting systems can track
Recovery Act funds separately from their regular funds because they
have created separate accounting codes to track these funds.
Furthermore, most of the selected projects will be funded primarily
with Recovery Act funds, making the process of tracking them easier.
* DPP officials stated that their current accounting system will be
able to account for and control the use of Recovery Act funds used for
procurement because DPP will create special accounting codes for these
funds. These officials stated that their accounting systems had the
capability to track funds using special accounting codes and that they
were confident no special enhancements were needed to their accounting
software, although they would monitor the accounting system to ensure
it was functioning properly. DPP will also publicly advertise bids for
projects funded with Recovery Act funds, include terms and conditions
in each request for proposals and contract for these projects stating
detailed reports required by the act, and will post contract award
notices for Recovery Act funded projects.
* To track increased FMAP funds, New Jersey has established a discrete
identifier in the state accounting system. The state has begun the
process of adjusting systems, so that the additional FMAP funds can be
tracked and monitored by specific service category. Despite these
adjustments, tracking of these funds will not be dramatically different
from how the state tracks funds for their overall budget. Additionally,
the state is monitoring increased FMAP funds and comparing them against
actual expenditures. According to New Jersey officials, the state is
also monitoring unemployment levels to anticipate and project future
FMAP levels.
New Jersey has not increased its number of state auditors or
investigators, and there has not been an increase in funding
specifically for Recovery Act oversight. Additionally, the state hiring
freeze has not allowed many state agencies to increase their Recovery
Act oversight efforts. For example, despite an increase of $469 million
in Recovery Act funds for state highway projects, no additional staff
will be hired to help with those tasks or those directly associated
with the act, such as reporting on the number of jobs that the Recovery
Act funds created. While NJDOT has committed to shift resources to meet
any expanded need for internal Recovery Act oversight, currently one
person is responsible for reviewing contractor-reported payroll
information for disadvantaged business enterprises, ensuring compliance
with Davis-Bacon wage requirements, and job creation figures.
Potential Areas of Vulnerability of New Jersey Recovery Act Funds:
In New Jersey's fiscal year 2007 Single Audit report, the independent
auditor identified 42 significant control deficiencies related to
compliance with internal controls requirements over major federal
programs, 33 of which were considered to be material. Twenty-seven of
the significant control deficiencies pertained to compliance with
requirements for several major federal programs that the state
administers--including Medicaid programs and Community Services Block
Grants--through which the Recovery Act funds will flow. New Jersey has
also faced challenges with internal controls with state entities in the
recent past. For example, in 2005, the state Inspector General's review
of the now-dissolved School Construction Corporation, which was
responsible for more than $8.66 billion in school construction funds,
found the authority had "weak financial controls, glaring internal
control deficiencies and lax or non-existent oversight and
accountability" after it had disbursed $4.3 billion in contracts and
approved approximately $540 million in changes to those contracts. In
its place, in 2007, the state created a Schools Development Authority
with a completely different management and accountability structure.
State officials noted that certain towns and cities, as well as
regional planning organizations, can apply for and directly receive
federal recovery funds under the terms of the Recovery Act. According
to the state Inspector General, the risk for waste, fraud, and abuse
increases the farther removed an organization is from state government
controls. While some state officials said they have statewide
investigative authority, they would not be able to readily track the
funding going directly to local and regional government organizations
and nonprofits as a result of the funding delivery and reporting
requirements set up in the Recovery Act. In addition, staff from the
state Auditor's office noted that some smaller cities and towns in New
Jersey are not used to implementing guidance from the state or federal
government on how they are using program funds, which could result in
the localities reporting using funds for ineligible purposes. However,
state Department of Education officials stated that although the sheer
number of school districts in the state raises concerns, sufficient
internal controls (state audits, Single Audits, state oversight, etc.)
exist to prevent most instances of fraud and other illegal uses of
funds.
As for state agencies, the Governor's Chief of Staff stated that the
highest risk is associated with those agencies that will be responsible
for managing significantly more money than ever before, compared with
their normal budgets. While NJDOT officials stated they could
accommodate about five times more Recovery Act funds than was received
by New Jersey, other state officials stated that they were quickly
developing plans to accommodate the influx of Recovery Act funds. For
example, the Department of Community Affairs is responsible for
implementing the state's allocation of $118.6 million in Recovery Act
weatherization funds, which is about double the normal amount. DCA
officials stated that to avoid losing any of the state's allocation of
weatherization funds, they were making contingency plans to
redistribute any unused funds to other possible recipients under the
weatherization program. According to the Governor's Chief of Staff, the
state is trying to be rigorous about how these programs are being
designed and how they are using the funds. For example, state officials
are emulating the federal oversight effort, in part by trying to build
internal controls at the outset of the process and to use merit-based
selection criteria for Recovery Act projects. The state Inspector
General, in coordination with the New Jersey Recovery Accountability
Task Force, will be conducting training at New Jersey government
agencies concerning Recovery Act related internal control issues. As of
April 17, the Inspector General hopes to present the first trainings by
mid-May.
Plans to Assess Impact of Recovery Act Funds Are in Initial Stages and
Vary across State and Local Agencies:
The Governor's Chief of Staff stated that different state agencies are
planning to evaluate the impact of Recovery Act funds. Assessing the
impact of the increased FMAP funds will involve the extent to which the
Medicaid program is able to accommodate additional applicants as a
result of these funds. A New Jersey official noted that the state will
have benchmark numbers on how many additional people are served and
that this approach is no different from how the state would currently
report impact. The state Auditor and the state Comptroller have also
committed to carrying out audits and assessments of the impact of
Recovery Act funds.
Officials we interviewed at New Jersey state agencies have different
ways of either collecting or estimating data on the number of jobs
created or retained as a result of Recovery Act funds. For example, the
NHA will use payroll data to keep track of the exact number of union
tradesmen and housing authority residents employed to turn damaged
vacant units into rentable ones. In contrast, NJT is using an academic
study that examined job creation from transportation investment to
estimate the number of jobs created by contractors on its Recovery Act-
funded construction projects.[Footnote 156] Finally, officials stated
that both DPP and DPMC both have methodology and mechanisms in place to
track jobs created and maintained for goods and services procured under
Recovery Act contracts.
New Jersey's Comments on this Summary:
We provided the Governor of New Jersey with a draft of this appendix on
April 17, 2009. The Governor's Chief of Staff responded for the
Governor on April 20, 2009. In general, the Chief of Staff
substantially agreed with the draft and provided technical comments
that were incorporated, as appropriate.
GAO Contacts:
David Wise, (202) 512-2834 or wised@gao.gov:
Gene Aloise, (202) 512-6870 or aloisee@gao.gov:
Staff Acknowledgments:
In addition to the contacts names above, Raymond Sendejas, Assistant
Director; Greg Hanna, analyst-in-charge; Jeremy Cox; Colin Fallon;
Tarunkant Mithani; and Cheri Truett made major contributions to this
report.
[End of section]
Appendix XIV: New York:
Overview:
Use of funds: An estimated 90 percent of fiscal year 2009 Recovery Act
funding provided to states and localities will be for health,
transportation and education programs. The three largest funding
categories are the Medicaid increased Federal Medical Assistance
Percentage (FMAP) grant awards, the State Fiscal Stabilization Fund,
and highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds:
* As of April 13, 2009, the Centers for Medicare & Medicaid Services
(CMS) had made about $3.14 billion in increased FMAP grant awards to
New York;
* As of April 13, 2009, New York had drawn down about $1.74 billion, or
55 percent of its initial increased FMAP grant awards;
* Nearly $1.3 billion of the funds made available as a result of the
increased FMAP were used to close the state's budget deficit for the
fiscal year ending on March 31, 2009, or applied to lower the deficit
for the current fiscal year. In addition, $440 million was returned to
the counties for their contributions towards the non-federal share of
Medicaid expenditures that qualified for the increased FMAP.
Transportation--Highway Infrastructure Investment:
* New York was apportioned about $1.12 billion for highway
infrastructure investment on March 2, 2009, by the U.S. Department of
Transportation;
* As of April 16, 2009, the U.S. Department of Transportation had
obligated about $276.5 million for 108 projects to the New York State
Department of Transportation. New York will request reimbursement from
the U.S. Department of Transportation as the state makes payments to
contractors;
* As of April 13, 2009, the New York State Department of Transportation
had advertised for bids on 38 projects. Work on all of these projects
is expected to begin this spring;
* The state will target Recovery Act transportation funds to
infrastructure rehabilitation, including preventive maintenance and
reconstruction, such as bridge repairs and replacement, drainage
improvements, repaving and roadway construction. State officials
emphasized that these projects extend the life of infrastructure and
can be contracted for and completed relatively easily in the 3-year
time frame required by the act. Some Recovery Act funds will go to more
typical "shovel-ready" highway construction projects for which there
were insufficient funds;
* By the end of April 2009, New York expects to have a complete list of
transportation projects that Recovery Act funds will support.
U.S. Department of Education State Fiscal Stabilization Fund (Initial
Release):
* As of April 13, 2009, New York had been allocated about $2.0 billion
from the initial release of these funds by the U.S. Department of
Education;
* Before receiving the funds, states are required to submit an
application that provides several assurances to the Department of
Education. These include assurances that the states will meet
maintenance-of-effort requirements (or that they will be able to comply
with waiver provisions) and that they will implement strategies to meet
certain educational requirements, including increasing teacher
effectiveness, addressing inequities in the distribution of highly
qualified teachers, and improving the quality of state academic
standards and assessments. As of April 13, 2009, New York had not
submitted its application for these funds;
* New York plans to use the majority of Fiscal Stabilization funding to
support K-12 education costs for the 2009-2010 and 2010-2011 school
years beginning July 1, 2009. New York education officials told us that
most of the funds will be used to offset expected budget cuts
throughout the school system that were caused by the downturn in the
economy and in state revenues.
New York is also receiving additional Recovery Act funds under other
programs, such as programs under Title I, Part A, of the Elementary and
Secondary Education Act (ESEA) (commonly known as No Child Left
Behind), and the Individuals with Disabilities Education Act, Part B
(IDEA). These are described throughout this appendix. Overall, New York
expects to receive about $26.5 billion in Recovery Act funds plus
possible additional discretionary program funds over the next 3 years
(fiscal years 2009-2011).
Safeguarding and transparency: New York plans to track and monitor
Recovery Act funds mostly through its existing internal control, audit,
and accounting systems, although the new Recovery Cabinet and other
state institutions have initiated several steps to coordinate the
oversight of Recovery Act projects. For example, the Office of the
State Comptroller (OSC) is using its accounting system to tag and track
these funds, while the New York State Department of Transportation
(NYSDOT) is conducting a federal-aid risk assessment to focus its
internal and contract audit resources on projects and contracts that
may be most vulnerable to fraud, waste, and abuse. New York officials,
however, expressed concerns about monitoring Recovery Act funds that do
not pass through state offices but flow directly from federal agencies
to local agencies or authorities. For example, the Metropolitan
Transportation Authority, which provides transportation services for
the New York City metropolitan area, expects to receive directly about
$1 billion in federal transit funds under the Recovery Act.
Assessing the effects of spending: Officials have taken some initial
steps to meet the Recovery Act's reporting requirements, but generally
they are awaiting further federal guidance. Officials throughout the
state government expressed concerns about how to consistently report on
the impact of Recovery Act funds.
New York Beginning to Use Recovery Act Funds:
New York has begun to use some of its Recovery Act funds, as follows:
Increased Federal Medical Assistance Percentage: Medicaid is a joint
federal-state program that finances health care for certain categories
of low-income individuals, including children, families, persons with
disabilities, and persons who are elderly. The federal government
matches state spending for Medicaid services according to a formula
based on each state's per capita income in relation to the national
average per capita income. The amount of federal assistance states
receive for Medicaid service expenditures is known as the Federal
Medical Assistance Percentage (FMAP). Across states, the FMAP may range
from 50 percent to no more than 83 percent, with poorer states
receiving a higher federal matching rate than wealthier states. The
Recovery Act provides eligible states with an increased FMAP for 27
months between October 1, 2008, and December 31, 2010.[Footnote 157] On
February 25, 2009, the Centers for Medicare & Medicaid Services (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.[Footnote 158]
Generally, for federal fiscal year 2009 through the first quarter of
federal fiscal year 2011, the increased FMAP, which is calculated on a
quarterly basis, provides for (1) the maintenance of states' prior year
FMAPs; (2) a general across-the-board increase of 6.2 percentage points
in states' FMAPs; and (3) a further increase to FMAPs for those states
that have a qualifying increase in unemployment rates. The increased
FMAP available under the Recovery Act is for state expenditures for
Medicaid services. However, the receipt of the increased FMAP may
reduce the funds that states must use for their Medicaid programs, and
states have reported using these available funds for a variety of
purposes. For the second quarter of fiscal year 2009, New York's FMAP
was 58.78 percent, an increase of 8.78 percentage points over its
fiscal year 2008 FMAP.
New York expects to receive about $11 billion in federal Medicaid funds
as a result of the increase in its FMAP. As of April 13, 2009, CMS had
made about $3.14 billion in increased FMAP grant awards to New York and
the state had drawn down about $1.74 billion of its grant awards.
Nearly $1.3 billion of the funds made available as a result of the
increased FMAP was used to close the state's budget deficit for the
state fiscal year ending on March 31, 2009, while $440 million was
returned to the counties for their contributions towards the non-
federal share of Medicaid expenditures eligible for the increased FMAP.
New York initially plans to use funds made available as a result of the
increased FMAP to help address budget deficits. According to the
Governor's office, New York State has the highest Medicaid cost per
capita and, unlike most states, requires local governmental entities to
contribute towards the nonfederal share of Medicaid expenditures. The
state's counties provide this local share. According to state
officials, in 2006, in order to control Medicaid spending at the local
level, the state instituted a cap on local Medicaid expenditures that
constituted about 33 percent of the nonfederal share of expenditures at
the time. This cap, unique to New York, basically limits the annual
increase in a locality's Medicaid expenditures to 3 percent of what it
spent in 2005. The result has been that the localities' percentage
share of Medicaid expenditures has slightly declined each year since
2006.
The 2009-2010 enacted state budget plans to use nearly half of the
enhanced FMAP funding expected to be received through March 31, 2010 on
(1) health care to avoid certain difficult provider reimbursement cuts,
and (2) other savings actions proposed by the Governor in his initial
budget proposal in December 2008. These funds will also help pay for
unanticipated rising Medicaid costs, primarily driven by rising
caseloads resulting from the current economic downturn. In addition,
the FMAP funds (1) helped avoid proposed cuts to important human
services and mental hygiene programs, (2) were used to maintain revenue
sharing funding for New York City, and (3) avoided several proposed tax
increases that would have impacted middle class families and small
businesses.
Transportation--Highway Infrastructure Investment: The Recovery Act
provides additional funds for highway infrastructure investment using
the rules and structure of the existing federal-aid highway Surface
Transportation Program, through which money is apportioned to states
for the construction and maintenance of eligible highways and for other
surface transportation projects. States must follow the requirements
for the existing programs, and in addition, the governor must certify
that the state will maintain its current level of transportation
spending, and the governor or other appropriate chief executive must
certify that the state or local government to which funds have been
made available has completed all necessary legal reviews and determined
that the projects are an appropriate use of taxpayer funds.
As of April 16, 2009, the Federal Highway Administration had obligated
about $276.5 million to New York State for 108 transportation projects.
[Footnote 159] The state has been able to move quickly on these
projects largely because NYSDOT, as required by federal surface
transportation legislation, has a planning mechanism that routinely
identifies needed transportation projects and performs preconstruction
activities, such as obtaining required environmental permits. A NYSDOT
official told us that as of April 13, 2009, 38 projects approved in
March 2009 had been advertised for bids for contracts.
In late 2008, NYSDOT began preparing to manage potential stimulus
funding in transportation programs. NYSDOT, which oversees over 113,000
miles of highway, 16,000 bridges, and more than 130 transit operators,
initially established a working group that began reviewing or
"scrubbing" core projects in the state's transportation improvement
plan (STIP) in late 2008 to make sure projects would be fully permitted
and "shovel ready," should funding be made available. Because of an
approximately 8 percent per year increase in construction costs during
the last 3 years and the state's declining fiscal position, New York
has a large backlog of planned transportation projects. As of April 16,
2009, the Governor had certified that 108 projects met the objectives
of the act and that the state will maintain its planned level of effort
within its transportation program.
To meet the act's objectives--funding projects that can be started
quickly and have the desired economic impact in terms of jobs and local
benefits--the state will target most state transportation funds to
infrastructure rehabilitation, including preventive maintenance and
reconstruction, such as bridge repairs and replacement, drainage
improvement, repaving, and roadway reconstruction. State officials
emphasized that these projects extend the life of infrastructure and
can be contracted for and completed relatively easily in the 3-year
time frame required by the act. The state will also target some
Recovery Act highway dollars to more typical "shovel ready" highway
construction projects for which there are insufficient funds. By the
end of April 2009, NYSDOT expects to have a complete list of projects
that Recovery Act funds will support. NYSDOT officials noted that the
list of projects would be fluid depending on bid results, budget
overruns, and the ability of localities to start and complete planned
projects within expected time frames.
Consistent with the Governor's goal of leveraging the impact of
Recovery Act funds, NYSDOT has also begun working with rural public
transportation systems to identify eligible Federal Transit
Administration activities. Recovery Act transit funds will be used to
replace a significant number of vehicles that currently exceed their
federally rated service life with new cleaner-fuel buses that comply
with the Americans with Disabilities Act. NYSDOT will use a statewide
bus contract to procure the majority of these new vehicles. This
cooperative effort would also allow the communities to take advantage
of the state's procurement expertise and presumably lower overall
procurement costs.
U.S. Department of Education State Fiscal Stabilization Fund: The
Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be
administered by the U.S. Department of Education (Education). SFSF is
intended to help avoid reductions in education and other essential
public services. The initial award of SFSF funding requires each state
to submit an application to Education that assures it will take actions
to meet certain educational requirements, such as increasing teacher
effectiveness and addressing inequities in the distribution of highly
qualified teachers. As of April 13, 2009, New York's SFSF allocation
was about $2.0 billion; however, the state had not drawn down any of
this amount. The state has not applied for these funds and they will
not be allocated to public entities such as K-12 school districts and
public higher education institutions until the school year begins on
July 1, 2009. The Governor's office said that this application is
expected to be submitted soon.
The New York State Education Department (NYSED), which has an annual
budget of about $30 billion, expects to receive about $5 billion in
Recovery Act funds. About half of the amount--approximately $2.5
billion--is expected to be provided through SFSF. These funds can be
used to help avert elementary, secondary, and higher education
reductions, such as the loss of teachers. NYSED officials told us that
they believe most of these funds will be used to offset expected budget
cuts throughout school systems that were caused by the downturn in the
economy and in state revenues. State officials also have discretion
over an additional 18 percent of the stabilization funds-approximately
$549 million--and can use this portion for a wide range of government
services, including school modernization.
As of April 13, 2009, New York had also been allocated an additional
$1.7 billion in Recovery Act funds for programs under Title I, Part A
of the Elementary and Secondary Education Act of 1965 (ESEA), as
amended by the No Child Left Behind Act, and the Individuals with
Disabilities Education Act (IDEA).
New York Has Established a Recovery Cabinet to Manage Recovery Act
Funds:
The key New York institutions involved in managing Recovery Act funds
are the governor's office, the state program departments and agencies,
and OSC. In addition, localities, transit, or housing authorities will
play a role in managing some Recovery Act funds that do not pass
through state offices. Because of the timing of New York's annual
fiscal year and the February 17, 2009, enactment of the Recovery Act,
the state had to quickly incorporate Recovery Act funding into the
budget for the fiscal year beginning April 1, 2009. New York's
Governor, in anticipation of the Recovery Act, established a Recovery
Cabinet in February 2009. The Recovery Cabinet is led by the Governor's
Senior Advisor for Transportation and Infrastructure. All state
agencies and many state authorities are represented on the cabinet,
which is charged with coordinating and managing Recovery Act funding
throughout the state. Similarly, New York City officials developed a
City Hall Working Group comprising city management and individuals from
the relevant agencies that are planning to receive Recovery Act funding
to coordinate and manage the funding.
While over 50 percent of Recovery Act funding, such as most education
program funding, is formula driven and directed to specific localities
in the state, other funds may be allocated by the state, such as
discretionary funds for rail projects. A Recovery Cabinet committee is
making such funding decisions in a "situation room" that works with the
relevant state departments to disburse recovery funds in a manner that
seeks to maximize the act's objectives and address the political need
to spread money throughout the state. More specifically, the cabinet
expects to leverage Recovery Act funding in transportation and other
areas to maximize the economic impact of the funds. The cabinet also
established other working groups to address communication and
coordination objectives, including one group that is working on
Recovery Act reporting requirements. State officials expressed concerns
about the Recovery Act's requirements for reporting 10 days after the
quarter ends. The officials said that this is a potential area of
noncompliance for New York, particularly because the state does not
have a strong track record on reporting compliance. Furthermore, state
officials expressed concerns about how Recovery Act administrative and
monitoring costs might strain existing financial and human resources.
The Recovery Cabinet also serves as a focal point of contact for
counties and other localities throughout the state--informing them of
the types of projects that could be eligible for stimulus funding and
soliciting ideas and proposals for such funding. In addition, New York
established an economic recovery Web site in February 2009: [hyperlink,
http://www.recovery.ny.gov]. By using the Web site, New Yorkers have
been able to enter their project ideas directly into a project database
and track Recovery Act funding and its impact. This database currently
contains over 16,000 project ideas.
Other key players in New York's management of Recovery Act funds
include OSC, an independently elected office that is charged with
issuing the state's internal control standards, managing the central
accounting system, and directing internal audits throughout the state's
departments and agencies, among other responsibilities. OSC will be
responsible for tracking and monitoring the progress of Recovery Act
funding and ensuring that the funding meets established internal
controls.
State authorities and metropolitan planning organizations that are not
directly managed by the Governor are also key players in the delivery
of New York State services and are therefore central to the management
of some Recovery Act funds. For example, the Metropolitan
Transportation Authority will manage about $1 billion of Recovery Act
funds.
New York Plans to Oversee and Safeguard Recovery Act Funds Using
Existing Control Mechanisms Where Possible:
The primary responsibility for ensuring the transparency and
accountability of Recovery Act funds rests with the executive branch,
led by the governor. For the most part, New York plans to track and
monitor Recovery Act funding using existing internal control, audit,
and accounting systems. For example, OSC plans to use its existing
Central Accounting System to tag and track Recovery Act funds as they
are disbursed. Individual state agencies are also planning to use their
existing management systems to monitor Recovery Act spending. For
example, NYSDOT is conducting a federal-aid risk assessment to help its
Internal Audit and Contract Audit Bureaus target their resources to the
most vulnerable programs and projects. However, state officials have
several oversight concerns, including monitoring Recovery Act funds
that do not pass through state agencies and the ability of some local
authorities that may not have experience managing federal programs to
oversee large infusions of new funding. Finally, many officials
throughout the state are concerned about their ability to consistently
report on the impact of Recovery Act funding.
New York Will Use Existing Control Structure:
Several New York government entities are responsible for the
management, implementation, and oversight of internal controls and for
safeguarding taxpayers' money. These entities include OSC, individual
state agencies, and the governor's office. For example,
* OSC is responsible for the state's Central Accounting System,
disburses funds, and audits state agencies and authorities, among other
responsibilities.
* Each large state agency, such as NYSDOT, has a director of internal
audit,[Footnote 160] as well as an internal control officer[Footnote
161] who reports to the head of the agency, coordinates internal
control activities, and helps ensure internal control program
compliance.
* The head of each state agency and public authority must annually
certify compliance with the State's Internal Control Act.
* Each state agency operates its own financial management and reporting
system and has its own procurement officer. However, OSC must review
and approve all contracts over $50,000.
