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entitled 'Recovery Act: Opportunities to Improve Management and 
Strengthen Accountability over States' and Localities' Uses of Funds' 
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Report to the Congress:

United States Government Accountability Office:
GAO:

September 2010:

Recovery Act:

Opportunities to Improve Management and Strengthen Accountability over 
States' and Localities' Uses of Funds:

Recovery Act:

GAO-10-999: 

GAO Highlights:

Highlights of GAO-10-999, a report to the Congress. 

Why GAO Did This Study:

This report responds to two ongoing GAO mandates under the American 
Recovery and Reinvestment Act of 2009 (Recovery Act). It is the latest 
in a series of reports on the uses of and accountability for Recovery 
Act funds in 16 selected states, certain localities in those 
jurisdictions, and the District of Columbia (District). These 
jurisdictions are estimated to receive about two-thirds of the 
intergovernmental assistance available through the Recovery Act. This 
report also responds to GAO’s mandate to comment on the jobs estimated 
in recipient reports. GAO collected and analyzed documents and 
interviewed state and local officials and other Recovery Act award 
recipients. GAO also analyzed federal agency guidance and interviewed 
federal officials. 

What GAO Found:

As of September 3, 2010, about $154.8 billion of the approximately 
$282 billion of total funds made available by the Recovery Act in 2009 
for programs administered by states and localities had been paid out 
by the federal government. Of that amount, over 65 percent—$101.9 
billion—had been paid out since the start of federal fiscal year 2010 
on October 1, 2009.

Federal Medical Assistance Percentage (FMAP): 
As of July 31, 2010, the 16 states and the District had drawn down 
$43.9 billion in increased FMAP funds. If current spending patterns 
continue, GAO estimates that these states and the District will draw 
down $56.2 billion by December 31, 2010—about 95 percent of their 
initial estimated allocation. Most states reported that, without the 
increased FMAP funds, they could not have continued to support the 
substantial Medicaid enrollment growth they have experienced, most of 
which was attributable to children. Several states also reported that 
the increased FMAP funds freed up states’ funds which helped finance 
other needs. States and the District remained concerned about the 
sustainability of their programs without these funds, and most have 
already reduced or frozen certain provider payment rates or imposed 
new provider taxes. Congress recently passed legislation to extend the 
increased FMAP through June 2011, although at lower rates than 
provided by the Recovery Act. For future program adjustments, states 
and the District will also need to consider the Patient Protection and 
Affordable Care Act, which prohibits federal Medicaid reimbursement 
through 2014 if they apply more restrictive eligibility standards, 
methods, or procedures. 

Education: 
As of August 27, 2010, the District and states covered in GAO’s review 
had drawn down 72 percent ($18.2 billion) of their awarded State 
Fiscal Stabilization Fund (SFSF) education stabilization funds; 46 
percent ($3.0 billion) for Elementary and Secondary Education Act, 
Title I, Part A; and 45 percent ($3.4 billion) for Individuals with 
Disabilities Education Act, Part B. In the spring of 2010, GAO 
surveyed a nationally representative sample of local educational 
agencies (LEA) and found that job retention was the primary use of 
education Recovery Act funds in school year 2009-2010, with an 
estimated 87 percent of LEAs reporting that Recovery Act funds allowed 
them to retain or create jobs. Even with Recovery Act funds, one-third 
of LEAs reported experiencing budget cuts in school year 2009-2010 and 
nearly 1 in 4 reported losing jobs overall. Because of their budget 
situations, relatively few LEAs reported making significant progress 
in advancing the four core education reform areas states are required 
to address as a condition of receiving SFSF funding. In August 2010, 
the Education Jobs Fund was created to provide $10 billion to retain 
and create education jobs nationwide.

Highway Infrastructure Investment and Public Transportation Funding: 
Nationwide, the Federal Highway Administration (FHWA) obligated $25.6 
billion in Recovery Act funds for over 12,300 highway projects, and 
reimbursed $11.1 billion as of August 2, 2010. The Federal Transit 
Administration obligated $8.76 billion of Recovery Act funds for about 
1,055 grants, and reimbursed $3.6 billion as of August 5, 2010. 
Highway funds were used primarily for pavement improvement projects, 
and public transportation funds were used primarily for upgrading 
transit facilities and improving bus fleets. With emphasis placed on 
the Recovery Act, many states were slower in obligating regular 
federal-aid highway funds; FHWA expects all regular funds to be 
obligated by the end of the fiscal year. Publicly available data 
likely overstates the number and amount of contracts awarded. GAO 
recommends that DOT improve the accuracy of these data. DOT has also 
not corrected previous public information overstating the amount of 
funds directed to economically distressed areas. GAO recommends that 
DOT make revised information publicly available. DOT expects to be 
able to report on Recovery Act outputs, but did not commit to 
assessing whether transportation investments produced long-term 
benefits as we recommended in May 2010. GAO believes that 
understanding the impact of Recovery Act investments continues to be 
important, plans to continue to monitor DOT’s actions, and encourages 
it to report on long-term benefits.

Energy Efficiency and Conservation Block Grant (EECBG), State Energy 
Program (SEP), and Weatherization Assistance: 
The EECBG program provides about $3.2 billion in grants to implement 
projects that improve energy efficiency; of this amount, approximately 
$2.8 billion has been allocated directly to recipients. As of August 
2010, DOE has obligated about 99 percent of the $2.8 billion in direct 
formula grants to recipients, who have in turn, obligated about half 
to subrecipients. The majority of EECBG funds have been obligated for 
three purposes: energy efficiency retrofits to existing facilities, 
financial incentive programs, and buildings and facilities. The 
Recovery Act also provided $3.1 billion to the SEP, which provides 
funds through formula grants to achieve national energy goals such as 
increasing energy efficiency and decreasing energy costs. SEP 
recipients are obligating funds, monitoring, and reporting on project 
outcomes. The Recovery Act also appropriated $5 billion for the 
Weatherization Assistance Program. During 2009, DOE obligated about 
$4.73 billion of the Recovery Act’s weatherization funding, while 
retaining about 5 percent of funds to cover the department’s expenses. 
According to DOE officials, as of June 30, 2010, about 166,000 homes 
have been weatherized nationwide, or about 29 percent of the 570,000 
homes currently planned for weatherization. In May 2010, GAO made 
several recommendations to DOE, expressing concerns about whether 
program requirements were being met. DOE generally agreed and has 
begun to take steps in response to GAO’s previous recommendations.

Public Housing Capital Fund, Tax Credit Assistance Program (TCAP), and 
the Section 1602 Program: 
As of August 7, 2010, housing agencies had obligated about 46 percent 
of the nearly $1 billion in Recovery Act Public Housing Capital Fund 
competitive grants allocated to them for projects such as installing 
energy-efficient heating and cooling systems in housing units. HUD 
officials anticipate that some housing agencies may not meet the 
September 2010 obligation deadline, resulting in those funds being 
recaptured. GAO believes HUD should continue to closely monitor 
agencies’ progress in obligating remaining funds. As of July 31, 2010, 
HUD had outlayed about $733 million (32.6 percent) of TCAP funds and 
Treasury had outlayed about $1.4 billion (25.5 percent) of Section 
1602 Program funds. Some state Housing Finance Agencies (HFA) and 
projects may face challenges meeting upcoming deadlines, including 
that projects spend 30 percent of Section 1602 Program project costs 
by December 2010. GAO recommends that Treasury provide guidance to 
HFAs and plan to deal with the possibility that projects could miss 
the spending deadline. Treasury said it will monitor project spending 
and provide additional guidance, if needed. GAO also found that for 
some TCAP projects, enhanced HUD oversight may be needed. GAO 
recommends that HUD develop a plan that recognizes the level of 
oversight others, including HFAs and investors, provide. HUD agrees 
these projects need additional monitoring. 

Accountability and Recipient Reporting: 
OMB’s Single Audit Internal Control Project highlighted areas where 
significant improvements in the Single Audit process are needed. Most 
federal awarding agencies did not exercise timely follow-up on action 
plans to correct internal control deficiencies identified in the 
project’s reports. Since awarding agencies are to approve corrective 
action plans, untimely follow-up could delay efforts to implement 
corrective actions. In addition, the Single Audit process timeframes 
are not conducive to the timely identification and correction of 
internal control deficiencies. Further, OMB’s Single Audit guidance 
has not been timely, causing inefficiencies related to Single Audits. 
GAO recommends that the Director of OMB take actions to strengthen the 
Single Audit and federal follow-up as oversight mechanisms. OMB 
concurred.

Many recipients reported greater ease in meeting their reporting 
requirements. GAO’s analysis of the data in Recovery.gov shows some 
improvement, but data quality issues remain, such as the ability to 
link reports across quarters to follow project progress. OMB, HUD, and 
Education have implemented all of GAO’s earlier recommendations on 
recipient reporting, including those intended to improve subrecipient 
reporting. GAO will continue to monitor efforts to improve the quality 
of reporting. 

What GAO Recommends:

GAO updates the status of agencies’ efforts to implement GAO’s 58 
previous recommendations and makes 5 new recommendations to improve 
management and strengthen accountability to the Departments of 
Transportation (DOT), Housing and Urban Development (HUD), the 
Treasury, and the Office of Management and Budget (OMB). Agency 
responses to GAO’s new recommendations, as well as to key 
recommendations that remain open, are shown on the following page. 

View [hyperlink, http://www.gao.gov/products/GAO-10-999] or key 
components. For state summaries, see [hyperlink, 
http://www.gao.gov/products/GAO-10-1000SP]. For more information, 
contact J. Christopher Mihm at (202) 512-6806 or mihmj@gao.gov. 

[End of section] 

Contents:

Letter:

States' and Localities' Uses of Recovery Act Funds Continue:

Many Recipients Are Citing Greater Ease Meeting Recovery Act Reporting 
Requirements, but Some Recipients Continue to Face Difficulties 
Calculating Jobs:

Oversight and Accountability Efforts:

Observations on States' Use of Contracts and Contract Outcomes:

Local Governments' Use of Recovery Act Funds:

New and Open Recommendations; Matters for Congressional Consideration:

Appendix I: Objectives, Scope, and Methodology:

Objectives and Scope:

States' and Localities' Uses of Recovery Act Funds:

Federal Medical Assistance Percentage:

SFSF, ESEA Title I, and IDEA:

Federal-Aid Highway Surface Transportation Program:

Transit Capital Assistance Program:

State Energy Program, Energy Efficiency Conservation Block Grant, and 
Weatherization Assistance Program:

Public Housing Capital Fund:

Tax Credit Assistance Program:

Head Start and Early Head Start:

Recipient Reporting:

Single Audit as an Accountability and Oversight Mechanism:

Recovery Accountability and Transparency Board Initiatives:

Observations on States' Use of Contracts and Contract Outcomes:

State and Local Accountability:

State and Local Budget:

Data and Data Reliability:

Appendix II: Implemented and Closed Recommendations:

Appendix III: Program Descriptions:

Appendix IV: Entities Visited by GAO in Selected States and the 
District of Columbia:

Appendix V: GAO Contacts and Staff Acknowledgments:

Program Contributors:

Contributors to the Selected States and the District:

Related GAO Products:

Tables:

Table 1: GAO's September 2010 Recovery Act Coverage of States and 
Localities:

Table 2: Regular and Preliminary Increased Fourth Quarter 2010 FMAP 
Rates and Components of the Increase for 16 States and the District:

Table 3: Estimated Allocations and Funds Drawn Down for Recovery Act 
Increased FMAP for 16 States and the District as of July 31, 2010:

Table 4: Number of States Implementing Payment Reductions or Freezes 
to Sustain their Medicaid Programs, February 2009 to July 2010:

Table 5: Recent Fiscal Year State-Level K-12 Education Expenditure 
Changes for the States in Our Review:

Table 6: Percentage of Awarded SFSF Education Stabilization, ESEA 
Title I Part A, and IDEA Part B Recovery Act Funds Drawn Down by 
Selected States as of August 27, 2010:

Table 7: Reimbursement of Recovery Act Funds as a Percentage of Funds 
Obligated - Ranked by All Funds:

Table 8: Percentage of Unobligated Recovery Act Highway Funds:

Table 9: EECBG Activity Budgets as of July 28, 2010:

Table 10: DOE Requirements for Frequency of Monitoring:

Table 11: Number, Final Report Designation, and Project Status of 
Prime Recipient Reports Not Appearing in Round Four:

Table 12: Number of Contracts Reported as Competed and Fixed Price, by 
Program Area as of June 2010:

Table 13: Number of Contracts Officials Reported as Having Cost or 
Schedule Changes, by Program Area as of June 2010:

Table 14: Selected Examples of Local Governments' Uses of Recovery Act 
Funds:

Table 15: Education Entities Visited by GAO:

Table 16: Head Start Entities Visited by GAO:

Table 17: Transit Entities Visited by GAO:

Table 18: State Energy Program Entities Visited by GAO:

Table 19: Energy Efficiency Conservation Block Grant Entities Visited 
by GAO:

Table 20: Weatherization Entities Visited by GAO:

Table 21: Housing Entities Visited by GAO:

Table 22: Tax Credit Assistance Program and Section 1602 Program 
Entities Visited by GAO:

Table 23: Local Government Entities Visited by GAO:

Figures:

Figure 1: Estimated vs. Actual Federal Outlays to States and 
Localities under the Recovery Act:

Figure 2: Number of States Implementing New or Increased Provider 
Taxes, February 2009 through July 2010:

Figure 3: Estimated Percentage of LEAs with Funding-Level Changes in 
School Year 2009-2010 and Anticipated Changes for School Year 2010- 
2011, as reported in Spring 2010:

Figure 4: Estimated Percentage of LEAs with Sizeable Funding Changes 
for School Year 2009-2010 and Expected Funding Changes for School Year 
2010-2011, as reported in Spring 2010:

Figure 5: Likely Personnel Actions for the 2010-2011 School Year 
Reported by LEAs Anticipating Funding Decreases, as Reported in Spring 
2010:

Figure 6: Likely Nonpersonnel Actions for School Year 2010-2011 
Reported by LEAs Expecting Funding Decreases, as Reported in Spring 
2010:

Figure 7: Estimated Percentage of LEAs Nationally That Reported 
Recovery Act Funding Allowed Job Creation or Retention Compared to the 
Estimated Percentage of LEAs That Reported Losing Jobs Even with the 
Additional Funding in School Year 2009-2010, as Reported in Spring 2010:

Figure 8: Estimated Percentage of LEAs Nationally That Used More Than 
Half of SFSF, ESEA Title I, Part A; and IDEA Part B Recovery Act 
Funding for Retaining Staff in School Year 2009-2010:

Figure 9: Estimated Percentage of LEAs Nationally That Retained and 
Created Instructional and Noninstructional Jobs in School Year 2009- 
2010:

Figure 10: Estimated Percentage of LEAs That Reported Spending 
Recovery Act Funds to Hire New Staff in the 2009-2010 School Year, by 
Percent of Recovery Act Funding and Program:

Figure 11: The Factors Affecting a Decrease in the Number of Jobs for 
the 2009-2010 School Year to a Great or Very Great Degree:

Figure 12: Estimated Percentage of LEAs Nationally That Spent More 
Than 25 Percent of Recovery Act Funds on Providing Professional 
Development, Purchasing Instructional Materials, and Purchasing 
Computer Technology in School Year 2009-2010:

Figure 13: Reported Changes in LEA Level of Service in School Year 
2009-2010 Compared to Level of Service in 2008-2009 among LEAs 
Receiving SFSF Funds, by Size of LEA:

Figure 14: Percentage of LEAs Reporting Significant or Modest Progress 
toward Education Reform Goals in School Year 2009-2010 Made Possible 
by Recovery Act Funds:

Figure 15: Percentage of LEAs Nationally Reporting ESEA Title I, Part 
A Recovery Act Funds Have Expanded, Maintained, or Decreased Education 
Reform Efforts in School Years 2009-2010 and 2010-2011, as Reported in 
Spring 2010:

Figure 16: Percentage of LEAs Nationally with IDEA Part B Recovery Act 
Funds That Reported Expanding, Maintaining, or Decreasing Reform 
Efforts for Special Education Students in School Years 2009-2010 and 
2010-2011, as Reported in Spring 2010:

Figure 17: Cumulative Recovery Act Highway and Public Transportation 
Funds Reimbursed by FHWA and FTA Nationwide:

Figure 18: Nationwide Recovery Act Highway and Public Transportation 
Obligations by Project Type:

Figure 19: Recovery Act Highway Funds Remaining to Be Obligated Since 
March 2, 2010:

Figure 20: Deobligations in 16 States and the District from March 2, 
2010, to June 7, 2010, by Deobligation Type:

Figure 21: Regular Federal Highway Formula Funds Nationwide Remaining 
to Be Obligated at the End of the Third Quarter of Fiscal Year 2010:

Figure 22: Regular Federal Aid Highway Funds Reimbursed Nationwide at 
End of the Third Quarter for Fiscal Years 2007 through 2010:

Figure 23: Nationwide Monthly Reimbursement of Federal Highway Formula 
Funds for Fiscal Year 2010 and the Average for Fiscal Years 2007-009:

Figure 24: Percentage of Public Housing Capital Fund Competitive 
Grants Allocated by HUD That Have Been Obligated and Drawn Down 
Nationwide as of August 7, 2010:

Figure 25: Percentage of Public Housing Capital Fund Formula Grants 
Allocated by HUD That Have Been Obligated and Drawn Down Nationwide as 
of August 7, 2010:

Figure 26: Before and After Photographs of the Alice Griffith Project 
in San Francisco, California:

Figure 27: Public Housing Rehabilitation Using Recovery Act Capital 
Fund Competitive Grant in Philadelphia, Pennsylvania:

Figure 28: HUD Outlays of TCAP Funds, as a Percentage of Total 
Recovery Act Obligations as of April 30 and July 31, 2010:

Figure 29: Treasury Outlays of Section 1602 Program Funds as a 
Percentage of Total Recovery Act Obligations as of April 30 and July 
31, 2010:

Figure 30: HUD and Treasury Obligations and Outlays for TCAP and 
Section 1602 Program for the 16 States and the District of Columbia as 
of July 31, 2010, Compared to April 30, 2010:

Figure 31: Illustration of the Single Audit Reporting Time Frames for 
Entities with a June 30, 2009, Fiscal Year-End:

Figure 32: Selected Local Governments Included in Our September 2010 
Review:

[End of section]

United States Government Accountability Office:
Washington, DC 20548:

September 20, 2010:

Report to the Congress:

In the over 18 months since the American Recovery and Reinvestment Act 
of 2009 (Recovery Act)[Footnote 1] was enacted in February 2009, the 
Department of the Treasury has paid out approximately $154.8 billion 
in Recovery Act funds for use in states and localities.[Footnote 2] 
These funds have been used to support and preserve services in a wide 
range of areas including health, education, transportation, and housing.

The Recovery Act's recurring mandate specifies several roles for GAO, 
including conducting bimonthly reviews of how Recovery Act funds are 
being used in selected states and whether they are achieving the 
stated purposes of the act.[Footnote 3] Specifically, 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.

In this report, the seventh in a series in response to the act's 
mandate, we update and add new information on the following: (1) 
selected states' and localities' uses of 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 receive. As in our 
previous reports, we collected and reported data on programs receiving 
substantial Recovery Act funds in 16 selected states, certain 
localities, and the District of Columbia, and made recommendations 
when changes could result in improvements.[Footnote 4] The selected 
jurisdictions for our in-depth reviews contain about 65 percent of the 
U.S. population and are estimated to receive collectively about two- 
thirds of the intergovernmental assistance available through the 
Recovery Act.[Footnote 5] For this report, we visited a nonprobability 
sample of 167 entities within the 16 states and the District for our 
program reviews. These entities represented a range of types of 
governments and the program areas shown in table 1. The local 
governments also varied by population sizes and economic conditions 
(unemployment rates greater than or less than the state's overall 
unemployment rate).

Table 1: GAO's September 2010 Recovery Act Coverage of States and 
Localities:

Number of States Visited: 16[A].

Number of Local Governments Visited to Review Overall Use of Funds: 
24.

Number of Entities Visited by Program Area: 
Education: 19.
Transportation: 2.
State Energy Program: 9.
Energy Efficiency: 41.
Weatherization: 18.
Housing: 24.
Tax Credit Assistance Program: 21.
Head Start: 9.

Source: GAO analysis of states' and localities' use of Recovery Act 
funds.

Notes: Entities include government officials and agencies, 
transportation and transit authorities, school districts, charter 
schools, housing authorities, public utilities, and nonprofit 
organizations. Appendix IV provides a complete list of the entities 
visited for this report.

[A] The District of Columbia is also included in GAO's bimonthly 
reviews of the use of Recovery Act funds. 

[End of table] 

As in past reports, the programs we selected for review were chosen 
primarily because they have begun disbursing funds to states or have 
known or potential risks. The risks can include existing programs 
receiving significant amounts of Recovery Act funds or new programs. 
In some cases, we have also collected data from all states, and from 
an array of localities, to augment the in-depth reviews. This report 
focuses on the following programs:

* Federal Medical Assistance Percentage (FMAP);

* State Fiscal Stabilization Fund (SFSF);

* Title I, Part A of the Elementary and Secondary Act of 1965 as 
amended (ESEA);

* Parts B and C of the Individuals with Disabilities Education Act, as 
amended (IDEA);

* Federal-Aid Highway Surface Transportation and Transit Capital 
Assistance Programs;

* State Energy Program (SEP);

* Energy Efficiency and Conservation Block Grant (EECBG) Program;

* Weatherization Assistance Program;

* Public Housing Capital Fund;

* Tax Credit Assistance Program (TCAP); and:

* Grants to States for Low-Income Housing Projects in Lieu of Low- 
Income Housing Credits Program under Section 1602 of division B of the 
Recovery Act (Section 1602 Program).

The Recovery Act also requires us to comment on the estimates of jobs 
created or retained reported by recipients.[Footnote 6] In this 
report, we provide updated information concerning recipient reporting 
in accordance with our mandate for quarterly reporting. The Recovery 
Act requires that nonfederal recipients of Recovery Act funds, 
including grants, contracts, and loans submit quarterly reports which 
are to include a list of each project or activity for which Recovery 
Act funds were expended or obligated and information concerning the 
amount and use of funds and jobs created or retained by these projects 
and activities, among other information. The latest of these recipient 
reports covered the activity as of the Recovery Act's passage through 
the quarter ending June 30, 2010.

In this report, we also discuss state and local budget use of Recovery 
Act funds; federal requirements and guidance; and oversight, 
transparency, and accountability issues related to the Recovery Act 
and its implementation. The report provides overall findings, 
discusses agency actions in response to the open recommendations we 
made in our prior reports, and presents new recommendations. Our 
oversight of programs funded by the Recovery Act has resulted in more 
than 62 Recovery Act related products. See the GAO Related Products 
section of this report for a list of these products.

Going forward to meet our reoccurring Recovery Act mandates, we will 
continue to capitalize on the work we have done over the past 18 
months in the selected states and the District. However, our focus 
will shift from reporting on the uses of funds by the selected states 
and the District for a group of programs funded by the Recovery Act to 
providing enhanced analysis of the use of Recovery Act funds by states 
and localities for a single program funded by the Recovery Act in each 
bimonthly review. We will also shift our review of recipient reporting 
to focus specifically on implementation within that Recovery Act 
program. Given that, as of September 3, 2010, more than half--about 
$154.8 billion of the approximately $282 billion--of total Recovery 
Act funds for programs administered by states and localities had been 
paid out by the federal government, evolving to this approach is 
appropriate and will allow us to provide Congress and other decision 
makers with more in-depth analyses of programs funded by the Recovery 
Act and to be responsive to congressional interest in the impact and 
outcomes of programs as Recovery Act implementation moves forward.

In conducting our work for this report, we analyzed guidance and 
interviewed officials at the Office of Management and Budget. We also 
analyzed grant awards--as well as relevant regulations and federal 
agency guidance on programs selected for this review--and spoke with 
relevant program officials at the U.S. Departments of Health and Human 
Services (Centers for Medicare and Medicaid Services), Education, 
Transportation, Energy, and Housing and Urban Development. In 
addition, we spoke to entities that play roles in oversight of 
Recovery Act spending, including federal agency inspectors general, 
state and local auditors, as well as the Recovery Accountability and 
Transparency Board (the Board), which was established by the Recovery 
Act[Footnote 7]. We also integrated information from our prior 
Recovery Act reports into this review where appropriate.

In addition, we continued our review of the use of Recovery Act funds 
for the 16 selected states, the District, and selected localities. We 
conducted interviews with state budget officials and reviewed proposed 
and enacted budgets and revenue forecasts to update our understanding 
of the use of Recovery Act funds in the 16 selected states and the 
District. To update our understanding of local governments' use of 
Recovery Act funds, we met with finance officials and city 
administrators at the selected localities.

Where statements about state law are attributed to state officials, we 
did not analyze 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. 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 May 27, 2010, to September 
20, 2010, 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.

As shown in figure 1, actual federal outlays to states and localities 
under the Recovery Act totaled approximately $154.8 billion through 
September 3, 2010. Of that amount, more than 65 percent--$101.9 
billion--has been paid out since the start of federal fiscal year 2010 
on October 1, 2009.[Footnote 8] The figure also shows the estimated 
federal outlays (in billions of dollars) to states and localities for 
fiscal years 2009 through 2016.

Figure 1: Estimated vs. Actual Federal Outlays to States and 
Localities under the Recovery Act:

[Refer to PDF for image: vertical bar graph]

Fiscal year: 2009; 
Original estimate: $48.9 billion; 
Actual as of September 3, 2010: $52.9 billion; 

Fiscal year: 2010; 
Original estimate: $107.7 billion; 
Actual as of September 3, 2010: $97.6 billion; 

Fiscal year: 2011; 
Original estimate: $63.4 billion. 

Fiscal year: 2012; 
Original estimate: $23.3 billion. 

Fiscal year: 2013; 
Original estimate: $14.4 billion. 

Fiscal year: 2014; 
Original estimate: $9.1 billion. 

Fiscal year: 2015; 
Original estimate: $5.7 billion. 

Fiscal year: 2016; 
Original estimate: $2.5 billion. 

Source: GAO analysis of CBO, Federal Funds Information for States, and 
Recovery.gov data. 

[End of figure]

States' and Localities' Uses of Recovery Act Funds Continue:

Increased FMAP Continues to Fund Medicaid Enrollment Growth, and 
States Have Taken Steps to Sustain Their Programs:

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 rate at which 
states are reimbursed for Medicaid service expenditures is known as 
the Federal Medical Assistance Percentage (FMAP), which may range from 
50 percent to no more than 83 percent. To obtain federal matching 
funds for Medicaid, states file a quarterly financial report with the 
Centers for Medicare and Medicaid Services (CMS) and draw down funds 
through an existing payment management system used by the Department 
of Health and Human Services (HHS).

The Recovery Act initially provided eligible states with an estimated 
$87 billion through increased FMAP rates for 27 months from October 1, 
2008, to December 31, 2010.[Footnote 9] On August 10, 2010, federal 
legislation was enacted amending the Recovery Act and providing for an 
extension of increased FMAP funding through June 30, 2011, but at a 
lower level.[Footnote 10] 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. Generally, for fiscal year 2009 through the 
third quarter of fiscal year 2011, the increased FMAP is calculated on 
a quarterly basis and is comprised of three components: (1) a "hold 
harmless" provision, which maintains states' regular FMAP rates at the 
highest rate of any fiscal year from 2008 through 2011;[Footnote 11] 
(2) a general across-the-board increase of 6.2 percentage points in 
states' regular FMAPs through the first quarter of fiscal year 2011, 
which will then be phased down until July 1, 2011;[Footnote 12] and 
(3) a further increase in the FMAPs for those states that have a 
qualifying increase in unemployment rates.

For states to qualify for the increased FMAP, they must pay the 
state's share of Medicaid costs and comply with a number of 
requirements, including the following:

* States generally may not apply eligibility standards, methodologies, 
or procedures that are more restrictive than those that were in effect 
under their state Medicaid programs on July 1, 2008;[Footnote 13]

* states must comply with prompt payment requirements;[Footnote 14], 
[Footnote 15]

* states cannot deposit or credit amounts attributable (either 
directly or indirectly) to certain elements of the increased FMAP in 
any reserve or rainy-day fund of the state;[Footnote 16] and:

* states with political subdivisions--such as cities and counties--
that contribute to the nonfederal share of Medicaid spending cannot 
require the subdivisions to pay a greater percentage of the nonfederal 
share than would have been required on September 30, 2008.[Footnote 17]

In addition, CMS requires states to separately track and report on 
increased FMAP funds. To help states comply with these requirements, 
CMS provided the funds to states through a separate account in an 
existing payment management system. CMS also provided guidance in the 
form of State Medicaid Director letters and written responses to 
frequently asked questions, and the agency continues to work with 
states on an individual basis to resolve any compliance issues that 
may arise.[Footnote 18]

Despite these restrictions, states are able to make certain 
adjustments to their Medicaid programs without risking their 
eligibility for increased FMAP funds. For example, the Recovery Act 
does not prohibit states from reducing or eliminating optional 
services, such as dental services, or reducing provider payment rates. 
States also continue to have flexibility in how they finance the 
nonfederal share of Medicaid payments, and may implement new financing 
arrangements or alter existing ones--such as provider taxes, 
intergovernmental transfers, and certified public expenditures--to 
generate additional revenues to help finance the nonfederal share of 
their Medicaid programs.

Increased FMAP Key to States' Continued Efforts to Support Medicaid 
Enrollment Growth:

The FMAP rates in the 16 states and the District increased 
substantially immediately following enactment of the Recovery Act, and 
most states' rates continued to increase, albeit at a slower pace, 
through the fourth quarter of federal fiscal year 2010.[Footnote 19] 
During the fourth quarter of federal fiscal year 2010, the increased 
FMAP averaged about 11 percentage points higher than the regular 2010 
FMAP rates, with increases ranging from about 9 percentage points in 
Iowa to nearly 13 percentage points in Florida. For all states and the 
District, the largest proportion of the increased FMAP was the 
component attributable to the across-the-board increase of 6.2 
percentage points, followed by qualifying increases in unemployment 
rates in each of the states.[Footnote 20] The "hold harmless" 
component further contributed to the increased FMAP in five sample 
states, although to a lesser extent. (See table 2.) 

Table 2: Regular and Preliminary Increased Fourth Quarter 2010 FMAP 
Rates and Components of the Increase for 16 States and the District:

State: Arizona; 
Regular FMAP, fiscal year 2010[A]: 65.75; 
Preliminary increased FMAP, fiscal year 2010, fourth quarter[A]: 75.93; 
Percentage point FMAP increase: 10.18; 
Component and its percentage contribution to the FMAP increase[B]: 61; 
Component and its percentage contribution to the FMAP increase[B]: 
Unemployment increase: 35; 
Component and its percentage contribution to the FMAP increase[B]: 
Hold-harmless: 4.

State: California; 
Regular FMAP, fiscal year 2010[A]: 50.00; 
Preliminary increased FMAP, fiscal year 2010, fourth quarter[A]: 61.59; 
Percentage point FMAP increase: 11.59; 
Component and its percentage contribution to the FMAP increase[B]: 53; 
Component and its percentage contribution to the FMAP increase[B]: 
Unemployment increase: 47; 
Component and its percentage contribution to the FMAP increase[B]: 
Hold-harmless: 0.

State: Colorado; 
Regular FMAP, fiscal year 2010[A]: 50.00; 
Preliminary increased FMAP, fiscal year 2010, fourth quarter[A]: 61.59; 
Percentage point FMAP increase: 11.59; 
Component and its percentage contribution to the FMAP increase[B]: 53; 
Component and its percentage contribution to the FMAP increase[B]: 
Unemployment increase: 47; 
Component and its percentage contribution to the FMAP increase[B]: 
Hold-harmless: 0.

State: District of Columbia; 
Regular FMAP, fiscal year 2010[A]: 70.00; 
Preliminary increased FMAP, fiscal year 2010, fourth quarter[A]: 79.29; 
Percentage point FMAP increase: 9.29; 
Component and its percentage contribution to the FMAP increase[B]: 67; 
Component and its percentage contribution to the FMAP increase[B]: 
Unemployment increase: 33; 
Component and its percentage contribution to the FMAP increase[B]: 
Hold-harmless: 0.

State: Florida; 
Regular FMAP, fiscal year 2010[A]: 54.98; 
Preliminary increased FMAP, fiscal year 2010, fourth quarter[A]: 67.64; 
Percentage point FMAP increase: 12.66; 
Component and its percentage contribution to the FMAP increase[B]: 49; 
Component and its percentage contribution to the FMAP increase[B]: 
Unemployment increase: 36; 
Component and its percentage contribution to the FMAP increase[B]: 
Hold-harmless: 15.

State: Georgia; 
Regular FMAP, fiscal year 2010[A]: 65.10; 
Preliminary increased FMAP, fiscal year 2010, fourth quarter[A]: 74.96; 
Percentage point FMAP increase: 9.86; 
Component and its percentage contribution to the FMAP increase[B]: 63; 
Component and its percentage contribution to the FMAP increase[B]: 
Unemployment increase: 37; 
Component and its percentage contribution to the FMAP increase[B]: 
Hold-harmless: 0.

State: Illinois; 
Regular FMAP, fiscal year 2010[A]: 50.17; 
Preliminary increased FMAP, fiscal year 2010, fourth quarter[A]: 61.88; 
Percentage point FMAP increase: 11.71; 
Component and its percentage contribution to the FMAP increase[B]: 53; 
Component and its percentage contribution to the FMAP increase[B]: 
Unemployment increase: 46; 
Component and its percentage contribution to the FMAP increase[B]: 
Hold-harmless: 1.

State: Iowa; 
Regular FMAP, fiscal year 2010[A]: 63.51; 
Preliminary increased FMAP, fiscal year 2010, fourth quarter[A]: 72.55; 
Percentage point FMAP increase: 9.04; 
Component and its percentage contribution to the FMAP increase[B]: 69; 
Component and its percentage contribution to the FMAP increase[B]: 
Unemployment increase: 31; 
Component and its percentage contribution to the FMAP increase[B]: 
Hold-harmless: 0.

State: Massachusetts; 
Regular FMAP, fiscal year 2010[A]: 50.00; 
Preliminary increased FMAP, fiscal year 2010, fourth quarter[A]: 61.59; 
Percentage point FMAP increase: 11.59; 
Component and its percentage contribution to the FMAP increase[B]: 53; 
Component and its percentage contribution to the FMAP increase[B]: 
Unemployment increase: 47; 
Component and its percentage contribution to the FMAP increase[B]: 
Hold-harmless: 0.

State: Michigan; 
Regular FMAP, fiscal year 2010[A]: 63.19; 
Preliminary increased FMAP, fiscal year 2010, fourth quarter[A]: 73.27; 
Percentage point FMAP increase: 10.08; 
Component and its percentage contribution to the FMAP increase[B]: 62; 
Component and its percentage contribution to the FMAP increase[B]: 
Unemployment increase: 38; 
Component and its percentage contribution to the FMAP increase[B]: 
Hold-harmless: 0.

State: Mississippi; 
Regular FMAP, fiscal year 2010[A]: 75.67; 
Preliminary increased FMAP, fiscal year 2010, fourth quarter[A]: 84.86; 
Percentage point FMAP increase: 9.19; 
Component and its percentage contribution to the FMAP increase[B]: 67; 
Component and its percentage contribution to the FMAP increase[B]: 
Unemployment increase: 26; 
Component and its percentage contribution to the FMAP increase[B]: 
Hold-harmless: 7.

State: New Jersey; 
Regular FMAP, fiscal year 2010[A]: 50.00; 
Preliminary increased FMAP, fiscal year 2010, fourth quarter[A]: 61.59; 
Percentage point FMAP increase: 11.59; 
Component and its percentage contribution to the FMAP increase[B]: 53; 
Component and its percentage contribution to the FMAP increase[B]: 
Unemployment increase: 47; 
Component and its percentage contribution to the FMAP increase[B]: 
Hold-harmless: 0.

State: New York; 
Regular FMAP, fiscal year 2010[A]: 50.00; 
Preliminary increased FMAP, fiscal year 2010, fourth quarter[A]: 61.59; 
Percentage point FMAP increase: 11.59; 
Component and its percentage contribution to the FMAP increase[B]: 53; 
Component and its percentage contribution to the FMAP increase[B]: 
Unemployment increase: 47; 
Component and its percentage contribution to the FMAP increase[B]: 
Hold-harmless: 0.

State: North Carolina; 
Regular FMAP, fiscal year 2010[A]: 65.13; 
Preliminary increased FMAP, fiscal year 2010, fourth quarter[A]: 74.98; 
Percentage point FMAP increase: 9.85; 
Component and its percentage contribution to the FMAP increase[B]: 63; 
Component and its percentage contribution to the FMAP increase[B]: 
Unemployment increase: 37; 
Component and its percentage contribution to the FMAP increase[B]: 
Hold-harmless: 0.

State: Ohio; 
Regular FMAP, fiscal year 2010[A]: 63.42; 
Preliminary increased FMAP, fiscal year 2010, fourth quarter[A]: 73.47; 
Percentage point FMAP increase: 10.05; 
Component and its percentage contribution to the FMAP increase[B]: 62; 
Component and its percentage contribution to the FMAP increase[B]: 
Unemployment increase: 38; 
Component and its percentage contribution to the FMAP increase[B]: 
Hold-harmless: 0.

State: Pennsylvania; 
Regular FMAP, fiscal year 2010[A]: 54.81; 
Preliminary increased FMAP, fiscal year 2010, fourth quarter[A]: 65.85; 
Percentage point FMAP increase: 11.04; 
Component and its percentage contribution to the FMAP increase[B]: 56; 
Component and its percentage contribution to the FMAP increase[B]: 
Unemployment increase: 44; 
Component and its percentage contribution to the FMAP increase[B]: 
Hold-harmless: 0.

State: Texas; 
Regular FMAP, fiscal year 2010[A]: 58.73; 
Preliminary increased FMAP, fiscal year 2010, fourth quarter[A]: 70.94; 
Percentage point FMAP increase: 12.21; 
Component and its percentage contribution to the FMAP increase[B]: 51; 
Component and its percentage contribution to the FMAP increase[B]: 
Unemployment increase: 34; 
Component and its percentage contribution to the FMAP increase[B]: 
Hold-harmless: 15.

State: Average; 
Percentage point FMAP increase: 10.77; 
Component and its percentage contribution to the FMAP increase[B]: 58; 
Component and its percentage contribution to the FMAP increase[B]: 
Unemployment increase: 39; 
Component and its percentage contribution to the FMAP increase[B]: 
Hold-harmless: 2.

Source: GAO analysis of HHS and data from Federal Funds Information 
for States, an organization that tracks and reports on the fiscal 
impact of federal budget and policy decisions on state budgets and 
programs.

Note: Fiscal year refers to the federal fiscal year, which begins 
October 1st and ends September 30th. HHS calculates preliminary FMAP 
rates using Bureau of Labor Statistics unemployment estimates and 
adjusts these FMAP rates once the final unemployment numbers become 
available.

[A] The regular fiscal year 2010 FMAP rates were published in the 
Federal Register on November 26, 2008. The fourth quarter fiscal year 
2010 increased FMAP rates are preliminary and were published by 
Federal Funds Information for States on May 25, 2010.

[B] Average percentage does not add to 100 percent due to rounding. 

[End of table] 

As of July 31, 2010, the 16 states and the District had drawn down 
$43.9 billion in increased FMAP funds, which is 75 percent of the 
total $58.9 billion in increased FMAP that we estimated would be 
allocated to these states and the District through December 31, 
2010.[Footnote 21] (See table 3.) If current spending patterns 
continue, we estimate that the 16 states and the District will draw 
down $56.2 billion by December 31, 2010--about 95 percent of the 
initial estimated allocation. The national drawdown mirrors the 
experiences of our sample states, with the 50 states and the District 
having drawn down 74 percent of their estimated total allocation of 
nearly $87 billion through the end of 2010.

Table 3: Estimated Allocations and Funds Drawn Down for Recovery Act 
Increased FMAP for 16 States and the District as of July 31, 2010:

Dollars in thousands: 

State: Arizona; 
Increased FMAP estimated allocations to states through December 31, 
2010: $2,031,000; 
Total funds drawn down through July 31, 2010: $1,506,593; 
Percentage of estimated allocations drawn down through July 31, 2010: 
74.18%.

State: California; 
Increased FMAP estimated allocations to states through December 31, 
2010: $10,579,000; 
Total funds drawn down through July 31, 2010: $7,780,020; 
Percentage of estimated allocations drawn down through July 31, 2010: 
73.54%.

State: Colorado; 
Increased FMAP estimated allocations to states through December 31, 
2010: $858,000; 
Total funds drawn down through July 31, 2010: $665,349; 
Percentage of estimated allocations drawn down through July 31, 2010: 
77.55%.

State: District Of Columbia; 
Increased FMAP estimated allocations to states through December 31, 
2010: $316,000; 
Total funds drawn down through July 31, 2010: $258,885; 
Percentage of estimated allocations drawn down through July 31, 2010: 
81.93%.

State: Florida; 
Increased FMAP estimated allocations to states through December 31, 
2010: $4,256,000; 
Total funds drawn down through July 31, 2010: $3,503,359; 
Percentage of estimated allocations drawn down through July 31, 2010: 
82.32%.

State: Georgia; 
Increased FMAP estimated allocations to states through December 31, 
2010: $1,766,000; 
Total funds drawn down through July 31, 2010: $1,253,713; 
Percentage of estimated allocations drawn down through July 31, 2010: 
70.99%.

State: Illinois; 
Increased FMAP estimated allocations to states through December 31, 
2010: $2,774,000; 
Total funds drawn down through July 31, 2010: $2,386,470; 
Percentage of estimated allocations drawn down through July 31, 2010: 
86.03%.

State: Iowa; 
Increased FMAP estimated allocations to states through December 31, 
2010: $607,000; 
Total funds drawn down through July 31, 2010: $415,160; 
Percentage of estimated allocations drawn down through July 31, 2010: 
68.40%.

State: Massachusetts; 
Increased FMAP estimated allocations to states through December 31, 
2010: $3,016,000; 
Total funds drawn down through July 31, 2010: $2,337,215; 
Percentage of estimated allocations drawn down through July 31, 2010: 
77.49%.

State: Michigan; 
Increased FMAP estimated allocations to states through December 31, 
2010: $2,294,000; 
Total funds drawn down through July 31, 2010: $1,905,868; 
Percentage of estimated allocations drawn down through July 31, 2010: 
83.08%.

State: Mississippi; 
Increased FMAP estimated allocations to states through December 31, 
2010: $861,000; 
Total funds drawn down through July 31, 2010: $589,029; 
Percentage of estimated allocations drawn down through July 31, 2010: 
68.41%.

State: New Jersey; 
Increased FMAP estimated allocations to states through December 31, 
2010: $2,134,000; 
Total funds drawn down through July 31, 2010: $1,653,401; 
Percentage of estimated allocations drawn down through July 31, 2010: 
77.48%.

State: New York; 
Increased FMAP estimated allocations to states through December 31, 
2010: $12,332,000; 
Total funds drawn down through July 31, 2010: $8,204,506; 
Percentage of estimated allocations drawn down through July 31, 2010: 
66.53%.

State: North Carolina; 
Increased FMAP estimated allocations to states through December 31, 
2010: $2,406,000; 
Total funds drawn down through July 31, 2010: $1,776,605; 
Percentage of estimated allocations drawn down through July 31, 2010: 
73.84%.

State: Ohio; 
Increased FMAP estimated allocations to states through December 31, 
2010: $3,097,000; 
Total funds drawn down through July 31, 2010: $2,278,688; 
Percentage of estimated allocations drawn down through July 31, 2010: 
73.58%.

State: Pennsylvania; 
Increased FMAP estimated allocations to states through December 31, 
2010: $4,054,000; 
Total funds drawn down through July 31, 2010: $2,955,713; 
Percentage of estimated allocations drawn down through July 31, 2010: 
72.91%.

State: Texas; 
Increased FMAP estimated allocations to states through December 31, 
2010: $5,533,000; 
Total funds drawn down through July 31, 2010: $4,427,624; 
Percentage of estimated allocations drawn down through July 31, 2010: 
80.02%.

Sample total: 
Increased FMAP estimated allocations to states through December 31, 
2010: $58,914,000; 
Total funds drawn down through July 31, 2010: $43,898,198; 
Percentage of estimated allocations drawn down through July 31, 2010: 
74.51%.

National total[A]: 
Increased FMAP estimated allocations to states through December 31, 
2010: $86,593,000; 
Total funds drawn down through July 31, 2010: $64,071,729; 
Percentage of estimated allocations drawn down through July 31, 2010: 
73.99%.

Source: GAO analysis of HHS data.

[A] The national total includes the 50 states and the District of 
Columbia. 

[End of table] 

While the increased FMAP funds are for Medicaid services only, the 
receipt of these funds may free up funds that states would otherwise 
have had to use for their Medicaid programs. Similar to their reported 
uses in fiscal year 2009 and the first half of fiscal year 2010, the 
16 states and the District most commonly reported using or planning to 
use these freed-up funds to cover increased Medicaid caseloads, 
maintain program eligibility levels, and to finance general budget 
needs. As with our last survey, most states reported that increased 
FMAP funding continues to be a major factor in their ability to cover 
enrollment growth, which has continued to increase since our last 
Recovery Act report. Between February 2010 and June 2010, overall 
enrollment across the 16 states and the District grew by an average of 
nearly 2 percent,[Footnote 22] with a cumulative increase of 18 
percent since October 2007--a rate of increase that is significantly 
higher than in years prior to the recession.[Footnote 23] The increase 
in Medicaid enrollment continues to be attributable primarily to 
children, a population that is sensitive to economic downturns. 
However, the highest rate of increase during this period occurred 
among the nondisabled, nonaged adult population--35 percent, compared 
to an increase of nearly 19 percent for children.

In addition, 10 states and the District reported using freed up funds 
to maintain benefits and services or to maintain payment rates for 
practitioners or institutional providers. Six states reported using 
these funds to meet prompt payment requirements, and five states and 
the District reporting using the funds to help finance their State 
Children's Health Insurance Program or other local public health 
insurance programs. While most states continue to report using freed-
up funds for multiple purposes, North Carolina and Ohio again reported 
that they use these funds exclusively to finance general budget needs.

Despite increases in program enrollment since October 2007, state 
responses were mixed when asked about changes in the time it takes to 
process new Medicaid applications. While six states reported an 
increase in the time it takes to process new applications--most 
commonly attributing this change to an increase in the volume of new 
applications and staff cutbacks--nine states and the District reported 
no change or a decrease in the processing time.[Footnote 24] Most 
states and the District reported processing applications, on average, 
within federally-required time frames.[Footnote 25]

States Have Taken Actions to Sustain Their Medicaid Programs; Further 
Adjustments Will Depend on Federal Legislation:

When asked about the long-term outlook for their Medicaid programs, 
the District and all but three of the 16 states reported a concern 
about sustaining their Medicaid programs once increased FMAP funding 
is no longer available. When asked about the factors driving their 
concerns, most states and the District reported (1) the increased 
share of the state's Medicaid payments in 2011; (2) the current 
projection of the state's economy and tax revenues; and (3) the 
current projected growth in the state's Medicaid enrollment for 2011. 
Mississippi, Ohio, and Texas did not report concerns about their 
Medicaid programs' sustainability once increased FMAP funds are no 
longer available.[Footnote 26] Due to these concerns, most states 
reported taking actions to adjust their Medicaid programs, including 
reducing or freezing provider payment rates, implementing new or 
increasing existing provider taxes, or reducing certain optional 
benefits. Specifically, 12 states reported reducing or freezing 
provider payment rates. When given a list of 13 types of providers, 
these states reported implementing 55 payment rate reductions and 46 
payment rate freezes, for a total 101 different rate actions taken 
since February 2009; on average, these states reduced or froze payment 
rates for 8 types of providers.[Footnote 27] States frequently reduced 
or froze payment rates to nursing facilities, clinics, and home health 
providers, among others. (See table 4.) 

Table 4: Number of States Implementing Payment Reductions or Freezes 
to Sustain their Medicaid Programs, February 2009 to July 2010:

Providers: Nursing facilities; 
Number of states: Implementing payment reductions: 4; 
Number of states: Implementing payment freezes: 6; 
Number of states: Total: 10.

Providers: Clinics; 
Number of states: Implementing payment reductions: 7; 
Number of states: Implementing payment freezes: 3; 
Number of states: Total: 10.

Providers: Home health providers; 
Number of states: Implementing payment reductions: 7; 
Number of states: Implementing payment freezes: 3; 
Number of states: Total: 10.

Providers: Physicians; 
Number of states: Implementing payment reductions: 6; 
Number of states: Implementing payment freezes: 3; 
Number of states: Total: 9.

Providers: Inpatient hospitals; 
Number of states: Implementing payment reductions: 4; 
Number of states: Implementing payment freezes: 4; 
Number of states: Total: 8.

Providers: Outpatient hospitals; 
Number of states: Implementing payment reductions: 3; 
Number of states: Implementing payment freezes: 4; 
Number of states: Total: 7.

Providers: Dental providers; 
Number of states: Implementing payment reductions: 5; 
Number of states: Implementing payment freezes: 3; 
Number of states: Total: 8.

Providers: Rehabilitative and therapeutic service providers; 
Number of states: Implementing payment reductions: 4; 
Number of states: Implementing payment freezes: 3; 
Number of states: Total: 7.

Providers: Inpatient mental health service providers; 
Number of states: Implementing payment reductions: 3; 
Number of states: Implementing payment freezes: 4; 
Number of states: Total: 7.

Providers: Intermediate care facilities for persons with mental 
retardation; 
Number of states: Implementing payment reductions: 2; 
Number of states: Implementing payment freezes: 5; 
Number of states: Total: 7.

Providers: Managed care plans; 
Number of states: Implementing payment reductions: 4; 
Number of states: Implementing payment freezes: 2; 
Number of states: Total: 6.

Providers: Targeted case managers; 
Number of states: Implementing payment reductions: 2; 
Number of states: Implementing payment freezes: 3; 
Number of states: Total: 5.

Providers: Other providers[A]; 
Number of states: Implementing payment reductions: 4; 
Number of states: Implementing payment freezes: 3; 
Number of states: Total: 7.

Providers: Total Reductions or Freezes; 
Number of states: Implementing payment reductions: 55; 
Number of states: Implementing payment freezes: 46; 
Number of states: Total: 101.

Source: GAO analysis of state-reported data.

[A] Other providers may include optometrists or providers of medical 
transportation or durable medical equipment. 

[End of table] 

In addition, 10 states and the District reported implementing 28 new 
or increased provider taxes.[Footnote 28] In contrast to states' 
changes to provider payment rates, however, states' taxation efforts 
were concentrated among a handful of provider types. Specifically, 21 
of the 28 taxes were imposed on inpatient hospitals, nursing 
facilities, and outpatient hospitals--providers for which most states 
reported paying on a cost basis.[Footnote 29] (See figure 2.) 

Figure 2: Number of States Implementing New or Increased Provider 
Taxes, February 2009 through July 2010:

[Refer to PDF for image: horizontal bar graph] 

Provider: Inpatient hospitals; 
Implementing new provider tax: 8; 
Increasing existing provider tax: 2. 

Provider: Nursing facilities; 
Implementing new provider tax: 1; 
Increasing existing provider tax: 5. 

Provider: Outpatient hospitals; 
Implementing new provider tax: 4; 
Increasing existing provider tax: 1. 

Source: GAO analysis of state-reported data. 

[End of figure]

In some cases, states reported implementing payment rate reductions 
and new taxes on the same providers. For example, at least half of the 
states that implemented new or increased taxes for inpatient 
hospitals, nursing facilities, or outpatient hospitals also reduced or 
froze payments to those same providers. In addition to changes to 
payment rates and provider taxes, eight states reported making 
reductions to optional benefits and services, most commonly reducing 
or eliminating dental services for adults. Several states provided 
estimates of savings or increased revenue generated by actions they 
undertook. For example,

* California estimated savings of nearly $600 million from payment 
rate freezes for long-term care providers and other rate reductions, 
and the discontinuation of dental and certain other optional services;

* Michigan estimated savings of $152 million from an 8 percent 
reduction in payment rates for all providers;

* Pennsylvania projected that a new hospital provider tax will 
generate $498 million in new revenue for the state; and:

* New York estimated that increases in various provider taxes will 
generate an additional $184 million annually.

States were less certain when asked about future program changes that 
may be necessary to sustain their Medicaid programs after Recovery Act 
funding ends, and their uncertainty was likely due to questions 
surrounding a potential extension of the increased FMAP, as well as 
Patient Protection and Affordable Care Act (PPACA) provisions. At the 
time of our survey, the legislation amending the Recovery Act to 
extend the increased FMAP had been proposed but not yet enacted, and 
the PPACA had just recently been enacted. Despite states' 
uncertainties, however, 12 states and the District reported on the 
survey that their 2011 budgets had assumed a full extension of the 
increased FMAP, and many of these states had not developed a 
contingency plan in the event that such legislation was not enacted. 
Nationally, 30 states assumed an extension of increased FMAP in their 
2011 budgets.

Under the recent amendments to the Recovery Act, states' increased 
FMAP rates will decrease by at least 3 percentage points beginning on 
January 1, 2011, and continue to be phased down to their regular FMAP 
rates by July 1, 2011. For states that had assumed a full extension of 
the increased FMAP, the available federal funds will be less than 
anticipated. The effect of these decreases in states' FMAP rates will 
vary depending on each state's unique economic circumstances and the 
size of their Medicaid population.

PPACA also includes several provisions that could affect states' 
Medicaid programs, and 12 states and the District reported that PPACA 
will be a major factor in their ability to make future changes to 
their programs. For example, the maintenance-of-eligibility 
requirement under PPACA precludes states from receiving federal 
Medicaid funding if they apply eligibility standards, methods, or 
procedures under their plan or waiver that are more restrictive than 
those in effect on the date of PPACA's enactment until the date the 
Secretary of HHS determines that a health insurance exchange 
established by the state is fully operational, which must be no later 
than January 1, 2014.[Footnote 30] PPACA also requires states to 
expand Medicaid eligibility by 2014 to cover all persons under age 65 
who are not already eligible under mandatory eligibility groups and 
with incomes up to 133 percent of the federal poverty level, but 
states have the option to expand eligibility immediately and to 
receive federal funds for these individuals. While the District has 
already been approved by CMS to expand eligibility to cover this group 
prior to 2014, and two other states--California and Colorado--reported 
that they are planning to do so, it remains to be seen how all the 
states will respond to this option.[Footnote 31]

Local Educational Agencies Reported Using Recovery Act Funds for Job 
Retention and One-Time, Nonrecurring Purchases, While Education 
Continues Monitoring Efforts:

As Many LEAs Reported Facing Budget Cuts and Fiscal Pressures, Job 
Retention Was the Primary Use of Recovery Act Education Funds:

Our review of states' use of Recovery Act funds covers three programs 
administered by the U.S. Department of Education (Education)--the 
State Fiscal Stabilization Fund (SFSF); Title I, Part A of the 
Elementary and Secondary Education Act of 1965 (ESEA), as amended; and 
the Individuals with Disabilities Education Act (IDEA), Part B, as 
amended. As part of this review, we surveyed a nationally 
representative sample of local educational agencies (LEA)--generally, 
school districts--about their uses of Recovery Act funds for each of 
these programs.[Footnote 32] We also met with program officials at the 
U.S. Department of Education to discuss ongoing monitoring and 
technical assistance efforts for Recovery Act funds provided through 
ESEA Title I, IDEA, and SFSF. At the state level, we spoke with state 
ESEA Title I officials in five states[Footnote 33] and the District of 
Columbia, which had relatively low drawdown rates of ESEA Title I 
Recovery Act funds. We also interviewed state officials in five 
states[Footnote 34] and the District of Columbia about their 
application for and implementation of the School Improvement Grant 
program. Finally, we interviewed officials in eight LEAs located in 
four states[Footnote 35] to understand how they were using their 
Recovery Act funds.

Even with Recovery Act Funds, an Estimated One-Third of LEAs 
Experienced Funding Cuts in School Year 2009-2010 and More Anticipated 
Cuts in 2010-2011:

Education funding in the United States primarily comes from state and 
local governments. Prior to the influx of Recovery Act funding for 
education from the federal government, LEAs, on average, derived about 
48 percent of their fiscal year 2008 funding from state funds, 44 
percent from local funds, and 8 percent from federal funds.[Footnote 
36] These percentages, however, likely shifted due to increased 
federal funding through the Recovery Act and reductions in some state 
budgets for education. While the federal role in financing public 
education has historically been a limited one, the federal funds 
appropriated under the Recovery Act provide a significant, but 
temporary, increase in federal support for education to states and 
localities, in part, to help them address budget shortfalls. According 
to the Congressional Research Service, the Recovery Act provided 
approximately $100 billion for discretionary education programs in 
fiscal year 2009, which, when combined with regular appropriations for 
discretionary education programs, represents about a 235 percent 
increase in federal funding compared to fiscal year 2008.

Over the last 2 years--a time period when many states have dealt with 
decreasing revenues as a result of the sustained economic downturn--a 
number of states in our review experienced K-12 education cuts. (See 
table 5 below for expenditure changes for states in fiscal years 2008 
and 2009.) Nationwide, 34 states reported that they cut K-12 education 
funding in fiscal year 2010, including 12 of the 16 states in our 
review,[Footnote 37] according to the Fiscal Survey of States. 
[Footnote 38] In some states, such as Arizona and Georgia, these 
fiscal year 2010 cuts were in addition to expenditure cuts in fiscal 
years 2009 or 2008. However, other states such as Colorado, Florida, 
Massachusetts, and Michigan experienced cuts to education expenditures 
in fiscal year 2009 but did not report cutting K-12 funding in 2010. 
Looking forward to fiscal year 2011, cuts for K-12 education had been 
proposed in 10 of the 16 states in our review,[Footnote 39] according 
to data presented in the June 2010 Fiscal Survey of States report. 
[Footnote 40] Given that nearly half of LEA funding, on average, is 
provided by the states, the impact of state-level cuts to education 
could significantly affect LEA budgets.

Table 5: Recent Fiscal Year State-Level K-12 Education Expenditure 
Changes for the States in Our Review:

Dollars in millions.

Changes from fiscal year 2007 Compared to fiscal year 2008: [Empty].

State: Arizona; 
Changes from fiscal year 2007 Compared to fiscal year 2008: 
Expenditure changes: ($175); 
Changes from fiscal year 2007 Compared to fiscal year 2008: Percentage 
change: (2.9%); 
Changes from fiscal year 2008 to fiscal year 2009: Expenditure 
changes: ($367); 
Changes from fiscal year 2008 to fiscal year 2009: Percentage change: 
(6.4%).

State: California; 
Changes from fiscal year 2007 Compared to fiscal year 2008: 
Expenditure changes: $2,608; 
Changes from fiscal year 2007 Compared to fiscal year 2008: Percentage 
change: 7.1%; 
Changes from fiscal year 2008 to fiscal year 2009: Expenditure 
changes: ($7,549); 
Changes from fiscal year 2008 to fiscal year 2009: Percentage change: 
(19.1%).

State: Colorado; 
Changes from fiscal year 2007 Compared to fiscal year 2008: 
Expenditure changes: $837; 
Changes from fiscal year 2007 Compared to fiscal year 2008: Percentage 
change: 13.0%; 
Changes from fiscal year 2008 to fiscal year 2009: Expenditure 
changes: ($406); 
Changes from fiscal year 2008 to fiscal year 2009: Percentage change: 
(5.6%).

State: Florida; 
Changes from fiscal year 2007 Compared to fiscal year 2008: 
Expenditure changes: $25; 
Changes from fiscal year 2007 Compared to fiscal year 2008: Percentage 
change: 0.2%; 
Changes from fiscal year 2008 to fiscal year 2009: Expenditure 
changes: ($1,280); 
Changes from fiscal year 2008 to fiscal year 2009: Percentage change: 
(12.1%).

State: Georgia; 
Changes from fiscal year 2007 Compared to fiscal year 2008: 
Expenditure changes: $573; 
Changes from fiscal year 2007 Compared to fiscal year 2008: Percentage 
change: 7.8%; 
Changes from fiscal year 2008 to fiscal year 2009: Expenditure 
changes: ($459); 
Changes from fiscal year 2008 to fiscal year 2009: Percentage change: 
(5.8%).

State: Illinois; 
Changes from fiscal year 2007 Compared to fiscal year 2008: 
Expenditure changes: $818; 
Changes from fiscal year 2007 Compared to fiscal year 2008: Percentage 
change: 11.1%; 
Changes from fiscal year 2008 to fiscal year 2009: Expenditure 
changes: $724; 
Changes from fiscal year 2008 to fiscal year 2009: Percentage change: 
8.8%.

State: Iowa; 
Changes from fiscal year 2007 Compared to fiscal year 2008: 
Expenditure changes: $195; 
Changes from fiscal year 2007 Compared to fiscal year 2008: Percentage 
change: 8.3%; 
Changes from fiscal year 2008 to fiscal year 2009: Expenditure 
changes: $135; 
Changes from fiscal year 2008 to fiscal year 2009: Percentage change: 
5.3%.

State: Massachusetts; 
Changes from fiscal year 2007 Compared to fiscal year 2008: 
Expenditure changes: $366; 
Changes from fiscal year 2007 Compared to fiscal year 2008: Percentage 
change: 7.4%; 
Changes from fiscal year 2008 to fiscal year 2009: Expenditure 
changes: ($238); 
Changes from fiscal year 2008 to fiscal year 2009: Percentage change: 
(4.5%).

State: Michigan; 
Changes from fiscal year 2007 Compared to fiscal year 2008: 
Expenditure changes: ($176); 
Changes from fiscal year 2007 Compared to fiscal year 2008: Percentage 
change: (1.5%); 
Changes from fiscal year 2008 to fiscal year 2009: Expenditure 
changes: ($315); 
Changes from fiscal year 2008 to fiscal year 2009: Percentage change: 
(2.8%).