The governor's office, in addition to overseeing state agencies, is
responsible for conducting an annual audit of federal funds known as
the Single Audit. New York's Single Audit for the year ending March 31,
2008, disclosed a number of material weaknesses involving the major
federal programs. For example, the Single Audit found the following:
* OSC's procedures, through which OSC identified approximately $49.8
million in potential overpaid Medicaid claims, were adequate. The
Department of Health and the Office of the Medicaid Inspector General
have initiated recovery of those claims that they determined are
appropriate for recovery. OSC had also identified about $17 million in
potential overpaid claims in 2007. State officials told us, however,
that many of the instances of potential Medicaid overpayments were
without basis and were, in fact, made consistent with federal
requirements.
* NYSDOT did not adequately document audit extensions that it granted
subrecipients. Furthermore, the department did not have a sanction
policy in effect for subrecipients that were not in compliance with
audit requirements. Effective August 2008, NYSDOT established a formal
sanctioning policy.
* The Housing Trust Fund Corporation did not have procedures in place
to adequately monitor the compliance requirements of the Single Audit
Act, as amended, and OMB's implementing guidance in OMB Circular No. A-
133, for grant subrecipients.
* Several programs, including Temporary Assistance for Needy Families,
the Child Care and Development Block Grant, and the Office of Children
and Family Services, did not adequately complete forms documenting the
transfer of funds awarded by the federal government.
* The Department of Education's Vocational Rehabilitation Services
program had not determined individuals' eligibility for the program
services within a reasonable period of time.
The Single Audit did not provide 10 federal programs, including the
Medical Assistance, Low-Income Home Energy Assistance, and Food Stamp
Cluster Programs, an unqualified opinion because of various findings,
including cost allocation plans that were not approved by the federal
government. New York also received an unqualified opinion on OSC's
comprehensive annual financial statements for the state fiscal year
that ended March 31, 2008.[Footnote 162] The audit reported control
deficiencies but disclosed no instances of noncompliance that would be
material to the basic financial statements.
As noted above, the state will separately account for Recovery Act
expenditures on the Central Accounting System to make tracking the
funds easier. However, according to a state comptroller official,
agencies may rely on multiple databases for handling transactional and
performance data, making data reliability difficult to ascertain.
According to this official, state agencies vary in their capabilities,
and the independent financial management systems that operate
distinctly from the Central Accounting System have varying degrees of
sophistication and accessibility.
The Governor Plans to Implement Several Internal Control Initiatives
for Recovery Act Funding:
In addition to existing control systems, the Governor's office has
planned several new initiatives for ensuring accountability of Recovery
Act funds. First, drawing on past efforts of New York state agencies
and the New York State Internal Control Association to improve the
state's internal controls, transparency, and data integrity, the
Recovery Cabinet plans to establish a working group on internal
controls. This working group will be made up of internal control
officers from major agencies in the cabinet and will meet regularly to
provide additional guidance to those agencies receiving and or
administering Recovery Act funds. Second, the Governor's office plans
to hire a consultant to review the state's management infrastructure
and capabilities to achieve accountability, effective internal
controls, compliance, and reliable reporting under the Recovery Act.
Third, the Director of State Operations provided initial guidance to
the state agencies and authorities on the Recovery Act accountability
and transparency requirements. According to state officials, all
agencies and departments that expect to receive Recovery Act funds have
been asked to review and report on their practices for fraud
prevention, contract management, and grants accountability to assess
their current vulnerabilities and to ensure that the state is prepared
to meet the Recovery Act requirements. Finally, the state plans to
coordinate fraud prevention training sessions.
Office of the State Comptroller Issued Guidance for Safeguarding
Recovery Act Funds:
On March 23, 2009, OSC issued accounting bulletins and procurement and
disbursement guidelines to state agencies on using Recovery Act funds.
Included in these guidelines are instructions to agencies on using a
designated revenue code to account for all federal grant moneys
received and a designated accounting code to process and report
payments financed with Recovery Act funds. According to OSC, it intends
to closely scrutinize contracts and monitor payments charged to
Recovery Act appropriations to ensure adequate accountability,
compliance, and effective and efficient use of Recovery Act funds. In
addition, OSC says it plans to post the Recovery Act data that will
flow through the central accounting system to Open Book, the Web site
that provides transparency for contracts, expenditures, and local
government funds. Furthermore, OSC says that it will continue to advise
and provide technical assistance to local governments as the
requirements of the Recovery Act become clearer.
Examples of State Agencies' Planned Oversight and Reporting of Recovery
Act Funds:
Guided by the Recovery Cabinet working groups, state agencies are
planning to implement various types of oversight and reporting
mechanisms to comply with the Recovery Act. For example:
* NYSDOT is relying heavily on existing program oversight controls,
such as normal highway project procurement requirements, to manage and
control Recovery Act spending. In addition to those oversight controls,
as described above, NYSDOT is conducting a risk assessment of federal-
aid projects to direct future internal audit and contract reviews.
NYSDOT officials said that special emphasis will be placed on high-risk
areas, such as projects developed by local public agencies, and that a
formal plan for overseeing Recovery Act subrecipients will include
training, technical assistance, and regular reviews of subrecipients'
documents and processes. With regard to reporting, NYSDOT is developing
a dataset that is expected to contain all data elements required to
fully meet state reporting requirements. NYSDOT is also putting a
reporting requirement in existing recovery project contracts alerting
contractors that they are responsible for meeting all Recovery Act
reporting requirements.
* NYSED officials said that they have been meeting with OSC to ensure
proper accounting codes are used in tracking and reporting Recovery Act
funds. However, officials are concerned that once the funds reach
localities, the funds may lose their accounting codes and get rolled up
with other state and federal funds. In addition, state education
officials said that they have established a waste, fraud, and abuse
work team to examine risks and identify areas of concern associated
with Recovery Act funds. The officials said that the biggest challenge
that they foresee is district reporting at the school level. According
to the officials, risk assessments for schools with higher spending per
student will need to be developed.
* Division of Housing and Community Renewal officials said that they
are fairly confident that they can modify the division's existing
accounting and reporting systems to meet Recovery Act requirements.
However, housing officials are concerned about the potential for fraud,
waste, and abuse in the weatherization program. This concern results
from the huge increase (over 600 percent) in funding New York will get,
rule changes, the acceleration of the expenditure time line, and the
need to hire subcontractors, many of which will be new to the program.
Specifically, New York State expects to receive $395 million in
additional weatherization funds from the Recovery Act, compared with a
little over $60 million allocated to the program in the previous state
fiscal year. In addition, the Recovery Act increased the maximum amount
that can be spent for each housing unit qualifying for the program from
$2,500 to $6,500. Officials said they are concerned about their ability
to effectively manage the program, given the major funding and program
changes caused by the Recovery Act, when their existing staff is
already stretched. Housing officials said that they are assessing the
risk to the weatherization program.
* According to New York officials, increased FMAP grant awards are
segregated from other Medicaid funds received by the state. These funds
have received a distinct code to identify them as part of the funding
received from the Recovery Act in OSC's Central Accounting System.
Additionally, the increased FMAP grant awards received by the state and
local governments are tracked separately in the accounting system. OSC
has instructed localities to maintain a separate account for FMAP
funds. As of April 13, 2009, the comptroller had not disclosed plans
for auditing the increased FMAP funds.
Plans to Assess Impact Are Still Being Developed:
State transportation, education, and housing agency officials are just
beginning to consider plans to assess the impact of Recovery Act funds.
They are generally waiting for the Office of Management and Budget to
provide guidance or methods to help in assessing impact, such as job
retention and creation, increases in tax revenues, and savings from
weatherization or other energy projects. For instance, state housing
officials said that they typically track dollars and that they will
require additional guidance from the Department of Housing and Urban
Development on how to track job creation. State education officials
said that it would be difficult to isolate the impact of Recovery Act
funds on student achievement from the impact of other initiatives the
state is undertaking. State officials also expressed concerns about how
to consistently measure the impact of funding, such as how to count job
creation and how to track the ripple effect of funding.
New York City officials said that it will be a challenge, absent
additional guidance, to account for the impact of Recovery Act funds on
programs funded by multiple streams of money, such as counting the
number of new beds at a homeless shelter or the number of additional
children in the city's child care program. New York City is developing
an online database that will describe the use of Recovery Act funds
down to the program level. Officials said that the purpose of the
database is to provide transparency for New York City residents and to
fulfill future reporting requirements. The database is expected to
provide such details on a Recovery Act-funded program as the number of
additional beds at a homeless shelter. However, New York City officials
said that it is difficult to begin planning how to assess impact until
they know what measures will be called for by federal reporting
guidelines. Furthermore, New York City officials recommended relaxing
the reporting deadlines and requirements for the first quarter after
Recovery Act funds are received so states and localities have more time
to understand new guidance.
New York's Comments on This Summary:
We provided the Governor of New York with a draft of this appendix on
April 17, 2009. The Senior Advisor for Transportation and
Infrastructure responded for the Governor on April 20, 2009 by
providing technical suggestions that were incorporated, as appropriate.
GAO Contacts:
Susan Fleming, (202) 512-4431, or flemings@gao.gov:
Dave Maurer, (202) 512-9627, or maurerd@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Ronald Stouffer, Assistant
Director; Barbara Shields, analyst-in-charge; Jeremiah Donoghue, Colin
Fallon, Summer Pachman, Frank Putallaz, Jeremy Rothgerber, and Cheri
Truett made major contributions to this report.
[End of section]
Appendix XV: North Carolina:
Overview:
Use of funds: An estimated 90 percent of Recovery Act funding provided
to states and localities nationwide in fiscal year 2009 (through Sept.
30, 2009) will be for health, transportation and education programs.
The three largest programs in these categories are the Medicaid Federal
Medical Assistance Percentage (FMAP) awards, the State Fiscal
Stabilization Fund, and highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds:
* As of April 3, 2009, Centers for Medicare & Medicaid Services (CMS)
had made about $657 million in increased FMAP grant awards to North
Carolina;
* As of April 1, 2009, North Carolina had drawn down $414.6 million in
increased FMAP grant awards, or 63 percent of its awards to date;
* North Carolina officials reported that they plan to use funds made
available as a result of the increased FMAP to maintain current
populations and benefits and to offset the state's general fund
deficit.
Transportation--Highway Infrastructure Investment:
* North Carolina was apportioned about $736 million for infrastructure
investment on March 2, 2009, by the U.S. Department of Transportation;
* As of April 16, 2009, the U.S. Department of Transportation had
obligated about $165 million for 53 projects in North Carolina;
* As of April 16, 2009 the North Carolina Department of Transportation
had selected 138 projects estimated to utilize about 90 percent of its
allocated Recovery Act funds;
* These projects include activities such as repaving highways and
replacing bridges;
* North Carolina Department of Transportation officials told us they
identified these projects based on Recovery Act criteria that priority
is to be given to projects that are anticipated for completion within a
3-year time frame and that are located in economically distressed
areas.
U.S. Department of Education State Fiscal Stabilization Fund (Initial
Release):
* North Carolina was allocated about $952 million from the initial
release of these funds on April 2, 2009, by the U.S. Department of
Education;
* Before receiving the funds, states are required to submit an
application that provides several assurances to the Department of
Education. These include assurances that they will meet maintenance of
effort requirements (or that they will be able to comply with waiver
provisions) and that they will implement strategies to meet certain
educational requirements, including increasing teacher effectiveness,
addressing inequities in the distribution of highly qualified teachers,
and improving the quality of state academic standards and assessments.
North Carolina officials said that they would apply for fiscal
stabilization funds by the end of April 2009;
* The state had not yet determined how fiscal stabilization funds will
be used.
North Carolina is also receiving additional Recovery Act funds under
other programs, such as Edward Byrne Memorial Justice Assistance Grant
program to improve the functioning of the criminal justice system; the
Tax Credit Assistance Program for low-income housing; and Workforce
Investment Act Youth, Adult, and Dislocated Worker Programs that
provide employment and training services. The status of state plans for
using these funds is described throughout this appendix.
Safeguarding and transparency: The state has set up the Office of
Economic Recovery and Investment (OERI) to help agencies track,
monitor, and report on Recovery Act funds, and the North Carolina
Senate and House of Representatives have established committees to
provide legislative oversight of these funds. In addition, the state
has a number of initiatives under way that will improve accountability
and transparency for Recovery Act funds, and the state will track
Recovery Act funds separately to ensure accountability for those funds.
North Carolina officials identified several potential concerns about
the safeguarding of funds. For example, several officials said that
they were concerned about whether there were enough staff members to
meet additional management and oversight responsibilities under the
Recovery Act.
Assessing the effects of spending: North Carolina agencies are in the
early stages of developing plans to assess the impact of Recovery Act
expenditures. According to state officials, they have been awaiting
guidance from the federal government, particularly related to measuring
job creation.
North Carolina Beginning to Use Recovery Act Funds:
North Carolina has begun to use some of its Recovery Act funds, as
follows:
Increased Federal Medical Assistance Percentage Funds: Medicaid is a
joint federal-state program that finances health care for certain
categories of low-income individuals, including children, families,
persons with disabilities, and persons who are elderly. The federal
government matches state spending for Medicaid services according to a
formula based on each state's per capita income in relation to the
national average per capita income. The amount of federal assistance
states receive for Medicaid service expenditures is known as the
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP
may range from 50 percent to no more than 83 percent, with poorer
states receiving a higher federal matching rate than wealthier states.
The Recovery Act provides eligible states with an increased FMAP for 27
months between October 1, 2008, and December 31, 2010.[Footnote 163] On
February 25, 2009, the Centers for Medicare & Medicaid Services (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.[Footnote 164] Generally, for
federal fiscal year 2009 through the first quarter of federal fiscal
year 2011, the increased FMAP, which is calculated on a quarterly
basis, provides for (1) the maintenance of states' prior year FMAPs,
(2) a general across-the-board increase of 6.2 percentage points in
states' FMAPs, and (3) a further increase to the FMAPs for those states
that have a qualifying increase in unemployment rates. The increased
FMAP available under the Recovery Act are for state expenditures for
Medicaid services. However, the receipt of the increased FMAP may
reduce the funds that states must use for their Medicaid programs, and
states have reported using these available funds for a variety of
purposes.
As of April 1, 2009, North Carolina had drawn down $414.6 million in
increased FMAP grant awards, or 63 percent of its awards to date.
[Footnote 165] North Carolina officials reported that they plan to use
funds made available as a result of the increased FMAP to maintain
current populations and benefits and to offset the state's general fund
deficit. The state has received guidance on the requirements for
reporting Medicaid expenditures under the Recovery Act. However, the
state would like additional guidance on other types of reporting
requirements, such as performance information.
Transportation - Highway Infrastructure Investment: The Recovery Act
provides additional funds for highway infrastructure investment using
the rules and structure of the existing Federal-Aid Highway Surface
Transportation Program which apportions money to states to construct
and maintain eligible highways and for other surface transportation
projects. States must follow the requirements for the existing
programs, and in addition, the governor must certify that the state
will maintain its current level of transportation spending, and the
governor or other appropriate chief executive must certify that the
state or local government to which funds have been made available has
completed all necessary legal reviews and determined that the projects
are an appropriate use of taxpayer funds. North Carolina provided these
certifications, but conditioned the level of funding from state sources
for the Recovery Act covered programs on future revenue collections in
the state.[Footnote 166]
The North Carolina Department of Transportation (NCDOT) was apportioned
about $736 million in Recovery Act funds for highways and bridges. As
of April 16, 2009, the U.S. Department of Transportation had obligated
about $165 million for 53 projects in North Carolina.[Footnote 167] The
department has plans to award 70 contracts for Recovery Act projects
between March and June, which are estimated to cost $466 million. NCDOT
officials told us that they identified these projects based on Recovery
Act direction that priority is to be given to projects that are
anticipated to be completed within a 3-year time frame and that are
located in economically distressed areas. Projects were also evaluated
based on several criteria, including alignment with long-range
investment plans and considerations about geographical diversity and
economic impact.[Footnote 168] Based on the estimated costs of the
initially selected projects, about one-third of costs are for projects
not located in economically distressed areas, according to state
officials.
U.S. Department of Education State Fiscal Stabilization Fund: The
Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be
administered by the U.S. Department of Education (Education). The SFSF
provides funds to states to help avoid reductions in education and
other essential public services. The initial award of SFSF funding
requires each state to submit an application to Education that assures
it will take action to meet certain educational requirements such as
increasing teacher effectiveness and addressing inequities in the
distribution of highly qualified teachers. North Carolina officials
said that they would apply for fiscal stabilization funds by the end of
April 2009.
The state has been allocated $952 million under the SFSF program.
Officials from the state education agency, the North Carolina
Department of Public Instruction, said that 81.8 percent of the SFSF
would be distributed to school districts and institutions of higher
education in accordance with Recovery Act requirements. State officials
are in the process of determining how to calculate the relative amount
of funding that school districts and public institutions of higher
education would receive. Regarding the other 18.2 percent of SFSF,
state officials said that a decision had not yet been made about how
these funds would be allocated. State officials have emphasized in
their communications with school districts that funds should be used
for short-term investments with potential for long-term programmatic
gains, echoing federal guidance.
U.S. Department of Justice Edward Byrne Memorial Justice Assistance
Grant Program: The Edward Byrne Memorial Justice Assistance Grant
Program (Byrne Grant Program) was established to streamline justice
funding and grant administration, and allows states, tribes, and local
governments to support a broad range of activities to prevent and
control crime based on their own local needs and conditions. According
to officials of the North Carolina Governor's Crime Commission, the
office expects to receive an allocation of $34.5 million through the
Byrne Grant Program. The Governor's Crime Commission is allowed to use
10 percent of that total, or about $3.5 million, for administrative
purposes. This leaves a balance of $31 million. Of this amount, 42.4
percent, or $13.2 million, must be passed through by formula to local
governments and the remainder of $17.9 million will go to other state
agencies and institutions. North Carolina officials for the Byrne Grant
Program are planning to fund programs based on the state's list of
program priorities, which include programs such as the Criminal Justice
System Improvement, Crime Victims' Services, Juvenile Justice Planning,
and North Carolina Gang Prevention Initiative. Also, the localities
within the state will receive $21.9 million, which will be awarded by
the U.S. Department of Justice.
Tax Credit Assistance Program and the Low Income Housing Tax Credit
(LIHTC) Exchange Program: The Tax Credit Assistance Program provides
grant funding for capital investment in Low Income Housing Tax Credit
(LIHTC) projects using a formula-based allocation to state housing
credit allocation agencies. The LIHTC Exchange program provides grants
for housing projects in lieu of LIHTC allocations. The housing credit
agencies in each state distribute these funds competitively and
according to their qualified allocation plan. According to officials
with the North Carolina Housing Finance Agency (NCHFA), the state has
identified potential projects for the Tax Credit Assistance Program
(TCAP), focusing initially on 40 to 50 tax credit projects that were
stalled due to a lack of financing from other sources. NCHFA officials
said they are waiting on guidance from the U.S. Department of Housing
and Urban Development and Department of the Treasury before they begin
the application process for developers. NCHFA officials said that
environmental review requirements could pose a challenge to meeting
federal timelines for making awards, but that they would not know for
certain until final federal guidance has been issued.
Workforce Investment Act Youth, Adult, and Dislocated Worker Programs:
The Workforce Investment Act (WIA) provides funds for employment and
training services to youth, adults, and dislocated workers. North
Carolina was allocated nearly $80 million through these WIA programs
under the Recovery Act. The North Carolina Department of Commerce (DOC)
has been working with local workforce development boards since January
to help them plan and prioritize the use of these Recovery Act funds.
The state has communicated these priorities to the local workforce
development boards: (1) increasing the number of people served and
trained, (2) targeting programs toward underserved populations,
including those receiving public assistance, (3) implementing a
statewide summer youth employment program, and (4) increasing support
services, such as child care and transportation. As necessary, the
department has worked with other state departments to coordinate
efforts. For example, DOC has coordinated with the state community
college system to create short-term course offerings in 12 high-growth
occupations that lead to certificates at each of the 58 state community
colleges. DOC officials are also developing plans to use state-level
funds received under the Recovery Act, and anticipate using those funds
to help conduct outreach to inform the public of available programs and
services funded through the Recovery Act.
Background Information on North Carolina:
Federal funding plays an important role in North Carolina's state
budget, with the state receiving a total of about $12 billion for
fiscal years 2007-2008, which accounted for about one-quarter of the
total state budget of about $41 billion. Health and Human services, at
about $16 billion, and education, at about $15 billion, were the two
largest categories of state spending, together accounting for more than
70 percent of the state budget. Federal funds accounted for more than
half of total state spending on health and human services, and about 10
percent of state spending on education.
North Carolina is expecting to receive an estimated $6.1 billion of the
Recovery Act funding going to states. North Carolina's fiscal situation
is not unlike many other states. In the midst of its economic crisis,
the Governor's proposed biennial budget contains $2.6 billion in
spending reductions and $1.3 billion in revenue increases, and proposes
to use $2.9 billion of federal recovery funds to support education and
other mission-critical services over the biennium. The Governor's
budget proposal indicated that most programs face reduced or level
funding, but recommended continued focus on growing North Carolina's
economy, improving public education, keeping higher education
accessible and affordable, and protecting the state's most vulnerable
citizens.
North Carolina, after 3 consecutive years of growth, suffered a
significant economic decline in 2008. As reported in the Governor's
budget proposal, the state lost over 120,000 jobs--a nearly 3 percent
decline--in 2008, pushing its unemployment rate up to about 10 percent.
Job losses were particularly steep in the manufacturing sector, but the
state reported that its housing sector, while also suffering a decline,
was less affected by the housing downturn than other states. The
Governor's budget proposal projects the economy to continue its
decline, but to stabilize in 2010 and begin to grow in 2011. In
general, the state projects economic performance to outpace the U.S.
average.
The North Carolina state government operates on a biennial budget
cycle, which begins on July 1 of odd-numbered years. The North Carolina
constitution requires the Governor to submit a balanced budget, and
state statute requires the General Assembly to pass a balanced budget,
according to the National Association of State Budget Officers. North
Carolina's General Assembly must pass an appropriations bill in order
for state agencies to disburse federal funds, according to state
officials, according to NASBO.
North Carolina's Governor, Beverly Perdue, took office in January of
2009. The Governor is supported by a 10-person cabinet that she
appoints, and in February 2009, she established the Office of Economic
Recovery and Investment (OERI) to oversee the state's implementation of
the Recovery Act. Several other key state-level executive positions,
including the Treasurer and the Superintendent of Public
Instruction,[Footnote 169] are selected through statewide elections.
Also, the State Auditor, who is responsible for providing independent
evaluations and audits of state agencies and programs, is selected by
statewide election. North Carolina has a bicameral General Assembly,
with members of both the House and Senate being elected to 2-year
terms. The General Assembly typically meets for a full session in odd-
numbered years and a shorter session in even-numbered years. There is
no concluding date for either session, according to state officials.
North Carolina's Planning Process Is Being Led by the Newly Created
Office of Economic Recovery and Investment:
On February 17, 2009--the same day the Recovery Act was enacted--
Governor Perdue created the OERI to oversee North Carolina's handling
of federal stimulus funds as well as state-level economic recovery
initiatives. OERI's responsibilities include, among other things,
coordinating state efforts to track and report on Recovery Act funds
and maximizing the state's use of Recovery Act funds. Another of OERI's
major responsibilities is to provide guidance to state departments and
localities on how to monitor, track, and report the use of Recovery Act
funds. On March 30, 2009, the state issued a memorandum on budgeting
and accounting for Recovery Act funds. This memorandum is the first of
what is anticipated to be a continuing series of information and
directives to ensure that state agencies and subrecipients comply with
federal and state requirements. Specifically, this memorandum provides
guidance requiring that Recovery Act funds may not be commingled with
other funds and that Recovery Act expenditures will require review and
approval by the Office of State Budget and Management (OSBM). In
addition, OERI has established two management directives requiring
agencies to make weekly reports on Recovery Act funds, and to submit
grant applications to OERI for review.
Also, OERI is creating several working groups to coordinate state
implementation of Recovery Act programs and requirements. Specifically,
working groups from OERI and OSBM are being established for each
recipient agency and grant program to ensure close coordination, clear
establishment of operating procedures, and improved communications.
According to OERI's Director, three working groups for education,
housing and homelessness, and health information technology, have been
established, and more are planned. OERI has also developed a senior
state management team with representatives from state agencies to
exchange information and facilitate Recovery Act implementation.
Governor Perdue's budget proposal, which according to state documents
incorporated an anticipated $6.1 billion in Recovery Act formula funds,
is currently being considered and reviewed by the General Assembly. In
an effort to monitor and oversee these Recovery Act funds, the North
Carolina Senate established the Select Committee on Economic Recovery.
According to the committee's Chairman, the new committee was
established to have legislative review of how the Recovery Act funds
will be used and the effect the funds may have on the state's budget.
The North Carolina House of Representatives has established a similar
committee.
Plans for Safeguards and Controls Being Developed at the State Level
and at State Agencies Administering Federal Programs:
As North Carolina prepares for the receipt, tracking, monitoring, and
reporting of Recovery Act funds, it currently faces a number of known
financial management challenges and other risks. For example, North
Carolina's 2007 Single Audit report had 18 findings for material
weaknesses and material noncompliance related to issues with federal
program compliance for the North Carolina Departments of Health and
Human Services (16) and Crime Control and Public Safety (2). Five of
the 18 findings were related to insufficient subrecipient monitoring.
The state auditor's office also noted that single audit findings have
consistently found issues related to subrecipient monitoring by state
agencies. Insufficient subrecipient monitoring and other deficiencies
such as these may leave Recovery Act funds vulnerable to fraud, waste,
and abuse.
In addition to single audit findings, some state officials identified
challenges for state agencies responsible for overseeing Recovery Act
funds. For example, several state officials said they were concerned
about the adequacy of staff and funds needed to meet additional
management and oversight responsibilities under the Recovery Act. In
particular, officials with the Department of Public Instruction noted
that it would be difficult to add staff to take on anticipated
additional monitoring and reporting requirements. State officials told
us they will explore the possibility of receiving a waiver from the
U.S. Department of Education that would allow the state to set aside
additional Recovery Act funds under Title I, Part A of the Elementary
and Secondary Education Act of 1965 (ESEA, commonly known as No Child
Left Behind).[Footnote 170] However, officials in other agencies, such
as the North Carolina Department of Commerce, which administers
Workforce Investment Act funds, felt that they would be able to absorb
additional responsibilities with current staff and resources. State
officials also identified programs that were receiving a significant
increase in program funding as a risk. For example, several officials
noted that the weatherization program is receiving a substantial
increase in funding. Finally, state officials told us that state agency
guidance and communications with local governments are areas that will
bear watching, as ensuring that local governments understand how to
properly account for and segregate federal and state funds will be
critical.
Plans for Oversight of North Carolina's Recovery Act Funds:
Within the state of North Carolina, a variety of efforts are under way
to establish new safeguards over Recovery Act funds, including some
that will build on current systems and recent initiatives. For example,
officials at North Carolina's OSC and OSBM told us that several state
agency accounting systems will need to be modified to track Recovery
Act funds as required by the Recovery Act. OSBM officials told us that
they have been waiting for Office of Management and Budget (OMB)
guidance on the reporting requirements, which was released by OMB on
April 3, 2009. These officials have not identified any state agency
accounting systems that are incapable of adding a unique identifier
code to separately track Recovery Act funds, but said that nearly all
systems will need some modifications. A bigger concern is that Recovery
Act reporting time frames may not be aligned to the state departments'
normal accounting cycles, which may delay the departments' ability to
provide monthly or quarterly reports to OSBM and OERI.
North Carolina officials also told us that they plan to build on recent
statewide transparency and accountability initiatives to help meet
reporting and oversight requirements. For example, the state plans to
use its Web site, [hyperlink, http://www.NCOpenBook.gov], to include
information on contracts and grants awarded with Recovery Act funds. In
addition, North Carolina has created another Web site, [hyperlink,
http://www.NCrecovery.gov], designed to maintain a record of how
Recovery Act funds are being spent in a way that is transparent and
accountable. Although still under development, plans for this Web site
include the ability to provide additional information about how funds
will be distributed, information on how to apply for funds or
contracts, a mechanism to track spending on individual projects, and
estimates of the economic impact and jobs created. Additionally, OSBM,
in consultation with the state Department of Administration, Division
of Purchase and Contract, is reviewing a statewide procurement process
to streamline the process and identify any areas that need to be
improved. The results of this review may indicate either systemic
statewide or individual agency needs related to the Recovery Act.
Finally, the OSC is phasing in a statewide internal control program
called EAGLE (Enhancing Accountability in Government through Leadership
and Education), which is intended to establish adequate internal
controls and increase fiscal accountability. Under the EAGLE program,
each agency will be required to perform an annual assessment of
internal controls over financial reporting and identify risks.
North Carolina's State Auditor told us that, given current staffing
levels, her office will conduct as many oversight reviews and audits of
Recovery Act funds as they can. In order to handle the new Recovery Act
work, it will be necessary to cut back on some of the other fiscal
control audits. The State Auditor told us that she uses a risk-based
approach to auditing and plans to focus the State Auditor's Recovery
Act work on subrecipient monitoring and on how the Recovery Act funds
are being segregated from other federal funds coming through
traditional funding streams. The State Auditor's office also noted that
OMB and other federal agency guidance may identify areas that may merit
closer scrutiny.
Plans to Assess Impact of Recovery Act Funds Are Just Being Developed:
State officials across agencies told us that that the state Office of
Economic Recovery and Investment was developing guidance on the
Recovery Act reporting requirements, but that the state has not yet
begun assessing the effects of Recovery Act funds. The state provided
localities with guidance on a number of Recovery Act-related topics on
March 30, 2009, but the guidance has not yet specifically addressed
Recovery Act reporting requirements. State officials told us that they
needed federal guidance about how to assess the effects of Recovery Act
funds before they can release state guidance. For example, the state's
Chief Procurement Officer said that the state needs guidance about how
to measure specific reporting requirements such as jobs created and
jobs saved.
North Carolina's Comments on This Summary:
We provided the Governor of North Carolina with a draft of this
appendix on April 17, 2009. The Director of OERI responded for the
Governor on April 20, 2009. In general, the comments were either
technical or were status updates. The official also provided technical
suggestions that were incorporated, as appropriate.
GAO Contacts:
Cornelia Ashby, (202) 512-8403 or ashbyc@gao.gov:
Terrell Dorn, (202) 512-6923 or dornt@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Bryon Gordon, Assistant
Director; Scott Spicer, analyst-in-charge; Carleen Bennett; George
Depaoli; Bonnie Derby; Leslie Locke; Stephanie Moriarty; and Anthony
Patterson made major contributions to this report.
[End of section]
Appendix XVI: Ohio:
Overview:
Use of funds: An estimated 90 percent of Recovery Act funding provided
to states and localities nationwide in fiscal year 2009 (through Sept.
30, 2009) will be for health, transportation and education programs.
The three largest programs in these categories are the Medicaid Federal
Medical Assistance Percentage (FMAP) awards, the State Fiscal
Stabilization Fund, and highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds:
* As of April 3, 2009, the Centers for Medicare & Medicaid Services
(CMS) had made about $760 million in increased FMAP grant awards to
Ohio;
* As of April 1, 2009, Ohio has drawn down about $420.6 million, or
55.3 percent of its initial increased FMAP grant awards;
* Ohio officials indicated that they will use Recovery Act funds made
available as a result of the increased FMAP to cover increased
caseloads, offset general fund shortfalls due to state budget deficits,
ensure compliance with prompt payment provisions, maintain existing
populations, avoid eligibility restrictions, increase provider
payments, and maintain and increase current levels of benefits.
Transportation--Highway Infrastructure Investment:
* Ohio was apportioned about $935.7 million for highway infrastructure
investment on March 2, 2009 by the U.S. Department of Transportation;
* Of the $935.7 million, about $774.2 million was apportioned to the
Ohio Department of Transportation (ODOT);
* On March 26, 2009, ODOT announced that it will fund 149 projects with
$774.2 million in Recovery Act funding. According to ODOT officials,
they are currently meeting with all project sponsors and performing
detailed reviews of project documentation, confirming federal
eligibility, assessing project delivery, and establishing project
schedules;
* As of April 16, 2009, the U.S. Department of Transportation had not
obligated any Recovery Act funds for Ohio projects;
* ODOT expects to begin advertising for bids during the week of April
20, 2009.
U.S. Department of Education State Fiscal Stabilization Fund (Initial
Release):
* Ohio was allocated $1,198,882 from the initial release of these funds
on April 2, 2009, by the U.S. Department of Education;
* As of April 17, 2009, Recovery Act funds for education and some child
care programs had not been appropriated by the legislature. Officials
with the Governor's office and Ohio's Office of Budget and Management
(OBM) said these funds would be included in the budget for state fiscal
years 2010-2011 and must pass by June 30, 2009;
* Before receiving the funds, states are required to submit an
application that provides several assurances to the Department of
Education. These include assurances that they will meet maintenance of
effort requirements (or that they will be able to comply with waiver
provisions) and that they will implement strategies to meet certain
educational requirements, including increasing teacher effectiveness,
addressing inequities in the distribution of highly qualified teachers,
and improving the quality of state academic standards and assessments;
* State officials said that they intend to apply for State Fiscal
Stabilization Funds sometime in the future.
The state of Ohio expects to receive a total of $8.2 billion from the
Recovery Act over the next 3 years (fiscal years 2009-2011). In
addition to the funding described above, Ohio is also receiving
Recovery Act funds under other programs, such as programs under Title
I, Part A of the Elementary and Secondary Education Act (ESEA)
(commonly known as No Child Left Behind); programs under the
Individuals with Disabilities Education Act (IDEA); and two programs of
the U.S. Department of Agriculture--one for administration of the
Temporary Food Assistance Program and one for competitive equipment
grants targeted to low-income districts from the National School Lunch
Program. The status of plans for using some of these funds is described
in this appendix.
Before passage of the Recovery Act, Ohio created a Web site at
[hyperlink, http://www.Recovery.Ohio.gov], which represents the state's
effort to create an open, transparent, and equitable process for
allocating Recovery Act funds. Through the Web site, the state has
encouraged proposals for uses of Recovery Act funds, and as of April 8,
2009, individuals and organizations from across Ohio have submitted
over 23,000 proposals. While still receiving proposals, new submissions
to the Web site have dropped in number dramatically, as guidance from
federal agencies has clarified details about funding opportunities. By
mid-April, approximately 26 state agencies with programmatic expertise
had sorted the 23,000 submissions for response. Ohio regularly updates
its Web site to provide timetables and information on applying for
funds from state and federal agencies.
State agencies are beginning to identify specific projects to fund. On
April 1, 2009, the Governor signed House Bill 2. As described by state
officials, the bill appropriates $1.9 billion in Recovery Act resources
for 11 state agencies. According to state officials, additional
appropriations are needed to spend Recovery Act funds for education and
some child care programs, including Ohio's share of the State Fiscal
Stabilization Fund. According to state officials, these appropriations
are included in House Bill 1, which is part of the state's biennial
budget and must be approved by June 30. As of April 1, 2009,
* The Ohio Department of Public Safety received about 730 proposals for
Edward Byrne Memorial Justice Assistance Grant projects through the
Ohio Recovery Web site. Applications for the state-administered funds
are due on May 1, 2009; the department issued its request for proposals
with caveats that specific reporting requirements are forthcoming from
OMB and the U.S. Department of Justice.
* The Ohio Department of Job and Family Services (ODJFS) plans to
allocate Workforce Investment Act (WIA) funds directly to local area
workforce boards, and ODJFS provided these boards with estimates early
so they could begin the planning process. Before funds were
appropriated, some local areas began their efforts to procure providers
for youth programs, particularly for work sites.
Safeguarding and transparency: Ohio is planning to use existing systems
and safeguards to track Recovery Act funds, but reliance on
subrecipients to provide data for enhanced reporting requirements may
present challenges. For example, the fiscal year 2007 single state
audit identified material weaknesses with a number of the systems that
Ohio's Department of Jobs and Family Services uses to record and
process eligibility and financial information for all their major
federal programs. Moreover, officials with the Columbus Metropolitan
Housing Authority (CMHA) noted limitations in how far they could
reasonably be expected to track Recovery Act funds. They said they
could track Recovery Act dollars to specific projects but could not
systematically track funds spent by subcontractors on materials and
labor.
Assessing the effects of spending: Ohio continues to explore ways to
assess the impact of Recovery Act funds, but officials anticipate
challenges. Specifically, in the absence of guidance on the types of
data to collect, funding could be released before state officials have
determined reporting requirements. Moreover, Ohio officials are
concerned that, without uniform reporting requirements, each state will
develop their own methodologies for assessing the impact of the federal
stimulus, eliminating any possibility of making assessments that are
comparable nationwide.
Ohio Beginning to Use Recovery Act Funds:
Ohio has begun to use some of its Recovery Act funds, as follows:
Increased Federal Medical Assistance Percentage (FMAP) Funds: Medicaid
is a joint federal-state program that finances health care for certain
categories of low-income individuals, including children, families,
persons with disabilities, and persons who are elderly. The federal
government matches state spending for Medicaid services according to a
formula based on each state's per capita income in relation to the
national average per capita income. The amount of federal assistance
states receive for Medicaid service expenditures is known as the
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP
may range from 50 to no more than 83 percent, with poorer states
receiving a higher federal matching rate than wealthier states. The
Recovery Act provides eligible states with an increased FMAP for 27
months between October 1, 2008, and December 31, 2010.[Footnote 171] On
February 25, 2009, the Centers for Medicare & Medicaid Services (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.[Footnote 172] Generally, for
fiscal year 2009 through the first quarter of fiscal year 2011, the
increased FMAP, which is calculated on a quarterly basis, provides for
(1) the maintenance of states' prior year FMAPs; (2) a general across-
the-board increase of 6.2 percentage points in states' FMAPs; and (3) a
further increase to the FMAPs for those states that have a qualifying
increase in unemployment rates. The increased FMAP available under the
Recovery Act is for state expenditures for Medicaid services. However,
the receipt of this increased FMAP may reduce the funds that states
must use for their Medicaid programs, and states have reported using
these available funds for a variety of purposes.
Ohio began the planning process to spend these funds before the
enactment of the Recovery Act. In December 2008, to mitigate a budget
revision[Footnote 173] resulting from a 3.3 percent drop in estimated
state tax revenues, the Governor's office assumed that additional
federal assistance would be forthcoming. By including funds made
available as a result of the increased FMAP in the assumptions used to
revise the budget, cuts to state agency budgets and services were less
severe. As of April 1, 2009, Ohio has drawn $420.6 million in Medicaid
Recovery Act funds or 55.3 percent of its initial FMAP funds. Ohio
officials indicated that as of March 31, 2009, they will use Recovery
Act funds to cover increased caseloads, offset general fund shortfalls
due to state budget deficits, ensure compliance with prompt payment
provisions, maintain existing populations, avoid eligibility
restrictions, increase provider payments, and maintain and increase
current levels of benefits.
Transportation--Highway Infrastructure Investment: The Recovery Act
provides additional funds for highway infrastructure investment using
the rules and structure of the existing Federal-Aid Highway Surface
Transportation Program, which apportions money to states to construct
and maintain eligible highways and for other surface transportation
projects. States must follow the requirements for the existing
programs, and in addition, the governor must certify that the state
will maintain its current level of transportation spending, and the
governor or other appropriate chief executive must certify that the
state or local government to which funds have been made available has
completed all necessary legal reviews and determined that the projects
are an appropriate use of taxpayer funds. Ohio provided this
certification, but conditioned it, noting that future highway spending
would depend on: the state's collection of transportation revenues,
state budgeting levels, ability to sell bonds, construction inflation,
pending state legislation and the solvency of the federal highway trust
fund.[Footnote 174]
On March 26, 2009, the Governor announced that Ohio will fund 149
projects with $774.2 million in Recovery Act funding. At least 113 of
these projects, costing $605.5 million, involve roadway repaving and
bridge repair. Specific roadway projects range from $200 million, for
the Cleveland Innerbelt Bridge in Cuyahoga County, to $50,000, for
pavement markings in Belmont County. The remaining transportation
funds, nearly $170.0 million, are to be spent for railroad, maritime,
intermodal, and engineering projects. ODOT officials told us that they
are currently meeting with all project sponsors and performing detailed
reviews of project documentation, confirming federal eligibility,
assessing project delivery, and establishing project schedules. ODOT
expects to begin advertising for bids during the week of April 20,
2009. In addition to the more than $774 million apportioned to ODOT,
another $161.5 million was directly suballocated to Ohio's eight major
metropolitan planning organizations in Akron, Canton, Cincinnati,
Cleveland, Columbus, Dayton, Toledo, and Youngstown. As of April 16,
2009, the U.S. Department of Transportation had not obligated any
Recovery Act funds for Ohio projects.[Footnote 175]
U.S. Department of Education State Fiscal Stabilization Fund: The
Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be
administered by the U.S. Department of Education (Education). The SFSF
provides funds to states to help avoid reductions in education and
other essential public services. The initial award of SFSF funding
requires each state to submit an application to Education that assures,
among other things, it will take actions to meet certain educational
requirements such as increasing teacher effectiveness and addressing
inequities in the distribution of highly qualified teachers.
Ohio's initial SFSF allocation is $1,198,882. According to state
officials, the Ohio legislature has not passed the appropriations bills
for Recovery Act-funded education programs and some child care
programs. Those funds are expected to be appropriated, along with the
rest of the state budget, by June 30, 2009. State officials said that
they intend to apply for the State Fiscal Stabilization Funds sometime
in the future.
To provide guidance on key Recovery Act requirements and assure that
the state is maximizing its access to and use of Recovery Act funds, a
number of statewide teams have formed to aid the planning process. The
Governor's office organized a team of policy advisors, information
technology specialists, and agency program staff to work on the
application, program administration, reporting, and accountability
related to the Recovery Act funds. This team is to ensure coordination
with other offices, state agencies, or federal government entities and
will work to ensure that Ohio appropriately applies for Recovery Act
funding for which the state is eligible. In addition to the Governor's
teams, Ohio's Office of Budget and Management (OBM) mandated that state
agencies establish Recovery Act teams and recommended including fiscal,
program, and compliance staff. The Governor also appointed an
Infrastructure Czar to advise on the creation of an open, transparent
process and to assist the state's leaders in the strategic use of
infrastructure dollars. As the infrastructure awards moved toward
completion, state officials said he has turned his attention to
assisting in competitive grant opportunities for entities in Ohio,
including state agencies. The Czar will head a process for determining
the most efficient and effective distribution of Recovery Act funds for
competitive projects.
Ohio Is Planning to Use Existing Systems and Safeguards to Track
Recovery Act Funds, But Reliance on Subrecipients to Provide Data for
Enhanced Reporting Requirements Could Present Challenges:
The Ohio OBM will have primary responsibility for collecting and
presenting financial data from state agencies through its Ohio
Administrative Knowledge System (OAKS).[Footnote 176] OBM has issued
guidance to state agencies on Recovery Act reporting requirements and
risk management and accountability responsibilities. To ensure that
Recovery Act funds are segregated from other program funds and
accounted for separately, OBM will create a centralized system to
report all accounting data through OAKS. To facilitate tracking, OBM
assigns an OAKS program number (for both revenues and expenses) unique
to Recovery Act funds. OBM plans to develop a series of program reports
that state agencies can use to regularly monitor Recovery Act revenues
and spending metrics to ensure the agency is in compliance.
Although OAKS will allow the state to tag Recovery Act funding, in many
cases the state agencies will rely on grantees and contractors to track
the funds to the end use. Because the state intends to code each
Recovery Act funding stream separately, and because these recipients
typically manage more than one funding stream at a time, state
officials said that the recipients should be able to track Recovery Act
funds and other funding sources separately.
However, some state departments may not be able to rely on data from a
number of the complex information systems they use. For example, the
fiscal year 2007 single state audit identified material weaknesses with
a number of the systems that ODJFS uses to record and process
eligibility and financial information for all their major federal
programs. Auditors found that without sufficient, experienced internal
personnel possessing the appropriate technical skills to independently
analyze, evaluate, and test these complex information systems, ODJFS
management may not be reasonably assured these systems are processing
transactions accurately. In its response, ODJFS replied that it did not
have the resources to create a separate independent office, but said
that it had protocols in place to provide some assurances that its
systems were processing transactions accurately. State officials said
they are aware of the weakness listed and are taking action to remedy
it. Further, OBM has instructed its own internal audit office to
provide additional resources to assist the agency.
Moreover, state and local officials we talked to raised some concerns
about the ability of some localities to track Recovery Act funds to
their end use. Specifically, they raised concerns about the capacity of
grantees and contractors to track funds spent by subrecipients. For
example, officials with the Ohio Department of Education said that they
can track Recovery Act funds to school districts and charter schools,
but they have to rely on the recipients' financial systems to be able
to track funds beyond that. An official with the Columbus City Schools
said that its accounting system might be challenged to meet enhanced
reporting requirements. While they could provide assurances that
Recovery Act funds were spent in accordance with program requirements,
they could not report systemwide how each federal Recovery Act dollar
was spent. Officials with the Columbus Metropolitan Housing Authority
(CMHA) also noted limitations in how far they could reasonably be
expected to track Recovery Act funds. They said they could track
Recovery Act dollars to specific projects but could not systematically
track funds spent by subcontractors on materials and labor. These
officials added, however, that if they required the contractors to
collect this information from their subcontractors, they would be able
to report back with great detail. Still, without guidance from the
federal government on specific reporting requirements, they were
hesitant to burden their contractors with collecting the data.
On March 27, 2009, OBM directed state agencies to put in place risk
management strategies for programs receiving Recovery Act funds. The
guidance stresses the importance of having risk mitigation strategies
in place that assure (1) management controls are operating to identify
and prevent wasteful spending and minimize fraud, waste, and abuse; (2)
adequate program monitoring by qualified personnel occurs; (3) awards
are competed; (4) revenues and expenses are accurately reported; and
(5) cost overruns and improper payments are minimized.
To ensure that existing safeguards are followed, OBM's Office of
Internal Audit (OIA) plans to (1) provide training and education to
state agency personnel, (2) assess the adequacy and effectiveness of
the current internal control framework, (3) test whether state agencies
adhere to the current framework, and (4) coordinate multiagency reviews
with both federal and state officials. According to OIA officials,
pursuant to its statutory implementation plans, OIA will increase its
internal audit staff from 9 (current) to 33 by transferring internal
audit personnel from other state agencies and hiring new staff by July
2009. OBM officials said that the increase in OIA staff will help
provide the needed resources to implement its objectives and ensure
that current safeguards are in place and followed as the state manages
it Recovery Act-funded programs.
Separately, both the Ohio State Auditor's office and the Ohio Office of
Inspector General are to provide independent reviews of the use of
Recovery Act funds. The Ohio State Auditor's office has created a Web-
based database for all state agencies and local governments to report
on Recovery Act funding and project expenditure activity. This database
will also allow for public viewing of Recovery Act funds activity in
the future. The State Auditor plans to use this information in helping
assess risks and determine which programs to test as part of its single
audit requirements. In addition, the State Auditor's office plans to
conduct interim audit work over controls and compliance at various
state agencies and local governments. According to state officials, as
part of House Bill 2, the Ohio General Assembly created in the Office
of Inspector General the position of Deputy Inspector General for funds
received through the Recovery Act. The Deputy Inspector General is
charged with monitoring state agency distribution of Recovery Act
funds, conducting a program of random reviews of the processing of
contracts associated with Recovery Act projects, and investigating all
wrongful acts or omissions committed by officers, employees, or
contractors.