State: Mississippi; 
Changes from fiscal year 2007 Compared to fiscal year 2008: 
Expenditure changes: $182; 
Changes from fiscal year 2007 Compared to fiscal year 2008: Percentage 
change: 7.8%; 
Changes from fiscal year 2008 to fiscal year 2009: Expenditure 
changes: $79; 
Changes from fiscal year 2008 to fiscal year 2009: Percentage change: 
3.1%.

State: New Jersey; 
Changes from fiscal year 2007 Compared to fiscal year 2008: 
Expenditure changes: $627; 
Changes from fiscal year 2007 Compared to fiscal year 2008: Percentage 
change: 6.0%; 
Changes from fiscal year 2008 to fiscal year 2009: Expenditure 
changes: $615; 
Changes from fiscal year 2008 to fiscal year 2009: Percentage change: 
5.6%.

State: New York; 
Changes from fiscal year 2007 Compared to fiscal year 2008: 
Expenditure changes: $1,839; 
Changes from fiscal year 2007 Compared to fiscal year 2008: Percentage 
change: 9.7%; 
Changes from fiscal year 2008 to fiscal year 2009: Expenditure 
changes: $1,668; 
Changes from fiscal year 2008 to fiscal year 2009: Percentage change: 
8.0%.

State: North Carolina; 
Changes from fiscal year 2007 Compared to fiscal year 2008: 
Expenditure changes: $581; 
Changes from fiscal year 2007 Compared to fiscal year 2008: Percentage 
change: 7.7%; 
Changes from fiscal year 2008 to fiscal year 2009: Expenditure 
changes: $141; 
Changes from fiscal year 2008 to fiscal year 2009: Percentage change: 
1.7%.

State: Ohio; 
Changes from fiscal year 2007 Compared to fiscal year 2008: 
Expenditure changes: $116; 
Changes from fiscal year 2007 Compared to fiscal year 2008: Percentage 
change: 1.3%; 
Changes from fiscal year 2008 to fiscal year 2009: Expenditure 
changes: $1,643; 
Changes from fiscal year 2008 to fiscal year 2009: Percentage change: 
17.9%.

State: Pennsylvania; 
Changes from fiscal year 2007 Compared to fiscal year 2008: 
Expenditure changes: $556; 
Changes from fiscal year 2007 Compared to fiscal year 2008: Percentage 
change: 6.3%; 
Changes from fiscal year 2008 to fiscal year 2009: Expenditure 
changes: $930; 
Changes from fiscal year 2008 to fiscal year 2009: Percentage change: 
9.9%.

State: Texas; 
Changes from fiscal year 2007 Compared to fiscal year 2008: 
Expenditure changes: $3,886; 
Changes from fiscal year 2007 Compared to fiscal year 2008: Percentage 
change: 24.7%; 
Changes from fiscal year 2008 to fiscal year 2009: Expenditure 
changes: $1,709; 
Changes from fiscal year 2008 to fiscal year 2009: Percentage change: 
8.7%.

Source: National Association of State Budget Officers, State 
Expenditure Report, fiscal year 2008 tables 7 and 9.

Notes: State expenditure changes to K-12 education include state 
general fund and other state funds but do not include Recovery Act or 
other federal funding or funding from bonds. Numbers in parenthesis 
are negative. Comparable fiscal year 2010 data were not available at 
the time of this report. Fiscal years 2007 and 2008 data reflect 
actual expenditures, while fiscal year 2009 data reflect estimated 
expenditures because actual expenditures were not available at the 
time. Data were reported by states and were not compared to actual 
budget figures. 

[End of table] 

The funding condition of LEAs across the country is mixed, and 
districts expected it to worsen in the 2010-2011 school year, even 
with Recovery Act funding--however, the new Education Jobs Fund 
created in August 2010 will provide some additional funding. As shown 
in figure 3, an estimated one-third of LEAs faced funding decreases in 
the 2009-2010 school year, but according to our survey conducted in 
March and April 2010, more than one-half of LEAs--56 percent--are 
expecting to face funding decreases in the upcoming 2010-2011 school 
year.[Footnote 41] LEA officials we spoke with in California and 
Massachusetts expect funding declines in 2010-2011 which come on top 
of cuts made in prior years, indicating that state-level cuts to 
education have been the primary reason for their large funding 
declines and continue to provide an uncertain landscape for school 
funding in coming years. Public Law 111-226, enacted on August 10, 
2010 provides $10 billion for the new Education Jobs Fund to retain 
and create education jobs nationwide.[Footnote 42] The Fund will 
generally support education jobs in the 2010-2011 school year and be 
distributed to states by a formula based on population figures. States 
can distribute their funding to LEAs based on their own primary 
funding formulas or LEAs' relative share of federal ESEA Title I funds.

However, while many LEAs reported worsening funding situations, the 
overall funding levels of many other LEAs increased or remained the 
same in the 2009-2010 school year; although before the new Education 
Jobs Fund was created, a smaller proportion reported expecting funding 
increases in 2010-2011. Specifically, around half of LEAs reported 
that their overall funding level in the 2009-2010 school year had 
increased compared to the previous year, and an estimated 12 percent 
reported that their funding had remained the same. We contacted 
several school officials who had reported on the survey that their 
district's funding had increased for the 2009-2010 school year, for 
the 2010-2011 school year, or during both years. These officials 
offered a variety of explanations for such funding increases, 
including increased enrollment numbers due to having added a grade 
level, having won competitive grant awards, a rebound in state tuition 
revenue, and having received state aid for a previously approved 
capital project, including additions to a middle school and high school.

Figure 3: Estimated Percentage of LEAs with Funding-Level Changes in 
School Year 2009-2010 and Anticipated Changes for School Year 2010- 
2011, as reported in Spring 2010:

[Refer to PDF for image: 2 pie-charts] 

2009-2010 school year: 
Increase: 51%; 
Decrease: 33%; 
Remain the same: 12%; 
Don't know: 4%. 

2010-2011 school year: 
Increase: 56%; 
Decrease: 24%; 
Remain the same: 14%; 
Don't know: 6%. 

Source: GAO’s survey of LEAs. 

Note: Percentage estimates have margins of error, at the 95 percent 
confidence level, of plus or minus 6 percentage points or less. 

[End of figure] 

Moreover, before the creation of the Education Jobs Fund, of those 
LEAs experiencing funding decreases, the percentage of LEAs that 
anticipated funding cuts greater than 5 percent is notably higher for 
the 2010-2011 school year than for the 2009-2010 school year. 
Specifically, as shown in figure 4, an estimated 31 percent of LEAs 
expected funding reductions greater than 5 percent in the 2010-2011 
school year, compared to 18 percent of LEAs that experienced cuts of 
this magnitude during the 2009-2010 school year. The percentage of 
LEAs who anticipated funding cuts of 10 percent or higher is also 
projected to increase somewhat, from 8 percent in the 2009-2010 school 
year to 14 percent in the 2010-2011 school year. Officials in some of 
the school districts we visited in June and July 2010--before the 
creation of the Education Jobs Fund--noted that their funding 
situation would likely be more dire in the 2011-2012 school year, when 
Recovery Act funds are no longer available. For example, Boston Public 
Schools in Massachusetts, which reported experiencing funding 
decreases this year and the past 2 years, is already preparing for a 
decreased budget in fiscal year 2012 and beginning to plan how to 
address budget shortfalls. Additionally, fewer LEAs anticipate funding 
increases of more than 5 percent for the 2010-2011 school year than 
for the 2009-2010 school year. Specifically, as shown in figure 4, 
only 5 percent of LEAs reported anticipating overall funding levels to 
increase by more than 5 percent for the 2010-2011 school year compared 
to 17 percent in the 2009-2010 school year.

Figure 4: Estimated Percentage of LEAs with Sizeable Funding Changes 
for School Year 2009-2010 and Expected Funding Changes for School Year 
2010-2011, as reported in Spring 2010:

[Refer to PDF for image: horizontal bar graph] 

School year 2009-2010 reported: 

Percentage of LEAs with decrease of 6-10 percent or more: 
6-10%: 10; 
More than 10%: 8. 

Percentage of LEAs with increase of 6-10 percent or more: 
6-10%: 9; 
More than 10%: 8. 

School year 2010-2011 expected: 

Percentage of LEAs with decrease of 6-10 percent or more: 
6-10%: 17; 
More than 10%: 14. 

Percentage of LEAs with increase of 6-10 percent or more: 
6-10%: 3; 
More than 10%: 2. 

Source: GAO’s survey of LEAs. 

Note: Percentage estimates have margins of error, at the 95 percent 
confidence level, of plus or minus 5 percentage points or less. 

[End of figure] 

We also found statistically significant differences between the fiscal 
situations of urban and rural LEAs and between LEAs of different 
sizes. For example, significantly more urban LEAs than rural LEAs 
experienced total funding increases of over 5 percent in the 2009-2010 
school year. Specifically, an estimated 32 percent of urban LEAs 
experienced total funding increases of over 5 percent in the 2009-2010 
school year compared to an estimated 8 percent of rural LEAs. We did 
not find a significant difference between urban and rural LEAs for the 
2010-2011 school year, however. While urban LEAs generally fared 
better than rural LEAs, we found that a larger percentage of the 
largest LEAs reported expecting a budget decrease for the 2010-2011 
school year when compared to all other LEAs.[Footnote 43] 
Specifically, we found that 36 percent of the largest LEAs expected 
funding to decrease by between 1 and 5 percent in the 2010-2011 school 
year compared to 26 percent of all other LEAs.

To Address Expected Funding Decreases, in Spring 2010 Many LEAs 
Reported Being Very Likely to Cut Teachers, Related Staff, and Other 
Items:

Of the 56 percent of LEAs expecting funding decreases, many reported 
being likely (somewhat or very) to take personnel actions such as 
cutting positions or freezing pay. However, this information was 
reported before the $10 billion Education Jobs Fund was created. Our 
survey results also show that some LEAs also reported being likely to 
furlough teachers. Specifically, an estimated 76 percent of LEAs that 
expected funding decreases reported they were likely to cut 
noninstructional positions and an estimated 70 percent reported they 
were likely to cut instructional positions. (See figure 5.) For 
example, when we met with officials in California's Mountain View-
Whisman School District in June 2010, before the Education Jobs Fund 
had been created, they expected to cut 20 percent of their K-3 
teaching staff in the upcoming school year in part due to projected 
revenue decreases of between 6 to 10 percent. Given these planned 
reductions in instructional staff, an estimated 70 percent of LEAs 
reported being likely to increase class size in the coming school 
year. For example, LEA officials in Mountain View-Whisman School 
District, Elk Grove Unified School District in California, and Revere 
Public Schools in Massachusetts said they were increasing class sizes 
to deal with budget shortfalls. In addition to cutting positions, an 
estimated 61 percent of LEAs expecting funding decreases are likely to 
reduce professional development or teacher training. Approximately 55 
percent of LEAs expecting funding decreases reported being likely to 
freeze pay, and around one-third reported being likely to furlough 
teachers. For example, officials at San Bernardino City Unified School 
District and Elk Grove Unified School District in California told us 
they had decided to furlough some employee groups for at least 9 days 
in the 2010-2011 school year.

Figure 5: Likely Personnel Actions for the 2010-2011 School Year 
Reported by LEAs Anticipating Funding Decreases, as Reported in Spring 
2010:

[Refer to PDF for image: stacked horizontal bar graph] 

Personnel action: Cut noninstructional positions: 
Very likely: 52; 
Somewhat likely: 24; 
Total: 76. 

Personnel action: Cut instructional positions: 
Very likely: 46; 
Somewhat likely: 24; 
Total: 70. 

Personnel action: Reduce professional development/teacher training: 
Very likely: 33; 
Somewhat likely: 28; 
Total: 61. 

Personnel action: Pay freeze: 
Very likely: 39; 
Somewhat likely: 16; 
Total: 55. 

Personnel action: Furlough teachers: 
Very likely: 19; 
Somewhat likely: 17; 
Total: 36. 

Personnel action: Scale back benefits: 
Very likely: 17; 
Somewhat likely: 18; 
Total: 35. 

Personnel action: Pay cuts: 
Very likely: 15; 
Somewhat likely: 14; 
Total: 29. 

Source: GAO’s survey of LEAs. 

Note: Percentage estimates have margins of error, at the 95 percent 
confidence level, of plus or minus 8 percentage points or less. 

[End of figure] 

Similarly, many LEAs expecting funding decreases also reported being 
likely (somewhat or very) to take nonpersonnel actions, such as 
reducing instructional supplies and eliminating summer programs. 
Specifically, an estimated 87 percent of LEAs expecting funding cuts 
are likely to reduce instructional supplies or equipment, 73 percent 
are likely to defer maintenance, 71 percent are likely to reduce 
energy consumption, and 50 percent are likely to reduce custodial 
services. (See figure 6.) For example, LEA officials in Elk Grove 
Unified School District said they were very likely to reduce the 
purchase of instructional supplies--or have already reduced them--and 
noted that this may result in teachers and parents voluntarily 
purchasing additional supplies for classrooms. In addition, LEA 
officials in Kingston Community Schools, Plymouth Educational Center 
in Michigan, Elk Grove Unified School District, and Boston Public 
Schools told us they had been deferring maintenance and would continue 
to defer it, though they would not defer any maintenance that would 
compromise the safety of children. Examples of deferred maintenance 
projects included painting rooms, replacing a roof, promptly fixing 
air conditioners, and resurfacing parking lots. LEA officials in 
Boston Public Schools and Elk Grove Unified School District said they 
were very likely to reduce energy consumption through such efforts as 
lowering the temperature in schools in winter months, offering 
incentives to schools with lower energy consumption, and using more 
energy-efficient light bulbs. Officials in Boston Public Schools, San 
Bernardino City Unified School District, and Elk Grove Unified School 
District said they had reduced custodial services in their schools and 
some would likely further reduce them. Smaller proportions of schools 
reported being likely to reduce transportation, shorten the school 
year, or close or consolidate schools. A Boston Public Schools 
official told us the district planned to reduce transportation costs 
by creating smaller transportation zones, and also hopes to close and 
consolidate up to 20 schools to reduce costs. In addition, we found 
that significantly higher percentages of the largest LEAs reported 
being likely to reduce transportation services. Specifically, 50 
percent of large LEAs reported being likely to reduce transportation 
services, compared to 35 percent of all other LEAs.

Figure 6: Likely Nonpersonnel Actions for School Year 2010-2011 
Reported by LEAs Expecting Funding Decreases, as Reported in Spring 
2010:

[Refer to PDF for image: stacked horizontal bar graph] 

Nonpersonnel actions: Reduce instructional supplies/equipment; 
Very likely: 54; 
Somewhat likely: 33; 
Total: 87. 

Nonpersonnel actions: Defer maintenance; 
Very likely: 40; 
Somewhat likely: 33; 
Total: 73. 

Nonpersonnel actions: Reduce energy consumption; 
Very likely: 37; 
Somewhat likely: 34; 
Total: 71. 

Nonpersonnel actions: Eliminate summer/alternative school programs; 
Very likely: 31; 
Somewhat likely: 21; 
Total: 52. 

Nonpersonnel actions: Reduce custodial service; 
Very likely: 32; 
Somewhat likely: 18; 
Total: 50. 

Nonpersonnel actions: Delay or eliminate school construction; 
Very likely: 25; 
Somewhat likely: 12; 
Total: 37. 

Nonpersonnel actions: Reduce transportation services; 
Very likely: 18; 
Somewhat likely: 18; 
Total: 36. 

Nonpersonnel actions: Shorten school year[A]; 
Very likely: 10; 
Somewhat likely: 3; 
Total: 13. 

Nonpersonnel actions: Close or consolidate schools; 
Very likely: 7; 
Somewhat likely: 6; 
Total: 13. 

Source: GAO’s survey of LEAs. 

Note: Percentage estimates have margins of error, at the 95 percent 
confidence level, of plus or minus 8 percentage points or less.

[A] In the case of shortening the school year, due to rounding, the 
sum of the percentage of LEAs shown as very likely and somewhat likely 
to take the action is 1 percentage point higher. 

[End of figure] 

Recovery Act Funds Allowed Most LEAs to Retain or Create Teaching 
Positions and Related Jobs, though Some Still Lost Jobs in School Year 
2009-2010:

Recovery Act funds for education allowed over three-quarters of LEAs 
to retain or create teaching positions and related jobs during the 
2009-2010 school year, though some LEAs still reported losing jobs 
even with the additional federal funding. The use of the Recovery Act 
funding for these purposes is consistent with one of the primary goals 
of the Recovery Act, which is to save and create jobs in order to help 
economic recovery. An estimated 87 percent of LEAs across the country 
reported that Recovery Act funding allowed them to retain or create 
jobs. Specifically, a higher percentage of LEAs reported retaining 
staff positions--77 percent--than creating new staff positions --39 
percent--for the 2009-2010 school year. In addition, a significantly 
higher percentage of large LEAs reported that Recovery Act funding 
allowed them to retain school staff, with nearly all--98 percent of 
the largest LEAs in the country--reporting using Recovery Act funding 
for retention.[Footnote 44] While most LEAs were able to retain or 
create jobs with Recovery Act funding, some of these LEAs--nearly 1 in 
4--still reported losing jobs overall in their LEA in the 2009-2010 
school year. (See figure 7.) 

Figure 7: Estimated Percentage of LEAs Nationally That Reported 
Recovery Act Funding Allowed Job Creation or Retention Compared to the 
Estimated Percentage of LEAs That Reported Losing Jobs Even with the 
Additional Funding in School Year 2009-2010, as Reported in Spring 2010:

[Refer to PDF for image: vertical bar graph] 

Job status: Allowed LEA to create or retain jobs: 87%; 
Job status: Even with Recovery Act funding, jobs decreased: 23%. 

Source: GAO’s survey of LEAs. 

Notes: Percentage estimates have margins of error, at the 95 percent 
confidence level, of plus or minus 5 percentage points or less. These 
columns are not mutually exclusive: almost all LEAs with a net 
decrease in jobs also retained jobs (92 percent). 

[End of figure] 

Retaining jobs was top use of Recovery Act funds for three education 
programs: LEAs used large portions of their Recovery Act IDEA Part B; 
ESEA Title I, Part A; and SFSF education stabilization funds toward 
staff retention in the 2009-2010 school year. According to our survey, 
nearly 70 percent of LEAs spent more than half to all of their 
Recovery Act SFSF education stabilization funds to retain jobs for the 
2009-2010 school year. (See figure 8.) Although a smaller percentage 
of LEAs reported using half to all of their IDEA Part B and ESEA Title 
I, Part A Recovery Act funding--25 percent and 27 percent, 
respectively--for job retention, retaining staff was still the top use 
cited by LEAs for IDEA Part B and ESEA Title I, Part A Recovery Act 
funding. For example, LEA officials in Kingston Community School 
District told us they had used all of their Recovery Act SFSF 
education stabilization funds and ESEA Title I, Part A funds, and most 
of their Recovery Act IDEA Part B, funds to retain staff.

Figure 8: Estimated Percentage of LEAs Nationally That Used More Than 
Half of SFSF, ESEA Title I, Part A; and IDEA Part B Recovery Act 
Funding for Retaining Staff in School Year 2009-2010:

[Refer to PDF for image: horizontal bar graph] 

Funding Program: SFSF: 69%; 
Funding Program: ESEA Title I Part A: 27%; 
Funding Program: IDEA Part B: 25%. 

Source: GAO’s survey of LEAs. 

Note: Percentage estimates have margins of error, at the 95 percent 
confidence level, of plus or minus 6 percentage points or less. 

[End of figure] 

A number of factors may explain why such a large percentage of LEAs 
spent a significant amount of their Recovery Act funding for job 
retention. For example, a large portion of school expenditures are 
employee-related costs--with salaries and benefits accounting for more 
than 80 percent of local school expenditures, according to Education's 
most recent data.[Footnote 45] Also, given the fiscal uncertainty and 
substantial budget shortfalls facing states, federal funds authorized 
by the Recovery Act have provided LEAs with additional flexibility to 
pay for the retention of education staff. Overall, the impact of 
Recovery Act education funds on job retention may be significant 
because K-12 public school systems employ about 6.2 million staff, 
based on Education's estimates, and make up about 4 percent of the 
nation's workforce.[Footnote 46] In fact, through the reporting period 
ending June 30, 2010, nearly two-thirds of full-time equivalent 
positions reported on Recovery.gov have resulted from Recovery Act 
education programs.

Based on our visits to states and LEAs, we were told that Recovery Act 
SFSF funds, in particular, have provided additional resources and 
flexibility allowing LEAs to retain staff. For example, one state 
education official noted that LEAs have more flexibility in spending 
SFSF funds for general education expenses because ESEA Title I, Part A 
and IDEA Part B programs target special populations--disadvantaged 
youth and students with disabilities, respectively. This official said 
that because funding levels for general education programs in his 
state have decreased while federal funding levels for ESEA Title I, 
Part A and IDEA Part B programs have increased, LEAs have used SFSF 
funds to shore up funding for general education and, in particular, 
preserve jobs.

Instructional positions were more often retained and created than 
noninstructional positions: Substantially more LEAs retained or 
created positions for instructional staff compared to noninstructional 
staff positions for the 2009-2010 school year. Instructional staff 
typically includes classroom teachers and paraprofessionals and 
noninstructional staff can include office support, janitorial staff, 
and school security staff. Specifically, an estimated 74 percent of 
LEAs nationally retained jobs for instructional staff, compared to 48 
percent that retained them for noninstructional staff. Furthermore, 33 
percent of LEAs reported creating new instructional staff positions 
with Recovery Act funding compared to the 22 percent that created them 
for noninstructional staff. (See figure 9). According to a number of 
LEA officials we interviewed, LEAs often spent Recovery Act funding in 
ways that would benefit students directly in the classroom, thereby 
focusing on creating and retaining positions for instructional staff 
before creating and retaining jobs for noninstructional staff, such as 
administrative and auxiliary staff. For example, officials from the 
Plymouth Educational Center said that in order to minimize the impact 
on students, they have made or would consider making cuts to 
administration, security guards, and paraprofessionals, and 
instituting further pay cuts before letting go of teachers.

Figure 9: Estimated Percentage of LEAs Nationally That Retained and 
Created Instructional and Noninstructional Jobs in School Year 2009- 
2010:

[Refer to PDF for image: horizontal bar graph] 

Funding allocation: Retained jobs for instruction staff: 74%; 
Funding allocation: Retained jobs for noninstruction staff: 48%; 
Funding allocation: Created jobs for instruction staff: 33%; 
Funding allocation: Created jobs for noninstruction staff: 22%. 

Source: GAO’s survey of LEAs. 

Note: Percentage estimates have margins of error, at the 95 percent 
confidence level, of plus or minus 6 percentage points or less. These 
categories are not mutually exclusive. 

[End of figure] 

Fewer LEAs Used Large Portions of Their Recovery Act Funding to Hire 
Staff Than to Retain Staff, although Fund Use for Hiring Varied by 
Program:

Although our survey results indicate that LEAs overall spent a 
significant amount of their Recovery Act funding from all three 
programs to retain jobs, LEAs also reported using Recovery Act funding 
to hire new staff. As indicated in figure 10, the percentage of LEAs 
that reported using Recovery Act funding to hire new staff varied 
across the three programs. For example, 4 percent and 6 percent of 
LEAs reported spending half or more of their Recovery Act IDEA Part B 
and SFSF funding, respectively, to hire new staff, while 15 percent of 
LEAs reported the same use for their Recovery Act ESEA Title I, Part A 
funds. Overall, nearly three-quarters of LEAs did not use any of their 
Recovery Act SFSF funding to hire new staff, concentrating instead on 
using that funding for staff retention.

Figure 10: Estimated Percentage of LEAs That Reported Spending 
Recovery Act Funds to Hire New Staff in the 2009-2010 School Year, by 
Percent of Recovery Act Funding and Program:

[Refer to PDF for image: stacked vertical bar graph] 

Funding program: IDEA Part B; 
51 to 100%: 6%; 
26 to 50%: 15%; 
1 to 25%: 30%; 
Zero percent: 45%. 

Funding program: ESEA Title I Part A;
51 to 100%: 15%; 
26 to 50%: 10%; 
1 to 25%: 22%; 
Zero percent: 50%. 

Funding program: SFSF; 
51 to 100%: 4%; 
26 to 50%: 3%; 
1 to 25%: 13%; 
Zero percent: 74%. 

Source: GAO’s survey of LEAs. 

Note: Percentage estimates have margins of error, at the 95 percent 
confidence level, of plus or minus 7 percentage points or less. 

[End of figure] 

Nearly One in Four LEAs Reported Losing Jobs, Even with Recovery Act 
Funding, Due to Decreasing Budgets and Other Factors:

Even with the additional Recovery Act funding provided to LEAs in 
school year 2009-2010, nearly one-quarter of LEAs reported losing 
jobs, primarily due to decreasing overall budgets. Without Recovery 
Act funds, it is likely that the magnitude of job losses in these LEAs 
would have been higher, given that nearly all of the LEAs experiencing 
job loss overall also reported retaining jobs. Specifically, an 
estimated 92 percent of LEAs where LEA officials indicated the number 
of teachers had decreased also said that Recovery Act funds had 
allowed them to retain jobs during the school year. Also, almost 30 
percent of LEAs used Recovery Act funds to create new jobs during the 
2009-2010 school year, even as their overall number of jobs decreased. 
For example, according to a Boston Public Schools official, the number 
of staff in the district had decreased in the 2009-2010 school year, 
but the district also used Recovery Act funds for both retention and 
job creation. For example, the district hired 16 new English as a 
Second Language teachers and specialists with ESEA Title I, Part A 
Recovery Act funds even as they let go of teachers during school 
closures.

Decreasing overall budgets at the LEA level was the main reason that 
LEAs reported losing jobs in School Year 2009-2010. Specifically, 67 
percent of LEAs that lost jobs reported that their budget was a factor 
to a great or very great degree. (See figure 11.) For example, 
officials from Elk Grove Unified School District in California told us 
they laid off about 500 staff at the end of the 2009-2010 school year 
due to budgetary pressures, after exhausting their reserves and 
spending Recovery Act funds. In addition to budgetary factors, LEAs 
lost jobs because of staff attrition and declining enrollment, 
although to a much lesser extent.

Figure 11: The Factors Affecting a Decrease in the Number of Jobs for 
the 2009-2010 School Year to a Great or Very Great Degree:

[Refer to PDF for image: stacked vertical bar graph]

Affecting factor: Budget; 
Great degree: 21%; 
Very great degree: 46%; 
Total: 67%. 

Affecting factor: Declining enrollment; 
Great degree: 6%; 
Very great degree: 15%; 
Total: 21%. 

Affecting factor: Staff attrition; 
Great degree: 5%; 
Very great degree: 5%; 
Total: 10%. 

Affecting factor: Other; 
Great degree: 0; 
Very great degree: 3%; 
Total: 3%. 

Source: GAO’s survey of LEAs. 

Note: Percentage estimates for totals of very great and great degree 
have margins of error, at the 95 percent confidence level, of plus or 
minus 12 percentage points or less. 

[End of figure] 

Recovery Act Funds Were Used by LEAs to Purchase Items That Will Build 
Capacity without Creating Recurring Costs:

In addition to retaining and hiring staff, LEAs spent Recovery Act 
funds on items that could help build long-term capacity, while also 
avoiding creating recurring costs for LEAs. Overall, LEAs reported 
several one-time expenditures such as purchasing computer technology, 
providing professional development for instructional staff, and 
purchasing instructional materials as among some of the highest uses 
of funds after job retention and creation.[Footnote 47] (See figure 
12.) 

Figure 12: Estimated Percentage of LEAs Nationally That Spent More 
Than 25 Percent of Recovery Act Funds on Providing Professional 
Development, Purchasing Instructional Materials, and Purchasing 
Computer Technology in School Year 2009-2010:

[Refer to PDF for image: stacked vertical bar graph]

Funding program: ESEA Title I Part A; 
Purchasing computer technology (example, hardware or software): 25%; 
Purchasing instructional materials (not including computer software): 
11%; 
Providing professional development for instructional staff: 11%. 

Funding program: IDEA Part B; 
Purchasing computer technology (example, hardware or software): 22%; 
Purchasing instructional materials (not including computer software): 
8%; 
Providing professional development for instructional staff: 10%. 

Funding program: SFSF; 
Purchasing computer technology (example, hardware or software): 12%; 
Purchasing instructional materials (not including computer software): 
5%; 
Providing professional development for instructional staff: 1%. 

Source: GAO’s survey of LEAs. 

Note: Percentage estimates have margins of error, at the 95 percent 
confidence level, of plus or minus 6 percentage points or less. 

[End of figure] 

LEA officials reported making one-time purchases with Recovery Act 
funds to enhance district capacity. For example, at Plymouth 
Educational Center in Michigan, officials told us that Recovery Act 
funds were used to enhance computer technology for both students and 
teachers. Further, several LEA officials told us they had used IDEA 
Part B Recovery Act funds to purchase professional development and 
assistive technologies that would help build the district's capacity 
to serve more students with disabilities. These officials told us that 
they will be able to educate students with disabilities far more 
affordably within the district than by paying external providers--a 
benefit they anticipate will continue even after the Recovery Act 
funds are spent. For example, in rural Michigan, officials told us 
that IDEA Part B funding has allowed the Kingston Community Schools to 
build capacity by partnering, along with other schools from the 
surrounding area, with the University of Kansas to provide coaching 
and training to teachers who can then provide services to more 
students with disabilities. In addition, LEA officials in Boston, 
Massachusetts, said they had used these funds to obtain equipment and 
provide professional development so they could serve more students 
with autism within the district.

A Majority of LEAs Maintained the Same Level of Service as the Prior 
Year, but Some LEAs Reported Not Being Able to Maintain Service Levels:

Although more than half of all LEAs reported being able to provide 
students with the same level of service in 2009-2010 as in 2008-2009, 
a number of LEAs reported they had not been able to maintain the same 
level of service at their LEA for the same time frame.[Footnote 48] 
Specifically, an estimated 63 percent of LEAs nationally reported that 
Recovery Act SFSF funds allowed them to maintain the same level of 
service to students in their LEA in school year 2009-2010 as compared 
to the previous school year. However, 40 percent of the largest LEAs 
reported not being able to maintain the same level of service compared 
to 16 percent of all other LEAs. (See figure 13.) 

Figure 13: Reported Changes in LEA Level of Service in School Year 
2009-2010 Compared to Level of Service in 2008-2009 among LEAs 
Receiving SFSF Funds, by Size of LEA:

[Refer to PDF for image: vertical bar graph] 

Reported change: Maintained; 
Large LEAs: 55%; 
All other LEAs: 64%. 

Reported change: Raised; 
Large LEAs: 5%; 
All other LEAs: 20%. 

Reported change: Unable to maintain; 
Large LEAs: 40%; 
All other LEAs: 10%. 

Source: GAO’s survey of LEAs. 

Note: Percentage estimates have margins of error, at the 95 percent 
confidence level, of plus or minus 7 percentage points or less. 