Ohio Is Exploring Ways to Assess Impact of Recovery Act Funds, but
Officials Anticipate Challenges:
OBM officials said that the emphasis on measuring the impact of certain
Recovery Act funding has focused, thus far, on job creation; however,
they noted that there are other goals of the Recovery Act. They argued
that without comprehensive reporting guidance, states will struggle to
assess impact on some of these other outcomes. States will not be able
to go back later in the process to assess the impact of the Recovery
Act on these other outcomes if they do not have guidance on what data
to collect.
While some state agencies have identified options for reporting on job
creation, there are concerns about the soundness of some of the
methodologies. The Ohio Department of Transportation, for example,
identified a study from 1979 which projects how many jobs will be
created by a given expenditure. Other models have also been identified;
however, in the absence of uniform guidance from the federal
government, Ohio officials are concerned that states and localities
will use a variety of methods that will ultimately not be comparable
and will make nationwide assessment of the Recovery Act difficult.
Ohio's Comments on This Summary:
We provided the Governor of Ohio with a draft of this appendix on April
17, 2009. The Chief Legal Council for OBM responded for the Governor on
April 20, 2009. In general, the comments were either technical or were
status updates. The Auditor of State also reviewed the draft and
provided technical suggestions. We incorporated these comments, as
appropriate.
GAO Contacts:
Cynthia M. Fagnoni, (202) 512-7202 or fagnonic@gao.gov:
David M. Trimble, (202) 512-9338 or trimbled@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Bill J. Keller, Assistant
Director; Sanford F. Reigle, Analyst-in-Charge; Matthew Drerup; Laura
Jezewski; Myra Watts-Butler; Lindsay Welter; Charles Willson; and Doris
Yanger made major contributions to this report.
[End of section]
Appendix XVII: Pennsylvania:
Overview:
Use of funds: An estimated 90 percent of Recovery Act funding provided
to states and localities nationwide in fiscal year 2009 (through Sept.
30, 2009) will be for health, transportation and education programs.
The three largest funding categories are the Medicaid increased Federal
Medical Assistance Percentage (FMAP) grant awards, the State Fiscal
Stabilization Fund, and highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds:
* As of April 3, 2009, Centers for Medicare & Medicaid Services (CMS)
had made about $1 billion in increased FMAP grant awards to
Pennsylvania;
* As of April 3, 2009, Pennsylvania has drawn down about $330.8
million, or nearly 32 percent of its initial increased FMAP grant
awards;
* Officials plan to use funds made available as a result of the
increased FMAP grant awards to help cover the state's increased
Medicaid caseload, ensure prompt claims payments, and to offset
Pennsylvania's general fund budget deficit.
Transportation--Highway Infrastructure Investment:
* Pennsylvania was apportioned about $1.0 billion for highway
infrastructure investment on March 2, 2009, by the U.S. Department of
Transportation;
* As of April 16, 2009, the U.S. Department of Transportation had
obligated $308.6 million for 108 Pennsylvania projects;
* As of April 16, 2009, the Pennsylvania Department of Transportation
had advertised competitive bids on 97 projects totaling about $260
million, and the earliest contract was awarded on March 20, 2009;
* These projects include activities such as highway repaving as well as
bridge replacement and painting;
* Pennsylvania will request reimbursement from the U.S. Department of
Transportation as the state makes payments to contractors.
U.S. Department of Education State Fiscal Stabilization Fund (Initial
Release):
* Pennsylvania was allocated about $1.3 billion from the initial
release of these funds on April 2, 2009, by the U.S. Department of
Education;
* Before receiving the funds, states are required to submit an
application that provides several assurances to the Department of
Education. These include assurances that they will meet maintenance of
effort requirements (or that they will be able to comply with waiver
provisions) and that they will implement strategies to meet certain
educational requirements, including increased teacher effectiveness,
addressing inequities in the distribution of highly qualified teachers,
and improving the quality of state academic standards and assessments.
Pennsylvania plans to submit its application by April 25, 2009;
* The Governor plans to use the funds to increase state funding for
school districts and restore state funding for public colleges. The
Governor also plans to use some funds to pay operating costs for the
Department of Corrections.
Pennsylvania is receiving additional Recovery Act funds under other
programs, such as programs under Title I, Part A of the Elementary and
Secondary Education Act of 1965 (ESEA) (commonly known as No Child Left
Behind); programs under the Individuals with Disabilities Education Act
(IDEA); Transit Capital Assistance and the Fixed Guideway
Infrastructure Investment Programs; Workforce Investment Act; the U.S.
Department of Housing and Urban Development Neighborhood Stabilization
Program; the U.S. Department of Justice Edward Byrne Memorial Justice
Assistance Grants; and the U.S. Department of Energy Weatherization
Assistance Program. Plans to use these funds are described throughout
this appendix.
Safeguarding and transparency: On March 4, 2009, the Governor named the
Secretary of General Services as the state's Chief Implementation
Officer responsible for the effective and efficient delivery of all
Recovery Act-funded initiatives and projects. Additionally, the
Governor set up a Recovery Management Committee to report to him on the
progress of recovery efforts. According to the Chief Implementation
Officer, this body meets regularly to discuss the status of the
program, troubleshoot areas of concern, and report to the Governor on
the progress of recovery efforts. In addition, Pennsylvania officials
said they would use their existing integrated accounting system to
track Recovery Act funds flowing through the state government. Although
Pennsylvania has plans to publicly report its Recovery Act spending
through a Web site [hyperlink, http://www.recovery.pa.gov], officials
have said that the state may not be aware of all Recovery Act funds
sent directly by the federal agencies to municipalities and independent
authorities. In late March 2009, the Governor appointed a Chief
Accountability Officer who will be responsible for reporting on
Pennsylvania's use of Recovery Act funds. Pennsylvania plans to conduct
several risk assessments for Recovery Act programs by June 2009.
Pennsylvania's Auditor General also anticipates work auditing and
investigating Recovery Act funds received by state and local agencies.
Assessing the effects of spending: Pennsylvania state departments are
in the early stages of developing plans to assess the effects of
Recovery Act spending. According to state officials, they are awaiting
further guidance from the federal government, particularly related to
measuring job creation.
Pennsylvania Beginning to Use Recovery Act Funds:
Pennsylvania has begun to use some of its Recovery Act funds, as
follows:
Increased Federal Medical Assistance Percentage Funds: Medicaid is a
joint federal-state program that finances health care for certain
categories of low-income individuals, including children, families,
persons with disabilities, and persons who are elderly. The federal
government matches state spending for Medicaid services according to a
formula based on each state's per capita income in relation to the
national average per capita income. The amount of federal assistance
states receive for Medicaid service expenditures is known as the
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP
may range from 50 percent to no more than 83 percent, with poorer
states receiving a higher federal matching rate than wealthier states.
The Recovery Act provides eligible states with an increased FMAP for 27
months between October 1, 2008, and December 31, 2010.[Footnote 177] On
February 25, 2009, the Centers for Medicare & Medicaid Services (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.[Footnote 178] Generally, for
federal fiscal year 2009 through the first quarter of federal fiscal
year 2011, the increased FMAP, which is calculated on a quarterly
basis, provides for (1) the maintenance of states' prior year FMAPs;
(2) a general across-the-board increase of 6.2 percentage points in
states' FMAPs; and (3) a further increase to the FMAPs for those states
that have a qualifying increase in unemployment rates. The increased
FMAP available under the Recovery Act is for state expenditures for
Medicaid services. However, the receipt of this increased FMAP may
reduce the funds that states must use for their Medicaid programs, and
states have reported using these available funds for a variety of
purposes.
As of April 1, 2009, Pennsylvania has drawn down $330.8 million in
increased FMAP grant awards, which is almost 32 percent of its awards
to date.[Footnote 179] Pennsylvania officials reported that they plan
to use funds made available as a result of the increased FMAP to cover
the state's increased Medicaid caseload and maintain current
populations and benefits. State officials also noted that such funds
are allowing them to forgo reductions that they otherwise would have
had to make because state funding streams are smaller this year. For
example, Pennsylvania officials indicated that the state's share for
Medicaid expenditures is 20 percent of their state revenues; thus this
funding fluctuates as the economy rises and falls. Funding made
available as a result of the increased FMAP will also be used to offset
the state's general fund deficit and to help ensure that the Medicaid
prompt payment requirements are met.[Footnote 180] Pennsylvania
officials noted that early notification from CMS regarding any
reporting forms that the state will be required to complete would be
beneficial to ensure that the state's accounting systems are properly
aligned to produce needed reports.
Transportation--Highway Infrastructure Investment: The Recovery Act
provides additional funds for highway infrastructure investment using
the rules and structure of the existing Federal-Aid Highway Surface
Transportation Program, which apportions money to states to construct
and maintain eligible highways and other surface transportation
projects. States must follow the requirements for the existing program,
and in addition, the governor must certify that the state will maintain
its current level of transportation spending, and the governor or other
appropriate chief executive must certify that the state or local
government to which funds have been made available has completed all
necessary legal reviews and determined that the projects are an
appropriate use of taxpayer funds. Pennsylvania provided the first of
these certifications but noted that the state's level of funding was
based on "planned non-bound state expenditures" (sic) and represented
the best information available at the time of the state's
certification.[Footnote 181]
As of April 16, 2009, the U.S. Department of Transportation had
obligated $308.6 million for 108 Pennsylvania projects.[Footnote 182]
As of April 16, 2009, the Pennsylvania Department of Transportation
(PennDOT) had advertised 97 projects for competitive bid totaling about
$260 million. These projects included highway repaving as well as
bridge replacement and painting. Pennsylvania will request
reimbursement from the U.S. Department of Transportation as the state
makes payments to contractors.
U.S. Department of Education State Fiscal Stabilization Fund: The
Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be
administered by the U.S. Department of Education (Education). The SFSF
provides funds to states to help avoid reductions in education and
other essential public services. The initial award of SFSF funding
requires each state to submit an application to Education that assures,
among other things, it will take actions to meet certain educational
requirements such as increasing teacher effectiveness and addressing
inequities in the distribution of highly qualified teachers.
Pennsylvania's initial SFSF allocation is $1.3 billion. According to
the Chief Implementation Officer, Pennsylvania plans to file its
application for these monies by April 25, 2009. According to the
Governor's proposal, $418 million in SFSF will support state funding to
elementary and secondary schools and $317 million to improve basic
programs operated by local educational agencies in state fiscal year
2010. Similarly, $44 million will help restore state funding for higher
education. The Governor proposes to spend $173 million on Department of
Corrections operations in state fiscal year 2009 and reserve $324
million for appropriation in fiscal year 2010.
Some State Agencies and Localities Have Started Planning and in Some
Cases Made Decisions for Using Recovery Act Funds:
Faced with declining revenue projections since fiscal year 2008,
Pennsylvania officials believe that federal funds are critical to help
alleviate the immediate fiscal pressure and help balance the state
budget. Based on February 2009 projections, Pennsylvania faces a $2.3
billion shortfall in fiscal year 2009, largely because of lower-than-
expected revenues. Since September 2008, the Governor has cut state
spending by more than $500 million, imposed a state hiring freeze, and
banned out-of-state travel and new vehicle purchases. Pennsylvania
plans to draw $250 million from the state rainy day fund--one-third of
the current balance--to help avoid further cuts in fiscal year 2009.
[Footnote 183] According to Pennsylvania's Secretary of the Budget,
state revenues continue to decline and this may necessitate using even
more rainy day funds during the current fiscal year. For fiscal year
2010, the Governor proposes to draw $375 million from the rainy day
fund. The Governor's budget proposal for fiscal year 2010, among other
things, includes program cuts, layoffs, and reduced contributions for
employees' health care. According to budget documents, federal fiscal
relief would be used to prevent even deeper cuts throughout the budget.
As part of the budget process, the Pennsylvania General Assembly
generally must appropriate federal funds, including Recovery Act
amounts.
The Governor's office and state agencies have begun planning for the
use of Recovery Act funds in Pennsylvania. As noted previously, in
March 2009, the Governor named a Chief Implementation Officer who is
responsible for the effective and efficient delivery of all Recovery
Act-funded initiatives and projects. According to the Chief
Implementation Officer, the Recovery Management Committee meets
regularly to discuss the status of the program, troubleshoot areas of
concern, and report to the Governor on the progress of recovery
efforts.[Footnote 184] Pennsylvania plans to apply for competitive
grants available under the Recovery Act, and the Governor's Secretary
for Planning and Policy is coordinating this strategy.
Some state programs have received federal Recovery Act funds, and in
some cases they have made funding decisions. For example, the U.S.
Department of Transportation, through the Federal Highway
Administration and the Federal Transit Administration, published final
apportionments for the federal-aid highway program and Transit Capital
Assistance and the Fixed Guideway Infrastructure Investment Programs
March 2 and March 5, 2009, respectively.[Footnote 185] PennDOT
officials said that they have been working closely with metropolitan
and rural transportation planning organizations to develop spending
plans. On March 17, 2009, PennDOT released its final list of 241
highway and bridge projects to be funded by the $1.0 billion Recovery
Act investment in highways.[Footnote 186] Youth activities under the
Workforce Investment Act have also received a funding allocation, and
local Workforce Investment Boards must quickly establish summer youth
programs for the Recovery Act Funding.[Footnote 187] According to local
officials in the Harrisburg region, planning challenges include
identifying eligible youth (some of whom are out of school and
difficult to locate), identifying employment opportunities that fit the
requirements of the Recovery Act and the Workforce Investment Act, and
performing required background checks on staff before the summer
program begins.
The Pennsylvania Department of Education estimated allocations for
their school districts while waiting for their final Recovery Act
allocations. The Recovery Act funding will not be available to schools
until the state General Assembly appropriates the funds.
Some Programs Are Waiting for Clear Recovery Act Guidance and Some Have
Questions about Using Funds for Administrative Purposes:
Program officials with whom we spoke provided varying levels of
satisfaction with the guidance they had received from federal agencies,
but some agencies were waiting for federal guidance to make spending
and programmatic decisions. Officials from PennDOT stated that they
have received guidance and have been able to administer Recovery Act
funds. For the two new low-income housing tax credit financing programs
created under the Recovery Act, the Pennsylvania Housing Finance
Authority received initial information from the U.S. Department of
Housing and Urban Development but no information from the U.S.
Department of the Treasury; the housing finance agency is waiting for
formal guidance before releasing implementation plans. Pennsylvania
Department of Education officials also stated that although they
received guidance on April 1, 2009, from the U.S. Department of
Education on Recovery Act funds, they are concerned about certain
provisions, such as the maintenance of effort provision, and are
anticipating additional guidance.
Some agency officials were unclear about whether Recovery Act funds
could be used to fund administrative costs. Even though a good portion
of the Recovery Act funds is flowing through established grant
programs, some state agency officials were concerned about paying for
the increased administrative costs associated with program
implementation, including increased reporting and tracking
requirements. For example,
* Pennsylvania Department of Education officials were unclear if
Recovery Act funds could be spent on state administrative costs and
anticipated applying to the U.S. Department of Education for a waiver
for these costs. State department officials were specifically concerned
that they might need to build an entirely new reporting system to
evaluate teachers and principals to meet Recovery Act requirements.
* Pennsylvania Department of Community and Economic Development
officials said they had not received guidance from the U.S. Department
of Housing and Urban Development about implementation of the Recovery
Act portion of the Neighborhood Stabilization Program,[Footnote 188]
and were unsure of how much Recovery Act funds could be used for
administrative purposes.
* PennDOT officials told us that, in some instances, non-Recovery Act
funds were used to pay administrative costs for Recovery Act
initiatives. This was the case in hiring two consultants to assess
potential transit projects for Recovery Act funding.
Pennsylvania Developing Plans for Safeguards and Controls:
Pennsylvania has entities responsible for tracking, monitoring, and
overseeing financial expenditures. The Office of the Budget oversees
the state's uniform accounting, payroll, and financial reporting
systems. Pennsylvania is reorganizing and centralizing its internal
audit and comptroller functions within the Governor's Office of the
Budget.[Footnote 189] The state's elected Treasurer has a pre-audit
function to review disbursements to be paid out by state agencies prior
to payment. The state Inspector General--who works for the Governor--is
charged with investigating fraud, waste, abuse, and mismanagement. The
state's elected Auditor General, who is responsible for ensuring that
all state money is spent legally and properly, performs performance
audits, financial audits, and investigations of state and local
government entities. The Auditor General also partners with an
accounting firm to perform Pennsylvania's annual single audit of the
federal money that Pennsylvania receives to ensure the funds are spent
according to federal laws and guidelines.
Pennsylvania Has System to Track Recovery Act Funds, but Will Rely on
Subrecipients to Meet Reporting Requirements at Local Level:
Pennsylvania will use its existing accounting system to track Recovery
Act funds and state officials are confident that it will adequately
identify Recovery Act funds received and how they are used.
Pennsylvania has an enterprise resource planning[Footnote 190] (ERP)
system that is used by all state agencies to account for federal and
state funding. The integrated accounting system will be used to track
Recovery Act funds. To accommodate the Recovery Act, on March 10, 2009,
Pennsylvania's Office of the Budget issued an administrative circular
to all agencies under the Governor's jurisdiction describing the
specific accounting codes they must use to separately identify the
expenditure of Recovery Act funds. Individual agencies are also taking
action to ensure that Recovery Act funds are tracked separately. For
example, PennDOT issued an administrative circular in March 2009 that
established specific Recovery Act program codes to track highway and
bridge construction spending. The department also established four new
funds to account for Recovery Act fund reimbursements to local
governments.
Pennsylvania officials said that the state will rely on subrecipients
to meet reporting requirements at the local level. Recipients and
subrecipients can be local governments or other entities such as
transit agencies. For example, about $367 million in Recovery Act money
for transit capital assistance and fixed guideway infrastructure
investment was apportioned directly to areas such as Philadelphia,
Pittsburgh, and Allentown. State officials also told us that the state
would not track or report Recovery Act funds that go straight from the
federal government to localities and other entities, such as public
housing authorities.
Past Audits Have Identified Vulnerabilities, and Pennsylvania Plans to
Identify and Assess Risks Associated with Recovery Act Funds:
Past audits have identified vulnerabilities in Pennsylvania's financial
reporting and noncompliance with requirements for federal money.
Pennsylvania's fiscal year 2007 single audit report had an unqualified
opinion on financial reporting, but auditors found material weaknesses
in the accounting controls. For example, auditors found weaknesses in
segregating duties among staff and monitoring user activities to reduce
the risk of inappropriate changes to accounting data or
misappropriation of assets. Pennsylvania's Secretary of the Budget told
us that to mitigate this risk, internal auditors now are to work
closely with the Office of Administration and the Office of Information
Technology on all new system changes to ensure internal controls are
built into the application. The single audit scope was limited in that
auditors could not obtain key documentation needed to check compliance
with procurement regulations for competitively bid contracts for goods
and services. The Secretary of the Budget told us that, beginning in
January 2009 under Pennsylvania's Right to Know law, information
related to losing bids and scoring by participants of the procurement
committees will now be available for audit purposes.
In 2007, Pennsylvania had a qualified opinion due to noncompliance with
major federal programs. For example, auditors identified 13 weaknesses
in which state agencies, such as the Department of Community and
Economic Development, did not adequately monitor subrecipients or
failed to document procedures for performing on-site monitoring for
subrecipients or subgrantees. It is important to correct these
weaknesses for Pennsylvania to be able to provide reasonable assurance
that its subrecipients comply with requirements for Recovery Act
funding, when appropriate. Pennsylvania's Secretary of the Budget told
us that the Office of Budget monitors the agencies' corrective action
plans and provides additional program monitoring and training for
agency program staff as appropriate. As of April 2009, the Office of
the Budget's auditors were reviewing the status of implementing
corrective action plans for past single audit findings.
Pennsylvania officials also cited potential risks, based on experience
with existing structures, with programs receiving Recovery Act funding.
Pennsylvania's Governor told us that he is concerned that school
districts may use Recovery Act funds to start or expand education
programs that are fiscally unsustainable when the federal funds expire.
Several Pennsylvania officials, including the Governor, were
specifically concerned about the Weatherization Assistance Program.
Under the Recovery Act, the program is receiving a significant increase
in funding and will make substantial use of contractors to weatherize
properties. A 2007 Pennsylvania Auditor General report found that the
program had, among other things, weak internal controls, weaknesses in
contracting, and inconsistent verification and inspection of
subcontractor work.[Footnote 191]
According to the Chief Implementation Officer, Pennsylvania plans to
conduct several risk assessments by June 2009, including assessments of
potential contractor capacity challenges for transportation projects
and the capacity of current weatherization providers and contractors.
The Office of Chief Counsel is reviewing all construction contracts and
grants to ensure compliance with the Recovery Act requirements as well
as guidance issued by the U.S. Office of Management and Budget (OMB)
and federal agencies. According to Pennsylvania's Secretary of the
Budget, the new Bureau of Audits within the Office of the Budget will
develop a risk-based approach for Recovery Act audits with measurable
criteria and develop a matrix of risks for each Recovery Act program by
the end of June 2009.
Plans for Oversight and Transparency of Pennsylvania's Recovery Act
Funds:
Pennsylvania has established structures to oversee Recovery Act funds
and provide transparency to the public. On March 31, 2009, the Governor
appointed a Chief Accountability Officer who will be responsible for
reporting on Pennsylvania's use of Recovery Act funds and working with
the Office of Budget to ensure funds are spent in accordance with
Recovery Act requirements.[Footnote 192] To serve as a portal for
transparency of state Recovery Act spending, Pennsylvania also
established a Web site [hyperlink, http://www.recovery.pa.gov] that
makes available updates on funding and solicits public input on funding
use. The Chief Accountability Officer will be responsible for
identifying ways to present visual evidence, such as photographs and
mapping, to help citizens track Recovery Act projects in Pennsylvania.
A new Pennsylvania Stimulus Oversight Commission was created by the
Governor--by executive order on March 27, 2009--after outreach to the
Pennsylvania congressional delegation, the state legislature, and
others. In addition to the Chief Accountability Officer, the commission
is composed of the Governor, the Recovery Act Chief Implementation
Officer, four representatives selected by Pennsylvania's congressional
delegation, members of each of the four caucuses in Pennsylvania's
General Assembly, and representatives from the Pennsylvania Chamber of
Business and Industry, United Way of Pennsylvania, and Pennsylvania AFL-
CIO. The commission was established to, among other things, monitor
Pennsylvania's efforts to ensure compliance with the Recovery Act and
to review the state's approach to allocating and disbursing funds,
tracking funds, transparency, performance, and grants management and
oversight. The commission met for the first time on March 31, 2009, and
has not announced its oversight plans; the next commission meeting will
be on April 23, 2009.
Other state offices are generally not expecting new staff or resources
for Recovery Act oversight. The Auditor General anticipates work
auditing and investigating Recovery Act funds received by state and
local agencies. For example, the Auditor General will audit Recovery
Act funds during the annual single audit and will initiate additional
compliance audits for Recovery Act programs. The Auditor General
observed that the Recovery Act did not provide funding for his office
to undertake work related to the act. In addition, officials of the
Auditor General's office have different views about what authority they
have to audit federal money that flows directly to localities, such as
housing authorities and municipalities. Pennsylvania is also in the
process of reorganizing and centralizing its internal audit and
comptroller functions within the Governor's Office of the Budget.
According to the Secretary of Budget, the Bureau of Audits is not
expected to dramatically change audit responsibilities in the state but
rather provide a more focused, risk-based approach, particularly for
Recovery Act funding. This office is expected to employ 95 people,
about 70 of whom will be field auditors. The remaining staff will be
responsible, among other things, for subrecipient desk reviews and
agency risk assessments.
The number of staff devoted to program oversight, and implementation in
some state agencies has been affected by the state's hiring freeze. For
example, Workforce Investment Act program officials said monitoring
efforts will need to increase under the Recovery Act and they have
applied to the Governor for a waiver to hire additional staff.
Department of Community and Economic Development officials told us that
they have requested to hire 12 people, 3 or 4 of whom will be devoted
to Recovery Act work related to the Neighborhood Stabilization Program.