[End of figure] 

LEAs reported a range of areas in which there was a great or very 
great reduction in the level of services, including instructional 
materials and resources, staff development, and summer school 
programs. For example, LEA officials from San Bernardino City Unified 
School District told us they had applied cuts with the intent of 
having the least impact on children in the classroom, and that these 
cuts included delay of new textbook adoption, administrative 
reductions, and reduced maintenance. Further, Boston Public Schools 
and Revere Public Schools pointed to cuts in programming such as art 
and music as examples in how their service levels had decreased.

A number of LEAs reported that Recovery Act SFSF funds allowed them to 
raise their level of service in 2009-2010, with a lower percentage of 
the largest LEAs reporting raising service levels compared to all 
other LEAs. Based on our survey results for the 2009-2010 school year, 
20 percent of all LEAs indicated that the additional Recovery Act SFSF 
funding made it possible to raise the level of services provided to 
students compared to what the LEA was able to provide in the prior 
2008-2009 school year. A significantly lower percentage of the largest 
LEAs in the country--5 percent--specified that the SFSF funding raised 
service levels in their schools.

Relatively Few LEAs Report Making Significant Progress in Four Core 
Education Reforms:

Some LEAs report making modest progress in education reform, but 
relatively few report they are making significant progress in 
advancing the four core education reform areas states are required to 
address as a condition of receiving SFSF funding. For example, an 
estimated 28 percent of LEAs reported making modest progress and just 
13 percent of LEAs reported making significant progress in increasing 
teacher effectiveness--the highest percentage among the four areas. 
(See figure 14.) However, some of these goals, such as improving 
standards and assessments, are more likely to be pursued at the state 
level than at the local level, while others, such as supporting 
struggling schools, may not apply to all districts. In order to 
receive SFSF funding, states had to submit an application to Education 
that required each state to provide several assurances, including that 
it would implement strategies to advance four core areas of education 
reform, as described by Education: (1) increase teacher effectiveness 
and address inequities in the distribution of highly qualified 
teachers; (2) establish a pre-K-through-college data system to track 
student progress and foster improvement; (3) make progress toward 
rigorous college-and career-ready standards and high-quality 
assessments that are valid and reliable for all students, including 
students with limited English proficiency and students with 
disabilities; and (4) provide targeted, intensive support and 
effective interventions to turn around schools identified for 
corrective action or restructuring. Furthermore, in order to receive 
the remainder of their SFSF allocations (Phase II), states had to 
agree to collect and publicly report on more than 30 indicators and 
descriptors related to the four core areas of education reform 
described above. While states will be responsible for assuring 
advancement of these reform areas, LEAs were generally given broad 
discretion in how to spend the SFSF funds. It is not clear how LEA 
progress in advancing these four reforms will affect states' progress 
toward meeting their assurances. Education officials noted that they 
were not surprised that fewer LEAs reported expanding reform efforts 
in 2009-2010 given their budget situation. Figure 14 depicts the 
extent to which LEAs reported making modest or significant progress in 
each of the four reform areas.

Figure 14: Percentage of LEAs Reporting Significant or Modest Progress 
toward Education Reform Goals in School Year 2009-2010 Made Possible 
by Recovery Act Funds:

[Refer to PDF for image: stacked horizontal bar graph] 

Education reform effort: Increase teacher effectiveness; 
Significant progress: 13%; 
Modest progress: 28%; 
Total: 41%. 

Make progress toward common standards;and assessments; 
Significant progress: 9%; 
Modest progress: 24%; 
Total: 33%. 

Turn around low performing schools; 
Significant progress: 3%; 
Modest progress: 18%; 
Total: 21%. 

Establish pre-K through college and career ready data systems; 
Significant progress: 2%; 
Modest progress: 7%; 
Total: 9%. 

Source: GAO’s survey of LEAs. 

Note: Percentage estimates have margins of error, at the 95 percent 
confidence level, of plus or minus 7 percentage points or less. These 
categories are not mutually exclusive. 

[End of figure] 

Education Reform Efforts under ESEA Title I, Part A and IDEA Part B 
Were Maintained or Expanded in the 2009-2010 School Year, but a Small 
and Growing Number of LEAs Expect Declines in 2010-2011:

Almost all LEAs we surveyed stated that ESEA Title I, Part A and IDEA 
Part B Recovery Act funds allowed their LEAs to either expand or 
maintain education reform efforts in 2009-2010, but a small and 
increasing percentage of LEAs expect to reduce reform efforts in 2010- 
2011 than reduced such efforts in 2009-2010. In addition to retaining 
and creating jobs, Education officials reported they intended the use 
of Recovery Act funds to spur education reform in LEAs to improve 
student achievement.[Footnote 49] Education provided guidance to 
states and LEAs on ways to use the Recovery Act funds to stimulate 
reform, as well as to retain jobs. Because LEAs are required to 
obligate 85 percent of their Title I, Part A Recovery Act funding by 
September 30, 2010, unless approved for a waiver, Title I, Part A 
education reform efforts in districts without waivers could decrease 
because fewer funds would be available in the upcoming school year.

ESEA Title I, Part A Recovery Act Funding Enhanced Education Reform 
Efforts at Nearly Half of All LEAs and Helped Enhance or Maintain 
Reform at Nearly All LEAs:

Most LEAs report that Recovery Act funding for ESEA Title I, Part A 
allowed them to either expand or maintain education reforms for 
disadvantaged students in both 2009-2010 and 2010-2011, but the 
percentage of districts that expect to expand reform is lower for 2010-
2011 than for the 2009-2010. According to our survey results, an 
estimated 48 percent of LEAs indicated that the additional ESEA Title 
I, Part A Recovery Act funding they received allowed their LEA to 
expand education reform efforts in 2009-2010. For example, officials 
from one Michigan LEA told us they used the ESEA Title I, Part A 
Recovery Act funding to enhance a tutoring program for all at-risk 
students in math and language arts. Officials at another LEA told us 
the ESEA Title I, Part A Recovery Act funding allowed them to enhance 
their after-school tutoring program targeted at English language 
learners. Moreover, an additional 48 percent of LEAs stated that the 
funding allowed them to maintain reform efforts for ESEA Title I, Part 
A programs. However, the percentage of districts anticipating ESEA 
Title I, Part A funding that will allow their district to expand 
reform efforts is lower for the 2010-2011 school year than for the 
2009-2010 school year. (See figure 15) While an estimated 3 percent of 
LEAs stated that even with the additional Recovery Act funding 
provided under ESEA Title I, Part A, education reform efforts 
decreased in the 2009-2010 school year, this percentage increased to 
11 percent when we asked LEAs to look ahead to the 2010-2011 school 
year. Title I, Part A reform efforts could potentially decrease in the 
coming school year, in part because LEAs are required to obligate 85 
percent of ESEA Title I, Part A Recovery Act funds by September 30, 
2010, unless they receive a waiver.

Figure 15: Percentage of LEAs Nationally Reporting ESEA Title I, Part 
A Recovery Act Funds Have Expanded, Maintained, or Decreased Education 
Reform Efforts in School Years 2009-2010 and 2010-2011, as Reported in 
Spring 2010:

[Refer to PDF for image: stacked horizontal bar graph] 

Year: 2009-2010; 
ESEA Title I Part A Recovery Act funds will allow LEA to expand 
education reform efforts: 48%; 
ESEA Title I Part A Recovery Act funds will allow LEA to maintain 
ongoing education reform efforts: 48%; 
Even with ESEA Title I Part A Recovery Act funds, reform efforts in 
LEA will decrease: 3%; 
Total: 99%. 

Year: 2010-2011; 
ESEA Title I Part A Recovery Act funds will allow LEA to expand 
education reform efforts: 29%; 
ESEA Title I Part A Recovery Act funds will allow LEA to maintain 
ongoing education reform efforts: 56%; 
Even with ESEA Title I Part A Recovery Act funds, reform efforts in 
LEA will decrease: 11%; 
Total: 96%. 

Source: GAO’s survey of LEAs. 

Notes: Percentage estimates have margins of error, at the 95 percent 
confidence level, of plus or minus 7 percentage points or less.,This 
figure does not display the percentage of LEAs that chose "Don't Know" 
as a survey response, and therefore, the percentages do not total to 
100 percent. 

[End of figure] 

IDEA Part B Recovery Act Funding Allowed Most LEAs to Either Expand or 
Maintain Reform Efforts for Special Education Students:

Most LEAs report that Recovery Act funding for IDEA Part B allowed 
them to either expand or maintain education reform efforts for special 
education students in both 2009-2010 and 2010-2011, but the percentage 
of districts that expect to expand reform is lower for 2010-2011 than 
for the previous year. Specifically, in 2009-2010, we estimate that 43 
percent of LEAs nationally expanded reform efforts for special 
education students because of the additional IDEA Part B Recovery Act 
funding in 2009-2010. (See figure 16). For example, an official in 
Boston, Massachusetts, told us that the Boston Public Schools has used 
some of its IDEA Part B Recovery Act funding to train teachers and 
purchase equipment to enhance classroom services for autistic 
students. In addition, 55 percent of LEAs noted that the Recovery Act 
funding allowed them to maintain ongoing education reform efforts 
targeted for special education students in the same year. For example, 
in Michigan, one LEA official we interviewed stated that the LEA had 
used Recovery Act funding to maintain intervention services for 
special education students. Looking ahead to the 2010-2011 school 
year, however, a lower percentage of districts--28 percent--expect to 
expand reform.

Figure 16: Percentage of LEAs Nationally with IDEA Part B Recovery Act 
Funds That Reported Expanding, Maintaining, or Decreasing Reform 
Efforts for Special Education Students in School Years 2009-2010 and 
2010-2011, as Reported in Spring 2010:

[Refer to PDF for image: stacked horizontal bar graph] 

Year: 2009-2010; 
IDEA Part B Recovery Act funds will allow LEA to expand education 
reform efforts: 43%; 
IDEA Part B Recovery Act funds will allow LEA to maintain ongoing 
education reform efforts: 55%; 
Even with IDEA Recovery Act funds, reform efforts in LEA will 
decrease: 1%; 
Total: 99%. 

Year: 2010-2011; 
IDEA Part B Recovery Act funds will allow LEA to expand education 
reform efforts: 28%; 
IDEA Part B Recovery Act funds will allow LEA to maintain ongoing 
education reform efforts: 63%; 
Even with IDEA Recovery Act funds, reform efforts in LEA will 
decrease: 4%; 
Total: 95%. 

Source: GAO’s survey of LEAs. 

Notes: Percentage estimates have margins of error, at the 95 percent 
confidence level, of plus or minus 7 percentage points or less.This 
figure does not display the percentage of LEAs that chose "Don't Know" 
as a survey response, and therefore, the percentages do not total to 
100 percent. 

[End of figure] 

Given the Increase in IDEA Recovery Act Funding in 2009-2010, about 36 
Percent of LEAs Exercised Flexibility to Decrease Local Spending on 
Special Education, and Primarily Used Funds to Retain Staff:

In the 2009-2010 school year, among the 86 percent of LEAs that 
reported receiving Recovery Act IDEA Part B funds, an estimated 36 
percent reported taking advantage of the maintenance-of-effort (MOE) 
flexibility under IDEA that allows them to reduce their local, or 
state and local,[Footnote 50] spending on students with disabilities. 
IDEA requires LEAs to budget at least the same total or per capita 
amount of local funds for the education of children with disabilities 
as the LEA spent in the most recent prior year for which information 
is available. As provided for in IDEA, in any fiscal year in which an 
LEA's federal IDEA Part B allocation exceeds the amount the LEA 
received in the previous year, an eligible LEA[Footnote 51] may reduce 
local spending on students with disabilities by up to 50 percent of 
the amount of the increase, as long as the LEA uses those freed-up 
funds for activities authorized under ESEA, which supports activities 
for general education. Because Recovery Act funds for IDEA Part B 
count as part of an LEA's overall federal IDEA allocation, in fiscal 
year 2009, the total increase in IDEA Part B funding for LEAs was far 
larger than the increases in previous years, which provided a greater 
incentive for many LEAs to take advantage of the MOE flexibility in 
the 2009-2010 school year. Of the 36 percent of LEAs exercising the 
flexibility, an estimated 41 percent reported spending more than half 
of the "freed-up" local funds on retaining staff. Other uses of the 
freed-up funds included providing professional development for 
instructional staff, purchasing computer technology, and hiring new 
staff.

We also found an example of an LEA that planned to take advantage of 
the MOE flexibility even though it was not eligible to do so. Based on 
our review of budget documents and local officials' statements, the 
Syracuse City School District (SCSD) had reduced their 2009-2010 
spending by about $2.3 million.[Footnote 52] We determined, and local 
officials subsequently agreed, that SCSD was not eligible for the MOE 
reduction because it was not meeting performance indicators related to 
graduation and drop-out rates among disabled students and it had a 
significantly high percentage of students with disabilities being 
suspended for more than 10 days, among other indicators. When we 
notified LEA officials of its ineligibility during our visit in March 
2010, they attributed their situation to miscommunication among staff 
in the special education and finance offices and a misunderstanding of 
the eligibility rules for reducing MOE. LEA officials informed us that 
they would follow up on this issue and take steps to ensure they met 
MOE requirements. SCSD subsequently provided documentation showing 
that they were indeed meeting MOE requirements.

While the decision by LEAs to decrease their local spending can free 
up funds to address other needs in the current school year, it could 
also have implications for future local spending on special education. 
Because LEAs are required to maintain their previous year's level of 
local spending on special education and related services to continue 
to receive IDEA Part B funds, LEAs taking advantage of the spending 
flexibility will only be required to maintain these expenditures at 
the reduced level in subsequent years. If LEAs that use the 
flexibility to decrease their local spending do not voluntarily 
increase their spending in future years, and federal IDEA Part B 
allocations decrease--specifically by returning to levels comparable 
to those before the Recovery Act--the total federal, state, and local 
spending for the education of students with disabilities will decrease 
compared to overall spending before the Recovery Act. However, while 
LEAs may maintain the lower level of spending, because of the IDEA 
requirement that children with disabilities receive a "free 
appropriate public education," (FAPE) districts may not be able to 
maintain services for students with disabilities at the lower levels 
of spending. For example, in Elk Grove Unified School District 
(California), which reduced local spending in 2009-2010, local 
officials reported that they have plans to include in their budget for 
2010-2011 an amount equal to or greater than their 2008-2009 spending 
to ensure that services to students with disabilities are maintained. 
Officials said they needed to do this in order to maintain services 
for students with disabilities. In contrast, a charter school in 
Michigan reported that it may not be able to restore funding to 
previous years' levels, given decreases in state funding, but would 
make sure it provided services for students with disabilities.

States Vary in the Rate at Which They Draw Down Recovery Act Funds for 
Education Programs:

As of August 27, 2010, states covered by our review had drawn down 72 
percent ($18.2 billion) of the awarded SFSF education stabilization 
funds;[Footnote 53] 46 percent ($3.0 billion) of Recovery Act funds 
for ESEA Title I, Part A; and 45 percent ($3.4 billion) of Recovery 
Act funds for IDEA Part B. Some states had drawn down a much larger 
portion of their funds than other states. (See table 6.) For example, 
Arizona, Georgia, Illinois and New Jersey had drawn down all of their 
SFSF education stabilization funds as of August 27, 2010, while 
Florida, Mississippi, Pennsylvania, and Texas had drawn down less than 
55 percent of these funds.

Table 6: Percentage of Awarded SFSF Education Stabilization, ESEA 
Title I Part A, and IDEA Part B Recovery Act Funds Drawn Down by 
Selected States as of August 27, 2010:

State: Arizona; 
Percentage of awarded Recovery Act funds drawn down: 
SFSF Education Stabilization Funds: 100%; 
ESEA Title I, Part A: 48%; 
IDEA Part B: 45%.

State: California; 
Percentage of awarded Recovery Act funds drawn down: 
SFSF Education Stabilization Funds: 87%; 
ESEA Title I, Part A: 52%; 
IDEA Part B: 49%.

State: Colorado; 
Percentage of awarded Recovery Act funds drawn down: 
SFSF Education Stabilization Funds: 86%; 
ESEA Title I, Part A: 34%; 
IDEA Part B: 36%.

State: District of Columbia; 
Percentage of awarded Recovery Act funds drawn down: 
SFSF Education Stabilization Funds: 82%; 
ESEA Title I, Part A: 13%; 
IDEA Part B: 10%.

State: Florida; 
Percentage of awarded Recovery Act funds drawn down: 
SFSF Education Stabilization Funds: 50%; 
ESEA Title I, Part A: 46%; 
IDEA Part B: 50%.

State: Georgia; 
Percentage of awarded Recovery Act funds drawn down: 
SFSF Education Stabilization Funds: 100%; 
ESEA Title I, Part A: 38%; 
IDEA Part B: 41%.

State: Illinois; 
Percentage of awarded Recovery Act funds drawn down: 
SFSF Education Stabilization Funds: 100%; 
ESEA Title I, Part A: 56%; 
IDEA Part B: 52%.

State: Iowa; 
Percentage of awarded Recovery Act funds drawn down: 
SFSF Education Stabilization Funds: 93%; 
ESEA Title I, Part A: 95%; 
IDEA Part B: 84%.

State: Massachusetts; 
Percentage of awarded Recovery Act funds drawn down: 
SFSF Education Stabilization Funds: 87%; 
ESEA Title I, Part A: 45%; 
IDEA Part B: 46%.

State: Michigan; 
Percentage of awarded Recovery Act funds drawn down: 
SFSF Education Stabilization Funds: 85%; 
ESEA Title I, Part A: 40%; 
IDEA Part B: 44%.

State: Mississippi; 
Percentage of awarded Recovery Act funds drawn down: 
SFSF Education Stabilization Funds: 50%; 
ESEA Title I, Part A: 41%; 
IDEA Part B: 33%.

State: New Jersey; 
Percentage of awarded Recovery Act funds drawn down: 
SFSF Education Stabilization Funds: 100%; 
ESEA Title I, Part A: 34%; 
IDEA Part B: 38%.

State: New York; 
Percentage of awarded Recovery Act funds drawn down: 
SFSF Education Stabilization Funds: 56%; 
ESEA Title I, Part A: 36%; 
IDEA Part B: 31%.

State: North Carolina; 
Percentage of awarded Recovery Act funds drawn down: 
SFSF Education Stabilization Funds: 56%; 
ESEA Title I, Part A: 49%; 
IDEA Part B: 52%.

State: Ohio; 
Percentage of awarded Recovery Act funds drawn down: 
SFSF Education Stabilization Funds: 56%; 
ESEA Title I, Part A: 42%; 
IDEA Part B: 52%.

State: Pennsylvania; 
Percentage of awarded Recovery Act funds drawn down: 
SFSF Education Stabilization Funds: 52%; 
ESEA Title I, Part A: 58%; 
IDEA Part B: 49%.

State: Texas; 
Percentage of awarded Recovery Act funds drawn down: 
SFSF Education Stabilization Funds: 42%; 
ESEA Title I, Part A: 47%; 
IDEA Part B: 43%.

State: Total; 
Percentage of awarded Recovery Act funds drawn down: 
SFSF Education Stabilization Funds: 72%; 
ESEA Title I, Part A: 46%; 
IDEA Part B: 45%.

Source: U.S. Department of Education. 

[End of table] 

As noted in a previous report, drawdowns typically lag behind actual 
expenditures. For example, state officials in New Jersey stated that 
drawdown figures lag expenditures because funds are only drawn down 
once districts submit for reimbursement. However, because LEAs are 
required to obligate 85 percent of ESEA Title I Recovery Act funds by 
September 30, 2010, a low drawdown rate could indicate either that a 
large percentage of districts have sought and obtained or will seek 
and obtain waivers from this requirement or are at risk of not meeting 
this requirement. To help mitigate the effects of the funding cliff--
when Recovery Act funding is no longer available--Education officials 
are encouraging districts to use carryover waivers to spread ESEA 
Title I, Part A funds over 2 years. Specifically, in a webinar 
Education officials hosted on June 15, 2010, Education officials 
explained how districts could minimize the impact of the funding cliff 
by strategically using carryover waivers. Also, officials in states we 
contacted appeared to be following Education's suggested strategy to 
encourage the use of carryover waivers. We spoke to state officials in 
five states and the District of Columbia with relatively low drawdown 
rates[Footnote 54] and some of these officials told us they were 
encouraging districts to spread the funds over the 2-year period 
rather than try to obligate 85 percent of the funds by September 30, 
2010. For example, Massachusetts state officials told us they have 
encouraged all districts receiving Recovery Act Title I funds to apply 
for a carryover waiver to allow them the flexibility to use Recovery 
Act funds throughout the two-year period. Similarly, officials in New 
York state told us they had requested a blanket waiver for all 
districts in the state, which was approved by Education.

Education Is Continuing to Provide Technical Assistance and Guidance 
and Is Monitoring States' Use of Recovery Act Funds:

Education has completed 16 of the 18 on site-monitoring visits it 
scheduled for the 2009-2010 monitoring cycle (including 11 states and 
the District of Columbia that are in our review),[Footnote 55] 
according to department officials. The most frequent monitoring 
findings related to the Recovery Act had to do with districts failing 
to follow fiscal and set-aside requirements, such as the requirements 
to document time and effort of employees paid with Title I, Part A 
funds and properly calculate how much funding was required to be set 
aside for specific purposes, according to Education officials. 
Regarding fiscal requirement findings, the most frequent findings 
included districts' failure to (1) determine whether services provided 
in schools receiving ESEA Title I, Part A funding were comparable to 
those services provided to students in other district schools not 
receiving ESEA Title I, Part A funding, (2) determine whether federal 
funding had been used to "supplant" local or state funds by paying for 
services that had previously been provided using local or state funds, 
or (3) document that employees funded through multiple funding sources 
were dedicating the appropriate proportion of their time and effort to 
serving disadvantaged students. Regarding set-aside calculations, 
Education officials said that they found that some districts had not 
included Recovery Act funding in their calculations as required. 
Education officials provided examples of corrective actions state 
educational agencies and LEAs with fiscal or set-aside calculation 
findings could take to resolve these issues. For example, calculations 
for comparability or set-asides could be corrected to comply with 
requirements.

For the 2010-2011 monitoring cycle, Education officials plan to 
conduct on-site visits in 11 states, including 2 in our review, 
[Footnote 56] and the Bureau of Indian Education. During each of these 
12 monitoring visits, Education officials will assess state and local 
implementation of the School Improvement Grant program in addition to 
the implementation of regular and Recovery Act ESEA Title I, Part A 
requirements. Department officials said that during the upcoming 
monitoring cycle, they will continue to shift their monitoring focus 
away from strict audits towards providing technical assistance. 
Department officials also told us that they will develop state-
specific technical assistance for the states reviewed during the 2009-
2010 monitoring cycle to help them resolve identified challenges.

Education officials told us they continue to engage state and local 
officials using a variety of technical assistance efforts. Such 
efforts include issuing written guidance, hosting webinars, and giving 
presentations at state ESEA Title I conferences to explain and discuss 
federal guidance. Education officials also noted that they constantly 
communicate with state and local officials over the telephone and 
through email, and issue frequently asked questions to share their 
answers to questions from state and local officials. Department 
officials also noted that they have offered state-specific technical 
assistance to state and local officials in several states, 
particularly in states with new ESEA Title I leaders. Some of these 
technical assistance efforts have been initiated as a direct result of 
the Recovery Act, according to Education officials, who also said that 
the increased technical assistance efforts have created a strain on 
their resources and capacity.

Education Continues to Address Recovery Act Issues within Its Ongoing 
IDEA Monitoring Efforts:

Regarding IDEA, in the fall of 2009, Education officials reported that 
they pursued their regular targeted monitoring visits and technical 
assistance, which covers 16 states or territories, and in response to 
the Recovery Act, Education's Office of Special Education Programs 
(OSEP) is also performing a desk review of all states.[Footnote 57] 
According to Education officials, the department uses annual 
performance report information and focused monitoring priorities to 
determine in which states it will conduct monitoring visits. In the 
course of its monitoring visits, the department verifies the 
effectiveness of state systems for general supervision, data 
collection, and fiscal management, as well as reviews state progress 
toward the goals from its state performance plan. In conducting site 
visits, OSEP reviews state records, makes visits to selected LEAs for 
on-site examination of student records, and assesses state special 
education systems. Following these visits, Education issues a report 
on findings and, when noncompliance is found, requires states to 
demonstrate correction of the noncompliance.

For fall 2010, Education is pursuing some additional monitoring and 
providing additional support to states in implementing the Recovery 
Act. Specifically, in addition to its annual monitoring visits, OSEP 
is planning to visit up to 10 additional states this year. These 
additional visits will be less intensive than the regular monitoring 
visits, and will focus more on the Recovery Act than the annual 
monitoring visits. Also in response to the Recovery Act, the 
department has assigned four Recovery Act Facilitators, who work with 
four teams that will provide support and guidance to states regarding 
their Recovery Act monitoring efforts and the reporting of accurate 
data for recipient reporting under the Recovery Act.

While they did not have any Recovery Act-specific findings in their 
most recent monitoring visits, OSEP officials did report some areas on 
which they will be focusing in their upcoming monitoring. OSEP 
officials reported that one of the issues they have been focusing on 
for several years is ensuring timely obligation and expenditure of 
funds. After finding 10 years ago that states had failed to obligate a 
total of $32.8 million in IDEA funds before the end of the 27-month 
timeframe required under the law, the department began to track state- 
level draw-downs, and now works to remind states that have balances 
above a certain threshold when the deadlines for obligating funds are 
approaching. OSEP officials reported that in subsequent years, after 
they began tracking drawdowns, the expired unobligated funds have 
declined to about $5.6 million. Also, OSEP officials reported that 
some states were calculating their state-level MOE spending without 
including spending on special education from sources outside of the 
state educational agency. For example, if other state departments are 
providing counseling or rehabilitation services, that spending must be 
included. Finally, OSEP officials reported that while state education 
agencies generally require LEAs to provide a budget for their intended 
uses of IDEA funds, and require LEAs to attest that they are complying 
with MOE requirements, states do not always perform monitoring later 
to ensure that LEAs can document that they spent the funds according 
to their budgets. In one example, in Iowa, we found equipment 
purchases under IDEA larger than $5,000 for a single piece of 
equipment that were not submitted to the state for approval as state 
officials reported was required.[Footnote 58] In other examples, we 
found that the Des Moines Public School District purchased equipment 
for about $25,000, and the Marshalltown Community School District in 
Iowa purchased $8,400 in communications equipment and software, 
without seeking review and approval from the state prior to purchase, 
as state officials said was required. As we completed our reviews, the 
LEAs were making changes in their procedures to ensure state approval 
of IDEA equipment purchases greater than $5,000.

Given State-Level Budget Situations, Education Has Approved Waivers 
Allowing States to Decrease Their State Spending on Special Education:

Because of declines in state-level budgets, Education has approved 
waiver applications from states to decrease their state-level spending 
on special education. Under IDEA, the Secretary of Education may waive 
state-level MOE requirements for equitable purposes due to 
"exceptional or uncontrollable circumstances such as a natural 
disaster or a precipitous and unforeseen decline in the financial 
resources of the State." Education approved a state-level waiver for 
one state in our review--Iowa[Footnote 59]--for 2009. Education 
officials said that the waiver will only apply for 1 year, and, in 
2010 Iowa must return its spending on special education to the 2009 
level unless the state applies for and receives another waiver.

Education officials said that the department is considering each 
application individually based on its own merits, and is reminding 
states in its approval letters that they must provide services to 
students with disabilities that would still meet the requirement under 
the law that the state provide a free appropriate public education, 
despite any cuts. In a June 2010 memorandum, Education said that it 
was considering the impact of other sources of funding for special 
education, including those from the Recovery Act, when making waiver 
decisions.[Footnote 60] Education officials also told us that they 
want to ensure that cuts to special education services are equitable 
when compared to other budget cuts, and therefore they consider the 
percentage decrease in spending on special education in relation to 
that of other items in the states' budget, both education-related and 
other items. Education's guidance also notes that states that receive 
a waiver may be subject to additional monitoring, and Education 
officials told us that each of the waiver-approved states will be 
among the 16 states chosen for full monitoring visits described above 
and subject to additional monitoring to make sure that free 
appropriate public education was provided.

Education Has Begun to Monitor SFSF Grantees and Address Initial 
Challenges Associated with Monitoring Noneducation State and Local 
Agencies:

Education has begun to monitor SFSF grantees, and as of August 30, 
2010 had conducted on-site monitoring of 1 state--New York--and 
Washington, D.C. included in our review[Footnote 61] as well as desk 
reviews of two states in our review[Footnote 62]--Georgia and North 
Carolina. Education has not yet completed its monitoring reports to 
states, but department officials told us that its findings were minor 
and that it would work with states to address any findings. For 
example, Education officials told us that some of the minor findings 
included not providing timely certification documents, ensuring that 
all jobs were reported on required recipient reports, or adhering to 
monitoring schedules of subrecipients. Education has 10 more on-site 
monitoring visits planned between September and November 2010 and 10 
planned for 2011.

Education officials reported some challenges they experienced during 
their initial monitoring visits because of the differing types of 
subrecipients and the amount of documentation to review. Education's 
Office of Elementary and Secondary Education (OESE) is charged with 
administering and monitoring SFSF funds. While OESE is experienced 
with monitoring LEAs, SFSF educational stabilization funds may also 
flow to Institutions of Higher Education, which OESE has little or no 
experience overseeing. Further, SFSF government services funds provide 
funding to a broad range of state and local agencies that Education 
does not normally monitor. For example, SFSF government services funds 
subrecipients consist of a variety of noneducational entities 
including state police forces, fire departments, corrections 
departments, and healthcare facilities and hospitals. Since this is 
the first SFSF monitoring effort, Education officials told us that it 
will take time for Education's staff to become familiar with these 
subrecipients and the types of documentation they provide. In 
addition, Education officials reported that the amount of information 
necessary to monitor SFSF funds was voluminous and required more time 
than was expected, but they are continuing to work to improve the SFSF 
monitoring process.

In September 2009, we reported that some states faced challenges in 
developing monitoring plans for SFSF funds, and we recommended that 
Education take action such as collecting and reviewing documentation 
of state monitoring plans to ensure that states understand and fulfill 
their responsibility to monitor subrecipients of SFSF funds. Education 
acted on our recommendation and required states to submit SFSF 
monitoring plans to Education by March 12, 2010. Education officials 
told us they are reviewing the plans to ensure that states planned to 
adequately monitor SFSF subrecipients.

Given State-Level Budget Situations, Education Has Approved SFSF 
Waivers Allowing States to Decrease Their State Spending on Education:

The Secretary of Education has granted an SFSF MOE waiver to one state 
in our review--New Jersey--allowing the state to reduce 2009 state 
support for education below 2006 levels.[Footnote 63] The department 
grants these waivers once a state certifies that state education 
spending did not decrease as a percentage of total state revenues. 
[Footnote 64] As we reported in May, the states we reviewed told us 
they met SFSF MOE levels in fiscal year 2009 or obtained waivers. 
Because of declines in state-level budgets, two states in our review--
Florida and New Jersey--requested a waiver from Education to decrease 
their 2009 state-level spending on education.[Footnote 65] After these 
states' 2009 state education funding figures were finalized, Education 
officials told us they reviewed waiver applications to ensure that 
state education funding in 2009 met the requirements for an SFSF 
waiver. Education officials reported that New Jersey's and Rhode 
Island's waivers have been approved and that they are currently 
reviewing South Carolina's and Florida's waivers.