The Pennsylvania Commission on Crime and Delinquency, which administers
the Edward Byrne Memorial Justice Assistance Grants, is trying to
maximize the use of its existing staff and sought advice from the U.S.
Department of Justice Inspector General; the latter will give a
presentation, share checklists, and train program staff in monitoring
subrecipients. PennDOT officials told us that they meet weekly to
oversee the highway and bridge program funded through the Recovery Act.
These meetings cover such things as the status of obligating program
funds and potential problems. The department also has a special "war
room" that tracks each project in each state district.
Plans to Assess Impact of Recovery Act Funds Depend on Federal
Guidance:
Agency officials stated that, although they are emphasizing the
planning and allocating of Recovery Act funds quickly, they are aware
of requirements to assess the economic and other impacts of these
funds. The new Chief Accountability Officer will be responsible for
developing and using performance measures to demonstrate outcomes
associated with Recovery Act spending and projects. Some agency
officials with whom we met--at the Pennsylvania Department of Education
and the Department for Community and Economic Development--are
generally waiting for additional guidance from the federal government
on performance measures, especially on how to measure and report jobs
created and sustained.
Pennsylvania's Comments on This Summary:
We provided the Governor of Pennsylvania with a draft of this appendix
on April 17, 2009. The Chief Implementation Officer and the Secretary
of the Budget responded for the Governor on April 20, 2009. These
officials provided clarifying and technical comments that we
incorporated where appropriate. We also provided the Auditor General's
staff with portions of the draft that addressed the Auditor General's
past work and plans related to Recovery Act funding. We incorporated
those technical comments as appropriate.
GAO Contacts:
Phillip Herr, (202) 512-2834 or herrp@gao.gov:
Mark Gaffigan, (202) 512-3168 or gaffiganm@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, MaryLynn Sergent, Assistant
Director; Richard Jorgenson, Analyst-in-Charge; Andrea E. Richardson;
George A. Taylor, Jr.; Laurie F. Thurber; and Lindsay Welter made major
contributions to this report.
[End of section]
Appendix XVIII: Texas:
Overview:
Use of funds: An estimated 90 percent of fiscal year 2009 Recovery Act
funding provided to states and localities will be for health,
transportation, and education programs. The three largest programs in
these categories are the Medicaid Federal Medical Assistance Percentage
(FMAP) awards, the State Fiscal Stabilization Fund, and highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds:
* As of April 3, 2009, the Centers for Medicare & Medicaid Services
(CMS) had made approximately $1.45 billion in increased FMAP grant
awards to Texas;
* As of April 1, 2009, the state has drawn down about $665.7 million,
or 46 percent, of its initial increased FMAP grant awards;
* Texas officials noted that the funds made available as a result of
the increased FMAP will allow the state to maintain the program's level
of service and eligibility standards in fiscal year 2009.
Transportation--Highway Infrastructure Investment:
* Texas was apportioned about $2.25 billion for highway infrastructure
investments on March 2, 2009, by the U.S. Department of Transportation;
* As of April 16, 2009, the U.S. Department of Transportation had
obligated $533.7 million for 159 projects in Texas;
* According to Texas Department of Transportation officials, the
department is scheduled to receive bids in April 2009 on 137 contracts
that would total approximately $400 million in Recovery Act funds;
* Texas will request reimbursement from the U.S. Department of
Transportation as the state makes payments to contractors.
U.S. Department of Education State Fiscal Stabilization Fund:
* Texas was allocated about $2.66 billion from the initial release of
these funds on April 2, 2009, by the U.S. Department of Education;
* Before receiving the funds, states are required to submit an
application that provides several assurances to the Department of
Education. These include assurances that they will meet maintenance of
effort requirements (or that they will be able to comply with waiver
provisions) and that they will implement strategies to meet certain
educational requirements, including increasing teacher effectiveness,
addressing inequities in the distribution of highly qualified teachers,
and improving the quality of state academic standards and assessments.
According to Texas officials, the state's application likely would not
be submitted before the state legislature (which is in session until
June 1, 2009) has finalized an appropriation for public and higher
education;
* Texas officials indicated that the state plans to use its allocated
federal funds to assist in continuing the historical levels of support
for elementary, secondary, and higher education in the state. Education
Agency officials said funds could be used, for example, to support
efforts related to assessing school performance, teacher incentives,
and teacher equity. Higher education officials anticipate using the
funds to mitigate tuition and fee increases; support modernization,
repair, and renovation of facilities; and provide incentive funding
based on degrees awarded.
Texas is receiving additional Recovery Act funds under other programs,
such as programs under Title I, Part A of the Elementary and Secondary
Education Act (ESEA), commonly known as No Child Left Behind; programs
under the Individuals with Disabilities Education Act (IDEA); two
programs of the U.S. Department of Agriculture--one for the
administration of the Temporary Food Assistance Program and one for
competitive equipment grants targeted to low income districts from the
National School Lunch program; housing programs, including
weatherization assistance; and justice assistance grants. The status of
plans for using selected funds is discussed throughout this appendix.
Safeguarding and transparency: To help ensure accountability and
transparency, the Texas legislature's forthcoming general
appropriations act--expected to be passed by June 2009 to function as
the state's fiscal 2010-2011 biennium budget--will have a provision for
tracking Recovery Act funds allocated to the state, according to the
executive and legislative branch officials we contacted in Texas. To
provide additional accountability and transparency, the Comptroller of
Public Accounts has established a centralized budget account (with a
unique funding code) for Recovery Act funds and has also established a
Web page, [hyperlink, http://www.window.state.tx.us/recovery], with
links to [hyperlink, http://www.recovery.gov/]. To further help ensure
accountability and transparency, Texas officials suggested that federal
authorities provide concurrent notification to the state's key
stakeholders-- particularly the Office of the Governor, the Comptroller
of Public Accounts, the State Auditor's Office, and the Legislative
Budget Board[Footnote 193]--when Recovery Act funds are periodically
distributed to Texas agencies and/or localities. Also, Texas officials
told us that despite U.S. Office of Management and Budget (OMB)
guidance, the increased FMAP funds the state has received through the
Recovery Act, to date, have not been separately identified by the
federal government.
Assessing the effects of spending: Texas officials commented that--
under the state's performance-based budgeting process--agencies already
have measures in place for assessing the performance of programs.
Officials also believe that the state's current monitoring and control
processes and procedures are adequate to administer initiatives funded
under the Recovery Act. The officials recognized, however, that some
adjustments to performance measures may be needed for assessing the
impact of Recovery Act funds.
Texas Beginning to Use Recovery Act Funds:
Texas has begun to use some of its Recovery Act funds, as follows:
Increased Federal Medical Assistance Percentage Funds: Medicaid is a
joint federal-state program that finances health care for certain
categories of low-income individuals, including children, families,
persons with disabilities, and persons who are elderly. The federal
government matches state spending for Medicaid services according to a
formula based on each state's per capita income in relation to the
national average per capita income. The amount of federal assistance
states receive for Medicaid service expenditures is known as the
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP
may range from 50 to no more than 83 percent, with poorer states
receiving a higher federal matching rate than wealthier states. The
Recovery Act provides eligible states with an increased FMAP for 27
months between October 1, 2008, and December 31, 2010.[Footnote 194] On
February 25, 2009, the Centers for Medicare & Medicaid Services (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.[Footnote 195] Generally, for
federal fiscal year 2009 through the first quarter of federal fiscal
year 2011, the increased FMAP, which is calculated on a quarterly
basis, provides for (1) the maintenance of states' prior year FMAPs,
(2) a general across-the-board increase of 6.2 percentage points in
states' FMAPs, and (3) a further increase to the FMAPs for those states
that have a qualifying increase in unemployment rates. The increased
FMAP available under the Recovery Act is for state expenditures for
Medicaid services. However, the receipt of the increased FMAP may
reduce the funds that states must use for their Medicaid programs, and
states have reported using these available funds for a variety of
purposes.
As of April 1, 2009, Texas had drawn down $665,665,000, or 46 percent,
of its initial increased FMAP grant awards of $1,448,824,000 in FMAP
funds. Texas officials commented that the funds made available as a
result of the increased FMAP will allow the state to maintain the
program's level of service and eligibility standards and cover
increased caseloads, among other uses. Texas officials indicated that
guidance from CMS is needed regarding whether certain programmatic
changes being considered by Texas, such as a possible extension of the
program's eligibility period, would affect the state's eligibility for
increased FMAP funds.
Transportation--Highway Infrastructure Investment: The Recovery Act
provides additional funds for highway infrastructure investment using
the rules and structure of the existing Federal-Aid Highway Surface
Transportation Program, which apportions money to states to construct
and maintain eligible highways and for other surface transportation
projects. States must follow the requirements for the existing
programs, and in addition, the governor must certify that the state
will maintain its current level of transportation spending, and the
governor or other appropriate chief executive must certify that the
state or local government to which funds have been made available has
completed all necessary legal reviews and determined that the projects
are an appropriate use of taxpayer funds. Texas provided this
certification but noted that the state's level of funding was based on
the best information available at the time of the state's
certification.[Footnote 196]
Texas was apportioned about $2.25 billion of Recovery Act funds for
highway infrastructure investments on March 2, 2009, by the U.S.
Department of Transportation. As of April 16, 2009, the U.S. Department
of Transportation had obligated $533.7 million of Recovery Act funds
for 159 projects in Texas.[Footnote 197] According to Texas Department
of Transportation officials, the department is scheduled to receive
bids in April 2009 on 137 contracts that would total approximately $400
million in Recovery Act funds. Texas will request reimbursement from
the U.S. Department of Transportation as the state makes payments to
contractors.
U.S. Department of Education State Fiscal Stabilization Fund: The
Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be
administered by the U.S. Department of Education (Education). The SFSF
provides funds to states to help avoid reductions in education and
other essential public services. The initial award of SFSF funding
requires each state to submit an application to Education that assures,
among other things, it will take actions to meet certain educational
requirements such as increasing teacher effectiveness and addressing
inequities in the distribution of highly qualified teachers.
Texas' initial SFSF allocation is $2,662,203,000. According to Texas
officials, the state generally plans to use its SFSF allocation to
assist in continuing the historical levels of support for elementary,
secondary, and higher education in the state. In April 2009, officials
from the Office of the Governor informed us that the state was in the
process of preparing its application for submission to the U.S.
Department of Education--and that the application would reflect the
fact that providing funding for public education is a priority in the
state. The officials noted that the state's application likely would
not be submitted until the state legislature (which is in session until
June 1, 2009) has finalized an appropriation for elementary, secondary,
and higher education. Also, the officials commented that the state was
awaiting further federal guidance on the appropriate use of Recovery
Act funds. Generally, however, Texas Education Agency officials said
that the federal funds could be used, for example, to support efforts
related to high-quality assessment performance in schools, teacher
incentives, and teacher equity. Also, according to the Texas Higher
Education Coordinating Board, public institutions of higher education
in Texas anticipate expending Recovery Act funds for three purposes--
mitigating tuition and fee increases; supporting modernization, repair,
and renovation of facilities; and providing incentive funding based on
degrees awarded. To provide tracking and oversight of the Recovery Act
funds, board officials commented that existing systems for implementing
policies for accountability, internal controls, compliance, and
reporting would be leveraged to the maximum extent possible to avoid
the administrative burden associated with creating a completely new
system. These officials explained that the proposed uses of the
Recovery Act funds are not dissimilar to other well-established
programs within the agency.
Overall, throughout the multiyear time frame covered by the Recovery
Act, Texas' share of the total federal funds is estimated to be more
than $15 billion for supporting a variety of program areas, such as
health and human services, state fiscal stabilization, transportation,
and education. (See table 9.)
Table 9: Estimated Allocations by Program Areas of Federal Recovery Act
Funds in Texas (as of March 2009):
Program area: Health and human services: Of the $4.5 billion, a large
majority ($4.2 billion) is an increase in the Federal Medical
Assistance Percentage funds;
Estimated federal Recovery Act funds (through fiscal year 2011): Amount
(in billions): $4.5;
Estimated federal Recovery Act funds (through fiscal year 2011):
Percentage of total: 29%.
Program area: State fiscal stabilization funds: Of the $4.0 billion,
about 82 percent ($3.3 billion) is to be used to support elementary,
secondary, and higher education (e.g., for the purposes of
modernization, renovation, and repair). The other 18 percent of the
funds may be used, at the discretion of the governor, for education,
public safety, and other government services;
Estimated federal Recovery Act funds (through fiscal year 2011): Amount
(in billions): $4.0;
Estimated federal Recovery Act funds (through fiscal year 2011):
Percentage of total: 26%.
Program area: Transportation: Of the $2.8 billion, a large majority
($2.3 billion) is to be allocated for highway and bridge construction;
Estimated federal Recovery Act funds (through fiscal year 2011): Amount
(in billions): $2.8;
Estimated federal Recovery Act funds (through fiscal year 2011):
Percentage of total: 18%.
Program area: Education: Of the $2.3 billion, a large majority involves
two formula grant programs--grants to local educational agencies ($1.2
billion) and special education grants to assist individuals with
disabilities ($1.0 billion);
Estimated federal Recovery Act funds (through fiscal year 2011): Amount
(in billions): $2.3;
Estimated federal Recovery Act funds (through fiscal year 2011):
Percentage of total: 15%.
Program area: Housing and infrastructure: Of the $1.2 billion, the
largest component ($327 million) is the weatherization assistance
program to provide energy-related improvements to homes and educate
residents about energy conservation;
Estimated federal Recovery Act funds (through fiscal year 2011): Amount
(in billions): $1.2;
Estimated federal Recovery Act funds (through fiscal year 2011):
Percentage of total: 8%.
Program area: Other: Program areas include, for example, Edward Byrne
Memorial Justice Assistance Grants ($147.5 million) and child care and
development block grants ($214.9 million);
Estimated federal Recovery Act funds (through fiscal year 2011): Amount
(in billions): $0.6;
Estimated federal Recovery Act funds (through fiscal year 2011):
Percentage of total: 4%.
Program area: Total;
Estimated federal Recovery Act funds (through fiscal year 2011): Amount
(in billions): $15.4;
Estimated federal Recovery Act funds (through fiscal year 2011):
Percentage of total: 100%.
Source: GAO summary based on review of Texas Legislative Budget Board
data and interviews with agency officials.
Note: The amounts of Recovery Act funds shown in the table are
anticipated to flow to or through Texas agencies. As such, Texas plans
to include these Recovery Act funds in the state's budget-setting
process, as discussed below. However, additional amounts of other
Recovery Act funds (not yet quantified) are anticipated to flow
directly to localities within the state.
[End of table]
In his letter certifying acceptance of federal Recovery Act funds, the
Texas Governor voiced opposition to "using these funds to expand
existing government programs, burdening the state with ongoing
expenditures long after the funding has dried up."[Footnote 198]
Similarly, during our review in Texas, legislative branch officials
generally acknowledged that most of the federal Recovery Act funds
appear to be one time in nature and that the state must avoid spending
the funds for ongoing projects that would result in unsustainable
future costs to the state's budget. An illustration of such avoidance
involves unemployment insurance. While the Texas Governor accepted some
Recovery Act funds for unemployment insurance, he did not request
Unemployment Insurance Modernization funds because the Governor
believed that receiving those funds would place additional tax burdens
on businesses, which would impede job creation and hamper the economy.
[Footnote 199]
Even though Texas generally continues to fare better economically than
most states, nearly all available data suggest that the Texas economy
is in recession, according to the Federal Reserve Bank in Dallas. In
January 2009, the Office of the Comptroller of Public Accounts reported
that the state's fiscal 2010-2011 biennium budget will have $9 billion
less in revenue than the current biennium budget. For perspective,
officials with the Governor's office told us that the $9 billion
represents a 5 percent adjustment to the budget.
In January 2009, anticipating that Texas faced a likely budget
shortfall, the co-chairs of the state's Legislative Budget Board
requested that state agencies look for ways to reduce fiscal year 2009
expenditures by 2.5 percent. The co-chairs further noted that the state
legislature should prudently plan on having a reasonable reserve in the
state's economic stabilization fund[Footnote 200] so that the state
does not face a large deficit in the next biennium, ending August 31,
2011. In response to the co-chairs' request for ways to reduce spending
in fiscal year 2009, state agencies identified approximately $396
million in potential budget reductions based on hiring freezes, reduced
services, delayed capital purchases, and other cost-cutting efforts. At
the time of their request, the co-chairs noted that the Recovery Act--
which was being debated in Washington, D.C.--could not responsibly be
factored into the state's budget process because many details were not
known.
In discussions with our review team in March 2009, representatives of
the Office of the Lieutenant Governor commented that because of
Recovery Act funds, state agencies were not required to implement the
2.5 percent spending reductions anticipated for state fiscal year 2009
and, further, the state did not have to tap into its rainy day fund.
The representatives told us that absent the availability of Recovery
Act funds, state agencies likely would have been asked to make cuts of
about 10 percent for the fiscal 2010-2011 biennium budget, in addition
to the state drawing upon the rainy day fund.
On the other hand, officials representing the Office of the Governor
commented that budget deficit situations do not necessarily result in
the state using its rainy day fund. The officials stressed that--to
meet the requirement to pass a balanced budget--a variety of other
solutions could be considered, such as budget reallocations among state
agencies and programs, as well as spending cuts. As an example, these
officials noted that even though the state's overall budget was reduced
in 2003, the state raised education spending by $1 billion that year.
Additionally, the officials explained that use of the rainy day fund is
not an option readily available because it requires approval by two-
thirds of the state legislature.
Texas Is Taking Steps to Help Ensure Accountability and Transparency
and Address Potential Areas of Vulnerability:
Texas is taking various steps to help ensure accountability and
transparency and address areas of vulnerability potentially associated
with Recovery Act spending.
Steps to Help Ensure Accountability and Transparency:
Texas officials noted that Recovery Act funding will flow generally
through existing federal-state agency partnerships or programs. Thus,
to the extent possible, the state plans to use existing systems,
processes, or mechanisms to provide Recovery Act funding accountability
and transparency, according to the executive and legislative branch
officials we contacted in Texas. In further reference to accountability
and transparency, oversight of federal Recovery Act funds in Texas
involves various stakeholders, including the Office of the Governor,
the State Auditor's Office, and the Office of the Comptroller of Public
Accounts as well as two entities established within the Texas
legislature specifically for this purpose--the House Select Committee
on Federal Economic Stabilization Funding[Footnote 201] and the House
Appropriations' Subcommittee on Stimulus. Also, according to executive
and legislative branch officials in Texas, the state plans to ensure
that the forthcoming biennial general appropriations bill has a
provision designed to specifically facilitate the tracking of federal
Recovery Act funds distributed to Texas--that is, the act will have a
separate section ("article") that identifies, by applicable state
agency, Recovery Act funds allocated to Texas.[Footnote 202] At the
time of our study in April 2009, the Texas legislature was in session
(81st regular session) and had not finished its work to complete and
submit to the Governor a general appropriations bill for the state's
fiscal 2010-2011 biennium (Sept. 1, 2009, through Aug. 31, 2011).
[Footnote 203]
To further facilitate tracking, in March 2009, the Office of the
Comptroller of Public Accounts established a centralized budget account
for federal Recovery Act funds, with a unique funding code (0369).
[Footnote 204] In turn, according to Texas officials, state agencies
are modifying their financial systems to enable tracking of Recovery
Act funds. Also, after the Recovery Act passed, the Office of the
Governor began hosting regularly scheduled meetings (twice weekly) of a
Stimulus Working Group comprising representatives of major state
agencies to help ensure statewide communication of the need for
accountability and transparency regarding Recovery Act funds.[Footnote
205] Similarly, a periodic forum of the internal audit staff of Texas
state agencies serves as another means of statewide
communication.[Footnote 206] Also, in March 2009, the Office of the
Comptroller of Public Accounts scheduled training regarding federal
awards and financial statements--training that included representatives
from the Office of the Governor to discuss Recovery Act funds. Further,
the Comptroller's Office plans to hire 5 to 10 additional staff to help
account for Recovery Act funds, according to office officials. In April
2009, the Comptroller's Office issued policies and procedures to state
agencies related to use and subsequent reporting on Recovery Act funds.
The State Auditor's Office is taking additional steps to ensure
accountability. Anticipating that federal Recovery Act funding will
increase its scope of responsibilities, the State Auditor's Office
plans to hire 10 additional staff (9 auditors and 1 investigator).
[Footnote 207] The office intends to audit Recovery Act funds through
the Single Audit of the State of Texas' expenditures of federal awards--
that is, the audit required by the Single Audit Act and to which OMB
Circular A-133, Audits of States, Local Governments, and Non-Profit
Organizations, relates.[Footnote 208] Also, the State Auditor's Office
may conduct discretionary audits based, for example, on (1) discussions
with internal auditors at state agencies or (2) risk assessments that
consider previously reported material weaknesses in program compliance
and internal controls, as well as risk assessments of programs that
have not been tested before. Furthermore, the State Auditor's Office
noted that, as warranted, it pursues leads generated by complaint
letters, hotline calls, and other information received from the public.
In this regard, the State Auditor's Office has Web-based and telephone
"hotline" contacts for the general public to use in reporting possible
fraud, waste, and abuse. In March 2009, the State Auditor told us that
he was preparing a letter to send to state agencies regarding their
general fraud responsibilities related to state funds.[Footnote 209]
Moreover, in April 2009, the State Auditor's Office informed us that a
provision for reporting Recovery Act-related fraud is being added to
the state's fiscal 2010-2011 biennium appropriations bill. Among other
requirements, this legislative provision, according to the State
Auditor's Office, will require that state agencies' Web sites provide
information on how to report suspected fraud, waste, and abuse directly
to the State Auditor's Office.
According to state officials, in March 2009, a bill was filed in the
Texas legislature that proposed creating a new office--the Texas Fiscal
Responsibility Office--to oversee or monitor the spending of federal
Recovery Act funds in Texas.[Footnote 210] As of early April 2009, the
bill's status had not been determined by the state legislature, which
was scheduled to be in regular session until June 1, 2009.
Potential Areas of Vulnerability of Recovery Act Funds in Texas:
In response to our inquiry, the State Auditor's Office provided us its
views regarding accountability risks and other challenges potentially
associated with the expenditure of federal Recovery Act funds in Texas.
Based on its experience in auditing Texas' use of previous federal
awards and reporting internal control deficiencies or material
weaknesses, the State Auditor's Office noted that relatively high risks
generally can be anticipated with certain types of programs--such as
(1) new programs with completely new processes and internal controls,
(2) programs that lack clear guidance on allowable uses of Recovery Act
funds, (3) programs that distribute significant amounts of funds to
local governments or boards, and (4) programs that rely on
subrecipients for internal controls and monitoring. The State Auditor's
Office also noted that general economic stability and public education
programs are considered to be high risk because they are new programs
and federal guidance regarding the state's appropriate use of the funds
the funds is uncertain. The State Auditor's Office further noted that
highway construction and workforce programs are also high risk because
funds flow through contractors or to local entities, respectively.
[Footnote 211]
Officials from Office of the Governor acknowledged that there are
inherent risks associated with large, complex programs as well as
programs that involve a large number of contracts and rely on
subrecipients. However, the officials emphasized that Texas has
experience in monitoring these types of programs, and officials noted
that state agencies have controls in place to mitigate these risks.
Regarding the Medicaid program, for example, the officials noted that
in 2003, the Governor appointed an Inspector General for the Texas
Health and Human Services Commission and charged the Inspector General
with monitoring and preventing fraud, waste, and abuse. Also, the
officials noted that the state's Attorney General's Office has a
Medicaid Fraud Investigation Unit.
The Texas State Auditor's Office made a recommendation regarding the
monitoring of subrecipients for risk in its most recent audit of the
Texas Education Agency.[Footnote 212] The audit report did not find
that subrecipients were improperly spending federal funds or were not
meeting federal requirements; however, the report did note, however,
that the agency had "a limited number of resources available to monitor
fiscal compliance." The audit report recommended that the Texas
Education Agency continue to add resources, within its budget
constraints, to increase its monitoring of federal fiscal compliance
performed. According to the State Auditor's Office, following the audit
in February 2009, the Texas Education Agency created a comprehensive
correction plan, which the agency is implementing to address this
resource issue.