Education Announced Race to the Top Grants and SFSF Phase II Awards:

Education has announced that the District of Columbia and 11 states, 
including Florida, Georgia, Massachusetts, New York, North Carolina, 
and Ohio, will receive Race to the Top grants.[Footnote 66] This 
program is a competitive grant fund created by the Recovery Act as 
part of SFSF providing $4.35 billion in funding for statewide reform 
efforts and to develop common academic assessments.[Footnote 67] In 
addition, Education officials reported that almost all of the SFSF 
Phase II funds have been awarded to most states.[Footnote 68] As such, 
states now have access to their entire allotment of SFSF funds and all 
SFSF funds must be obligated by September 30, 2011.

Education Released New Clarifying Guidance on Recipient Reporting:

As in previous reporting periods, FTE positions funded by Education 
grants accounted for a large proportion of all reported FTEs. 
Specifically, Education recipients reported around 450,000 FTEs, which 
represent 60 percent of the nearly 750,000 FTEs reported for the 
period ending June 30, 2010. To improve the consistency of FTE data 
collected and reported, in May and March 2010 GAO made several 
recommendations to Education, including that Education re-emphasize 
the responsibility of sub-recipients to include hours worked by 
vendors in their quarterly FTE calculations and that Education provide 
clarifying guidance to recipients on how to best calculate FTEs for 
education employees during quarters when school is not in session. 
Education implemented our recommendations by issuing clarifying 
guidance on August 26, 2010, that specifies how education sub-
recipients are to calculate FTEs for recipient reporting for Education-
specific situations, such as how to calculate FTEs for teachers not 
working during the summer months who are considered full-time employees.

Though the Application Process Has Taken Longer Than Expected, States 
and LEAs Are Preparing to Implement School Improvement Grants as Soon 
as Applications Are Approved:

Setbacks in issuing final written guidance and resource constraints at 
Education have slowed the application process for School Improvement 
Grants (SIG)--competitive awards to help turn around the lowest 
performing schools--according to department officials. According to 
Education officials, one reason that the state application process 
took longer than expected was that the department had to revise the 
final requirements it initially released in December 2009. According 
to Education officials, some language in the Consolidated 
Appropriations Act, 2010 [Footnote 69] necessitated changes to these 
requirements. Education officials released revised guidance in late 
January 2010 and again in June 2010 with a few additional revisions. 
[Footnote 70] While the changes to the guidance and other delays 
created a challenge for some states, Education assisted states in 
moving their applications forward by responding to questions in a 
timely manner. In addition, Education extended the application 
deadline set in the initial guidance document to allow time for the 
department to offer technical assistance and for states to revise 
their applications given the changed requirements.

In addition to the delay caused by issuing revised guidance, 
department officials said that staffing constraints had limited the 
department's ability to review state applications, which ranged from 
200 to 400 pages in length, and to help state officials revise these 
applications. They noted that, in some cases, states had to revise the 
application, sometimes more than once, in order to comply with SIG 
requirements. Because certain compliance issues related to more than 
one part of the application (depending on how states put their 
applications together), Education staff had to reread each application 
in full after each resubmission to ensure compliance. Overseeing the 
substantial influx of additional ESEA Title I funds provided through 
the Recovery Act, including SIG funds, substantially increased staff 
workload, particularly given that staffing levels did not increase, 
said a senior Education official. While one staff member works full-
time to coordinate the SIG application process at the department, the 
17 other staff who were assigned to work on SIG application reviews 
assumed these responsibilities in addition to their other monitoring, 
technical assistance, and programmatic duties, according to a senior 
Education official.

State officials in some states[Footnote 71] and the District of 
Columbia told us that they had encountered various challenges in 
applying for and implementing the School Improvement Grants and that 
timeframes have been tight. These states were at different stages in 
the process of selecting LEAs to receive SIG funds, but were taking 
various steps to address the tight timeframes and work through 
challenges, and expected that districts would be ready to use the 
grant funds in the 2010-2011 school year. For example, officials in 
New York told us in late August that they had nearly completed their 
review of districts' SIG applications. They also noted encountering 
challenges in New York City, where school districts are not allowed to 
replace principals or close schools--steps required by certain school 
turnaround models--and having to work through two specific collective 
bargaining issues. In contrast, New Jersey officials said they had 
completed their review of district applications and selected 12 
schools, representing 7 school districts to receive SIG funds, with 
some districts receiving grants for multiple schools. To ease tight 
time frames, Michigan officials told us that while awaiting approval 
from Education, they had created an iterative application process for 
districts, whereby districts were required to submit an initial 
statement of intent in June, followed by a more detailed initial 
application in mid-July. State education officials told us they 
reviewed these initial drafts and gave local officials feedback before 
the final applications were due. As of late July, Education had 
approved SIG applications for 48 states and the District of Columbia, 
including all 16 of the states and the District of Columbia in our 
review.

Obligations for State Transportation Projects Are Nearly Complete, but 
Spending from Other Federal Transportation Sources Has Slowed:

Use of Transportation Funds:

Nationwide, the Federal Highway Administration (FHWA) obligated $25.6 
billion in Recovery Act funds for over 12,300 highway projects and 
reimbursed $11.1 billion as of August 2, 2010. The Federal Transit 
Administration (FTA) obligated $8.76 billion of Recovery Act funds for 
about 1,055 grants and reimbursed $3.6 billion as of August 5, 
2010.[Footnote 72] Figure 17 shows FHWA's and FTA's reimbursements 
during the Recovery Act.

Figure 17: Cumulative Recovery Act Highway and Public Transportation 
Funds Reimbursed by FHWA and FTA Nationwide:

[Refer to PDF for image: vertical bar graph] 

Month: March 2009; 
Highway: $1.7 million; 
Public transportation: $0. 

Month: April 2009; 
Highway: $9.8 million; 
Public transportation: $0. 

Month: May 2009; 
Highway: $71.1 million; 
Public transportation: $56.7 million. 

Month: June 2009; 
Highway: $264.2 million; 
Public transportation: $196.0 million. 

Month: July 2009; 
Highway: $676.2 million; 
Public transportation: $498.1 million. 

Month: August 2009; 
Highway: $1.44 billion; 
Public transportation: $789.2 million. 

Month: September 2009; 
Highway: $2.38 billion; 
Public transportation: $958.2 million. 

Month: October 2009; 
Highway: $3.66 billion; 
Public transportation: $1.19 billion. 

Month: November 2009; 
Highway: $4.63 billion; 
Public transportation: $1.37 billion. 

Month: December 2009; 
Highway: $5.60 billion; 
Public transportation: $1.61 billion. 

Month: January 2010; 
Highway: $6.03 billion; 
Public transportation: $1.80 billion. 

Month: February 2010; 
Highway: $6.43 billion; 
Public transportation: $2.00 billion. 

Month: March 2010; 
Highway: $6.99 billion; 
Public transportation: $2.42 billion. 

Month: April 2010; 
Highway: $7.61 billion; 
Public transportation: $2.75 billion. 

Month: May 2010; 
Highway: $8.56 billion; 
Public transportation: $3.0 billion. 

Month: June 2010; 
Highway: $9.85 billion; 
Public transportation: $3.28 billion. 

Month: July 2010; 
Highway: $11.12 billion; 
Public transportation: $3.55 billion. 

Source: GAO analysis of DOT data. 

[End of figure]

Nationally, 44 percent of funds obligated for highway projects had 
been reimbursed as of August 2, 2010. Reimbursement rates varied 
widely among the 16 states and the District--between 23 percent and 77 
percent. Illinois, Iowa, and Mississippi had the highest reimbursement 
rates--each at 65 percent or more. Officials in all 3 states told us 
that in selecting projects they emphasized projects that could be 
completed quickly, and each undertook more pavement resurfacing 
projects--which can be quickly initiated--than any of the other states 
we reviewed. Five states had reimbursement rates below 30 percent--of 
particular note, California, which received almost 1 out of every 10 
Recovery Act highway dollars apportioned nationwide, had the second 
lowest reimbursement rate among the 16 states and the District at 26 
percent ($633 million). Officials from California noted that the state 
had undertaken a number of large projects that had the potential to 
offer long-term benefits but for which construction could not be 
initiated quickly. For example, California used about $197 million in 
Recovery Act funds to partially finance the Caldecott Tunnel 
improvement project (total estimated cost of $420 million). California 
awarded a contract in November 2009 and began construction of a new 
tunnel on a congested stretch of highway between Oakland and Orinda in 
February 2010, nearly 1 year after the Recovery Act was enacted. 
California officials also attributed the state's lower reimbursement 
rates to having a majority of its projects administered by local 
governments, which are often reimbursed more slowly than state- 
administered projects. According to California officials, as of June 
30, 2010, about 62 percent or $1.5 billion of California's $2.5 
billion are obligated for local government projects. California 
officials stated that locally-administered highway projects take 
longer to reach the reimbursement phase because of the additional 
steps required to approve local highway projects and because 
localities with relatively small projects tend to seek reimbursement 
in one lump sum at the end of a project to minimize time and 
administrative costs.

The effect of projects sponsored by local agencies on reimbursements 
is not limited to California. Among all the 16 states and the 
District, reimbursement of funds suballocated for metropolitan, 
regional, and local use lagged behind state projects. Suballocated 
funds can be administered through local transportation agencies such 
as city or county agencies that can lack familiarity with federal 
requirements. As we have previously reported, local agencies have had 
challenges selecting projects that will meet these requirement and 
suballocated funds have generally taken longer to obligate than 
nonsuballocated funds.[Footnote 73] Data show this pattern extending 
to reimbursements as well. New Jersey and Arizona had the lowest 
reimbursement rates on suballocated projects, 10 and 18 percent, 
respectively. Our past reports have noted that New Jersey and Arizona 
were among the slowest states to select projects for funding in 
suballocated areas.

Table 7 shows the total reimbursement rates in the 16 states and the 
District, as well as the reimbursement rates for state and 
suballocated projects.

Table 7: Reimbursement of Recovery Act Funds as a Percentage of Funds 
Obligated - Ranked by All Funds:

State: District of Columbia; 
All funds: 23%; 
Suballocated funds: 29%; 
State funds: 20%.

State: California; 
All funds: 26%; 
Suballocated funds: 25%; 
State funds: 26%.

State: Georgia; 
All funds: 27%; 
Suballocated funds: 23%; 
State funds: 29%.

State: Ohio; 
All funds: 29%; 
Suballocated funds: 35%; 
State funds: 27%.

State: Massachusetts; 
All funds: 29%; 
Suballocated funds: 27%; 
State funds: 30%.

State: Florida; 
All funds: 31%; 
Suballocated funds: 23%; 
State funds: 34%.

State: Texas; 
All funds: 35%; 
Suballocated funds: 32%; 
State funds: 36%.

State: New York; 
All funds: 37%; 
Suballocated funds: 37%; 
State funds: 37%.

State: New Jersey; 
All funds: 37%; 
Suballocated funds: 10%; 
State funds: 48%.

State: Selected states' average; 
All funds: 39%; 
Suballocated funds: 33%; 
State funds: 41%.

State: Arizona; 
All funds: 42%; 
Suballocated funds: 18%; 
State funds: 52%.

State: U.S. average; 
All funds: 44%; 
Suballocated funds: 37%; 
State funds: 46%.

State: Pennsylvania; 
All funds: 47%; 
Suballocated funds: 47%; 
State funds: 47%.

State: North Carolina; 
All funds: 47%; 
Suballocated funds: 42%; 
State funds: 49%.

State: Colorado; 
All funds: 52%; 
Suballocated funds: 30%; 
State funds: 61%.

State: Michigan; 
All funds: 55%; 
Suballocated funds: 53%; 
State funds: 56%.

State: Illinois; 
All funds: 65%; 
Suballocated funds: 41%; 
State funds: 76%.

State: Mississippi; 
All funds: 69%; 
Suballocated funds: 61%; 
State funds: 72%.

State: Iowa; 
All funds: 77%; 
Suballocated funds: 79%; 
State funds: 76%.

Source: GAO analysis of FHWA data.

Note: Of the total Recovery Act highway funds available to states, 30 
percent is to be directed to suballocated areas and 70 percent is 
available for use in any area of the state. Percentages based on 
reimbursements from FHWA to states as of August 2, 2010. 

[End of table] 

Recovery Act highway obligations were used primarily for pavement 
improvement projects, such as resurfacing, reconstruction, and 
rehabilitation of existing roadways. Recovery Act public 
transportation funds were used primarily for upgrading transit 
facilities and improving bus fleets (see figure 18).

Figure 18: Nationwide Recovery Act Highway and Public Transportation 
Obligations by Project Type:

[Refer to PDF for image: 2 pie-charts] 

Highway obligations: 
Pavement improvement: reconstruction/rehabilitation ($6.4 billion): 
25%; 
Pavement improvement: resurface ($5.7 billion): 22%; 
Pavement widening ($4 billion): 16%; 
New road construction ($1.6 billion): 6%; 
Bridge replacement ($1.3 billion): 5%; 
Bridge improvement ($1.2 billion): 5%; 
New bridge construction ($713 million): 3%; 
Other ($4.7 billion): 18%. 

Public transportation obligations: 
Transit infrastructure construction ($4.5 billion): 51%; 
Bus purchases and rehabilitation ($2 billion): 23%; 
Other capital expenses ($1 billion): 11%; 
Preventive maintenance ($730 million): 8%; 
Rail car purchases and rehabilitation ($324 million): 4%; 
Operating expense ($185 million): 2%. 

Source: GAO analysis of DOT data.

Notes: Highway and public transportation percentages may not add to 
100 because of rounding. 

[End of figure] 

Public transportation obligations include Recovery Act funds that were 
transferred from FHWA to FTA. The category "other" includes safety 
projects, such as improving safety at railroad grade crossings, 
engineering, right-of-way purchases, and transportation enhancement 
projects, such as pedestrian and bicycle facilities. "Transit 
infrastructure construction" includes engineering and design, 
acquisition, construction, and rehabilitation and renovation 
activities. "Other capital expenses" includes leases, training, 
finance costs, mobility management project administration, and other 
capital programs.

Highway data are as of August 2, 2010, and public transportation data 
are as of August 3, 2010.

States Asked FHWA to Deobligate Funds after the 1-Year Deadline, but 
Some Suballocated Areas Faced Challenges in Identifying Additional 
Projects for Funding:

As we have previously reported, an economic stimulus package should 
assure that projects are undertaken quickly to provide a timely 
stimulus to the economy.[Footnote 74] The Recovery Act included 
obligation deadlines to facilitate the timely use of funds, including 
early March 2010 (1-year) deadlines to obligate Recovery Act highway 
and transit funds. In our May 2010 report, we reported that the states 
met these deadlines.

Since the March 2010 deadline for obligating Recovery Act highway 
funds, states have asked FHWA to deobligate some funds and are 
subsequently asking FHWA to obligate these funds to new projects. To 
use states' full apportionments, those funds must be obligated again 
by September 30, 2010, after which all unobligated highway funds will 
no longer be available to the states. As of August 2, 2010, about $397 
million, or 2.6 percent, of total Recovery Act highway funds remained 
to be obligated in the 16 states and the District. Nationally, about 
$565 million remained. These amounts have increased steadily since the 
March 2010 deadline--for example, in the 1-month period between June 
30, 2010, and August 2, 2010, the amount available for obligation 
increased from about $509 million to $565 million (see figure 19).

Figure 19: Recovery Act Highway Funds Remaining to Be Obligated Since 
March 2, 2010:

[Refer to PDF for image: multiple line graph] 

Date: 3/2/2010; 
Selected states: $0; 
National total: $0. 

Date: 4/5/2010; 
Selected states: $98.2 million; 
National total: $166.0 million. 

Date: 5/3/2010; 
Selected states: $171.1 million; 
National total: $302.4 million. 

Date: 6/30/2010; 
Selected states: $342.2 million; 
National total: $508.8 million. 

Date: 8/2/2010; 
Selected states: $396.6 million; 
National total: $564.9 million. 

Source: GAO analysis of FHWA data. 

[End of figure]

Projects supported with suballocated funds generally had higher levels 
of unobligated funds compared with projects using funds that are not 
suballocated. As of August 2, 2010, $199 million of the $7.7 billion 
available to suballocated areas nationwide remained to be obligated 
before the September 30, 2010, deadline. Also, several of the states 
we reviewed had unobligated suballocated funds that were roughly three 
to five times larger than the national average (see table 8). FHWA 
officials told us that the timely expenditure of funds on projects 
administered by local public agencies remains an area of concern and 
that the agency is closely monitoring these projects to ensure, on 
behalf of the states, that all funds are obligated. These funds will 
be withdrawn after September 30, 2010, if these funds are not obligated.

Table 8: Percentage of Unobligated Recovery Act Highway Funds:

State: Arizona; 
Suballocated funds: 12.4%; 
State funds: 5.6%; 
All funds: 7.6%.

State: California; 
Suballocated funds: 2.0%; 
State funds: 3.0%; 
All funds: 2.7%.

State: Colorado; 
Suballocated funds: 0.0%; 
State funds: 1.6%; 
All funds: 1.2%.

State: District of Columbia; 
Suballocated funds: 0.0%; 
State funds: 12.8%; 
All funds: 8.9%.

State: Florida; 
Suballocated funds: 5.4%; 
State funds: 3.6%; 
All funds: 4.2%.

State: Georgia; 
Suballocated funds: 9.0%; 
State funds: 7.5%; 
All funds: 7.9%.

State: Illinois; 
Suballocated funds: 1.4%; 
State funds: 0.6%; 
All funds: 0.9%.

State: Iowa; 
Suballocated funds: 0.2%; 
State funds: 0.9%; 
All funds: 0.7%.

State: Massachusetts; 
Suballocated funds: 3.2%; 
State funds: 7.3%; 
All funds: 6.2%.

State: Michigan; 
Suballocated funds: 1.2%; 
State funds: 0.9%; 
All funds: 1.0%.

State: Mississippi; 
Suballocated funds: 1.2%; 
State funds: 0.0%; 
All funds: 0.4%.

State: New Jersey; 
Suballocated funds: 1.6%; 
State funds: 0.4%; 
All funds: 0.8%.

State: New York; 
Suballocated funds: 0.3%; 
State funds: 0.5%; 
All funds: 0.5%.

State: North Carolina; 
Suballocated funds: 8.9%; 
State funds: 1.8%; 
All funds: 3.9%.

State: Ohio; 
Suballocated funds: 1.2%; 
State funds: 4.3%; 
All funds: 3.4%.

State: Pennsylvania; 
Suballocated funds: 0.0%; 
State funds: 0.3%; 
All funds: 0.2%.

State: Texas; 
Suballocated funds: 0.9%; 
State funds: 1.5%; 
All funds: 1.3%.

State: Selected states' average; 
Suballocated funds: 2.8%; 
State funds: 2.5%; 
All funds: 2.6%.

State: U.S. average; 
Suballocated funds: 2.6%; 
State funds: 2.0%; 
All funds: 2.2%.

Source: GAO analysis of FHWA data.

Note: Of the total Recovery Act highway funds available to states, 30 
percent is to be directed to suballocated areas and 70 percent is 
available for use in any area of the state. Percentages based on 
obligation of funds by FHWA as of August 2, 2010. 

[End of table] 

State officials identified several reasons projects might have been 
delayed in suballocated areas. Officials from the Arizona Department 
of Transportation, in which 12.4 percent of suballocated funds were 
unobligated, said that many suballocated areas did not have projects 
ready for federal-aid funding in part because of limited staff and 
other resources to move projects through approvals and prepare 
documentation in a manner consistent with federal requirements. 
Officials from North Carolina, in which 8.9 percent of suballocated 
funding was deobligated, told us that local agencies using 
suballocated funding faced challenges completing environmental 
documents, acquiring rights-of-way, and finalizing bid documents. As a 
result, many projects local agencies considered to be "ready-to-go" 
did not meet various federal standards, and agencies had to find other 
projects, which created delays.

Among the states we reviewed, most of the funds that the states asked 
FHWA to deobligate were from contract award savings. From March 2, 
2010, to June 7, 2010, the 16 states and the District that we are 
reviewing requested FHWA to deobligate almost $457 million. About 85 
percent of those funds were deobligated due to contracts continuing to 
be awarded below state cost estimates (see figure 20).

Figure 20: Deobligations in 16 States and the District from March 2, 
2010, to June 7, 2010, by Deobligation Type:

[Refer to PDF for image: pie-chart] 

Contract award savings: 85%; 
Cost under run: 7%; 
Project withdrawn: 4%; 
Change in scope of work: 2%; 
Other 2%. 

Source: GAO analysis of FHWA data. 

Note: "Other" includes obligation reductions due to costs that were 
found not to be eligible for federal-aid reimbursement, revised 
estimates for projects, and corrections of data errors. 

[End of figure] 

Withdrawn projects accounted for only about $17 million, or 4 percent, 
of deobligations from March 2 to June 7, 2010, less than 1 percent of 
the total $15.2 billion available to the 16 states and the District 
for highways. Two projects using suballocated funds in California 
accounted for about $9.7 million of the $17 million in withdrawn 
projects. In both cases, the project was withdrawn and later 
established as a new project. California officials told us they 
withdrew one $1.8 million project because local officials wanted to 
expand the scope of the project. Another $7.9 million project was 
withdrawn because it had an incorrect right-of-way certification. 
Officials told us that the state subsequently resubmitted the project 
and funding was obligated after correcting the certification.

Contract Data from FHWA's Recovery Act Data System Continues to Be 
Inaccurate:

In May 2010, we reported that while progress has been made in awarding 
Recovery Act contracts and initiating work, the accuracy of contract 
data in FHWA's Recovery Act Data System (RADS) is of concern. Among 
other information, the Recovery Act requires the U.S. Department of 
Transportation (DOT) to report to Congress on the number of projects 
for which contracts have been awarded, for which work has begun, and 
for which work had been completed, and the amount of federal funds 
associated with these contracts.[Footnote 75] DOT established RADS 
because it had not previously collected and reported such information 
for the regular federal highway formula program. DOT relies on states 
to enter data into RADS and uses automated data checks and rules, as 
well as periodic reviews by FHWA Division office officials located in 
every state, to improve the accuracy of state-reported data.

We continued to find problems with the accuracy of RADS contract data. 
[Footnote 76] For example, more than 3,100 contracts were shown as 
having been awarded on the same date the funds were obligated. We also 
found that about 1,400 contracts were reported as awarded before FHWA 
obligated the funds. Because contracts are normally awarded several 
weeks or months after funds are obligated by FHWA, the numbers and 
amounts of contracts awarded and work begun is likely overstated. 
Because FHWA does not have accurate data from states in RADS, it is 
not able to use RADS to meet the Recovery Act reporting requirements 
for contracts.

FHWA officials acknowledged that they cannot use data from RADS to 
provide information on contract award amounts. Officials said they 
instead use data from FHWA's financial management system to meet the 
Recovery Act reporting requirements for contracts because this system 
receives more checks for data accuracy. However, using FHWA's 
financial management system can also overstate the amount of funds 
under contract. FHWA reports data at the project level, not at the 
contract level; this is important because one project can include 
several contracts. When reporting at the project level, FHWA reports 
the entire project as being under contract once one contract is 
awarded, even if several more remain to be awarded. FHWA provided 
project-level data in its report to Congress dated May 7, 
2010,[Footnote 77] but these data were labeled in the report as 
contract data. As noted above, the Recovery Act requires DOT to report 
not only the number of projects, but also the total amount of federal 
funds associated with contracts that have been awarded, work has 
begun, and work is completed.

FHWA has taken some steps to improve data accuracy in RADS, but 
officials said that there was no date for when they would implement 
changes. These officials said they have assembled a state advisory 
group to look at the challenges that exist in RADS and make 
recommendations on improvements. FHWA officials said they have not had 
sufficient resources to incorporate additional data checks into the 
software that would check for errors. Such checks could ensure that 
milestones are sequentially entered, thereby improving the accuracy of 
these data.

Many States Requested That FHWA Transfer Funds to FTA for Public 
Transportation Projects and Many States and Transit Agencies Elected 
to Use Some Funds for Operating Expenses, Although Data on Operating 
Expenses Is Limited:

As we reported in our prior Recovery Act work, states have the option 
to request that FHWA transfer Recovery Act highway funds to FTA for 
use in public transportation programs, just as they do in the regular 
Federal Aid Highway Program.[Footnote 78] While most states transfer 
some funds each year to address transit priorities, data from Recovery 
Act funds indicated that 21 states requested FHWA transfer some 
Recovery Act funds to the states' public transportation program. Many 
states transferred funds shortly after Recovery Act funds became 
available in February 2009. For example, Caltrans transferred almost 
$2 million in July 2009. Caltrans officials told us that their state 
has a robust transfer program because of the state's extensive public 
transportation system and the system's many needs. Caltrans' 
subrecipients used this funding for two large projects identified in 
the state's transportation improvement plan but for which sufficient 
funding had not been available. Specifically, one subrecipient is 
purchasing two buses for a rural transit agency, and the second is 
constructing a new intermodal transit hub that will serve the north 
Lake Tahoe area. Caltrans officials said that the Recovery Act funding 
was sufficient to complete these programs.

According to FTA data, many state departments of transportation (DOT) 
and transit agencies[Footnote 79] also used a portion of Recovery Act 
funds for public transportation operating expenses. In June 2009, 
Congress gave urbanized areas and states the authority to use a 
maximum of up to 10 percent of certain Recovery Act transit funds for 
operating expenses.[Footnote 80] Data provided by FTA indicated that, 
nationwide, urbanized areas and states used about $190 million, or 
about 2 percent of Recovery Act funding for public transportation, 
toward operating expenses as of August 25, 2010. FTA officials told us 
that urbanized areas and states determine how much Recovery Act funds 
they spend on operating expenses. According to FTA data, 169 grantees 
throughout the U.S. chose to use a portion of public transportation 
funds for operating expenses. This represented approximately 25 
percent of total Recovery Act public transportation grantees. These 
169 grantees ranged from major urban transit agencies in San Francisco 
and St. Louis to transit agencies in smaller cities such as 
Charlottesville, Virginia, and Pocatello, Idaho. In addition, 18 
states used a portion of their Recovery Act funding to pay for 
operating expenses for rural public transportation.

FTA provided us data on the dollar amounts that urbanized areas and 
states obligated for operating expenses, but noted that they did not 
begin to track at a national level the percent of funds each state or 
urbanized area was using for operating expenses until August 2010. FTA 
officials also said that they rely on FTA's regional offices--as part 
of the grant approval and review process--to ensure that urbanized 
areas and states plan to spend no more than the 10 percent threshold. 
However, they are considering instituting a control in its electronic 
grants management system so that staff could not award a grant if an 
urbanized area or state was over the 10 percent threshold. FTA 
officials also noted that there is no reporting requirement to make 
publicly available the percent of funds that urbanized areas and 
states are using for operating expenses but that they are considering 
placing summary information on the use of Recovery Act transit funds 
for operating expenses on the FTA Web site.

We spoke with several states and transit agencies about whether they 
used Recovery Act funds for operating expenses. For example, officials 
from Michigan's Department of Transportation, after asking nonurban 
transit agencies for input, found that funding for operating expenses 
was a priority. According to Michigan Department of Transportation 
officials, the majority of nonurban transit systems in Michigan are 
demand response--meaning that passengers are picked up and dropped off 
where they want to go within a defined service area--and officials 
told us that expenses for these services have been increasing 
annually. As a result, officials said the state used the maximum 10 
percent of Recovery Act transit funds for this purpose.

Officials from Caltrans told us that they used 1.1 percent of their 
Recovery Act funds for the operating expenses of their paratransit 
program.[Footnote 81] They added that these expenses were already 
allowable as capital expenses under both the Recovery Act as 
originally enacted and the regular federal transit programs. Caltrans 
officials told us that if they had the option to use transit funds for 
public transportation operating expenses when the Recovery Act was 
first enacted, they would have used the full 10 percent. However, 
because California had already identified and requested that funds be 
obligated for capital projects prior to when the option to use these 
funds for operating expenses became available, they chose to adhere to 
their initial plan rather than risk that the funds be deobligated and 
applied for another purpose.

Transit officials from Illinois and New Jersey said their states chose 
not to use Recovery Act funds for operating expenses. Illinois DOT 
officials told us they decided early in the process to devote all 
Recovery Act funds to capital projects, so that the use of these funds 
was evident to the public. Illinois also chose to use state funds to 
cover all administrative expenses related to managing Recovery Act 
funds both to ensure maximum impact on capital projects and minimize 
paperwork needed to clear administrative charges for payments. New 
Jersey Transit officials told us they used Recovery Act funds for 
preventive maintenance--such as bus mechanical maintenance--which they 
said was considered a capital expense but did not produce new 
infrastructure. Officials noted that this reduced pressure on the 
transit agency's budget, which freed up state funds for operating 
expenses.

As we reported in May 2010, a portion of the highway money that was 
transferred was not obligated by the Recovery Act's March 2010 1-year 
obligation deadline for highways and transit. We noted that the U.S. 
Department of Transportation (DOT) did not treat these funds as 
subject to the Recovery Act obligation deadline for either FHWA or FTA 
because it concluded that once Recovery Act highway funds were 
transferred to FTA, they were subject to the provisions of the law 
that apply generally to the transfer of highway funds to FTA. At the 
time, we expressed no opinion on DOT's determination but stated that 
we were exploring this issue further.[Footnote 82] On further review, 
we have no objection to DOT's interpretation of the applicability of 
the Recovery Act's 1-year obligation deadlines.[Footnote 83]

Impact of Transportation Funds:

Obligation and Reimbursement of Regular FHWA Formula Funds Slowed 
during the Recovery Act, Raising Questions about Whether Recovery Act 
Funds Had the Full Economic Stimulative Effect Intended:

While states have been working to have FHWA obligate funds for 
constructing Recovery Act projects, we found that, compared with 
previous years, many states were slower in obligating and expending 
regular federal highway formula funds. FHWA officials stated that with 
the emphasis placed on the economic benefits to be gained, the 
obligation of Recovery Act funds and meeting the act's statutory 
deadlines have taken priority. States are facing drastic fiscal 
conditions, and FHWA officials noted economic and budget difficulties 
in many states have led to staffing shortages. FHWA officials also 
suggested that uncertainty about future program funding levels may 
have slowed spending because a long-term reauthorization of federal 
programs has not yet been enacted.

Nationally, as of June 30, 2010 (the end of the third quarter of the 
fiscal year), states had $19.7 billion remaining to be obligated, 63 
percent more funds than they did at the same time for the 3 previous 
years[Footnote 84] (see figure 21).

Figure 21: Regular Federal Highway Formula Funds Nationwide Remaining 
to Be Obligated at the End of the Third Quarter of Fiscal Year 2010:

[Refer to PDF for image: line graph] 

Fiscal year: 2007; 
Funds remaining to be obligated: $10.5 billion. 

Fiscal year: 2008; 
Funds remaining to be obligated: $11.9 billion. 

Fiscal year: 2009; 
Funds remaining to be obligated: $13.8 billion. 

Fiscal year: 2010; 
Funds remaining to be obligated: $19.7 billion. 

Source: GAO analysis of FHWA data. 