After the Recovery Act was enacted, the Texas Education Agency
announced in March 2009 that it was creating a task force on federal
stimulus and stabilization to coordinate the agency's plans. Also in
March 2009, the agency reported that it had established new accounting
codes for tracking Recovery Act funds. Furthermore, the agency
indicated that its application guidance for the temporary funding would
specify that (1) grantees are expected to expend funds in ways that do
not result in unsustainable continuing commitments after the funding
expires and (2) the funds must be separately tracked and monitored.
Generally, state officials recognized that a potential vulnerability
can be associated with significant increases in funding levels. An
example is the weatherization assistance program. As noted in table 1,
of the estimated $1.2 billion in Recovery Act funds to be used for
housing and infrastructure programs in Texas, weatherization assistance
is the largest component program in terms of funding ($327 million).
This funding level represents about a 25-fold increase over the
estimated annual amount ($13 million) that existed before the Recovery
Act, according to Texas Department of Housing and Community Affairs
data. Tentatively, the department indicated that its program
implementation plan will include using an existing network of 34
weatherization assistance program providers (e.g., various community
action entities) as well as awarding other contracts to cities with
populations over 75,000. Under the program, subrecipients have 2 years
to fully expend the weatherization funding. The Texas Department of
Housing and Community Affairs noted that it intends to periodically
assess progress and determine if unobligated funds need to be moved to
high-performing entities.
More broadly, a particular challenge or difficulty cited by the
executive and legislative branch officials we contacted in Texas is the
need for more guidance from OMB and other applicable federal agencies.
[Footnote 213] Regarding quarterly recipient reports, for example, the
officials said that there is a lack of clarity regarding whether all
agencies in the state must submit reports to OMB or whether each state
must submit a consolidated report. The officials also noted that it
would be useful to have a reporting "template" that specifies the
specific data fields or information to be reported. Furthermore, the
officials commented that rather than simply being directed to a Web
site, it would be helpful to have a centralized point of contact in
Washington, D.C., for receiving and addressing questions. In April
2009, the Governor's Office and State Comptroller of Public Accounts
officials continued to express concerns to us about unclear guidance
from federal agencies on allowable uses and reporting requirements.
Also in April 2009, the officials informed us that the Office of the
Governor had hired a consulting company, and six consultants had been
staffed to track deadlines and work with state agencies to assist Texas
in meeting Recovery Act reporting requirements.
Regarding other opportunities for enhancing Recovery Act funding
accountability, the executive and legislative branch officials we
contacted in Texas advocated that various oversight entities in the
state be concurrently notified when funds are distributed. As mentioned
previously, in Texas, the state-level decision-making process regarding
use (and accountability and transparency) of federal Recovery Act funds
involves several entities or key stakeholders, particularly the Office
of the Governor, the Office of the Comptroller of Public Accounts, the
State Auditor's Office, and the Legislative Budget Board. Generally, in
our meetings with representatives of these entities, a common theme
expressed has been a desire to be notified by federal authorities when
Recovery Act funds are distributed to Texas state agencies and/or
localities. The representatives stated that concurrent notification to
the state's key stakeholders would help to further ensure
accountability and transparency.
In April 2009, officials from the Office of the Governor and the State
Comptroller's Office told us that, in its disbursement of Recovery Act
funds to the state, the federal government was not identifying these
funds separately from other federal funds. The Texas officials cited
increased FMAP funding as an example. Absent separate coding from the
disbursing federal agency, the Texas officials said that the state
relies on the Texas Health and Human Services Commission to inform the
State Comptroller's Office of what portion of the combined funds are
Recovery funds. The Texas officials commented that it would be helpful
if the federal government put in place the coding structure to identify
Recovery Act funds separately from other federal funds--as they believe
the Act requires--before Recovery Act funds are disbursed to Texas.
Plans for Assessing the Impact of Recovery Act Funds Are Evolving:
The executive and legislative branch officials we contacted in Texas--
including officials from the Office of the Governor, the Office of the
Comptroller of Public Accounts, the State Auditor's Office, the
Legislative Budget Board, and various program agencies--recognized the
importance of the state taking steps to assess the impact of Recovery
Act funds in terms of preserving and creating jobs, assisting those
individuals most impacted by the recession, and so forth. In late
January 2009, for example, in preparing to implement the transportation
components of the anticipated national economic recovery program, the
Texas Transportation Commission recognized that a primary purpose of
the recovery program is to "create and sustain jobs."[Footnote 214]
Texas officials commented that agencies in Texas--a state that has a
performance-based budgeting process--already have performance measures
in place for their respective programs and operations, although some
Recovery Act-related adjustments or modifications may be needed. Texas
Department of Transportation officials noted, for example, that
contracts involving the use of Recovery Act funds will have special
provisions requiring contractors to report on jobs created. These
officials also cited potential difficulties in measuring the impact of
Recovery Act funds used for programs that commingle these funds with
other federal or state funds.
Finally, Texas officials told us that the Governor's Office has taken
the lead in administering the state's responsibilities under the
Recovery Act. As mentioned previously, the Governor's Office chairs a
Stimulus Working Group with representatives from the state agencies
that have a role under the Recovery Act. Texas officials were uncertain
as to whether a specific agency would be designated to be responsible
for compiling an overall assessment of the impact of Recovery Act funds
in the state. The officials added, however, that the state's
legislature was still in session and that the forthcoming biennial
general appropriations bill--which will have a separate section
specifically for Recovery Act funds--could perhaps assign such
responsibility to an agency.
Texas's Comments on This Summary:
We provided the Governor of Texas with a draft of this appendix on
April 17, 2009. A Senior Advisor, designated as the state's point of
contact for the Recovery Act, responded for the Governor on April 20,
2009. In general, the Senior Advisor agreed with the information in
this appendix but wanted us to provide more context for the views of
the State Auditor regarding potential areas of vulnerability with
Recovery Act funds. We added contextual perspectives to address this
concern and the Senior Advisor's belief that Texas is equipped to meet
its responsibilities under the Recovery Act. The Senior Advisor also
provided technical suggestions that we incorporated where appropriate.
GAO Contacts:
Carol Anderson-Guthrie, (214) 777-5700 or andersonguthriec@gao.gov:
Lorelei St. James, (214) 777-5719 or stjamesl@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Danny Burton, Assistant
Director; K. Eric Essig, auditor-in-charge; Yecenia Camarillo; Camille
Chaires; Sharhonda Deloach; Michael O'Neill; Daniel Silva; Gabriele
Tonsil; and Christy Tyson made major contributions to this report.
[End of section]
Appendix XIX: Washington, D.C.
Overview:
Use of funds: An estimated 90 percent of Recovery Act funding provided
to states and localities nationwide in fiscal year 2009 (through Sept.
30, 2009) will be for health, transportation, and education programs.
The three largest programs in these categories are the Medicaid Federal
Medical Assistance Percentage (FMAP) awards, highways, and the State
Fiscal Stabilization Fund.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds:
* As of April 3, 2009, the Centers for Medicare and Medicaid Services
(CMS) had made about $87.8 million in increased FMAP grant awards to
the District of Columbia;
* As of April 1, 2009, the District had drawn down about $49.9 million,
or about 57 percent of its initial increased FMAP grant awards;
* District officials plan to use funds made available as a result of
the increased FMAP to cover an increased caseload, offset general fund
deficits, and maintain current Medicaid eligibility and benefit levels.
Transportation--Highway Infrastructure Investment:
* The District of Columbia was apportioned $123.5 million for highway
infrastructure investment on March 2, 2009, by the U.S. Department of
Transportation;
* As of April 16, 2009, the U.S. Department of Transportation had
obligated $36.6 million for one project in the District of Columbia;
* The District of Columbia plans to use these funds for reviewed and
vetted "shovel ready" projects, such as pavement restoration and
resurfacing work on federal roadways, once the appropriate contracting
processes have been completed.
U.S. Department of Education State Fiscal Stabilization Fund:
* The District of Columbia was allocated $89.4 million from the initial
release of these funds on April 2, 2009, by the U.S. Department of
Education. District officials intend to use these funds to increase aid
across all schools in the District. As of April 2, 2009, about $59.9
million of this allocation was available for the District to draw down
upon;
* Before receiving the funds, states are required to submit an
application that provides several assurances to the U.S. Department of
Education. These include assurances that they will meet maintenance of
effort requirements, or that they will be able to comply with waiver
provisions, and that they will implement strategies to meet certain
educational requirements, including increasing teacher effectiveness,
addressing inequities in the distribution of highly qualified teachers,
and improving the quality of state academic standards and assessments.
As of April 15, 2009, the District was awaiting a response from the
U.S. Department of Education on the District's proposed plan for using
the funds before submitting an application.
In addition to the funding for these three programs, the District of
Columbia is receiving Recovery Act funds under other programs, such as
programs under Title I, Part A, of the Elementary and Secondary
Education (ESEA), commonly known as the No Child Left Behind Act;
programs under the Individuals with Disabilities Education Act (IDEA);
and two programs of the U.S. Department of Agriculture--one for
administration of the Temporary Food Assistance Program and one for
competitive equipment grants targeted at low income districts from the
National School Lunch Program. The District's plans for using these and
other Recovery Act funds are discussed throughout this appendix.
Safeguarding and transparency: The District plans to use its existing
financial systems to track the use of Recovery Act funds, and plans to
use an ongoing accountability program to monitor District agency
efforts to ensure that funds are used as intended. District officials
are working to correct 89 material weaknesses in internal controls over
both financial reporting and compliance with requirements applicable to
major federal programs that were identified in the Fiscal Year 2007
Single Audit Report for the District of Columbia. The major federal
programs in which these weaknesses were identified include programs
that will be receiving Recovery Act funds, such as Medicaid's FMAP,
ESEA Title I Education grants, and Workforce Investment Act programs.
At present, it is not clear whether corrective actions will be
completed before the Recovery Act funds are received by the District.
This could increase the risk that Recovery Act funds may not be used
properly. The District's Inspector General has also identified a number
of District agencies with internal control and management issues that
place them at risk for misusing Recovery Act funds. The District has
initiated a Recovery Act Web site to help ensure that its Recovery Act
efforts are transparent to the public.
Assessing the effects of spending: The District plans to assess the
impact of Recovery Act funds by using the information in reports
required by federal agencies under the Recovery Act, including
information on the economic impact of the funds, such as on job
creation. The District has provided initial guidance to city agencies
on the tracking and use of Recovery Act funds and is awaiting further
guidance from the federal government, particularly information related
to measuring jobs. District officials stated that the Office of
Management and Budget (OMB) should provide a common definition of "job"
and a metric to measure the number of jobs that are created by Recovery
Act funds. District officials are also concerned about the lack of
guidance for the methodology of tracking the new jobs created.
District of Columbia Beginning to Use Recovery Act Funds:
The Mayor of the District of Columbia has established 13 work groups to
oversee the use of Recovery Act funds in each program area. Each work
group is led by the head of a District agency or department, or their
designee, who reports to the City Administrator through his Recovery
Act coordinator. The work groups will collaborate to make decisions on
the use of Recovery Act funds. As of April 3, 2009, the District had
been allocated about $240 million in Recovery Act funds. The City
Administrator stated that the District is committed to taking full
advantage of the opportunities provided by the Recovery Act, and is
committed to doing so in a manner that is fiscally responsible,
efficient, effective, and transparent, while addressing the goals of
the statute and the needs of District residents. The District has begun
to use the Recovery Act funds as follows.
Increased Federal Medical Assistance Percentage Funds: Medicaid is a
joint federal-state program that finances health care for certain
categories of low-income individuals, including children, families,
persons with disabilities, and persons who are elderly. The federal
government matches state spending for Medicaid services according to a
formula based on each state's per capita income in relation to the
national average per capita income. The amount of federal assistance
states receive for Medicaid service expenditures is known as the
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP
may range from 50 to no more than 83 percent, with poorer states
receiving a higher federal matching rate than wealthier states. The
Recovery Act provides eligible states with an increased FMAP for 27
months between October 1, 2008, and December 31, 2010.[Footnote 215] On
February 25, 2009, the Centers for Medicare & Medicaid Services (CMS)
made increased FMAP grant awards to states, and states may
retroactively claim reimbursement for expenditures that occurred prior
to the enactment of the Recovery Act.[Footnote 216]
Generally, for fiscal year 2009 through the first quarter of fiscal
year 2011, the increased FMAP, which is calculated on a quarterly
basis, provides for (1) the maintenance of states' prior year FMAPs;
(2) a general across-the-board increase of 6.2 percentage points in
states' FMAPs; and (3) a further increase to the FMAPs for those states
that have a qualifying increase in unemployment rates. The increased
FMAP available under the Recovery Act are for state expenditures for
Medicaid services. However, the receipt of the increased FMAP may
reduce the funds that states must use for their Medicaid programs, and
states have reported using these available funds for a variety of
purposes.
As of April 1, 2009, the District of Columbia had drawn down $49.9
million in increased FMAP grant awards, which was 56.8 percent of its
awards to date.[Footnote 217] District of Columbia officials reported
that they plan to use funds made available as a result of the increased
FMAP to cover an increased caseload, offset general fund deficits, and
maintain current eligibility and benefit levels in the District's
Medicaid program.
Transportation--Highway Infrastructure Investment: The Recovery Act
provides additional funds for highway infrastructure investment using
the rules and structure of the existing Federal-Aid Highway Surface
Transportation Program, which apportions money to states to construct
and maintain eligible highways and for other surface transportation
projects. States must follow the requirements for the existing
programs, and in addition, the governor or other appropriate chief
executive must certify that the state or local government to which
funds have been made available has completed all necessary legal
reviews and determined that the projects are an appropriate use of
taxpayer funds.
As of March 2, 2009, the District's Department of Transportation was
apportioned $123.5 million in Recovery Act funds for highway
infrastructure and has identified "shovel ready" projects for these
funds. According to the District of Columbia's certification,
approximately $56 million in projects have been fully reviewed and
vetted. As of April 16, 2009, the U.S. Department of Transportation had
obligated $36.6 million for one District project--the demolition and
reconstruction of the existing New York Avenue Bridge over the
railroad.
U.S. Department of Education State Fiscal Stabilization Fund: The
Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be
administered by the U.S. Department of Education (Education). The SFSF
provides funds to states to help avoid reductions in education and
other essential public services. The initial award of SFSF funding
requires each state to submit an application to Education that assures,
among other things, it will take actions to meet certain educational
requirements, such as increasing teacher effectiveness and addressing
inequities in the distribution of highly qualified teachers.
As of April 15, 2009, the District was awaiting a response from
Education on the District's proposed plan for using the funds to
increase funding for education on a per student basis. Once this
response is received, the District will submit an application to the
federal government and expects to receive about $89.4 million in fiscal
stabilization funds. The District is home to about 220 schools in 60
local education agencies (LEAs). The District's 60 LEAs include one
large public school system (District of Columbia Public Schools, or
DCPS) and 59 smaller LEAs that are mostly single public charter
schools. For the 2008-2009 school year, about 64 percent of District
students were enrolled in DCPS, while about 36 percent were in public
charter schools. District officials stated that they intend to
distribute stabilization funds across all 60 LEAs.
Other Education Funds: The District expects to receive about $37
million in Recovery Act funds for its ESEA Title I program. Title I,
Part A of the Elementary and Secondary Education Act of 1965 (ESEA), as
amended by the No Child Left Behind Act provides funds to LEAs for
schools that have high concentrations of students from families living
in poverty in order to help improve teaching and learning. District
officials told us that it may be a challenge to disburse funds rapidly
while also meeting programmatic requirements. They also told us they
did not yet know how the LEAs were planning on using these funds.
The District also expects to receive about $18.8 million in stimulus
funds for Individuals with Disabilities Education Act (IDEA) programs.
About $16.4 million will be used for Part B grants to states, and about
$260,000 for Part B grants for preschool children. The other $2.1
million will be used for Part C (state grants for infants and
families). Officials told us that they were unsure of how IDEA funds
would be used, but they anticipate being able to serve more children
under each program, improve methods for assessing the performance of
students with disabilities, and improve services to children and
compliance with IDEA's requirements.
Public Transit Capital Assistance: The U.S. Department of
Transportation, through the Federal Transit Administration (FTA), has
apportioned funds for Transit Capital Assistance grants. Although these
funds are not apportioned directly to the District, the Washington
Metropolitan Area Transit Authority (WMATA), which serves the District
of Columbia and the surrounding area, estimates that WMATA will receive
approximately $202 million in Recovery Act funding from FTA. WMATA
plans to use these funds for 29 projects, including improving
information technology and operating systems, maintenance, repair and
replacement of buses, and renovation of passenger facilities in
disrepair. According to its Web site, WMATA expects to make its first
Recovery Act purchase of 45 hybrid-electric buses at the end of April
2009.
Workforce Investment Act (WIA): As of April 3, 2009, the District's
Department of Employment Services had been allocated about $1.5 million
for adult Workforce Investment Act (WIA) programs, about $3.8 million
for dislocated workers programs, and almost $4 million for youth
programs. The District plans to use these Recovery Act funds in
accordance with the U.S. Department of Labor's Guidance Letter Number
14-08. This guidance states that it is the intent of the Recovery Act
that WIA adult funds be used to provide the necessary services to
substantially increase the number of adults to support their entry or
reentry into the job market, and that WIA dislocated worker funds be
used to provide the necessary services to dislocated workers to support
their reentry into the recovering job market. The guidance also
emphasizes Congress's interest in using WIA youth funds to create
summer employment opportunities for youth.
The District has also developed a plan that includes an increase in
weekly benefits for the unemployed and an expansion of city services to
help those filing unemployment claims and looking for work. The new
benefits for the unemployed include additional compensation in the form
of a supplemental $25 weekly benefit outlined in the Recovery Act. In
addition, the District announced an extension for those who have
exhausted their unemployment benefits and are actively seeking work.
According to District officials, the Mayor plans to forward legislation
to the D.C. City Council that will enable those who will exhaust their
unemployment benefits by late spring to extend them until December
2009. Both the new supplemental compensation and the extension of
benefits are 100 percent federally funded as part of the Recovery Act.
Housing Programs: The U.S. Department of Housing and Urban Development
(HUD) allocated about $11.6 million to the District of Columbia to
provide additional gap financing to Low Income Housing Tax Credit
(LIHTC) projects under the Taxpayer Credit Assistance Program (TCAP).
District of Columbia Department of Housing and Community Development
(DHCD) officials told us that they were waiting for the Internal
Revenue Service (IRS) and HUD to issue guidance for TCAP and the LIHTC
Exchange programs before releasing details on their plans for
implementing the program. Regarding the LIHTC Exchange program, DHCD
officials said they have questions about how the program will be
implemented and that the answers to their questions could require
revisions to state qualified allocation plans and procedures. As a
result, further guidance from IRS will be needed to understand whether
DHCD would use the program and, if so, what management changes, if any,
will be needed for its implementation. As required by the Recovery Act,
HUD allocated about $27 million to the District of Columbia Housing
Authority (DCHA) for capital and management activities, including
modernization and rehabilitation of public housing projects. DCHA
officials told us that they planned to use the allocation to fund
improvements at ongoing projects included in their 5-year construction
plan.
Homeland Security and Justice Programs: District officials expect to
receive an additional allocation of about $11.7 million through the
Department of Justice's Edward Byrne Memorial Justice Assistance Grant
Formula Program, which nearly doubles the total amount of grant funding
awarded by the District's Justice Grants Administration in the last
fiscal year. The District plans to use these funds in several areas,
including prisoner reentry, detention and incarceration diversion
initiatives, and court diversion services for at-risk youth. The
District plans to change its funding priority targets by phasing out
small discrete grants and instead focus on awarding grants that invest
in long-term projects. According to District officials, they have
collaborated with local criminal justice stakeholders and community
groups to identify funding priorities.
The District Plans to Use Existing Systems to Track Recovery Act Funds:
District officials plan to track Recovery Act funds using existing
financial systems. According to District officials, the financial
system already has the infrastructure to track, monitor, and report the
source of funds distributed to recipients to ensure strict compliance
with the requirements of the Recovery Act and to monitor the flow of
Recovery Act funds from the federal government to District agencies.
District officials plan to account for Recovery Act funds in a manner
similar to the way they track and manage grant funds, using a unique
four-digit code. Officials from the District's Office of the Chief
Financial Officer told us that they had notified District agency
officials of the need to closely monitor Recovery Act funds. The
District has not provided guidance to recipients regarding the tracking
and use of Recovery Act funds. The District will determine what
guidance needs to be provided to recipients once the District receives
guidance from OMB.
District Web site Used to Promote Transparent Use of Recovery Act
Funds:
The District has developed a Recovery Act Web site [hyperlink,
http://www.recovery.dc.gov] that is intended to allow the public to
track Recovery Act efforts. The Web site contains information on the
management process the District plans to use to oversee Recovery Act
spending, and provides the public a way to track Recovery Act spending
and get information on grants and contracts that are available. The Web
site also offers the public a means to submit ideas and to identify any
waste or fraud. Further, the Mayor's certification of the use of the
funds is also posted on the Web site, as is the testimony of the City
Administrator and the Chief Procurement Officer on Recovery Act efforts
before the D.C. Council--the District's legislative body.
District Plans for Ensuring that Adequate Safeguards and Internal
Controls Are in Place:
The District Plans to Use Existing Accountability Program for Recovery
Funds:
The District will continue to use CapStat, a performance-based
accountability program designed to make the District government run
more efficiently and to ensure accountability, effectiveness of
internal controls, compliance with reporting requirements, and reliable
reporting about uses of Recovery Act funds. The CapStat process takes
the form of weekly accountability sessions where the Mayor and City
Administrator bring into one room all the executives responsible for
improving performance on an issue to examine performance data and
explore ways to improve government services, as well as to make
commitments for follow-up actions. Each District agency participates in
the program. Agency directors prepare for a session by examining their
agency's performance measures and analyzing how they can improve their
results.
Single Audit Identified Many Weaknesses in District Internal Controls:
The Fiscal Year 2007 Single Audit Report for the District of Columbia
identified 89 material weaknesses in internal controls over both
financial reporting and compliance with requirements applicable to
major federal programs. There were three financial reporting material
weaknesses related to (1) fraudulent activities involving the Office of
Tax and Revenue, (2) management of the Medicaid program, and (3)
systemic weaknesses in DCPS. The single audit report identified
material weaknesses in compliance with requirements applicable to major
federal programs including Medicaid's FMAP, ESEA Title I Education
grants, and Workforce Investment Act programs, all of which will be
receiving Recovery Act funds. The findings were significant enough to
result in a qualified opinion for that section of the report. In
addition, Education designated the District as a high-risk grantee in
April 2006 because of its poor management of federal grants. If the
District continues to be designated as a high-risk grantee, Education
could respond by taking several actions, such as discontinuing one or
more federal grants made to the District or having a third party take
control over the administration of federal grants. OCFO officials told
us that they are in the process of working with the federal agencies to
address these material weaknesses, but it is unlikely the corrective
actions will be completed before the District programs with these
weaknesses begin receiving Recovery Act funds. This could increase the
risk that Recovery Act funds may not be used properly.
District's Office of Inspector General Intends to Monitor Recovery Act
Funds During Ongoing and Planned Work:
The District's Office of Inspector General (OIG) has not developed a
specific plan to audit Recovery Act spending, but OIG officials believe
that ongoing and planned reviews will cover programs that are going to
receive much of the stimulus money. OIG officials said that they
continuously audit these four areas that have internal control problems
and management issues: Medicaid, D.C. Public Schools, grants
management, and the vendor/contractor payment process. As a result, the
OIG maintains a regular presence in the D.C. Department of Health,
DCPS, the Office of the Chief Financial Officer (OCFO), and the Office
of Procurement. However, according to OIG officials, the OIG does not
have legal authority to audit the District's Public Charter
Schools.[Footnote 218] The OIG also performs an annual audit of the
District's Highway Trust Fund (separate from the Federal Highway Trust
Fund). The OIG also plans to use the District's Comprehensive Annual
Financial Report (CAFR) Committee, which the OIG chairs, to monitor
Recovery Act spending by District agencies. This committee, which
oversees D.C.'s Comprehensive Annual Financial Report, is working with
the mayor's office regarding how the Committee can assist in monitoring
Recovery Act spending. The OIG noted that they did not receive any
additional funds or resources to carry out specific Recovery Act
reviews.