[End of figure]

In addition, while funding available to states for highways has 
increased in each of the last 3 fiscal years, we found that as of July 
31, 2010, the reimbursement of regular federal highway formula program 
funds were lower compared with the reimbursement at the same point in 
the 3 previous fiscal years (see figure 22).

Figure 22: Regular Federal Aid Highway Funds Reimbursed Nationwide at 
End of the Third Quarter for Fiscal Years 2007 through 2010:

[Refer to PDF for image: line graph] 

Fiscal year: 2007; 
Funds reimbursed: $22.6 billion. 

Fiscal year: 2008; 
Funds reimbursed: $23.7 billion. 

Fiscal year: 2009; 
Funds reimbursed: $24.7 billion. 

Fiscal year: 2010; 
Funds reimbursed: $19.4 billion. 

Source: GAO analysis of FHWA data. 

[End of figure]

As Figure 23 shows, this trend was also true on a monthly average 
basis. Specifically, the reimbursement of regular federal highway 
formula funds for the first 10 months of fiscal year 2010 has been 
almost 18 percent (or about $4.3 billion) less than the average 
reimbursement in the previous 3 fiscal years.

Figure 23: Nationwide Monthly Reimbursement of Federal Highway Formula 
Funds for Fiscal Year 2010 and the Average for Fiscal Years 2007-009:

[Refer to PDF for image: multiple line graph] 

Month: October; 
Average regular highway funds 2007-2009: $3.15 billion; 
Regular highway funds 2010: $2.95 billion. 

Month: November; 
Average regular highway funds 2007-2009: $2.52 billion; 
Regular highway funds 2010: $1.85 billion. 

Month: December; 
Average regular highway funds 2007-2009: $2.30 billion; 
Regular highway funds 2010: $2.09 billion. 

Month: January; 
Average regular highway funds 2007-2009: $1.75 billion; 
Regular highway funds 2010: $1.34 billion. 

Month: February; 
Average regular highway funds 2007-2009: $1.64 billion; 
Regular highway funds 2010: $1.33 billion. 

Month: March; 
Average regular highway funds 2007-2009: $1.86 billion; 
Regular highway funds 2010: $1.38 billion. 

Month: April; 
Average regular highway funds 2007-2009: $1.92 billion; 
Regular highway funds 2010: $1.42 billion. 

Month: May; 
Average regular highway funds 2007-2009: $2.51 billion; 
Regular highway funds 2010: $1.88 billion. 

Month: June; 
Average regular highway funds 2007-2009: $2.89 billion; 
Regular highway funds 2010: $2.39 billion. 

Month: July; 
Average regular highway funds 2007-2009: $3.15 billion; 
Regular highway funds 2010: $2.75 billion. 

Month: August; 
Average regular highway funds 2007-2009: $3.15 billion. 

Month: September; 
Average regular highway funds 2007-2009: $2.88 billion. 

Source: GAO analysis of FHWA data. 

[End of figure]

In the last 3 months of fiscal year 2010, state highway agencies not 
only have to request FHWA obligate over $500 million in remaining 
Recovery Act funds, but also $19.7 billion of regular federal highway 
formula funds. The amount of unobligated regular federal highway 
formula funds varied among states. For example, Illinois had none as 
of June 30, 2010, while Utah had $178.4 million--almost 6 times as 
much compared with its average balance of unobligated funds over the 3 
previous years. Nationally, we found 16 states with over twice the 
amount of unobligated funds, while 5 states had fewer unobligated 
funds than in the past. Some state officials told us they had not been 
obligating regular federal highway formula funds as quickly because 
they had been focusing on meeting the Recovery Act obligation 
deadlines and did not have the resources to do both.[Footnote 85]

Because states did not spend regular federal highway formula funds at 
the same pace as in previous years, while also spending Recovery Act 
funds, the full economic benefits of Recovery Act funds are likely to 
be delayed. Specifically, if states had awarded contracts and begun 
expending those regular federal highway formula funds at the same rate 
as in previous years and in conjunction with spending Recovery Act 
funds, states would have experienced an earlier stimulus effect. 
[Footnote 86] Funding being obligated now for projects will need up to 
several months to award contracts and initiate construction, and the 
effect on the economy comes when construction is initiated and workers 
are employed.

FHWA officials said they expect all regular program funds to be 
obligated by the end of the fiscal year. To ensure that all authorized 
funds are obligated nationally each year, FHWA redistributes 
obligation authority from states that are not able to obligate their 
funds to other states that are. Despite projects being obligated at a 
slower rate than in previous years, in August 2010, when we completed 
our review, the 16 states and the District all reported to FHWA that 
they would fully obligate fiscal year 2010 highway formula funds. We 
will continue to monitor the relationship of obligations and 
reimbursements in both the regular federal highway formula program and 
Recovery Act in future reviews.

DOT Is Developing Plans to Assess the Impact of the Recovery Act but 
Has Not Committed to Assessing Long-Term Benefits:

The goals of the Recovery Act were not only to promote economic 
recovery and to preserve and create jobs but also to make investments 
in transportation and other infrastructure that would provide long-
term economic benefits. However, the Recovery Act did not include 
requirements that DOT or states measure the impact of funding on 
highway and transit projects to assess whether these projects 
ultimately produced long-term benefits. In our May 2010 report, we 
noted that, although DOT developed performance plans to measure the 
impact of Recovery Act transportation programs, these plans generally 
did not contain an extensive discussion of specific goals and measures 
needed to assess the impact of Recovery Act projects. As we have 
reported, it is important for organizations to measure performance to 
understand the progress they are making toward their goals.[Footnote 
87] In our May 2010 report, we noted several efforts DOT initiated to 
strengthen its capacity to assess the impact of Recovery Act funds. 
For example, DOT is exploring opportunities to link databases that 
stored information about road smoothness and congestion, bridge 
structural sufficiency, and transit performance with financial data.

Our May report recommended that DOT assess the results of Recovery Act 
transportation investments and determine whether these investments 
produced long-term benefits. We further recommended that, in the near 
term, DOT determine the types of data and performance measures needed 
to conduct such an assessment and, as appropriate, identify specific 
authority DOT may need to collect and report on these measures. In its 
response, DOT noted that it expected to be able to report on Recovery 
Act outputs, such as the miles of road paved, bridges repaired, and 
transit vehicles purchased, but not on outcomes, such as reductions in 
travel time, nor did it commit to assessing whether transportation 
investments produced long-term benefits. DOT further explained that 
limitations in its data systems, coupled with the magnitude of 
Recovery Act funds relative to the overall annual federal investment 
in transportation, would make assessing the benefits of Recovery Act 
funds difficult. DOT indicated that, with these limitations in mind, 
it is examining its existing data availability and, as necessary, 
would seek additional data collection authority from Congress if it 
became apparent that such authority were needed. While we are 
encouraged that DOT plans to take some steps to assess its data needs, 
it has not committed to assessing the long-term benefits of Recovery 
Act investments in transportation infrastructure. We are therefore 
keeping our recommendation on this matter open.

DOT Plans to Report on State Progress in Meeting Maintenance-of-Effort 
Provisions:

As we have previously reported, timely information on the progress 
states are making in meeting the Recovery Act maintenance-of-effort 
provisions could better inform policymakers' decisions on the 
usefulness and effectiveness of the maintenance-of-effort requirements 
and of including similar provisions in future legislation. The 
Recovery Act required governors to certify that their states will 
maintain the level of spending for the types of transportation 
projects funded by the Recovery Act that it planned to spend the day 
the Recovery Act was enacted. As part of this certification, the 
governor of each state was required to identify the amount of state 
funds planned to be spent from February 17, 2009, through September 
30, 2010.[Footnote 88] Timely information is also important to 
assessing the impact of Recovery Act funding and whether it achieves 
its intended effects of providing countercyclical assistance and 
increasing overall spending.

Our earlier reports have noted that DOT does not have current 
information on the progress states are making toward meeting their 
certified amounts. This is because the Recovery Act does not require 
states to report final expenditures until February 2011. As a result, 
DOT will not make a determination as to whether states have met their 
required program expenditures until some 6 months after the 
maintenance-of-effort provision time period expires on September 30, 
2010. We have also reported that the challenges to implementing a 
maintenance-of-effort provision have been tremendous--as of mid-August 
2010, for example, DOT had not yet fully accepted the certifications 
of three states.[Footnote 89] As we have reported, these 
implementation challenges, coupled with the fiscal challenges states 
have faced, raise questions as to whether the maintenance-of-effort 
provision will achieve its intended purpose of preventing states from 
substituting federal funds for some of their planned spending on 
transportation programs. That said, DOT and FHWA have invested a 
significant amount of time and work to ensure consistency across 
states on how compliance with the act is certified and reported. As a 
result, DOT is in an advantageous position to understand lessons 
learned--what worked, what did not, and what could be improved in the 
future.

Our March 2010 report recommended that DOT gather timely information 
on the progress states are making in meeting the maintenance-of-effort 
requirements.[Footnote 90] Specifically, we recommended that DOT 
gather these data and report preliminary information to Congress 
within 60 days of the maintenance-of-effort period on (1) whether 
states met required program expenditures as outlined in their 
maintenance-of-effort certifications; (2) the reasons that states did 
not meet these certified levels, if applicable; and (3) lessons 
learned from the process. In response, DOT officials stated that DOT 
will encourage states to report preliminary data for the certified 
period ending September 30, 2010, and deliver a preliminary report to 
Congress within 60 days of the certified period. DOT officials said 
they have developed a timeline for obtaining information to produce 
this report and will issue guidance by October 1, 2010, requesting 
that states update actual aggregate expenditure data and provide the 
data to DOT by November 15, 2010. DOT officials said they will use 
this information to develop the report to Congress, and it will submit 
the report no later than November 30, 2010.

Publicly Available Information Continues to Overstate the Extent to 
Which Recovery Act Funds Were Directed to Economically Distressed Areas:

Our previous reports have identified challenges DOT faced in 
implementing the Recovery Act requirement that states give priority to 
projects located in economically distressed areas.[Footnote 91] In 
July 2009, we reported substantial variation in the extent to which 
states prioritized projects in economically distressed areas and how 
they identified these areas. Many states based their project 
selections on other factors and only later identified whether these 
projects were in economically distressed areas. We also found 
instances of states developing their own eligibility requirements for 
economically distressed areas using data or criteria not specified in 
the Public Works and Economic Development Act of 1965, as amended. In 
response to our recommendation, FHWA, in consultation with the 
Department of Commerce, issued guidance to the states in August 2009 
that defined "priority," and directed states to give priority to 
projects that were located in an economically distressed area and 
could be completed within the 3-year time frame over other projects. 
In addition, FHWA's guidance set out criteria for states to use to 
identify economically distressed areas based on "special need." 

Three states--Arizona, California, and Illinois--developed their own 
eligibility requirements or applied a special-need criterion that 
overstated the number of counties, and thus the amount of funds, 
directed to economically distressed areas. For example, California 
designated all counties as economically distressed, and we identified 
219 projects with an estimated cost of $1.1 billion coded as being in 
economically distressed areas that should not have been so coded. In 
early February 2010, FHWA determined the documentation these states 
provided to justify these additional designations was not consistent 
with FHWA guidance.[Footnote 92] In May 2010, we recommended that FHWA 
advise these states to correct the designations, and in July 2010, 
FHWA instructed its division offices to advise the states to revise 
their designations and to report these projects as being in 
noneconomically distressed areas.

In December 2009, DOT testified to the House Committee on 
Transportation and Infrastructure that 57 percent of projects were in 
economically distressed areas--including 99 percent and 100 percent of 
Recovery Act highway funding in California and Arizona, respectively. 
However, as we noted above, these data had not yet been corrected by 
DOT and therefore overstated the amount of funding, and this testimony 
is DOT's only public accounting of how states implemented this 
provision of the Recovery Act. Because FHWA's July guidance did not 
direct states other than Arizona, California, and Illinois to correct 
existing entries, we reviewed RADS data on projects in economically 
distressed areas. We found about 2,300 projects that did not appear to 
meet FHWA's guidance for classifying projects in economically 
distressed areas and thus appeared to contain errors that would result 
in an overstating of the funds directed to these areas. For instance, 
over 2,100 of these entries did not include an explanation justifying 
the designation of an area as economically distressed. In response to 
this information, DOT officials told us that they manually compared 
these entries with maps designating distressed area and other data 
sources. When we completed our review, FHWA officials said they were 
able to verify that most of these data were accurate; however, they 
did not provide documentation of the analysis to us. DOT stated it 
does not intend to correct this information because the Recovery Act 
does not contain a specific requirement that DOT report on the extent 
to which distressed areas prioritized and directed funds to 
economically distressed areas. However, without accurate publicly 
available information, it is difficult to determine the extent to 
which Recovery Act funds were directed to areas most severely impacted 
by the recession or to know the extent to which states prioritized 
these areas in selecting projects for funding.

Although Recovery Act Provisions Do Not All Contain Reporting 
Requirements, Additional Reporting Would Help Decision Makers and the 
Public Better Understand If Its Goals Were Met:

The Recovery Act included a number of requirements and provisions 
designed to support the Act's goals of promoting economic recovery, 
creating jobs, and, in the case of transportation funds, making 
investments that contribute to long-term economic benefits. Although 
the Act included some reporting requirements to accompany these 
provisions, it did not specify such requirements in all cases. Noting 
the large amount of federal transportation funding provided in the 
Recovery Act, we have previously made recommendations that DOT take 
additional steps to go beyond the specific reporting requirements in 
the Act, and that DOT develop plans to assess the long-term benefits 
of Recovery Act funds on the transportation system. We have also made 
recommendations that DOT improve and correct the data it is collecting 
to better facilitate a public accounting of the use and impact of 
these funds. For instance, we have recommended that DOT report on the 
extent to which states met maintenance-of-effort requirements 60 days 
after the end of the certification period.

In his March 2009 memorandum to the heads of executive departments and 
agencies, the President emphasized the need for providing public 
transparency and accountability of these expenditures. We are making 
two new recommendations to DOT because of the value such information 
can offer policy decision makers and the public to better understand 
whether the use of Recovery Act funds met intended goals. We plan to 
continue to monitor these issues in our future work.

Recommendations:

To ensure that Congress and the public have accurate information on 
the extent to which the goals of the Recovery Act are being met, we 
recommend that the Secretary of Transportation direct FHWA to take the 
following two actions:

* Develop additional rules and data checks in the Recovery Act Data 
System, so that these data will accurately identify contract 
milestones such as award dates and amounts, and provide guidance to 
states to revise existing contract data.

* Make publicly available--within 60 days after the September 30, 
2010, obligation deadline--an accurate accounting and analysis of the 
extent to which states directed funds to economically distressed 
areas, including corrections to the data initially provided to 
Congress in December 2009.

DOE and Grant Recipients Are Working to Overcome Challenges in 
Spending, Monitoring, and Reporting Outcomes for New EECBG Program:

The Energy Efficiency and Conservation Block Grant program (EECBG) is 
administered by the Office of Energy Efficiency and Renewable Energy 
within the Department of Energy (DOE). It was authorized in the Energy 
Independence and Security Act (EISA) of 2007[Footnote 93] and funded 
for the first time by the Recovery Act. The EECBG program provides 
about $3.2 billion in grants to develop, promote, implement, and 
manage projects to improve energy efficiency and reduce energy use and 
fossil fuel emissions in local communities. Of this amount, 
approximately $2.8 billion has been allocated through formula grants 
to about 2,150 state, local, and tribal governments (recipients) as of 
August 23, 2010.[Footnote 94] Funding is allocated to state recipients 
based on their population and total energy consumption; to city and 
county recipients based on their resident and commuter populations; 
and to Native American tribes based on population and climatic 
conditions. Eligible applicants for formula EECBG grants include the 
50 states; the District of Columbia (the District); five U.S. 
territories; cities or city equivalents, such as towns or villages 
with populations of at least 35,000; counties with populations of at 
least 200,000; and federally recognized Native American tribes. Each 
state-level recipient must use at least 60 percent of its allocation 
to provide subgrants to local government units that are not eligible 
for direct formula grants. In addition to these formula grants, the 
Recovery Act also includes approximately $400 million in EECBG funding 
to be awarded on a competitive basis. Competitive grants are designed 
to stimulate activities that can fundamentally and permanently 
transform energy markets and sustain themselves beyond the grant 
period. Our review focuses on the direct formula grants.

DOE Has Obligated Most Funds to Grant Recipients, Who Have Obligated 
about Half to Subrecipients; Overall Spending Rates Are at 11 Percent:

The Recovery Act requires that DOE obligate $2.8 billion in formula 
EECBG funds by September 30, 2010. DOE has obligated most of the EECBG 
funds to recipients and has plans to obligate the remainder by the 
September 30 deadline. As of September 13, 2010, DOE has obligated to 
recipients more than 99 percent of this amount--$2.77 billion. Nearly 
all of the approximately 2,150 recipients nationwide--approximately 
1,700 cities and counties, 56 states and territories, and 392 tribal 
communities--have received EECBG funding, with about 68 percent 
(approximately $1.9 billion) going to cities and counties, 28 percent 
(approximately $767 million) to states, territories, and the District, 
and 2 percent (approximately $55 million) to Native American tribes. 
[Footnote 95] Steps are being taken to ensure that the remaining funds 
will be obligated to recipients by the September 30 deadline, and the 
DOE Inspector General has recently reported[Footnote 96] that there is 
nothing to indicate that DOE's plan to obligate the remaining Recovery 
Act funding by September 30 will not be effective.

DOE announced the opportunity for interested applicants to submit 
applications for EECBG formula funding on March 26, 2009. As part of 
the application process, interested states and local units of 
government were required to submit an Energy Efficiency and 
Conservation Strategy (EECS) that described their strategy for 
achieving the goals of the program. DOE reviewed recipients' EECS and 
had 120 days to approve or disapprove EECS strategies. DOE officials 
report that as of July 2010, most recipients have had their EECS plans 
approved and are now moving from the application to the execution 
phase. Also, as of July 2010, DOE officials report that EECBG grant 
recipients have obligated to subrecipients about half ($1.3 billion) 
of the $2.8 billion awarded to recipients through formula grants. 
While most recipients are moving to implement projects, recipients 
awarded larger grant amounts have obligated about twice as much as 
recipients awarded smaller grant amounts.[Footnote 97] As of July 
2010, the 291 recipients receiving EECBG grants above $2 million have 
obligated to subrecipients about half (approximately $1.1 billion) of 
the $1.9 billion awarded to them by DOE through formula grants. The 
remaining 1,860 or so smaller communities (communities with grants 
less than $2 million) have obligated only about one-quarter of their 
EECBG awards (approximately $0.2 billion) of the approximately $0.9 
billion awarded to them by DOE through formula grants. To facilitate 
increased obligations, DOE has encouraged recipients to meet targets 
of obligating 90 percent or more of their funds by June 25, 2010.

Regarding spending, DOE reports that as of August 2010, about 18 
months since the passage of the Recovery Act, recipients have spent 
about 11 percent (approximately $311 million) of the $2.8 billion 
authorized for formula funding for the program. Consistent with this, 
many recipients we visited had spent less than 8 percent of the amount 
awarded. While many recipients have spent only a small part of their 
funding, DOE is taking steps to accelerate spending. For example, DOE 
has encouraged recipients to meet a spending target of 20 percent by 
September 30, 2010. DOE officials believe this has had a positive 
impact on spending rates. In particular, DOE officials note that many 
recipients receiving less than $250,000 met DOE's target of spending 
20 percent as of June 30, 2010--3 months ahead of schedule. DOE 
officials also note that while spending rates are at 11 percent, much 
more of the funding is obligated and projects are in the process of 
being selected and started. They note that the actual costing of the 
funds for projects is one of the last steps in the process.

EECBG Funds Are to Be Used for a Variety of Energy-Efficient Projects; 
the Majority of Funds Are Slated for Energy-Efficiency Retrofits, 
Financial Incentive Programs, and Revolving Loan Funds:

DOE placed restrictions on the selection of projects in line with EISA 
and the activities that funds are to be used for. DOE required that 
projects be selected from the 14 eligible activities identified in 
EISA. As of July 28, 2010, as shown in table 9, more than 60 percent 
of EECBG funds have been obligated for three purposes: energy-
efficiency retrofits (35.3 percent), such as replacement of heating 
and cooling systems in fire stations and libraries in the District; 
[Footnote 98] financial incentive programs, such as the rebate program 
in New Jersey that pays for energy-efficiency retrofits not already 
covered by existing incentives (15.6 percent); and building and 
facilities (11.1 percent), such as a geothermal system at a new 
corrections facility. In many of the communities we visited, energy-
efficiency improvements were made to public buildings, but the types 
of projects selected for implementation in public buildings and 
facilities varied considerably. For example, projects included 
improvements to a waste treatment plant, occupancy sensor lighting at 
public schools, solar trash compactors to reduce the frequency of 
trash pickup, solar parking meters, and replacement of personal 
computer workstations with more energy-efficient virtual desktops that 
reduce both power consumption and environmental waste.

Table 9: EECBG Activity Budgets as of July 28, 2010:

Activity: Energy-efficiency and conservation strategy; 
Proposed budget: $171,912,214; 
Percentage of total grant allocation: 6.1%.

Activity: Technical consultant services; 
Proposed budget: $165,885,751; 
Percentage of total grant allocation: 2.4%.

Activity: Residential and commercial buildings and audits; 
Proposed budget: $163,927,754; 
Percentage of total grant allocation: 2.3%.

Activity: Financial incentive program; 
Proposed budget: $1424,609,187; 
Percentage of total grant allocation: 15.2%.

Activity: Energy-efficiency retrofits; 
Proposed budget: $1958,917,290; 
Percentage of total grant allocation: 34.2%.

Activity: Buildings and facilities; 
Proposed budget: $1300,729,561; 
Percentage of total grant allocation: 10.7%.

Activity: Transportation; 
Proposed budget: $1105,925,582; 
Percentage of total grant allocation: 3.8%.

Activity: Codes and inspections; 
Proposed budget: $119,292,035; 
Percentage of total grant allocation: 0.7%.

Activity: Energy distribution; 
Proposed budget: $140,516,778; 
Percentage of total grant allocation: 1.4%.

Activity: Material conservation program; 
Proposed budget: $130,114,903; 
Percentage of total grant allocation: 1.1%.

Activity: Reduction/capture of methane/greenhouse gases; 
Proposed budget: $127,091,837; 
Percentage of total grant allocation: 1.0%.

Activity: Lighting; 
Proposed budget: $1168,743,145; 
Percentage of total grant allocation: 6.0%.

Activity: On-site renewable technology; 
Proposed budget: $1156,970,165; 
Percentage of total grant allocation: 5.6%.

Activity: Other; 
Proposed budget: $1157,000,296; 
Percentage of total grant allocation: 5.6%.

Activity: Additional funds yet to be categorized by recipients; 
Proposed budget: $122,343,300; 
Percentage of total grant allocation: 0.8%.

Activity: Competitive grant and administrative costs; 
Proposed budget: $186,020,202; 
Percentage of total grant allocation: 3.1%.

Activity: Total grant allocation; 
Proposed budget: $2,800,000,000; 
Percentage of total grant allocation: 100%[A].

Source: GAO analysis of DOE data.

[A] Percentages may not add due to rounding. 

[End of table] 

While not required, grant recipients were also encouraged to implement 
programs and projects that leveraged other public or private 
resources, enhanced workforce development, persisted beyond the 
funding period, and promoted energy market transformation, such as 
revolving loans and energy savings performance contracting.[Footnote 
99] Recipients that we visited indicated that their selection of 
projects was also based on a variety of additional criteria, 
including: communities' determination of energy savings; job creation; 
availability of staff and other resources; the extent to which 
communities could benefit after Recovery Act funds run out; the ease 
with which projects could be easily implemented; the potential for 
return on savings; and populations to be served. For example, the 
District chose to focus on target populations that they had been 
unable to serve, such as nonprofits and small businesses. Kent County, 
Michigan also considered the availability of county staff to complete 
the project. Several recipients have selected projects that leverage 
other state energy efficiency programs. For example, in Arizona, EECBG 
funds were used to take advantage of a program that encourages 
commercial and government customers to implement energy efficiency 
projects for which a public utility will pay up to 30 percent of the 
cost. In addition, a few of the recipients we visited had developed a 
revolving loan fund to provide low-interest loans for energy-efficient 
improvements in businesses and commercial buildings and facilities.

Unclear Guidance Has Hampered Project Implementation; DOE Is Taking 
Steps to Provide Greater Assistance:

While many recipients we visited reported that technical assistance, 
especially that provided by DOE project officers, was helpful, timely, 
and sufficient, some recipients and DOE project officers we 
interviewed reported that project implementation guidance, especially 
early in the process, was unclear and overwhelming and that such 
guidance has contributed to the delay of project implementation. In 
particular, several recipients we visited indicated that DOE guidance 
regarding timeline requirements, drawing down funds, and Buy American 
requirements was at times unclear, duplicative, and ever-changing. DOE 
is working to provide greater assistance to recipients that DOE 
officials believe will increase responsiveness and clarify guidance. 
In particular, DOE is adding staff in order to reduce the workload of 
project officers and monitors to give them more time to assist 
recipients. DOE also recently issued guidance that reduces reporting 
requirements, reduces workloads, and streamlines communication with 
recipients.

Regarding timeline requirements, grant recipients reported that DOE's 
guidance on the timeline for obligating, spending, and drawing down 
EECBG funds has been confusing. For example, DOE's Funding Opportunity 
Announcement, as well as its Program Notice 10-011 for the EECBG 
program, states that EECBG recipients are to obligate all funds within 
18 months of the effective date of their award and expend all funds 
within 36 months of the effective date of their award.[Footnote 100] 
Most recipients had been awarded funding in the fall of 2009, and 
several of the recipients we visited believed they were on track to 
obligate funds within 18 months of the effective date of their award 
(by the spring of 2011).[Footnote 101] However, in April 2010, DOE set 
internal milestones designed to help recipients ensure that they are 
on track to meeting their obligation and expenditure deadlines. 
Specifically, DOE requested that recipients have 90 percent of their 
funds under contract and obligated by June 25, 2010, and to spend a 
minimum of 20 percent of their funds by September 30, 2010. While DOE 
reports that some recipients found the guidance useful and that the 
new guidance was helpful in getting many recipients to obligate funds 
quickly, several recipients we visited said they were confused by this 
new guidance. These recipients expressed concern that because of the 
milestones, they had to obligate funds sooner than expected--instead 
of having 18 months to obligate funds, they had to have funds 
obligated in half the time--approximately 9 months after funds had 
been awarded. In addition, National Association of State Energy 
Officials (NASEO) representatives said that DOE had not made clear to 
recipients that the revised timelines were "milestones" and not 
deadlines and that several recipients had the impression that funds 
could be taken away if recipients did not meet the revised spending 
targets.

Regarding requirements on drawing down funds, while DOE reports that 
many recipients found information on drawing down funds helpful, a few 
recipients we visited were confused about when they needed to draw 
down funds to their accounts.[Footnote 102] These recipients believed 
that based on DOE guidance, they should draw down their entire award 
soon after it was awarded. For example, Colorado Springs, Colorado, 
officials reported that they drew down the entire $3.7 million award 
as of March 2010 based on their understanding of the Funding 
Opportunity Announcement, even though they were not yet ready to spend 
it. In April, a Colorado Springs official realized the mistake, and 
the city paid back $3.1 million in mid-May 2010. However, in Jackson 
County, Michigan, local officials also mistakenly drew down their 
award and told us that when they tried to return the money, DOE 
required them to make interest payments on the amount. DOE issued 
guidance on June 23, 2010, in response to recipient questions on 
drawing down funds.

Regarding Buy American requirements, recipients report that guidance 
on the Buy American requirement was difficult to understand and ever- 
changing. The Buy American requirement of the act generally requires 
that grant recipients use iron, steel, and manufactured goods produced 
in the United States on all Recovery Act-funded projects. However, 
some recipients found that it was unclear how to comply with the Buy 
American requirements in a reasonable way and that the guidance was 
lacking or difficult to understand. For example, Colorado Springs 
officials said that DOE did not have a list of eligible vendors and 
that trying to ensure compliance with the Buy American requirement 
delayed their light emitting diode (LED) street lighting-replacement 
projects by at least 4 months.[Footnote 103] For Berks County, 
Pennsylvania, officials, it was difficult to determine the source of 
some components of a product and therefore whether the product could 
be used. NASEO representatives said that DOE's guidance did not 
provide sufficient detail to enable officials to determine the types 
of brands or goods they could purchase and that recipients did not 
have the expertise to trace the supply chain of manufactured goods to 
determine origin. In recent months, DOE has made numerous attempts to 
help recipients understand Buy American requirements, including 
guidance e-mailed to all recipients in May, a webinar in June, and 
subsequent notice to recipients regarding the guidance. DOE officials 
did note that they were concerned about providing lists of vendors 
because that might be viewed as an endorsement of particular vendors 
at the potential exclusion of other eligible vendors. DOE officials 
said that DOE cannot recommend specific products, in part, due to the 
large number of eligible products and because of the potential ethical 
and liability concerns associated with a federal agency recommending 
specific manufacturers.

While many recipients have not had problems understanding program 
requirements and have successfully navigated requirements through 
training and technical assistance provided by project officers, DOE is 
working to give project officers the tools to better assist recipients 
in navigating DOE guidance. In particular, since March and April 2010, 
DOE has added staff in order to reduce the workload of project 
officers and monitors, which DOE officials believe has increased its 
responsiveness to recipients in clarifying guidance. In addition, as 
of July 2010, DOE is providing project officers with the Automated 
Standard Application for Payment (ASAP) reports, so that they can 
monitor the drawdown of funds. DOE has also recently standardized e- 
mail distribution lists and provided more frequent communication to 
recipients.

DOE and States Are Beginning to Monitor Grants, as Many Localities 
Rely on Existing Controls:

DOE monitors grant recipients primarily through its project officers 
and monitors. DOE project officers and monitors work directly with 
recipients to provide guidance and evaluate performance. They also 
gather and analyze information about project planning, implementation, 
and outcomes to help ensure data quality and to ensure that statutory 
requirements are met. There are three levels of review: desktop, on- 
site, and work-site reviews. During desktop monitoring, monitors 
examine recipients' reports to assess progress and determine 
compliance with federal rules and regulations, goals, and objectives 
of the grants and the reporting and tracking of resources expended by 
the recipient and its subrecipients. During on-site monitoring, 
monitors review deficiencies identified through routine monitoring and 
how the recipient is resolving the outstanding quality and operational 
issues. On-site monitoring may also include interviews with 
contractors to determine whether follow-up protocols were conducted 
and deficiencies were corrected. During work-site monitoring, monitors 
review the project, facility, or building being completed. One of the 
project officers' key functions is to conduct both on-site and desktop 
monitoring. DOE monitoring is conducted at minimum frequencies (see 
table 10), depending on the funding received by the recipient, and can 
be increased if project officers have sufficient cause, resources, 
time, and approval of management. In these reviews, project officers 
evaluate both financial and project status by evaluating financial 
records, activities, budgets, and spending plans to ensure sufficient 
progress is being made against planned activities. The monitoring 
questions were updated on July 30, 2010, downsizing the number of 
questions asked from over 100 to about 30 questions in on-site reviews 
and about 6 multi-part questions in quarterly reviews. Now, the 
desktop monitoring quarterly checklist consists of financial questions 
such as "For each activity, does the expenditure match, within reason, 
the amount of work completed?" and programmatic questions such as "For 
each activity, is the grantee on track to meet performance goals?" DOE 
is also developing guidance that includes best practices for how 
states should monitor their subrecipients.

Table 10: DOE Requirements for Frequency of Monitoring:

Type of monitoring: Desktop reviews; 
Localities receiving greater than $2 million: Monthly; 
Localities receiving $1 million to $2 million: Quarterly; 
Localities receiving $250,000 to $1 million: Quarterly; 
Localities receiving less than $250,000: Quarterly.

Type of monitoring: On-site reviews; 
Localities receiving greater than $2 million: 1-2 per year; 
Localities receiving $1 million to $2 million: 1 in the life of the 
grant; 
Localities receiving $250,000 to $1 million: 1 in the life of the 
grant for 25% of the grants; 
Localities receiving less than $250,000: 1 in the life of the grant 
for 10% of the grants.

Type of monitoring: Work-site reviews; 
Localities receiving greater than $2 million: As needed; 
Localities receiving $1 million to $2 million: As needed; 
Localities receiving $250,000 to $1 million: As needed; 
Localities receiving less than $250,000: As needed. 

Source: DOE. 

[End of table] 

As of July 28, 2010, DOE has conducted 3,985 desktop reviews of the 
EECBG program, and about 170 on-site reviews. Through its monitoring, 
DOE has found that smaller recipients have been more likely to fail to 
complete quarterly programmatic and financial reporting to DOE. While 
97 percent of larger recipients (recipients with grants greater than 
$2 million) have completed required quarterly reports due April 30, 
only 79 percent of recipients receiving less than $250,000 completed 
quarterly reports.

While DOE monitors its grant recipients (as well as conducts work-site 
reviews of subrecipients as needed), grant recipients[Footnote 104] 
are expected to monitor their subrecipients.[Footnote 105] While DOE 
does not expect grant recipients to have a formal monitoring plan, DOE 
does require that state recipients "develop a sub-granting process…
that prevents fraudulent spending"[Footnote 106] DOE is also 
developing guidance that includes best practices for how states should 
monitor their subrecipients. Several of the states we visited do have 
a formal plan in place for monitoring their subrecipients. A few of 
the states we visited have begun monitoring their subrecipients. For 
example, Colorado reviews monthly reports prepared by subrecipients, 
Michigan project managers review detailed expenditure and employment 
data submitted by subrecipients on a quarterly basis, and 
Massachusetts is beginning to monitor subrecipients through regular 
interactions with subrecipients.

DOE also expects localities to have a system for monitoring to ensure 
that subrecipients comply with EECBG requirements. However, for 
localities that received direct funding, and as we also found in our 
May 2010 report on DOE's Weatherization Assistance Program, DOE 
provides localities with discretion in developing and implementing 
internal controls, and as a result, several localities we visited did 
not have a formal monitoring plan in place for monitoring 
subrecipients or work performed.[Footnote 107] Many of the localities 
we visited have developed a system for monitoring, which may include 
monitoring procedures such as evaluation of the reasonableness of 
costs, monitoring of building improvements and post-improvement 
audits, checking payroll for compliance with Davis-Bacon requirements, 
checking the validity of expenses, and announced and unannounced site 
visits. However, despite guidance on how to report jobs, it is unclear 
if all localities' systems for monitoring include measures to ensure 
the reliability of reported data. For example, in one locality, an 
official reported that there were no data quality steps to ensure the 
reliability of the total job count. Another recipient said that it 
requested greater clarification on what was expected from DOE 
regarding internal controls but did not get more than a general answer 
about providing good accountability for the use of funds.

Recipients Face Challenges as They Begin to Report Outcomes While DOE 
Works to Provide Guidance:

EECBG recipients are required to report on outcomes quarterly to DOE 
on three categories of activity and results metrics. The categories 
are jobs created or retained; standard programmatic metrics, such as 
obligations, outlays, and metrics associated with the EECBG activity 
undertaken;[Footnote 108] and other critical metrics, such as energy 
savings and energy cost savings. Recipients report to DOE through its 
Performance and Accountability for Grants in Energy system (PAGE). In 
addition, recipients of grants greater than $2 million must report to 
DOE monthly on funds spent and funds obligated, amount of relevant 
activity completed, and additional information as required per 
activity. Several recipients we visited were reporting programmatic 
metrics such as obligations, expenditures, and jobs created. In 
addition, several recipients we visited were just beginning to 
implement projects. However, DOE officials have told us that they are 
not required to report until the completion of their projects. As a 
result, several recipients do not yet have data to report for critical 
outcome metrics such as energy savings and emissions reductions.

Some recipients we visited experienced challenges reporting outcomes 
using these metrics. For example, in one locality, officials said that 
they planned to estimate jobs because they do not have hourly 
contracts. Similarly, in another locality, officials were not aware of 
how to calculate full-time equivalents (FTE) per OMB guidance. In 
addition, because they experienced challenges in measuring impact 
metrics, recipients in Georgia have a variety of methods for 
calculating a metric value. For example, officials from Columbus, 
Georgia, stated that energy savings from upgrades to traffic lights 
will be estimated by making assumptions on the amount of energy used 
by the original lights compared to improved traffic lights. A Warner 
Robins, Georgia, official explained the city intends to report project 
impacts by comparing past monthly utility bills for the water 
treatment plant to new monthly utility bills. To measure the impact of 
energy efficiency improvements, Cobb County, Georgia, plans a mixed 
approach. According to officials, the county will take field 
measurements of the performance of old equipment prior to removal and 
replacement equipment as well as use energy models or engineering 
estimates, including estimates provided by the county's energy audit 
consultant. Cobb County also intends to use the new energy software 
procured through the EECBG grant to benchmark and track energy use, 
cost, and savings and revise calculations based on observed energy 
usage for each facility. To help ensure consistency, Georgia has 
provided guidance from DOE to its subrecipients detailing instructions 
on estimating and reporting energy savings.

In addition, some recipients experienced challenges in the process for 
reporting metrics, especially due to DOE's reporting system, PAGE. DOE 
provides resources to assist recipients in navigating the PAGE 
reporting system on a Web site and offers assistance to recipients via 
a helpdesk. However, several recipients described the reporting 
process as overwhelming or frustrating and that reporting was time 
consuming and required extensive resources. One DOE project official 
said he would like to see the reporting process streamlined because it 
is too complicated for recipients. An official from one EECBG locality 
in California said that if he had known about the extent of the 
reporting burden, he may not have applied for the grant. In 
particular, some recipients said the PAGE reporting system was not 
user-friendly, and others were confused about what to input into the 
PAGE system. Similarly, one DOE project officer said that it seems 
that every time recipients log in, there is a new structure or a new 
report that is required to be filled out. Other grant recipients said 
that using OMB's federalreporting.gov and DOE's PAGE system is 
difficult because the systems ask for information to be reported in 
different ways. In addition, some officials have reported challenges 
in understanding for how many quarters they are required to report 
some metrics, especially energy saved once a project has been 
implemented.

Adding to recipients' frustration about the reporting process has been 
the volume of contact from various DOE offices about reporting 
requirements or changes in reporting requirements. For example, one 
DOE project officer that we spoke with said that grant recipients have 
expressed frustration at having received so much e-mail about guidance 
or changes to guidance received from different DOE offices. In 
addition, in Redding, California, officials initially expressed 
frustration that questions about reporting guidance required calls to 
several DOE staff to find the right person to answer their questions. 
Kent County, Michigan, officials said that reporting has been 
challenging because of the multiple guidance released and because 
DOE's PAGE system was not user-friendly.

DOE is beginning to take steps to deal with the amount of guidance and 
requirements being provided to recipients. DOE plans to issue guidance 
in August 2010 to assist recipients in navigating the PAGE system, how 
to correctly categorize metrics and how to interpret and understand 
financial reporting requirements. In addition, DOE expects to issue 
formal guidance for the reporting period ending August 30, 2010, in 
which DOE will no longer require recipients with formula awards 
greater than $2 million to report obligations and performance metrics 
on a monthly basis. In addition, all recipients will no longer report 
hours worked through nonfederal funds or outlays of nonfederal funds 
on a quarterly basis. DOE estimates that these changes will increase 
administrative reporting efficiency by approximately 40 percent across 
the program. In addition, in June 2010, DOE began an effort called 
"One Voice" that is intended to improve and streamline communication 
with recipients. This effort will entail the circulation of a weekly 
newsletter with announcements regarding guidance, training, and events 
and will also include an effort to streamline communication via e-
mail. DOE is also working on developing specific requirements for 
closing out EECBG grants that should clarify when recipients can stop 
reporting, and a working group within DOE plans to clarify the energy 
metrics reporting guidance.

Recipients of State Energy Program Funds Are Beginning to Obligate 
Funds, Monitor, and Report on Project Outcomes:

The Recovery Act appropriated $3.1 billion to the State Energy Program 
(SEP), which is to be administered by the Department of Energy (DOE) 
and spent over a 3-year period by the states, U.S. territories, and 
the District of Columbia (the District) for 56 recipients.[Footnote 
109] The SEP provides funds through formula grants to achieve national 
energy goals such as increasing energy efficiency and decreasing 
energy costs. Created in 1996, the SEP has typically received less 
than $50 million per year. As such, the Recovery Act provided a 
substantial increase in funding for this program.

Recipients Are Making Progress Obligating Recovery Act Funds:

Recipients are making progress obligating SEP funds, according to 
August 30, 2010, data from DOE. As of August 30, 27 states, 
territories, and the District of Columbia reported obligating at least 
80 percent of their funds, meeting a departmental goal, with another 
24 states and territories reporting obligating between 50 percent and 
80 percent of their funds. Some states and territories continued to 
lag in obligating funds--5 states and territories reported obligating 
less than 50 percent of their funds.

Currently, a limited amount of national data is available on planned 
or actual state spending trends. DOE officials noted that they would 
not have final aggregate national spending data until the funds are 
fully obligated by recipients in late 2010. Until that time, funding 
may still shift among spending categories. The data provide 
information on different spending categories that have been 
recommended by DOE to recipients. The most recent data available in 
August 2010 indicated that the funds were directed to the following:

* buildings (50 percent)--programs such as school and government 
improvements, energy-efficiency building code adoption and training, 
and revolving loan programs.

* electric power and renewable energy (30 percent)--examples include 
wind turbine deployment, ground source heat pumps, and solar generation.

* industry (8 percent)--programs such as those for energy audits, 
waste reduction management, water conservation, and manufacturing 
energy efficiencies.

* policy, planning, and energy security (4 percent), which includes 
programs such as developing state energy strategic plans, energy 
policy development, and legislative initiatives.

* transportation (4 percent), which includes programs related to mass 
transit use, bike to work, telecommuting, and street light replacement.

* energy education (3 percent)--specific programs include those such 
as curricula development and K-12 education, training workshops, and 
technical and college course development.[Footnote 110]

* Recipients Are Targeting Recovery Act Funds on a Variety of 
Different Projects:

Nationally, as of August 25, 2010, approximately 75 percent ($2.31 
billion) of funds have been obligated by recipients and 10.8 percent 
($332 million) have been spent, out of the total $3.07 billion in SEP 
funds available for grants. Individually, state recipients have 
reported targeting funds to meet Recovery Act goals such as creating 
or retaining jobs while also generating-long term benefits such as 
energy and cost savings. Recipients have prioritized their spending 
priorities differently:

* California allocated the largest portion of its $226 million in 
total funds--$110 million--to improve various types of facilities, 
including residential, municipal, and commercial buildings.

* New York allocated the largest portion of its $123 million in funds--
$74 million--for energy conservation projects: energy efficiency, 
renewable energy, and clean fleets.

* Pennsylvania targeted the largest share of its $99.7 million in 
funds--$22.8 million--to help leverage private investments from wind 
energy developers and manufacturers to develop projects through a 
state wind initiative.

Recipients Are Uncertain of DOE Funding Milestones and Deadlines:

Though recipients are making progress meeting DOE funding goals, state 
energy officials noted uncertainty with meeting changing DOE 
obligation timetables. For example, in the initial funding 
announcement sent by DOE on April 24, 2009, DOE stated that funds must 
be obligated by recipients within 18 months of the award of the grant 
or face potential cancellation by DOE and spent within 36 months. 
However, the same guidance also indicates that 100 percent of funds 
must be obligated by September 30, 2010, to meet departmental and 
congressional goals. State energy officials noted that DOE later 
provided an updated correspondence on April 21, 2010, informing states 
that they were encouraged to obligate 80 percent of their funds by 
June 30, 2010, and spend 20 percent by September 30, 2010. DOE 
officials stated that the June 30 date was meant to help keep states 
on track to meet the September 30 goal. In many cases, however, states 
interpreted these dates as new deadlines and were concerned that they 
would lose access to funds partly because they had experienced 
pressure from both the administration and the department to meet these 
new funding milestones. DOE officials stated that they would be unable 
to deobligate the funds from states if the funding milestones were not 
met but also stated that they did not know whether funds could be 
reappropriated if states are unable to obligate those funds by 
September 30, 2010, as policy guidance has not been provided by the 
administration and Congress. We have previously reported that DOE has 
provided unclear funding deadlines for the Recovery Act weatherization 
program, creating confusion among state recipients trying to meet DOE 
Recovery Act deadlines.[Footnote 111]

Lack of Guidance and Other Obstacles Hampered Obligating and Spending 
Funds:

State energy officials told us that delays by DOE in providing 
guidance hampered early obligating and spending on Recovery Act 
projects. For example, both Iowa and New York state energy officials 
noted that they waited for DOE to provide guidance before moving 
forward on projects. Additionally, other state energy officials we 
spoke with through the National Association of State Energy Officials 
(NASEO) stated that while DOE guidance has significantly improved, it 
was not always timely or complete for issues such as the Recovery 
Act's Buy American and Davis-Bacon requirements. For example, 
similarly to the problems noted by EECBG funding recipients, several 
state energy officials said that while DOE provided broad guidance for 
meeting Buy American requirements, this guidance did not provide 
sufficient detail that would enable officials to determine the types 
of brands or types of goods they could or could not purchase. DOE 
officials stated that DOE is not capable of recommending specific 
products requested by recipients partly because of the large number of 
products requested. Further, DOE officials stated that there were 
potential ethical and liability concerns associated with a federal 
agency recommending specific manufacturers.

While the state officials stated that they did ask DOE for further 
advice, the response was not always timely. As an example, several 
state energy officials described one Recovery Act project that was 
held up several weeks in order to determine if energy-efficient lights 
purchased for the project met Buy American requirements. States 
further encountered challenges with meeting National Environmental 
Policy Act (NEPA) and National Historic Preservation Act policies. DOE 
officials acknowledged that NEPA requirements had added significant 
time to the process but stated that progress had been made through the 
use of categorical exclusions for projects.[Footnote 112] As of August 
23, 2010, 87 percent ($2.65 billion) of all SEP Recovery Act-funded 
projects have been granted categorical exclusions, and 75 percent 
($2.31 billion) of funds have been obligated to subrecipients for 
specific activities. Pennsylvania officials noted that National 
Historic Preservation Act requirements had slowed some projects but 
that the situation has improved through an agreement set up between 
DOE and the state historic preservation offices. While DOE officials 
have acknowledged they initially lacked the infrastructure necessary 
for rapid implementation of a SEP, they noted that DOE has made 
significant improvements in the level of guidance provided to 
recipients. For example, DOE has developed a Web site to provide 
information and guidance for recipients to comply with the Buy 
American requirements.[Footnote 113] DOE officials further stated that 
in addition to their guidance, states can also contact their DOE 
project officer for assistance on meeting Recovery Act and program 
requirements and deadlines. Overall, state energy officials spoke 
positively about their project officers, though DOE has only recently 
filled many of these positions.

Several state energy officials also noted that other obstacles such as 
the lack of energy management staff has made it more difficult to 
administer SEP projects. Specifically, District officials stated it 
was difficult to hire highly qualified people because potential staff 
did not want to leave a current permanent position for a temporary 
Recovery Act position that might only last 2 years. Similarly, Iowa 
officials noted that their efforts were hindered by the loss of two 
key staff in 2010 and that they did not want to hire staff for a 
limited duration. Additionally, California's state auditor reported in 
December 2009 that the state was not prepared to administer Recovery 
Act funds for the SEP and listed insufficient staffing as one cause 
for the lack of preparedness. The report also indicated that the lack 
of preparedness raised the potential for misuse of Recovery Act funds. 
[Footnote 114] California officials stated that following the state 
auditor's report, they have since taken actions to address inadequate 
staffing through the hiring of additional contractors.

Tracking of Recovery Act Spending for SEP Can Take Place Significantly 
after the Funds Have Been Obligated:

Both state recipients and DOE reported that the final reporting of 
spending of state energy funds can take place significantly after the 
funds have been obligated and work has begun. For example, District 
officials told us that school improvements were scheduled for late 
June, but the funds would not be reported as spent until significantly 
later because the contractor would not be paid until the work was 
completed. District officials also noted there would also be an 
additional delay in reporting the final outlay because the work was 
being conducted though a sister agency. Pennsylvania officials also 
reported delays between the time work was performed and the final 
spending was reported. State officials told us that they reimburse SEP 
subrecipients on a cost reimbursement system, after work is completed 
and invoices and proof of payment have been submitted, reviewed, and 
approved. District and Pennsylvania officials both said that 
reimbursing costs only after work is completed helps to ensure that 
the funds are spent appropriately. DOE officials stated that they have 
tried to increase the speed at which invoices have been paid to better 
demonstrate the timely use of Recovery Act funds. For example, through 
program guidance, DOE has encouraged states to pay contractors after 
specific work milestones have been achieved rather than after the 
project has been completed.

DOE Is Beginning to Monitor Recovery Act Recipient Spending:

DOE officials stated that they are currently on track to meet their 
monitoring goals. The SEP Recovery Act Monitoring Plan developed by 
DOE calls for each recipient to be visited twice a year. DOE officials 
stated that the plan provides guidance for various classes of enhanced 
monitoring and visitation, but leaves it to the discretion of the DOE 
field office to plan these trips. DOE state project officers give 
priority, on a case by case basis, to recipients facing special 
challenges. The frequency of monitoring may be increased if prior 
monitoring reports uncovered significant deficiencies in how a 
recipient is administering and managing its program. Visits to 
recipients with low obligation or expenditure rates are focused on 
providing technical assistance to help increase the rates. Overall, 
DOE officials stated that on-site monitoring will increase as payments 
grow larger.

DOE also conducts on-site monitoring visits at the subrecipient--local 
agency--level. DOE's target is to conduct on-site monitoring of about 
10 percent of all subrecipients nationwide. However, if the risks to 
the particular state are higher, then the state would be given closer 
attention by DOE staff for potential assistance. While DOE does 
conduct some on-site monitoring of subrecipients, the officials 
clarified that the main monitoring relationship is between the state 
recipient, the state energy official, and the DOE project officer. DOE 
officials stated that they view state recipient monitoring as DOE's 
main responsibility.

DOE reported that it is on track to meet its monitoring goals:

* As of late June 2010, DOE staffed a total of 29 project officers to 
56 recipients, exceeding its goals of one officer per two recipients. 
Though meeting their goal, DOE officials noted that 12 of these 
officers had been hired in the past 6 weeks.

* By the end of September 2010, DOE anticipates that all 56 recipients 
will have received the first of their required annual site visits, 
with the second follow-up site visit to be performed by the end of the 
calendar year. In addition to on-site monitoring of the states, 
project officers are also required to visit between 5 percent and 10 
percent of all subrecipients each year.

* To date, DOE has not determined any projects that are "at variance," 
indicating a high risk for funding misuse.

DOE officials noted that the primary monitoring challenge facing 
project officers and state recipients during desktop and on-site 
visits is gathering the quantity of information and other process 
indicators needed for compliance certification by the project officer. 
DOE officials stated that assistance from the field offices, the 
technical assistance provider network, and best practices from the 
state's own NASEO peer organization are helping to address this 
situation to assist states in developing effective documentation in a 
timely manner.

Recipient Monitoring Practices Vary, and Some Recipients Are Just 
Starting Recovery Act Projects:

Planned state recipient monitoring practices vary, and some recipients 
are just beginning their monitoring activities because they are just 
starting projects. For example, District officials plan to monitor 
projects via video and desk monitoring but noted that they have not 
yet started monitoring in the field. Planned monitoring will focus on 
ensuring that the work being done is consistent with the agreed-upon 
scope of work. Additionally, District officials have developed 
monitoring procedures that will include monitoring checklists of 
programmatic and financial questions, desktop monitoring, and 
financial monitoring by the District SEP/Recovery Act financial 
Officer. Pennsylvania has also developed monitoring procedures; 
project advisers from state regional offices are assigned to each SEP 
project and, using an inspection form, conduct initial and final 
inspections of projects and are encouraged to perform other 
inspections as needed. Project advisers also communicate on a weekly 
basis with SEP recipients and update project status in the agency's 
reporting system.

Some state recipients in our review are also using independent 
contractors to aid in grant monitoring at varying levels. For example, 
Colorado, California, and New York all reported hiring outside 
contractors to supplement their monitoring activities. Colorado hired 
an outside firm to manage its rebate program for appliances, energy- 
efficient measures, and renewable-energy systems, citing a need for 
expertise to handle the large growth in the program due to the 
addition of Recovery Act funds. Additionally, Colorado also recently 
issued a Request for Proposal for measurement and verification 
activities for its grant funds. Due to the significant increase in the 
size of Colorado energy programs, Colorado officials determined that 
oversight by state program managers alone is no longer sufficient. 
California officials set aside $6 million of its $226 million grant to 
hire contractors to provide, among other things, monitoring, 
verification, and audit support.

Though still in their early stages of oversight, some state energy 
officials have noted monitoring challenges. For example, Arizona 
officials noted that some rural grant recipients were more challenging 
to monitor due to their remote location. Additionally, Colorado 
officials told us that detecting fraud in rebate programs is difficult 
and that while the contractor administering the program has procedures 
in place to detect fraudulent rebate claims, it is not possible to 
ensure that 100 percent of the claims will be legitimate. Colorado 
officials further noted that there was not a clear standard for how to 
monitor certain programs such as rebate programs. DOE officials have 
acknowledged that grant programs such as revolving loan programs can 
require special skill sets to monitor and reported that they are 
taking steps to provide recipients with technical resources by early 
September 2010.

DOE and Recipients Have Reported Challenges in Meeting Recovery Act 
Outcome Reporting Requirements:

DOE officials stated that recipients have experienced challenges with 
meeting Recovery Act reporting requirements. Similar to EECBG, DOE 
requires monthly and quarterly reporting by SEP recipients to DOE. DOE 
officials stated that many state recipients have as many as 17 
different Recovery Act programs and must coordinate with many 
different state agencies to fulfill their reporting requirements. In 
turn, state agencies must also coordinate with local agencies. The 
officials said that they faced the problem of balancing state and DOE 
needs with collecting information; asking states to collect too much 
information would be overly burdensome, while collecting insufficient 
information would not allow states or DOE to track long-term outcomes. 
To help decrease the administrative burden of reporting, DOE decreased 
both its monthly and quarterly reporting requirements effective for 
the August 30, 2010, reporting deadline. The changes will decrease the 
amount of job, performance, and funding information reporting required 
and will help states focus on expending Recovery Act funds.

Both DOE and state energy officials have noted that reporting on 
outcome measures has been limited because SEP Recovery Act projects 
are in their early stages. For example, DOE officials stated that SEP 
recipients first had to report quarterly beginning in January 2010 but 
that the early reports by recipients did not include many critical 
metrics, such as total energy saved and dollars savings. DOE officials 
further stated that because outcomes such as total energy cost savings 
take time to achieve, and because the state energy offices were still 
in the initiation phases earlier in 2010, there are few outcomes to 
report. State officials have also noted that outcome data are 
currently limited due to the early stage of SEP Recovery Act projects. 
For example, District energy officials noted that they won't have data 
on calculating energy savings until projects are complete. 
Specifically, the District plans to report on energy savings and 
greenhouse gas emissions by calculating the building square footage, 
pre-and post-installation utility bills, as well as the energy-savings 
measures installed and the dollars spent. On-site monitoring will be 
an important part of the verification process.

State energy officials have indicated difficulties with reporting 
information into DOE's primary reporting system, PAGE. For example, 
Iowa noted that PAGE was not compatible with their existing grant 
management system or other federal reporting systems, which meant that 
data had to be input twice. DOE's Inspector General also described 
significant issues with PAGE in a recent report.[Footnote 115] Along 
with other concerns, the report indicated that DOE officials "did not 
seek input from grant recipients--the system's external users--related 
to the design of PAGE due to the limited time before the system had to 
be operational." To assist states with reporting, a NASEO official 
stated that DOE has asked NASEO to work with each recipient to 
complete the submissions through PAGE. Additionally, DOE officials 
stated that the contractor that developed PAGE is providing additional 
assistance and feedback to the recipients on data entry issues.

DOE's Weatherization Assistance Program:

The Recovery Act appropriated $5 billion for the Weatherization 
Assistance Program, which the Department of Energy (DOE) is 
distributing to each of the states, the District of Columbia 
(District), all five territories, and two Indian tribes. According to 
DOE, during the past 33 years, weatherization has helped more than 6.4 
million low-income families by making long-term energy-efficiency 
improvements to their homes such as installing insulation; sealing 
leaks; and modernizing heating equipment, air circulation fans, and 
air conditioning equipment. These improvements enable families to 
reduce energy bills, allowing them to spend their money on more 
pressing needs. The Recovery Act appropriation represents a 
significant increase for a program that has received about $225 
million per year in recent years.

During 2009, DOE obligated about $4.73 billion of the Recovery Act's 
weatherization funding to the states, territories, and tribes, while 
retaining about 5 percent of funds to cover the department's expenses. 
Initially, DOE provided each recipient with the first 10 percent of 
its allocated funds, which could be used for start-up activities such 
as hiring and training staff, purchasing needed equipment, and 
performing energy audits of homes, among other things.[Footnote 116] 
Before recipients could receive the next 40 percent of their funds, 
DOE required each to submit a weatherization plan outlining how it 
would use its Recovery Act weatherization funds. These plans 
identified the number of homes to be weatherized and included 
strategies for monitoring and measuring performance. By the end of 
2009, DOE had approved the weatherization plans of all 58 recipients 
and had provided all recipients with half of their weatherization 
funds under the Recovery Act.[Footnote 117] According to DOE 
officials, as of June 30, 2010, about 166,000 homes have been 
weatherized nationwide, or about 29 percent of the approximately 
570,000 homes currently planned for weatherization. To release the 
remaining 50 percent of funds, DOE requires that recipients complete 
weatherizing 30 percent of the homes identified in their 
weatherization plans and meet other requirements--namely, fulfilling 
the monitoring and inspection protocols established in its 
weatherization plan; monitoring each of its local agencies at least 
once each year to determine compliance with administrative, fiscal, 
and state policies and guidelines; ensuring that local quality 
controls are in place; inspecting at least 5 percent of completed 
units during the course of the respective year; and submitting timely 
and accurate progress reports to DOE, and monitoring reviews, to 
confirm acceptable performance. Recovery Act funds are available for 
obligation by DOE until September 30, 2010, and DOE has indicated that 
the recipients are to spend their Recovery Act weatherization funds by 
March 31, 2012.

Recipients' Access to Recovery Act Funding for Weatherization Varies 
Due to Uneven Progress in Meeting DOE's Requirements:

Recipients' ability to access all of their Recovery Act weatherization 
funding by meeting DOE's requirements varies considerably. DOE records 
indicate that as of June 30, 2010, 29 states had weatherized at least 
30 percent of their total planned units. As of August 2010, DOE 
reported it had released the remaining 50 percent of funds to 22 
states that had met the other requirements.[Footnote 118] Of the 7 
states and the District in our review for the Recovery Act 
weatherization program, two states, Iowa and Arizona, have been 
granted access to their remaining 50 percent.[Footnote 119] In Iowa, 
DOE released about $40.4 million after the state reported its 
completion of weatherizing 2,179 homes--more than 30 percent of its 
target of 7,196 homes. Similarly, in Arizona, officials reported the 
state had weatherized 1,930 homes, about 30 percent of its 6,414 total 
estimated homes, and gained access to the remaining $28.5 million.

Additionally, other states, such as California and Florida, are close 
to meeting their 30 percent production targets. Despite a delayed 
start in spending Recovery Act funds, California reported weatherizing 
8,679 homes out of its total estimated production target of 43,150 
units as of June 30, 2010. Similarly, Florida officials reported a 
total of 3,878 single-family residences had been weatherized, or about 
20 percent of the total 19,090.[Footnote 120] Furthermore, both 
California and Florida officials report they are on track to 
weatherize 30 percent of their total estimated units by September 30, 
2010.

Some recipients that we found to be behind schedule in our May 2010 
report, such as the District and Georgia, have since increased their 
weatherization of units; however, these recipients still have not met 
production goals requested by DOE.[Footnote 121] For example, as of 
March 31, 2010, we found service providers in the District and Georgia 
had weatherized about 14 percent and 11 percent of homes identified in 
their state weatherization plans, respectively. By the end of June 
2010, although both recipients' production targets were still below 
DOE's approved goal of 30 percent, the District and Georgia reported 
they have increased their production to about 25 percent and about 22 
percent, respectively.

Some Recipients Still Face Challenges with Implementing Internal 
Controls to Ensure Program Compliance:

Some recipients are still challenged with establishing controls to 
ensure compliance with weatherization program and Recovery Act 
requirements. DOE has issued guidance requiring recipients of Recovery 
Act weatherization funds to implement a number of internal controls to 
mitigate the risk of fraud, waste, and abuse. In our May 2010 report, 
we recommended that DOE should develop best practices for key internal 
controls that should be present at the local weatherization agency 
level to ensure compliance with key program requirements.[Footnote 
122] DOE provides recipients with the discretion to develop and 
implement these internal controls in accordance with each state's 
weatherization plan. Local agencies use various methods to prevent 
fraudulent or wasteful use of Recovery Act funds, such as conducting 
risk assessments.

Since our last report, we have identified challenges in the 
implementation of internal controls for some local weatherization 
agencies. For example, in the District, we conducted client file 
reviews and found that while some weatherization project data were not 
present in the physical files, much, but not all, of this data was in 
an online software system used to manage weatherization projects. 
While the online system appeared to be a useful tool in managing 
weatherization projects, it has not yet been fully implemented and 
does not contain all of the data necessary to track individual 
weatherization projects from start to finish. As a result, at the time 
of our review, neither the physical files nor the online 
weatherization management system presented a complete record of 
weatherization projects. District officials reported that they 
conducted inspections of local weatherization agencies in early July 
2010--roughly 2 weeks after our review--and found that all agencies 
they reviewed had copies of all required documentation in the physical 
files. Additionally, District officials reported they are continuing 
to fully implement the online reporting system and address issues 
associated with incomplete data. In Florida, the state agency 
responsible for administering the program had instituted various 
management controls over the program, but our review of two local 
weatherization agencies revealed internal control gaps and compliance 
issues similar to those identified in our May 2010 report.[Footnote 
123] For example, weatherization work done was often not consistent 
with the recommendations of home energy audits and no reasons were 
given for the differences; in some instances, work was charged to the 
program but not done or lacked quality; several potential health and 
safety issues were not addressed; and contractors' prices were not 
being compared to local market rates, as required by the state 
weatherization agency. State officials have acknowledged these 
problems and have taken steps to address the problems, including 
changing procedures and guidelines and instructing contract field 
monitors to be more attentive to these issues. The two local 
weatherization agencies we reviewed also agreed to take corrective 
actions.