Role of the D.C. Auditor for Recovery Act Accountability Is Limited Due
to Legislative Directive and Resource Constraints:
The Office of the District of Columbia Auditor is the legislative
auditor for the District. The office exists to support the District
City Council in meeting its legislative oversight responsibilities and
to help improve the performance and accountability of the District
government. The Auditor has the authority to conduct audits on District
funds, including those used by the D.C. Charter schools, but is not set
up to provide comprehensive services regarding federal funds except in
instances of D.C. Council requests and pre-existing mandates. The D.C.
Auditor's main body of work is developed on a rotating basis, where the
Auditor selects specific activities or accounts to review every 3
years, concentrating on financial accounting and reporting. According
to the D.C. Auditor, due to limited resources, they only plan to
conduct audits based on scheduled rotations and requests, and they have
no plans to audit Recovery Act funds. If, however, a planned audit
concerns a program receiving Recovery Act funds, then the Auditor may
adjust audit plans accordingly.
Plans to Assess Impact of Recovery Act Funds Have Not Yet Been
Developed:
The District plans to assess the impact of Recovery Act funds by using
the information in reports required by federal agencies under the
Recovery Act, including information on the economic impact of the
funds, such as on job creation. However, District officials told us
that calculating the number of jobs created through Recovery Act funds
may be difficult. Officials stated that OMB should provide a common
definition of "job" and a metric to measure the number of jobs that are
created by Recovery Act funds. They are also concerned about the lack
of guidance for the methodology of tracking the new jobs. They
recommended that OMB create a centralized recovery tracking system that
provides consistency in measuring how funds have impacted each state.
While the direct impact of Recovery Act funds may be measurable,
District officials are unsure of methods to track indirect impact and
how to separate the impact of Recovery Act funds and the impact from
other federal funds in programs that receive both sources and use both
sources in their program implementation. Without this guidance, the
District believes it will have difficulty producing reports using
quantitative measures related to using the Recovery Act funds. In
addition, officials would like to have a standardized reporting
template with addendums for each federal agency. This would clarify
confusion for the District and states since a reporting template would
reduce reporting burden, especially since the amount of funding per
issue area varies from state to state. Officials request that OMB
provide a template for the format and required information for Recovery
Act Web sites as well.
District officials also plan to use the CapStat performance-based
accountability program to examine the impact of the use of Recovery Act
funds on District agencies and programs.
District of Columbia's Comments on This Appendix:
We provided the Office of the Mayor of the District of Columbia with a
draft of this appendix on April 15, 2009. On April 17, 2009, the City
Administrator's office provided technical suggestions on the appendix
that were incorporated, as appropriate.
GAO Contacts:
William O. Jenkins, Jr., (202) 512-8757 or jenkinswo@gao.gov:
Carolyn Yocom, (202) 512-4931 or yocomc@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, John Hansen, Assistant
Director; Mark Tremba, analyst-in-charge; Maria Strudwick; Shawn
Arbogast; Marisol Cruz; Nagla'a El-Hodiri; Sunny Chang; Nancy Glover;
Justin Monroe; Ellen Phelps Ranen; and Melissa Schermerhorn made major
contributions to this report.
[End of section]
Appendix XX: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
J. Christopher Mihm, Managing Director for Strategic Issues (202) 512-
6806 or Mihmj@gao.gov:
For issues related to SFSF and other education programs: Cynthia M.
Fagnoni, Managing Director for Education, Workforce and Income
Security, (202) 512-7215 or fagnonic@gao.gov:
For issues related to Medicaid and FMAP: Dr. Marjorie Kanof, Managing
Director for Health Care, (202) 512-7114 or kanofm@gao.gov:
For issues related to highways and other transportation programs:
Katherine A. Siggerud Managing Director for Physical Infrastructure,
(202) 512-2834 or siggerudk@gao.gov:
Acknowledgments:
The names of GAO staff who served on the teams for the selected states
and the District are listed at the end of each respective appendix. In
addition, the following staff contributed to this report: Stanley J.
Czerwinski, Denise Fantone, and Yvonne Jones (Directors); Thomas James,
James McTigue, and Michelle Sager (Assistant Directors); and Allison
Abrams, David Alexander, Peter Anderson, Thomas Beall, Joanna Berry,
Sandra Beattie, Bonnie Beckett, Pedro Briones, Kimberly Brooks, Kay
Brown, Marcia Buchanan, Ted Burik, Steven Cohen, Nancy Cosentino,
Robert Cramer, Michael Derr, Kevin Dooley, Heather Dowey, Colin Fallon,
Alice Feldesman, Andy Finkel, Shannon Finnegan, Jim Fuquay, Vicky
Green, Brandon Haller, Anita Hamilton, Tracy Harris, Laura Heald,
Michael Hrapsky, Mary Catherine Hult, Susan Irving, Shirley Jones,
Stuart Kaufman, Karen Keegan, Martha Kelly, Ba Lin, Edward Leslie,
Leslie Locke, Steve Martin, JoAnn Martinez, Kim McGatlin, John McGrail,
Donna Miller, Sheila Miller, Clarita Mrena, Elizabeth Morrison, Andy
O'Connell, Lisa Pearson, Janice Poling, Brenda Rabinowitz, Carl
Ramirez, Mathew Scire, Thomas Short, Michael Springer, George Stalcup,
Andrew Stephens, Hemi Tewarson, Patrick Tobo, Gabriele Tonsil, Cheri
Truett, Susan Wallace, Lindsay Welter, Michelle Woods, and Carolyn
Yocom.
[End of section]
Footnotes:
[1] Pub. L. No. 111-5, 123 Stat. 115 (February 17, 2009).
[2] Recovery Act, div. A, title IX, §901.
[3] This total includes two entities in the District of Columbia which
received direct federal funding that was not passed through the
District government.
[4] See Recovery Act, div. B, title V, § 5001 (a)-(c). U.S. territories
are also eligible for an increased FMAP subject to a different formula
than states. Recovery Act div. B, title V, § 5001 (d).
[5] Although the effective date of the Recovery Act was February 17,
2009, states generally may claim reimbursement for Medicaid service
expenditures made on or after October 1, 2008.
[6] The Recovery Accountability and Transparency Board is comprised of
a chairperson appointed by the President; Inspectors General from the
Departments of Agriculture, Commerce, Education, Energy, Health and
Human Services, Homeland Security, Justice, Transportation, Treasury,
and the Treasury Inspector General for Tax Administration; and any
other Inspector General designated by the President from any agency
that expends or obligates Recovery Act funds.
[7] Recovery Act, div. A, title XV, § 1527(c)(11)-(13).
[8] See, OMB memoranda, M-09-10, Initial Implementing Guidance for the
American Recovery and Reinvestment Act of 2009, February 18, 2009, and
M-09-15, Updated Implementing Guidance for the American Recovery and
Reinvestment Act of 2009, April 3, 2009.
[9] OMB, "Information Collection Activities: Proposed Collection;
Comment Request," 74 Fed. Reg. 14824 (Apr. 1, 2009).
[10] 74 Fed. Reg. 14,639 (March 31, 2009).
[11] GAO, Small Business Administration's Implementation of
Administrative Provisions in the American Recovery and Reinvestment Act
of 2009, [hyperlink, http://www.gao.gov/products/GAO-09-507R]
(Washington, D.C.: April 16, 2009).
[12] See Recovery Act, div. B, title V, § 5001 (a)-(c). U.S.
territories are also eligible for an increased FMAP subject to a
different formula than states. Recovery Act div. B, title V, § 5001
(d).
[13] This amount includes funds drawn down by U.S. territories and the
District.
[14] See Recovery Act, div. B, title V, § 5001(f)(1).
[15] States are required to pay 90 percent of clean claims from health
care practitioners within 30 days of receipt and 99 percent of these
claims within 90 days of receipt. See 42 U.S.C. § 1396a(a)(37)(A).
[16] This provision only applies to claims received after February 17,
2009, the date of enactment of the Recovery Act.
[17] This prohibition does not apply to any increase in FMAP based on
maintenance of the states' prior year FMAPs.
[18] This prohibition does not apply to any increase in FMAP based on
maintenance of the states' prior year FMAPs.
[19] Recovery Act, div. B, title V, § 5001 (g)(1).
[20] Recovery Act, div. B, title V, § 5001 (a)-(c), (h)(1).
[21] The legal effect of such qualifications is currently being
examined by the U.S. Department of Transportation and has not been
reviewed by GAO.
[22] For federal-aid highway projects, the Federal Highway
Administration of the U.S. Department of Transportation has interpreted
the term obligation of funds to mean the federal government's
contractual commitment to pay for the federal share of a project. This
commitment occurs at the time the federal government approves a project
agreement and the project agreement is executed.
[23] As of April 16, 2009, the U.S. Department of Transportation had
obligated $137.0 million for 32 Mississippi projects.
[24] According to the Federal Highway Administration, Illinois' share
of Recovery Act funds for highway infrastructure investment is
approximately $936 million. This total consists of $655 million for
IDOT projects and $281 million in sub-allocations for local
governments' highway projects. The $655 million to IDOT includes $627
million for IDOT to use statewide and $28 million for mandatory
transportation enhancements. Transportation enhancements include
activities such as provision of facilities for pedestrians and
bicyclists, preservation of abandoned railway corridors, acquisition of
scenic easements, and historic preservation projects.
[25] For certain programs, states may use Recovery Act funds to
supplement but may not supplant current state program funds. Certain
other programs are not subject to this restriction.
[26] In addition, the Arizona state legislature passed a budget in
January 2009 that closed an estimated shortfall of $1.8 billion for
fiscal year 2008 and $2.1 billion for fiscal year 2009.
[27] In January 2009, the fiscal year 2009-2010 Governor's Budget
projected that the state would end the 2009-2010 period with a $41.6
billion deficit if the state took no corrective actions.
[28] Under Texas law, according to state officials, the governor is the
state's chief budget officer, but the state legislature and the
Legislative Budget Board have a large role in the state's budget
process, which operates on a 2-year cycle. Both the governor and the
Legislative Budget Board develop budget recommendations and submit
budget proposals to the legislature, which adopts a budget (general
appropriations bill) for the 2-year period.
[29] We did not review state legal materials for this report, but
relied on state officials and other state sources for description and
interpretation of relevant state constitutions, statutes, legislative
proposals, and other state legal materials.
[30] Some Michigan state departments are sub-recipients of other state
departments and so these recipients are under the State Auditor
General's authority.
[31] GAO, Standards for Internal Control in the Federal Government,
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]
(Washington, D.C.: November 1999).
[32] If an entity expends federal awards under only one federal
program, the entity may elect to have an audit of that program.
[33] The auditor identifies the applicable federal programs, including
"major programs," based on risk criteria, including minimum dollar
thresholds, set out in the Single Audit Act and OMB Circular No. A-133.
Guidance on identifying compliance requirements for most large federal
programs is set out in the Compliance Supplement to OMB Circular No. A-
133. OMB has 14 requirements that generally are to be tested for each
major federal program to opine on compliance and report on significant
deficiencies in internal control over compliance with each applicable
compliance requirement.
[34] State of California: Internal Control and State and Federal
Compliance Audit Report for the Fiscal Year Ended June 30, 2007 (June
2008 Report 2007-002).
[35] Other audits the office performs include: financial audits of
counties, and state aided and owned institutions; performance audits of
state agencies, programs and state owned institutions; financial and
compliance audits of school districts; special investigations; and
audits of the operations of welfare county assistance offices.
[36] State Auditor's Office, State of Texas Federal Portion of the
Statewide Single Audit Report for the Fiscal Year Ended August 31,
2008, SAO Report No. 09-330 (Austin, Tex., Feb. 2009). The audit was
performed by an independent public auditing firm under contract to the
State Auditor's Office.
[37] The Single Audit Act requires that all major programs be audited
and specifies minimum dollar amounts and minimum proportions of federal
funds expended for programs to be identified by the auditor as major
programs. See 31 U.S.C. §§ 7501.
[38] The Single Audit Act sets out minimum federal expenditure amounts
and proportions to use as criteria in defining which programs are to be
tested for compliance with program requirements during a single audit.
OMB will need to consider those statutory criteria when considering
revisions to the single audit process.
[39] See, OMB memoranda, M-09-10, Initial Implementing Guidance for the
American Recovery and Reinvestment Act of 2009, February 18, 2009, and
M-09-15, Updated Implementing Guidance for the American Recovery and
Reinvestment Act of 2009, April 3, 2009.
[40] OMB, Information Collection Activities: Proposed Collection;
Comment Request, Federal Register - 74 Fed. Reg. 14824 (Apr. 1, 2009).
[41] 74 Fed. Reg. 14639 (March 31, 2009).
[42] Recovery Act, § 3(a)(1). Non-federal entities receiving
discretionary funds appropriated under the Recovery Act must report on
the number of jobs created and retained, among other requirements.
Mandatory and entitlement programs are excluded from this requirement.
Recovery Act, div. A, title XV. § 1512.
[43] Indirect jobs are jobs created as a result of demand for goods and
services generated by direct funding from the Recovery Act.
[44] The study estimated that for every $1 million of transportation
infrastructure investment, 11 jobs are created, 70 percent of them are
directly related to the investment and 30 percent are indirectly
related. (Rutgers University Edward J. Bloustein School of Planning and
Public Policy, "Economic Impacts of Planned Transportation Investments
in New Jersey" Camden, New Jersey, April 2008.)
[45] 74 Fed. Reg. 14,639.
[46] See Recovery Act § 5001.
[47] Although the effective date of the Recovery Act was February 17,
2009, states generally may claim reimbursement for the increased FMAP
for Medicaid service expenditures made on or after October 1, 2008.
[48] As of April 16, 2009, the U.S. Department of Transportation had
obligated $148.1 million for 26 Arizona projects. For federal-aid
highway projects, the Federal Highway Administration of the U.S.
Department of Transportation has interpreted the term obligation of
funds to mean the federal government's contractual commitment to pay
for the federal share of a project. This commitment occurs at the time
the federal government approves a project agreement and the project
agreement is executed.
[49] Arizona's fiscal year 2007 Single Audit report is the most recent
report available.
[50] Recovery Act, div. B, title V, § 5001.
[51] Although the Recovery Act was enacted February 17, 2009, states
generally may claim reimbursement for the increased FMAP for Medicaid
service expenditures made on or after October 1, 2008.
[52] A number of states qualified their certifications in various ways.
The legal effect of such qualifications is currently being examined by
the U.S. Department of Transportation and has not been reviewed by GAO.
[53] The state is using the $310 million to jump-start stalled highway
projects, which will then be repaid to fund other SHOPP projects once
bonds can be issued.
[54] For federal-aid highway projects, the Federal Highway
Administration of the U.S. Department of Transportation has interpreted
the term "obligation of funds" to mean the federal government's
contractual commitment to pay for the federal share of a project. This
commitment occurs at the time the federal government approves a project
agreement and the project agreement is executed.
[55] As required by California's constitution, all money drawn from the
state's treasury must be appropriated by the State Legislature.
[56] State education officials have provided some guidance to local
education agencies on appropriate uses for Recovery Act money, and plan
to provide more, both formally and informally, as it becomes available
from the federal government.
[57] These provisions are applicable only to those funds apportioned to
the state and not to those funds required by the Recovery Act to be
suballocated to metropolitan, regional and local organizations.
[58] The California state government fiscal year is July 1 to June 30.
[59] As part of the budget agreement, the Treasurer and the Director of
the Department of Finance had to determine by April 1, 2009, if by June
30, 2010, the state would use more than $10 billion in funds made
available as a result of the Recovery Act to offset its general fund
budget deficit. If so, the state would rescind $948 million in spending
cuts and about $1.8 billion in tax increases under the budget
agreement. On March 27, 2009, the two state officials estimated that
only $8.2 billion would be applied as a general fund budget offset, and
therefore the spending cuts and tax increase were retained.
[60] In the past, the Federal Highway Administration has reported that
there are risks associated with local implementation of federal
regulations, including difficulty maintaining compliance with these
federal requirements.
[61] The Single Audit Act of 1984 (Pub. L. No. 98-502) and its 1996
amendments (Pub. L. No. 104-156) require that nonfederal entities that
expend a threshold amount each year in federal awards have a single or
program-specific audit in accordance with the provisions of the act's
audit requirements. OMB Circular A-133 set the threshold amount at
$500,000 or more a year for fiscal years ending after December 31,
2003, and specifies guidance for entities that conduct these single
audits.
[62] State of California, Internal Control and State and Federal
Compliance Audit Report for the Fiscal Year Ended June 30, 2007 (June
2008 Report 2007-002).
[63] Recovery Act, div. B, title V, § 5001.
[64] Although the Recovery Act was enacted February 17, 2009, states
generally may claim reimbursement for the increased FMAP for Medicaid
service expenditures made on or after October 1, 2008.
[65] A number of states qualified their certifications in various ways.
The legal effect of such qualifications is currently being examined by
the U.S. Department of Transportation and has not been reviewed by GAO.
[66] For federal-aid highway projects, the Federal Highway
Administration of the U.S. Department of Transportation has interpreted
the term obligation of funds to mean the federal government's
contractual commitment to pay for the federal share of a project. This
commitment occurs at the time the federal government approves a project
agreement and the project agreement is executed.
[67] According to a Colorado state legislative study, in 2000, Colorado
voters approved a measure to increase education spending in the state;
this amendment directed a portion of state tax revenues to the State
Education Fund through fiscal year 2011. The amendment requires an
annual increase in per pupil funding and requires the state general
fund appropriation for state aid to schools to increase by 5 percent
per year, unless state personal income increased by less than 4.5
percent during the previous year.
[68] Colorado's Recovery Act Web site is [hyperlink,
http://www.colorado.gov/recovery/]. To help inform the public about the
results of Recovery Act spending in Colorado, the state also plans to
create a Web-based map of projects receiving Recovery Act funds and
plans to "brand" projects funded by the Recovery Act, where possible.
For example, the Colorado Department of Transportation has already
developed a sign template for road projects funded by the Recovery Act.
[69] In addition, an official from the department said that regions
within the state that receive Recovery Act funds for Workforce
Investment Act programs can also use 10 percent of their regional
allocations for administration.
[70] In April 2009, the U.S. Department of Education issued guidance on
the SFSF, stating that administrative costs associated with
implementing the Recovery Act are allowable expenditures under the
SFSF.
[71] The provisions include the Taxpayer Bill of Rights, or TABOR,
which the voters passed in 1992. These provisions, as described by
state officials and documents, limit annual growth in state revenues to
the amount of population growth plus inflation over the previous year,
and also require any tax increase to be voted on by taxpayers. The
amendment is also considered to have "locked in" a separate 6-percent
limit on state spending increases passed by the legislature in 1991.
During an economic downturn, reduced government revenues may lead to
reduced government services and expenditures. The "ratchet effect"
comes into play during subsequent recovery periods, when constitutional
revenue and spending limitations restrict the growth of these services.
[72] Recovery Act, div. B, title V, § 5001.
[73] Although the effective date of the Recovery Act was February 17,
2009, states generally may claim reimbursement for the increased FMAP
grant awards for Medicaid service expenditures made on or after October
1, 2008.
[74] Florida received increased FMAP grant awards of $1.4 billion for
the first three quarters of federal fiscal year 2009.
[75] Under the Recovery Act, to be eligible for the increased FMAP
grant awards, states must comply with prompt payment requirements that
require states to pay 90 percent of clean claims from health care
practitioners within 30 days of receipt and 99 percent of these claims
within 90 days of receipt.
[76] A number of states qualified their certifications in various ways.
The legal effect of such qualifications is currently being examined by
the U.S. Department of Transportation and has not been reviewed by GAO.
[77] For federal-aid highway projects, the Federal Highway
Administration of the U.S. Department of Transportation has interpreted
the term obligation of funds to mean the federal government's
contractual commitment to pay for the federal share of a project. This
commitment occurs at the time the federal government approves a project
agreement and the project agreement is executed.
[78] [hyperlink, http://www.flarecovery.com].
[79] Recovery Act, div. A, title XV, § 1512(c).
[80] As of April 17, 2009, the Governor had also completed
certifications for an arts program, energy efficiency, transportation,
and unemployment insurance.
[81] Recovery Act, § 5001.
[82] Although the effective date of the Recovery Act was February 17,
2009, states generally may claim reimbursement for the increased FMAP
for Medicaid service expenditures made on or after October 1, 2008.
[83] Georgia received increased FMAP grant awards of $521.3 million for
the first three quarters of federal fiscal year 2009.
[84] A number of states qualified their certifications in various ways.
The legal effect of such qualifications is currently being examined by
the Department of Transportation and has not been reviewed by GAO.
[85] For federal-aid highway projects, the Federal Highway
Administration of the U.S. Department of Transportation has interpreted
the term obligation of funds to mean the federal government's
contractual commitment to pay for the federal share of a project. This
commitment occurs at the time the federal government approves a project
agreement and the project agreement is executed.
[86] The department will award most of the remaining contracts in June
and July 2009.
[87] The state's fiscal year runs from July 1 through June 30.
[88] The two local entities we visited were the Atlanta Housing
Authority and the Atlanta Regional Workforce Board.
[89] Net revenue collections for the month of March 2009 totaled $988
million--compared with $1.2 billion for March 2008, a decrease of 14.5
percent.
[90] This percentage represents the difference between the amended
fiscal year 2008 budget and the amended fiscal year 2009 budget.
[91] The cross-agency teams work on initiatives such as energy,
broadband, and competitive grants.
[92] However, state officials noted that the legislature can override a
gubernatorial veto with a two-thirds majority in each chamber.
[93] The actions plans were initially required to be submitted on
February 12, 2009; however, due to delays in federal guidance, some
state agencies were granted an extension until early March.
[94] The Department of Education was given an exemption, and weekly
meetings were held with the Office of Planning and Budget to gather
information in lieu of action plans.
[95] The state expects to receive about $236 million in Recovery Act
funds for unemployment insurance ($220 million for unemployment
insurance benefits and $16 million for administration).
[96] Certain state agencies have been identified as high risk due to
their size, the potential for reorganization, and outdated financial
reporting systems.
[97] The majority of state agencies use PeopleSoft, the state's current
financial reporting system, to track their expenditures. However, there
are some agencies that do not use this system and others that have
greatly customized the software for their agency's individual use.
[98] A state official reported that the Georgia Department of Community
Health is developing a separate contracting and vendor management
process for any contracts that are needed or awarded to carry out the
functions of grants that may be awarded to vendors as a result of the
Recovery Act. Existing performance outcomes will be applied to the new
contracting mechanism and are expected to provide early indicators
regarding the need to apply additional audits or controls.
[99] The risk assessments evaluate a program's previous audit findings,
internal controls, and material weaknesses based on pre-established
criteria.
[100] The Inspector General is part of the executive branch.
[101] Recovery Act, div. B, title V, § 5001.
[102] Although the Recovery Act was enacted February 17, 2009, states
generally may claim reimbursement for the increased FMAP for Medicaid
service expenditures made on or after October 1, 2008.
[103] Under the Recovery Act, to be eligible for the increased FMAP,
states must comply with prompt payment requirements, which require
states to pay 90 percent of clean claims from health care practitioners
within 30 days of receipt and 99 percent of these claims within 90 days
of receipt.
[104] A number of states qualified their certifications in various
ways. The legal effect of such qualifications is currently being
examined by the U.S. Department of Transportation and has not been
reviewed by GAO.
[105] According to the Federal Highway Administration, Illinois' share
of Recovery Act funds for highway infrastructure investment is
approximately $936 million. This total consists of $655 million for
IDOT projects and $281 million in suballocations for local government
highway projects. The $655 million to IDOT includes $627 million for
IDOT to use statewide and $28 million for mandatory transportation
enhancements. Transportation enhancements include activities such as
provision of facilities for pedestrians and bicyclists, preservation of
abandoned railway corridors, acquisition of scenic easements, and
historic preservation projects.
[106] For federal-aid highway projects, the Federal Highway
Administration of the U.S. Department of Transportation has interpreted
the term obligation of funds to mean the federal government's
contractual commitment to pay for the federal share of a project. This
commitment occurs at the time the federal government approves a project
agreement and the project agreement is executed. Illinois will request
reimbursement from the U.S. Department of Transportation as the state
makes payments to contractors.
[107] According to the proposed Illinois fiscal year 2010 budget, the 2
percent reductions in grant programs will exclude healthcare and
education programs.
[108] State officials told us Governor Pat Quinn recently signed a
supplemental appropriations bill to give the state spending authority
for Recovery Act funds during the remainder of fiscal year 2009. To
allow for the use of Recovery Act funds in fiscal year 2010, the
General Assembly must approve the fiscal year 2010 budget bill. The
presentation of the fiscal year 2010 budget did not occur until March
18, 2009, due to the impeachment and removal of the prior Governor in
January 2009. State officials were not certain as to when the General
Assembly will pass the fiscal year 2010 budget.
[109] Individual amounts do not sum to $26.5 billion due to rounding.
[110] At the time of our meetings, these subcommittees were still being
formed.
[111] To receive certain Recovery Act funds, among other requirements,
the state's governor must certify that: (1) the state will request and
use funds provided by the act; and, (2) the funds will be used to
create jobs and promote economic growth. Recovery Act, div. A, title
XVI, § 1607.
[112] Recovery Act div. B, title V § 5001.
[113] Although the effective date of the Recovery Act was February 17,
2009, states generally may claim reimbursement for the increased FMAP
for Medicaid service expenditures made on or after October 1, 2008.
[114] A number of states qualified their certifications in various
ways. The legal effect of such qualifications is currently being
examined by the U.S. Department of Transportation and has not been
reviewed by GAO.
[115] For federal-aid highway projects, the Federal Highway
Administration of the U.S. Department of Transportation has interpreted
the term obligation of funds to mean the federal government's
contractual commitment to pay for the federal share of a project. This
commitment occurs at the time the federal government approves a project
agreement and the project agreement is executed.
[116] Iowa's fiscal year begins July 1 and ends June 30.
[117] Recovery Act, §5001.
[118] Although the effective date of the Recovery Act was February 17,
2009, states generally may claim reimbursement for the increased FMAP
for Medicaid service expenditures made on or after October 1, 2008.
[119] A number of states qualified their certifications in various
ways. The legal effect of such qualifications is currently being
examined by the U.S. Department of Transportation and has not been
reviewed by GAO.
[120] For federal-aid highway projects, the Federal Highway
Administration of the U.S. Department of Transportation has interpreted
the term obligation of funds to mean the federal government's
contractual commitment to pay for the federal share of a project. This
commitment occurs at the time the federal government approves a project
agreement and the project agreement is executed.
[121] Massachusetts officials refer to rainy-day funds as stabilization
funds. However, to avoid confusion with the Recovery Act's State Fiscal
Stabilization Fund, we will use rainy-day funds.
[122] The Governor's budget proposal for fiscal year 2010 includes
several revenue enhancement proposals, including increased meals and
hotel taxes and eliminating a sales tax exemption on alcohol, candy,
and sweetened beverages.
[123] Federal Register/Vol. 74, No. 42/Thursday, March 5, 2009/Notices.
[124] The Joint Committee's jurisdiction covers wherever federal,
state, and local money is spent within the commonwealth with the
exception of the spending by the Massachusetts legislature.
[125] U.S. Department of Education, Office of Inspector General, The
School District of the City of Detroit's Use of Title I, Part A Funds
Under the No Child Left Behind Act of 2001, ED-OIG/A05H0010 (July
2008).
[126] U.S. Government Accountability Office, Troubled Asset Relief
Program: Status of Efforts to Address Transparency and Accountability
Issues, [hyperlink, http://www.gao.gov/products/GAO-09-474T]
(Washington, D.C.: March 11, 2009).
[127] Recovery Act, div.B, title V. § 5001.
[128] Although the Recovery Act was enacted February 17, 2009, states
generally may claim reimbursement for the increased FMAP for Medicaid
service expenditures made on or after October 1, 2008.
[129] Michigan received increased FMAP grant awards of $700.5 million
for the first three quarters of federal fiscal year 2009
[130] For federal-aid highway projects, the Federal Highway
Administration of the U.S. Department of Transportation has interpreted
the term obligation of funds to mean the federal government's
contractual commitment to pay for the federal share of a project. This
commitment occurs at the time the federal government approves a project
agreement and the project agreement is executed.
[131] Michigan's fiscal year 2008-2009 Supplemental Appropriations,
Federal American Recovery and Reinvestment Act (Transportation), Public
Act 3 of 2009.
[132] U.S. Department of Education Office of Inspector General: The
School District of the City of Detroit's Use of Title 1. Part A Funds
Under the No Child Left Behind Act of 2001, ED-OIG/A05H0010, July 2008.
[133] Governor Granholm identified five priorities: (1) create new jobs
and jumpstart Michigan's economy; (2) train Michigan workers and
educate Michigan students, (3) rebuild Michigan infrastructure, (4)
provide assistance for struggling Michigan families, and (5) invest in
energy efficiency and renewable energy technologies.
[134] See Management and Budget Act, Act 431 of 1984, sec. 261.
[135] Single Audits performed by the state Auditor General include
audit procedures of subrecipients when the subrecipient is a state
agency.
[136] Recovery Act, div. B, title V, § 5001.
[137] Although the effective date of the Recovery Act was February 17,
2009, states generally may claim reimbursement for the increased FMAP
for Medicaid service expenditures made on or after October 1, 2008.
[138] As of April 16, 2009, the U.S. Department of Transportation had
obligated $137 million for 32 Mississippi projects. For federal-aid
highway projects, the Federal Highway Administration of the U.S.
Department of Transportation has interpreted the term obligation of
funds to mean the federal government's contractual commitment to pay
for the federal share of a project. This commitment occurs at the time
the federal government approves a project agreement and the project
agreement is executed.
[139] According to Mississippi officials, under Mississippi law, the
Governor may cut any department or agency by 5 percent of its
appropriation; however, the Governor cannot cut any department or
agency by more than 5 percent until every department and agency has
been cut by 5 percent.
[140] Mississippi Joint Legislative Committee on Performance Evaluation
and Expenditure Review, Report to the Mississippi Legislature #518,
Enterprise Mississippi: A Vision for State Government (Jackson, Miss.,
Dec. 9, 2008.)
[141] According to the contractor, the REMI model (Regional Economic
Models Inc.) is a forecasting model that determines the economic
impacts of transportation developments by identifying the
interrelationships and ensuing impacts in five major sectors of the
economy: output; production and labor supply; labor and capital demand;
wages, costs and prices; and market share.
[142] Recovery Act, div. B, title V, § 5001.
[143] Although the effective date of the Recovery Act was February 17,
2009, states generally may claim reimbursement for the increased FMAP
for Medicaid service expenditures made on or after October 1, 2008.
[144] As of April 3, 2009, New Jersey received increased FMAP grant
awards of $549.8 million for the first three quarters of federal fiscal
year 2009.
[145] From January 2008 to January 2009, the state's Medicaid
enrollment increased from 750,529 to 771,156, with increased enrollment
mostly attributable to two population groups: (1) children with
families, and (2) individuals who are blind or disabled.
[146] Under the Recovery Act, to be eligible for the increased FMAP,
states must comply with prompt pay requirements, which require states
to pay 90 percent of clean claims from health care practitioners within
30 days of receipt and 99 percent of these claims within 90 days of
receipt. 42 U.S.C. § 1396(a)(37)(A); Recovery Act, div. B, title V, §
5001(f)(2).
[147] The annual income for a family of four at 200 percent of the
Federal Poverty Level is $44,100.
[148] A number of states qualified their certifications in various
ways. The legal effect of such qualifications is currently being
examined by the U.S. Department of Transportation and has not been
reviewed by GAO.
[149] For federal-aid highway projects, the Federal Highway
Administration of the U.S. Department of Transportation has interpreted
the term obligation of funds to mean the federal government's
contractual commitment to pay for the federal share of a project. This
commitment occurs at the time the federal government approves a project
agreement and the project agreement is executed.
[150] The Byrne Justice Assistance Grant Program supports a broad range
of activities to prevent and control crime and may be used for, among
other things, equipment, supplies, training, personnel, and research
and information systems for criminal justice efforts.
[151] In March 2009, the governor presented a proposed budget for
fiscal year 2010 along with additional actions to again rebalance the
fiscal year 2009 budget. Those actions included an additional reduction
in the state's pension payment for fiscal year 2009, which allowed
restoration of surplus in the current year which assisted in addressing
a $7 billion deficit for fiscal year 2010.
[152] New Jersey officials stated they are unable to estimate the total
amount of Recovery Act funds that are coming into the state because
some formula allocations have not yet been announced by federal
agencies and some funding, such as increased FMAP funds, are subject to
change based on future conditions.
[153] DCA officials stated they did receive guidance from the U.S.
Department of Energy on the weatherization program.
[154] As described by state officials, similar to the federal
government, each year the Governor submits to the legislature a
proposed budget. The legislature has the ultimate authority to adopt
the budget act and appropriate funds, subject to gubernatorial line-
item veto. State agency use of federal funds must be authorized in
state appropriations.
[155] According to state officials, the state Department of Education
has placed limitations on compensation and buyouts for high-level
district administrators through a series of regulations and statutory
changes. The Executive County Superintendent (a state employee) must
review and approve, prior to district Board of Education approval, all
employment contracts for the superintendent, deputy superintendent,
assistant superintendent and business administrator, including new
contracts, extensions, and renegotiations. There are specific state-
imposed limitations on components of these contracts, like annuities,
travel allowances, car allowances, and specific state limitations on
buyout provisions in these contracts.
[156] The study estimated that for every $1 million of transportation
infrastructure investment, 11 jobs are created, 70 percent of them are
directly related to the investment, and 30 percent are indirectly
related (Rutgers University Edward J. Bloustein School of Planning and
Public Policy, "Economic Impacts of Planned Transportation Investments
in New Jersey," New Brunswick, New Jersey, April 2008).
[157] Recovery Act, div. B, title V, § 5001.
[158] Although the Recovery Act was enacted February 17, 2009, states
generally may claim reimbursement for the increased FMAP for Medicaid
service expenditures made on or after October 1, 2008.
[159] For federal-aid highway projects, the Federal Highway
Administration of the U.S. Department of Transportation has interpreted
the term obligation of funds to mean the federal government's
contractual commitment to pay for the federal share of a project. This
commitment occurs at the time the federal government approves a project
agreement and the project agreement is executed.
[160] The agency's director of internal audit reviews the operations of
the agency to provide reasonable assurance of conformance with
management policies and the effectiveness of internal controls. The
internal auditor must maintain independence from the activities that
are audited.
[161] The internal control officer assists the agency head and agency
management and has responsibility for implementing, maintaining, and
reviewing the agency's system of internal control.
[162] For an unqualified opinion, the auditor expresses the opinion
that the financial statements present fairly, in all material respects,
the financial position, results of operations, and cash flows of the
entity in conformity with generally accepted accounting principles.
[163] Recovery Act, div. B, Title V, § 5001.
[164] Although the Recovery Act was enacted February 17, 2009, states
generally may claim reimbursement for the increased FMAP for Medicaid
service expenditures made on or after October 1, 2008.
[165] North Carolina received increased FMAP grant award of $657.1
million for the first three quarters of federal fiscal year 2009.
[166] A number of states qualified their certifications in various
ways. The legal effect of such qualifications is currently being
examined by the Department of Transportation and has not been reviewed
by GAO.
[167] For federal-aid highway projects, the Federal Highway
Administration of the U.S. Department of Transportation has interpreted
the term obligation of funds to mean the federal government's
contractual commitment to pay for the federal share of a project. This
commitment occurs at the time the federal government approves a project
agreement and the project agreement is executed.
[168] Projects selected were evaluated based on several other criteria,
including a state equity formula (North Carolina G.S. 136-17.2A) that
creates a target value for programming future expenditures in various
regions of the state. The formula is applied only to non-exempt
highways funds and not transit and rail programs.
[169] The Chief Executive Officer of the State Board of Education is
appointed by the Governor.
[170] In ESEA Title I guidance released by the Department of Education
on April 1, 2009, the department noted that it would propose
regulations adjusting state administrative expenditure caps in order to
help states defray the costs of data collection requirements in the
Recovery Act.
[171] Recovery Act, div. B, title V.
[172] Although the Recovery Act was enacted February 17, 2009, states
generally may claim reimbursement for the increased FMAP for Medicaid
service expenditures made on or after October 1, 2008.
[173] According to state officials, the Ohio constitution requires the
state to have a balanced budget. Ohio's biennial budget covers two
separate fiscal years which each begin on July 1 and end on June 30 of
the following year. Separate budget bills are prepared for the state's
General Revenue Fund and another for transportation and public safety
activities. Because Ohio may not carry a deficit, the state must revise
its budget whenever revenue estimates decline. Since enactment of its
current budget for fiscal years 2008-2009, the Governor has made three
downward revisions totaling over $1.9 billion--or about 9.5 percent of
the fiscal year 2009 State-only General Revenue Fund budget. These
actions resulted in statewide cuts to agency and departmental budgets.
[174] A number of states qualified their certifications in various
ways. The legal effect of such qualifications is currently being
examined by the U.S. Department of Transportation and has not been
reviewed by GAO.
[175] For federal-aid highway projects, the Federal Highway
Administration of the U.S. Department of Transportation has interpreted
the term obligation of funds to mean the federal government's
contractual commitment to pay for the federal share of a project. This
commitment occurs at the time the federal government approves a project
agreement and the project agreement is executed.
[176] Ohio's fiscal year 2007 single audit report had a clean opinion
on financial statements and did not identify any material weaknesses.
In addition, on October 10, 2008, the Ohio Auditor of State issued a
SAS 70 report on OAKS. While the Auditor noted numerous exceptions in
the tests of operating effectiveness in the general control areas of
program change and IT security, the Auditor opined that the state
provided reasonable assurances that its controls (relevant to a user
agency's internal controls) relating to financial statements, payroll,
warrant writing, and electronic fund transfers (EFT) could be relied
on, were suitably designed, and had been placed in operation as of June
30, 2008.
[177] Recovery Act, div. B, title V, § 5001.
[178] Although the Recovery Act was enacted February 17, 2009, states
generally may claim reimbursement for the increased FMAP for Medicaid
service expenditures made on or after October 1, 2008.
[179] Pennsylvania received increased FMAP grant awards of $1.04
billion for the first three quarters of federal fiscal year 2009.
[180] To be eligible for the increased FMAP, states must comply with
prompt pay requirements, which require states to pay 90 percent of
clean claims from health care practitioners within 30 days of receipt
and 99 percent of these claims within 90 days of receipt.
[181] A number of states qualified their certifications in various
ways. The legal effect of such qualifications is currently being
examined by the U.S. Department of Transportation and has not been
reviewed by GAO.
[182] For federal-aid highway projects, the Federal Highway
Administration of the U.S. Department of Transportation has interpreted
the term "obligation of funds" to mean the federal government's
contractual commitment to pay for the federal share of a project. The
commitment occurs at the time the federal government approves a project
agreement and the project agreement is executed.
[183] Other actions to address the current shortfall include cuts in
the enacted budgets for the legislature and independent agencies as
well as increased revenue from natural gas drilling leases.
[184] The Recovery Management Committee is composed of: the Governor's
Chief-of-Staff, the Chief Implementation Officer, the Chief
Accountability Officer, the Secretary of Budget, Secretary of Policy,
Secretary of Administration, Secretary of Legislative Affairs, and the
Communications Director as well as other senior members of the
Governor's administration.
[185] 74 Fed. Reg. 9630 (March 5, 2009).
[186] PennDOT is also finalizing a list of transit projects to be
funded from Recovery Act money. Of the approximately $415 million in
Recovery Act money apportioned by the Federal Transit Administration to
Pennsylvania for transit capital assistance and fixed guideway
infrastructure investment, about $48 million (11.5 percent) will flow
through the state to small urban (less than 200,000 population) and
nonurbanized areas (less than 50,000 population). The remainder (about
$367 million) will go to large (over 200,000 population) areas
directly.
[187] According to the U.S. Department of Labor guidance, the period of
"summer" will be from May 1 through September 30 for purposes of the
Recovery Act funds.
[188] The Neighborhood Stabilization Program was originally created in
July 2008 by the Housing and Emergency Recovery Act of 2008 and was in
the process of implementation when the Recovery Act increased program
funding and made some of the funding subject to a competitive process
to receive grants.
[189] According to the Secretary for Budget, the new reorganization
will be completed in May 2009.
[190] An ERP solution is an automated system using commercial off-the-
shelf software and consisting of multiple, integrated functional
modules that perform a variety of tasks such as accounts payable,
general ledger accounting, and grant management.
[191] Pennsylvania Auditor General, A Special Performance Audit of the
Department of Community and Economic Development's Weatherization
Assistance Program, August 2007.
[192] The Chief Accountability Officer also will chair a new Governor's
Working Group for Stimulus Accountability that includes the Chief
Implementation Officer and senior state officials. In addition, the
Chief Accountability Officer also serves on the Governor's Recovery
Management Committee.
[193] According to state officials, the Legislative Budget Board is a
permanent joint committee of the Texas legislature that develops budget
and policy recommendations for legislative appropriations for all
agencies of state government, as well as completes fiscal analyses for
proposed legislation. The lieutenant governor and House speaker serve
as co-chairs of the board. Other members include the chairs of the
House Appropriations Committee and the Senate Finance Committee. See
[hyperlink, http://www.lbb.state.tx.us].
[194] Recovery Act, div. B. title V.§ 5001.
[195] Although the Recovery Act was enacted February 17, 2009, states
generally may claim reimbursement for the increased FMAP for Medicaid
service expenditures made on or after October 1, 2008.
[196] A number of states qualified their certifications in various
ways. The legal effect of such qualifications is currently being
examined by the U.S. Department of Transportation and has not been
reviewed by GAO.
[197] For federal-aid highway projects, the Federal Highway
Administration of the U.S. Department of Transportation has interpreted
the term obligation of funds to mean the federal government's
contractual commitment to pay for the federal share of a project. This
commitment occurs at the time the federal government approves a project
agreement and the project agreement is executed.
[198] State certification letter, dated February 18, 2009, from
Governor Rick Perry, State of Texas, to President Barack Obama.
[199] According to the Texas Comptroller of Public Accounts Web site,
in order to accept Unemployment Insurance Modernization Funds under the
Recovery Act the state would be required to change its eligibility
standards to expand benefits to additional categories of workers. State
officials described a recently introduced, but not enacted, bill in the
Texas legislature to propose changes to the eligibility standards. On
April 20, 2009, the Texas Senate voted in favor of the bill. According
to those officials, if the House of Representatives also votes in favor
of the bill, the governor has the option of vetoing the bill.
[200] The state's economic stabilization fund is commonly referred to
as the "rainy day fund." The fund balance, according to Legislative
Budget Board estimates, is expected to reach $9.1 billion by 2011.
[201] See [hyperlink, http://www.txstimulusfund.com]. The committee
chair has been holding hearings with state agencies and asking about
the resources they have or need; how the Recovery Act funds will be
disbursed; and what policies, procedures, and internal controls are in
place for the funds.
[202] Essentially, as described by state officials, the Texas
legislature will use the state's general appropriations bill to
appropriate federal Recovery Act funds for the fiscal 2010-2011
biennium (Sept. 1, 2009, through Aug. 31, 2011). Any Recovery Act funds
received earlier (i.e., funds received in fiscal year 2009) will not be
included in the general appropriations bill. In Texas, according to
state officials, the general appropriations bill functions as the
state's budget by allocating resources and setting performance targets
based on the strategies identified by agencies in their respective
strategic plans. Under Texas law, the governor is the state's chief
budget officer, but the state legislature and the Legislative Budget
Board have a large role in the state's budget process. By
constitutional mandate, Texas operates under budgets set for 2-year
periods. Both the governor and the Legislative Budget Board develop
budget recommendations and submit budget proposals to the legislature,
which adopts a budget (general appropriations bill) for the 2-year
period. The state legislature in constitutionally required to pass a
balanced budget, and the governor is constitutionally required to sign
a balanced budget.
[203] According to state officials, the legislature meets in regular
session for 140 days in odd-numbered years. The 81st regular session
began January 13, 2009, and extends to June 1, 2009. The House and
Senate generally take turns originating the general appropriations bill
and chairing the budget conference committee. Both chambers work on the
budget and hold hearings simultaneously. After the general
appropriations bill has been approved by both chambers of the
legislature, it must be certified by the Comptroller of Public
Accounts; thereafter, it is submitted to the governor for approval. The
governor has line item veto power, which allows the governor to veto
specific appropriations rather than vetoing the entire bill. A veto may
be overridden by a two-thirds vote in each chamber of the legislature.
[204] Also, the Office of the Comptroller of Public Accounts has
established a stimulus-related Web page (window.state.tx.us/recovery/)
with links to the national Web site, [hyperlink,
http://www.recovery.gov].
[205] Members of GAO's review team attended the March 19, 2009, meeting
of the Stimulus Working Group in Austin, Texas.
[206] Members of GAO's review team attended the March 27, 2009, state
agency internal audit forum in Austin, Texas.
[207] State officials described the State Auditor's Office as the
independent auditor for Texas state government. The office operates
with oversight from the Legislative Audit Committee, a six-member
permanent standing committee of the Texas legislature, jointly chaired
by the lieutenant governor and the speaker of the House of
Representatives.
[208] For example, see State Auditor's Office, State of Texas Federal
Portion of the Statewide Single Audit Report for the Fiscal Year Ended
August 31, 2008, SAO Report No. 09-330 (Austin, Tex., Feb. 2009).
[209] Some Texas agencies, such as the Health and Human Services
Commission, have an Office of Inspector General.
[210] State officials identified this bill as H.B. No. 2942, cited as
the "Texas Government Accountability and Transparency Act of 2009."
According to state officials, under the bill's provisions, the Texas
Fiscal Responsibility Office would be created as an independent agency
of the legislative branch of state government.
[211] The State Auditor's Office further noted that additional
information about high-risk programs could be obtained by inquiring
about what actions at the agency level that management will be taking
to mitigate risks.
[212] State Auditor's Office, State of Texas Federal Portion of the
Statewide Single Audit Report for the Fiscal Year Ended August 31,
2008, SAO Report No. 09-330 (Austin, Tex., Feb. 2009). The audit was
performed by an independent public auditing firm under contract to the
State Auditor's Office.
[213] OMB issued initial guidance on February 18, 2009, and provided
additional guidance on April 3, 2009. As presented in this appendix,
the observations of Texas officials are based on OMB's initial guidance
only.
[214] Texas Transportation Commission, "Report on: Economic Recovery
Plan," presented at January 29, 2009, meeting by John Barton, Assistant
Executive Director Engineering Operations.
[215] See Recovery Act, div. B, title V, § 5001.
[216] Although the Recovery Act was enacted on February 17, 2009,
states generally may claim reimbursement for the increased FMAP for
Medicaid service expenditures made on or after October 1, 2008.
[217] The District of Columbia received increased FMAP grant awards of
$87.8 million for the first three quarters of federal fiscal year 2009.
[218] All public charter schools in the District of Columbia are
required to submit annual financial audits to the D.C. Public Charter
School Board. The charter schools select an auditor from a list of best
qualified auditors and who has been approved by the D.C. Chief
Financial Officer and the Public Charter School Board.
[End of section]
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