Most States We Reviewed Have Varying Levels of Monitoring Procedures:

Most of the states we reviewed have oversight procedures in place to 
monitor local agencies; however, the level of monitoring varies 
considerably. DOE requires state weatherization agencies to conduct on-
site monitoring of all weatherization service providers to inspect the 
management of funds and the production of weatherized homes at least 
once a year. These monitoring visits consist of a financial review of 
the service provider's records pertaining to salaries, materials, 
equipment, and indirect costs; program reviews of the service 
provider's records, contracts, and client files; and a production 
review, consisting of the inspection of weatherized homes by the state 
agencies and by the service provider. In our May 2010 report, we 
recommended that DOE set time frames for development and 
implementation of state monitoring programs; DOE generally agreed with 
this recommendation and indicated it will take steps to address this 
issue.

We found in the states we reviewed that levels of monitoring varied 
considerably. Some state monitoring plans are fully implemented. For 
example, in Arizona, state officials reported program monitors conduct 
file reviews of all completed units each month using a statewide 
database. Also, program monitors visit each of the 10 service 
providers at least once a month, exceeding DOE's requirement of yearly 
visits to local service providers. Iowa officials reported inspecting 
at least 5 percent of the weatherized homes for each local agency and 
providing monitoring at 15 of 18 local agencies.

In contrast, monitoring procedures in other states have either just 
been fully implemented or are still facing challenges. We identified 
some issues in our May 2010 report related to weatherization 
monitoring in Georgia. Some monitoring positions remained vacant, and 
oversight of the providers had been slow to start.[Footnote 124] 
However, state officials at the agency responsible for the 
weatherization assistance program have since taken steps to address 
these issues. Specifically, they told us that their contractor had 
filled all monitoring positions, and all 22 of its providers have 
received monitoring visits. Additionally, Pennsylvania officials are 
still facing challenges. For example, state officials reported 
weatherization program monitors are not in compliance with some 
Recovery Act monitoring procedures, and they are not getting about 
half of their monitoring reports back to the agencies within 30 days 
of the site visit. DOE reported the need for Pennsylvania's department 
responsible for administering the program to improve the financial 
management system to better track actual costs for each unit 
weatherized on a service provider basis. State officials reported they 
are working on corrective actions to address these concerns by August 
2010.

Finally, some recipients, such as California and the District, were 
delayed in spending Recovery Act weatherization funds and have just 
begun to implement monitoring efforts. For example, in California, 
program officials recently began on-site monitoring of Recovery Act 
activity in June 2010, and by July 31, they visited seven of the 38 
service providers. Additionally, program officials also conduct 
quarterly performance visits as needed for providers with production 
deficiencies, monthly Recovery Act expenditure and performance 
analyses, fiscal monitoring, on-site monitoring of whistleblower 
complaints and high-risk agencies, and Davis-Bacon on-site reviews to 
ensure employees are paid appropriately and paperwork is in 
compliance. Similarly, District officials reported a number of 
monitoring procedures are in place, such as annual monitoring reviews 
of local weatherization agencies and site inspections of at least 10 
percent of weatherized units. District officials told us that, as of 
July 15, 2010, their program managers had conducted monitoring visits 
of all seven local weatherization agencies, and program auditors had 
begun conducting site inspections for the quality assurance of work 
completed by contractors.

Some States Are Measuring Long-Term Energy Savings Resulting from the 
Recovery Act Weatherization Funds, While Others Are Still in 
Development:

With respect to energy cost savings, some states are actively 
measuring energy savings, while others are beginning to develop 
methods to do so. As with EECBG and SEP, weatherization recipients are 
required to report on different program metrics, both monthly and 
quarterly. A long-term goal of the weatherization program is to 
increase energy efficiency through cost-effective weatherization work, 
and DOE relies on its recipients to ensure compliance with this cost-
effectiveness requirement. For example, in Arizona, the agency 
responsible for administering the weatherization program calculates 
the estimated kilowatt hour usage reduction and utility costs savings 
resulting from weatherization work performed on homes. As of June 
2010, officials estimated that Recovery Act weatherization services 
have resulted in approximately $267,000 in savings for the residents 
in the 1,930 homes weatherized. Florida officials reported contracting 
with the University of Florida to conduct a study of overall energy 
savings utilizing consumption data obtained from clients' utility 
bills. Alternatively, District officials are still developing a 
methodology to capture energy savings for weatherized homes. In July 
2010, Georgia officials stated it had begun using a Web-based 
reporting tool to track real-time information on energy savings. In 
addition, program monitors will track and compare energy costs after 
weatherization work has been completed for 3, 6, and 12 months. While 
California estimated annual energy savings of about $1.5 million 
resulting from Recovery Act funds, state officials currently do not 
anticipate attempting to calculate actual energy savings and noted 
that they would like more guidance from DOE on its effort to study 
energy savings.

DOE Generally Agreed with the Recommendations Issued in Our May 2010 
Report and Has Taken Some Steps toward Implementation:

In our May 2010 report, we provided eight recommendations and raised 
concerns about whether program requirements were being met.[Footnote 
125] DOE generally agreed with all of our recommendations and has 
begun to take several steps in response. For example, DOE reported 
that it has drafted national workload standards to address our 
concerns regarding training, certification, and accreditation. DOE 
plans to issue these standards to recipients in October 2010. DOE is 
still in the process of considering our recommendations and will 
provide additional information on how they plan to fully implement our 
recommendations at a later date.

Housing Agencies Have Been Using Recovery Act Funds for a Variety of 
Projects, and HUD's Initial Monitoring Efforts Have Identified 
Problems with Obligations for Some Projects:

Competitive Grants for Public Housing Capital Fund Have Supported a 
Variety of Projects:

The Recovery Act requires the U.S. Department of Housing and Urban 
Development (HUD) to distribute nearly $1 billion to public housing 
agencies based on competition for priority investments, including 
investments that leverage private sector funding or financing for 
renovations and energy conservation retrofitting. In September 2009, 
HUD awarded 396 competitive grants in the amount of $995 million to 
212 public housing agencies. (Subsequently, three housing agencies 
returned competitive grants totaling approximately $14 million to 
HUD). The Recovery Act required housing agencies that received 
competitive grants to obligate 100 percent of their competitive grant 
funds within 1 year of the date when competitive funds became 
available to agencies for obligation, which means they have until 
September 2010 to obligate 100 percent of their funds.[Footnote 126] 
As of August 7, 2010, 179 housing agencies reported obligations 
totaling about $460.1 million for 340 grants. This reflects about 46.3 
percent of the total Public Housing Capital Fund competitive funds 
allocated to them (see figure 24). In addition, there were 57 grants 
(14 percent) located at 39 housing agencies for which no competitive 
funds had been obligated. Further, another 102 grants (26 percent) had 
less than 20 percent of their funds obligated. As the September 2010 
obligation deadline approaches, HUD officials said they are working to 
ensure that housing agencies meet the deadline, but expect that some 
housing agencies may not. HUD will recapture any funds not obligated 
by the deadline and return them to the Department of the Treasury. One 
hundred forty-four housing agencies had also drawn down funds to pay 
for project expenses already incurred. As of August 7, 2010, these 144 
public housing agencies had drawn down about $93.5 million, or about 
9.4 percent of the total allocated to them. The Recovery Act required 
housing agencies to expend 60 percent of obligated funds within 2 
years and expend 100 percent of Recovery Act funds within 3 years of 
the initial date when funds were provided to agencies for obligation.

Figure 24: Percentage of Public Housing Capital Fund Competitive 
Grants Allocated by HUD That Have Been Obligated and Drawn Down 
Nationwide as of August 7, 2010:

[Refer to PDF for image: 3 pie-charts, 2 bar graphs] 

Funds obligated by HUD: $981,101,426: 98.6%; 
Funds drawn down by public housing agencies: $460,166,803: 46.2%; 
Funds obligated by public housing agencies: $93,491,682: 9.4%. 

Number of grants: 
Awarded by HUD: 396; 
Obligating funds: 340; 
Drawing down funds: 255. 

Number of public housing agencies: 
Awarded by HUD: 212; 
Obligating funds: 179; 
Drawing down funds: 144. 

Source: GAO analysis of data from HUD's Electronic Line of Credit 
Control System. 

[End of figure]

More specifically, housing agencies have been using their competitive 
grants for the creation of energy-efficient communities, gap financing 
for projects stalled because of financing issues, public housing 
transformation, and improvements addressing the needs of the elderly 
or persons with disabilities:

* For the creation of energy-efficient communities, HUD awarded 36 
grants totaling $299.7 million for substantial rehabilitation or new 
construction and 226 grants totaling $305.8 million for moderate 
rehabilitation. For example, in New Jersey funds are to be used to 
incorporate green features in two new buildings with public housing 
units. Some of the energy-efficient features of the project include 
water conserving fixtures, Energy Star lighting packages in all 
interior units, and Energy Star or high-efficiency commercial grade 
fixtures in all common areas, as well as daylight sensors or timers on 
all outdoor lighting. In Massachusetts, funds are to be used to reduce 
the annual energy and water costs of more than $4,000 per unit in a 
physically distressed site. The project will redevelop a portion of 
the site into innovative, high-efficiency affordable housing for 
current residents with the new construction of 96 affordable rental 
units and a community center.

* For gap financing for projects that were stalled due to financing 
issues, HUD awarded 38 grants totaling $198.8 million.[Footnote 127] 
For example, in Pennsylvania, $10 million in funds are to be used to 
construct 50 units of a 101-unit development that will be a mixture of 
walk-up and duplex apartments and three-scattered site buildings 
replacing a high-rise building demolished in 2008.

* For public housing transformation, HUD awarded 15 grants totaling 
$95.9 million to revitalize distressed or obsolete public housing 
projects. For example, in Illinois, funds are to be used on a 
multiphase, mixed-finance project that will build public housing, 
rental, and for-sale apartments and houses on housing agency land and 
vacant city lots.

* For improvements addressing the needs of the elderly or persons with 
disabilities, HUD awarded 81 grants totaling $94.8 million. For 
example, in Texas, funds are to be used to complete work on common 
areas to make them accessible and ADA-compliant, upgrade and improve 
space used for supportive services, and add energy-efficient lighting, 
heating, ventilating, and air conditioning in properties housing the 
elderly. In California, funds are to be used to provide upgrades to 
nine dwelling units for accessibility improvements for the elderly and 
disabled, as well as improvements to common spaces used for supportive 
services targeted to those residents.

As discussed above, HUD officials expect that some housing agencies 
may not meet the September 2010 competitive grant obligation deadline. 
They noted that among all the competitive grant projects nationwide, 
the 75 grants supported by mixed-financing have been at greatest risk 
of missing the obligation deadline. HUD's Office of Urban 
Revitalization has assigned a grant manager to each of the mixed-
finance competitive grant projects to track and monitor their 
progress. Officials with 5 of the 10 housing agencies we visited that 
had received competitive grants told us they were experiencing 
challenges related to mixed-financing of their projects, but they 
still anticipated meeting the deadline. Because funding for these 
projects comes from multiple sources, if one financing party is not 
able to finalize its part of the contract by the obligation deadline, 
the housing agency will not be able to close on the contract. As a 
result, the housing agency would not be able to obligate its 
competitive grant funds on time and the funds would be recaptured. For 
example, one housing agency is relying on a 4 percent low-income 
housing tax credit to pay for about $10 million of the $40 million 
cost for the first phase of its project. The 4 percent tax credit was 
contingent on the state selling tax-exempt bonds, and according to HUD 
field office officials, the state's difficulty doing so had prevented 
the housing agency from securing the tax credit. State officials told 
us they notified the project developer on August 5, 2010, that the tax-
exempt bonds, which will generate the tax credits, had been approved, 
which would allow the housing agency to submit its final paperwork to 
HUD by September 18, 2010.

Additionally, HUD field staff have taken several steps to assist 
public housing agencies in obligating Recovery Act competitive grant 
funds by the September 2010 deadline. HUD field officials told us that 
they have been communicating regularly with housing agencies via e-
mail and telephone to address their questions, provide technical 
assistance, and monitor their progress. For example, field staff in 
one field office in Texas use weekly conference calls to communicate 
with all of the housing agencies in their jurisdiction and answer 
their questions about obligation-related issues for competitive 
grants. The officials also told us they have dedicated three staff to 
work with the five public housing agencies under their jurisdiction 
that received 14 competitive grants. HUD field staff in Illinois have 
contacted each competitive grant recipient in their region on a weekly 
basis and use an internal tracking sheet to monitor progress. HUD 
officials in Massachusetts have provided additional oversight to 
smaller housing agencies to help them better understand federal 
procurement policies. Based in part on these efforts, HUD field staff 
believed that housing agencies in Massachusetts would meet the 
September 2010 obligation deadline.

As we note in our May 2010 Recovery Act report, HUD plans to 
redistribute $17.16 million of competitive and formula grant funds 
that were rejected or returned by housing agencies by awarding a new 
set of competitive grants.[Footnote 128] HUD plans to redistribute 
these funds to qualified housing agencies that previously applied for 
competitive grants but did not receive them because HUD had obligated 
all of the nearly $1 billion allocated to the program. Given HUD's 
emphasis on green, energy-efficient housing, HUD will limit the 
redistribution of funds to those applications for energy retrofit 
projects. Prior to funding any of the remaining applications, HUD 
planned to verify that potential recipients still would be able to 
complete the work outlined in their original applications and that 
they currently are in compliance with Recovery Act requirements. Of 
the 23 public housing agencies that HUD has contacted and verified 
their eligibility to receive additional competitive grant funds, 22 
agencies accepted the additional funds. According to HUD officials, 
they may be able to redistribute these funds by the end of fiscal year 
2010. According to HUD officials, once the housing agencies receive 
the redistributed funds, housing agencies must obligate 100 percent of 
the funds within 1 year, expend 60 percent within 2 years, and expend 
100 percent within 3 years.

Public Housing Capital Fund Formula Grants Have Also Supported a 
Variety of Projects:

The Recovery Act required HUD to allocate $3 billion through the 
Public Housing Capital Fund to public housing agencies using the same 
formula for amounts made available in fiscal year 2008. HUD allocated 
Capital Fund formula dollars to 3,134 public housing agencies shortly 
after passage of the Recovery Act and, after entering into agreements 
with housing agencies, obligated these funds on March 18, 2009. As we 
previously reported, all housing agencies met the March 17, 2010, 
obligation deadline for formula grants by either obligating all of 
their funds or rejecting or returning a portion of the funds.[Footnote 
129] The Recovery Act also required that public housing agencies 
expend 60 percent of their formula funds within 2 years from when the 
funds became available and expend 100 percent of their formula grant 
funds within 3 years from when the funds became available. Housing 
agencies have been making progress in drawing down funds in accordance 
with these deadlines. According to HUD data, as of August 7, 2010, 
3,075 housing agencies had drawn down funds totaling more than $1.6 
billion from HUD, or about 55 percent of the total allocated to the 
housing agencies, to pay for project expenses already incurred (see 
figure 25).

Figure 25: Percentage of Public Housing Capital Fund Formula Grants 
Allocated by HUD That Have Been Obligated and Drawn Down Nationwide as 
of August 7, 2010:

[Refer to PDF for image: 3 pie-charts, 2 bar graphs] 

Funds obligated by HUD: $2,981,562,859: 99.9%; 
Funds drawn down by public housing agencies: $2,981,562,859: 99.9%; 
Funds obligated by public housing agencies: $1,626,703,607: 54.5%. 

Number of public housing agencies: 
Were allocated funds: 3,134; 
Have drawn down funds: 3,109; 
Obligated 100% of funds: 3,075. 

Source: GAO analysis of data from HUD's Electronic Line of Credit 
Control System. 

[End of figure]

Public housing agency officials said they have been using these funds 
to support a variety of improvement projects at public housing sites, 
including performing roofing and gutter work, replacing windows and 
doors, rehabilitating unit interiors, and replacing heating, cooling, 
and hot water systems. For example, a housing agency in California 
used formula funds to rehabilitate vacant units at two sites quickly 
to make them available for lease to prospective low-income tenants. 
Work at both sites included repairing damaged walls, ceilings, and 
floors; removing old plumbing fixtures; replacing tile and appliances; 
and painting the interiors of units (see figure 26).

Figure 26: Before and After Photographs of the Alice Griffith Project 
in San Francisco, California:

[Refer to PDF for image: 2 photographs] 

Sink prior to rehabilitation; 
Sink after rehabilitation. 

Source: San Francisco Housing Authority. 

[End of figure]

In Pennsylvania, a housing agency is using formula funds to 
rehabilitate 23 row houses on the last remaining blighted block 
adjacent to a large redevelopment the housing agency had already 
completed. Combined with the previous redevelopment, once this project 
is complete, there will be more than 700 total units in an approximate 
four square block area. Work on the last block of the development 
began in March 2010 (see figure 27). According to housing agency 
officials, this redevelopment project not only has provided additional 
public housing units, but also has increased property values for row 
homes in the area from $40,000 or $50,000 to asking prices of up to 
$125,000.

Figure 27: Public Housing Rehabilitation Using Recovery Act Capital 
Fund Competitive Grant in Philadelphia, Pennsylvania:

[Refer to PDF for image: 2 photographs] 

Public housing units under rehabilitation; 
Public housing units previously rehabilitated. 

Source: GAO. 

[End of figure]

Results of HUD's Initial Second Year of Monitoring Efforts Have 
Identified Few Problems with Housing Agencies' Obligations of Funds:

HUD has employed multiple monitoring efforts for Recovery Act funds 
and has found that only a few housing agencies had deficiencies 
relating to their obligations. For the second year of implementation, 
HUD's strategy for monitoring Recovery Act formula and competitive 
grant funds includes a combination of remote and on-site reviews of 
housing agencies' administration of Recovery Act requirements, the 
same approach it used for monitoring housing agencies during the first 
year of the Recovery Act. Specifically for the formula grant funds, 
HUD developed a four-tier monitoring approach that includes:

* quick-look reviews of all Recovery Act formula grant obligation 
documents generated from February 26, 2010, to March 17, 2010, by 543 
housing agencies that had obligated less than 90 percent of formula 
grant funds as of February 26, 2010. HUD completed the quick-look 
reviews in July 2010;[Footnote 130]

* on-site and remote reviews. Housing agencies currently designated as 
troubled will have a minimum of one on-site review. Housing agencies 
that are nontroubled may be subject to additional remote or on-site 
reviews depending upon factors including having open audit findings, 
failing to expend funds in prior years, and having procurement-related 
deficiencies such as not revising procurement policies to reflect 
Recovery Act requirements. HUD anticipates that about 25 percent of 
grant recipients will be subject to these reviews, which the agency 
plans to complete by February 2011;

* quality assurance and quality control reviews by HUD's Office of 
Field Operations, which HUD plans to conduct between December 2010 and 
March 2011; and:

* independent reviews (performed by an outside contractor) of housing 
agencies that HUD identified as being the top 100 to 125 funded 
agencies with the largest formula grant award amount. The independent 
reviews are to be completed by June 2011.

According to HUD officials, as a result of its quick-look reviews of 
543 housing agencies, HUD staff identified 26 housing agencies that 
were potentially deficient in meeting HUD requirements for obligating 
formula grant funds and required further review. For example, some 
housing agencies signed contracts to obligate funds after the March 
17, 2010, deadline. HUD staff also determined that some housing 
agencies obligated funds for products and services that were not 
approved for Recovery Act use, such as paying the local police 
department to provide security services. In addition, HUD staff 
identified 24 housing agencies with minor deficiencies that did not 
warrant further review. Finally, there were 22 housing agencies that 
did not submit final documentation requested by HUD staff for the 
quick-look reviews. HUD plans to conduct on-site reviews of those 
housing agencies if they do not submit the requested documentation.

HUD created a panel comprised of officials from its Office of Field 
Operations, Office of Capital Improvements, and Office of General 
Counsel to examine in greater detail those 26 housing agencies with 
potential deficiencies identified via the quick-look reviews, as well 
as potential deficiencies identified by other means. Of the 26 housing 
agencies, the panel determined that deficiencies at 8 housing agencies 
were significant and necessitated a recapture of funds. As of August 
27, 2010, the panel reviews identified approximately $1 million in 
Recovery Act funds that necessitated recapture. HUD is in the process 
of recapturing these funds and will return them to the Department of 
the Treasury. HUD plans to continue conducting panel reviews and will 
recapture Recovery Act funds from any housing agency found to have 
deficiencies.

HUD adopted a similar multi-review approach for its second-year 
monitoring of Recovery Act competitive grant funds. HUD has been 
conducting remote reviews of all 393 competitive grants and had 
planned to complete them by August 20, 2010. As of August 23, 2010, 
HUD field staff reported having completed 371 remote reviews of 
competitive grants. HUD officials are in the process of analyzing the 
results of these reviews. While HUD officials have not completed their 
reviews, as of August 27, 2010, the agency may recapture approximately 
$12 million in competitive grant funds based on remote review findings 
and other means. For example, after reviewing one project's proposed 
building site, HUD staff found that the project would be located in an 
industrial space next to a railroad track with little access to 
roadways, raising both transportation and environmental concerns. HUD 
also plans to conduct quality assurance and quality control reviews 
for a random sample of 20 to 25 percent of the remote reviews, which 
HUD plans to complete by September 2010. In October and November 2010, 
HUD also plans to review obligations made by housing agencies that had 
not fully obligated their grant funds within 2 weeks of the September 
2010 deadline. Finally, from January to March 17, 2011, HUD plans to 
conduct on-site reviews of all eight housing agencies that received 
competitive grant funds and were designated as troubled as of 
September 30, 2009. Given that less than half of the competitive grant 
funds have been obligated to date, we believe that it is important for 
HUD to continue to closely monitor progress in meeting the obligation 
deadline. In addition, because HUD identified some deficiencies among 
those housing agencies that obligated their formula grant funds near 
the deadline, we believe it will be important for HUD also to review 
those competitive grant obligations made by housing agencies just 
prior to the deadline.

As part of its second-year strategy, HUD developed a management plan 
for the administration of Recovery Act funds, including the need for 
an additional 11 FTEs to carry out Recovery Act responsibilities. This 
was in response to our March 2010 recommendation that HUD develop such 
a plan to address its resource needs for both the Recovery Act funds 
and the existing Capital Fund program.[Footnote 131] Similarly, HUD's 
Office of Public and Indian Housing also agreed to develop a 
management plan addressing the activities and resources needed to 
administer its existing Capital Fund program. In July 2010, HUD 
provided us with its management plan for the Public Housing Capital 
Fund program. The plan summarized the key activities HUD undertakes to 
monitor and facilitate the use of these funds by program area, 
including rule and policy development, planning, program awards, 
program management, technical assistance, and reporting. The plan also 
included the specific activities, tasks, and resources used for each 
of these existing program areas, identifying approximately 91 existing 
FTEs in its headquarters and field offices to support these 
activities. According to HUD's management plan, HUD's current staffing 
level is sufficient to manage its existing Capital Fund program, but 
the agency could more efficiently utilize its current resources. As a 
result, HUD plans to realign current staff to focus on its core 
missions, including Recovery Act responsibilities.

HUD's management plan for its existing Capital Fund program states 
that HUD currently has the staff and resources required to effectively 
implement its core programs. However, officials in two HUD field 
offices we visited stated that they revised their oversight strategies 
for their regular programs to accommodate Recovery Act work. For 
example, officials in one HUD field office told us that most of the 
field office's resources have been devoted to the Recovery Act and, as 
a result, staff have done less on-site monitoring of non-Recovery Act 
grant recipients. However, the officials noted that their staff still 
have been conducting remote monitoring of all recipients, although 
staff have not conducted any asset management reviews of grant 
recipients this year.[Footnote 132] At another HUD field office, an 
official told us that since the Recovery Act was passed, Recovery Act 
work has been a top priority for HUD nationwide. He noted that other 
housing work, especially conducting on-site reviews, has been deferred 
to meet Recovery Act requirements. According to HUD headquarters 
officials, as a consequence of field office monitoring of Recovery Act 
requirements, field staff conducted reviews (on-site or remote) of 
every housing agency in the country, something they would not have 
accomplished in the course of their routine monitoring activities. HUD 
officials also stated that field staff were able to strengthen housing 
agency officials' knowledge of contract administration and forge 
stronger relationships with a greater number of housing agencies as a 
result of their Recovery Act oversight.

HUD Has Taken Additional Action to Improve Quality of Recipient 
Reported Data:

HUD officials told us they have been using the same quality review 
procedures for the fourth recipient reporting period as they did for 
the third reporting period. However, HUD also issued additional 
guidance to recipients to help them more accurately report job-related 
data. Although HUD does not play a direct role in compiling the 
recipient data, officials noted they continued to support recipients' 
report preparation by providing technical assistance, including 
issuing guidance, conducting conference calls, manning a call center, 
and transmitting regular e-mail correspondence. Officials also told us 
that their data quality reviews of recipient reports continued to 
include automated data checks to flag values in specific fields that 
were incorrect or that fell outside of parameters that HUD had defined 
as reasonable and to generate comments notifying housing agencies of 
the potential errors. HUD officials told us that they also have been 
using the same processes from the third reporting period for checking 
for and addressing errors in job-count totals for the fourth reporting 
period. The officials noted that their on-time reporting rate for the 
fourth reporting period was high and their error rate continues to 
decline with each reporting cycle. We are in the process of assessing 
the transparency of information reported in Recovery.gov for three HUD 
Recovery Act programs, including formula grants awarded through the 
Public Housing Capital Fund program.

As we reported in May 2010, officials with two housing agencies 
reported using an out-of-date version of HUD's jobs-counting 
calculator for the third round reporting period. To ensure that 
housing agencies use the correct jobs calculation, we recommended that 
HUD clearly emphasize to housing agencies that they discontinue use of 
the outdated jobs calculator provided by HUD in the first round of 
recipient reporting. In response to our recommendation, HUD sent an e-
mail to housing agencies on June 30, 2010, that explicitly instructed 
them not to use the outdated jobs-counting calculator, as it was not 
correctly computing the FTE calculation per updated OMB guidance. This 
e-mail also included a link to HUD's new online jobs-counting 
calculator and instructed housing agencies to use this calculator for 
the July, and all future, reporting periods.

OMB's December 2009 guidance states that to the maximum extent 
practicable, job information should be collected from all 
subrecipients and vendors in order to generate the most comprehensive 
and complete job impact numbers available. As we reported in May 2010, 
for the third reporting period, at least one housing agency did not 
report job information for subcontractors even when the subcontractors 
were providing essential goods and services for Recovery Act-funded 
projects. We recommended that HUD issue guidance to housing agencies 
that explains when the prime recipient should report FTEs attributable 
to subcontractors. In response to our recommendation, HUD notified 
housing agencies in a June 30, 2010, e-mail that it had developed 
additional guidance for housing agencies to use when determining 
whether prime recipients should report FTEs for subcontractors and 
provided a link to the guidance on its Web site. The guidance noted 
that housing agencies should include Recovery Act-funded hours that 
contractors and subcontractors worked as part of their FTE calculation.

HUD and Treasury Continue Making Progress Outlaying TCAP and Section 
1602 Program Funds, but Opportunities Exist to Improve Plans for 
Oversight and Meeting Challenging Project Spending Deadlines:

The Recovery Act established two funding programs that provide capital 
investments to Low-Income Housing Tax Credit (LIHTC) projects: (1) the 
Tax Credit Assistance Program (TCAP) administered by HUD and (2) the 
Grants to States for Low-Income Housing Projects in Lieu of Low-Income 
Housing Credits Program under Section 1602 of the Recovery Act 
(Section 1602 Program) administered by the Department of the Treasury 
(Treasury).[Footnote 133] Before the credit market was disrupted in 
2008, the LIHTC program provided substantial financing in the form of 
third-party investor equity for affordable rental housing units. 
[Footnote 134] As the demand for tax credits declined, so did the 
prices third-party investors were willing to pay for them, which 
created funding gaps in projects that had received tax credit 
allocations in 2007 and 2008. TCAP and the Section 1602 Program were 
designed to fill financing gaps in planned tax credit projects and 
jumpstart stalled projects.

For TCAP, the Recovery Act requires HUD to obligate $2.25 billion to 
52 housing finance agencies (HFA) for gap financing of LIHTC projects 
that included some LIHTCs.[Footnote 135] HFAs had to give priority to 
projects that were "shovel ready" and expected to be completed by 
February 2012. HFAs and project owners face three milestones for 
committing and disbursing TCAP funds.[Footnote 136]

* HFAs had to commit 75 percent of their TCAP awards by February 16, 
2010. According to HUD officials, all HFAs met the February 16, 2010, 
deadline except for South Carolina because it did not have enough 
affordable housing projects that needed TCAP assistance.

* The Recovery Act requires that HFAs disburse 75 percent of the TCAP 
awards by February 16, 2011.

* The Recovery Act requires that project owners spend all of their 
TCAP funds by February 2012.

As of the end of July 2010, HUD had outlayed 32.6 percent (about $733 
million) of the TCAP funds, up from 16.5 percent as of April 30, 2010, 
that we reported in May (see figure 28).

Figure 28: HUD Outlays of TCAP Funds, as a Percentage of Total 
Recovery Act Obligations as of April 30 and July 31, 2010:

[Refer to PDF for image: 2 pie-charts] 

April 30, 2010: $2.25 billion; 
HUD Outlays of TCAP Funds: $371 million; 16.5%. 

July 31, 2010: $2.25 billion; 
HUD Outlays of TCAP Funds: $733 million; 32.6%. 

Source: GAO analysis of HUD data. 

[End of figure]

Although HUD originally made obligations of $2.25 billion to HFAs, HUD 
officials told us that they have taken back TCAP funds from HFAs that 
either did not commit 75 percent of funds by February 2010, did not 
have enough demand for the funds, or both. South Carolina--which did 
not meet the February deadline and did not have enough demand--
returned $13 million of its original $25.4 million TCAP allocation. 
Alabama, which did meet the deadline, returned $3 million of its 
original $32 million allocation because it did not have enough demand 
for TCAP funds and would not be able to use all the funds. (We further 
discuss why some HFAs were challenged to meet deadlines for TCAP and 
the Section 1602 Program later in this section.) HUD officials told us 
that they plan to reallocate the $16 million through a competitive 
process and develop criteria to be issued in a HUD notice this fall. 
HUD officials said they expect only HFAs that have demonstrated 
program progress to be eligible for consideration since the existing 
TCAP deadlines for disbursing 75 percent of funds by February 2011 
still would apply. HUD officials told us that they heard informally 
from about 20 HFAs interested in receiving additional TCAP funds.

For the Section 1602 Program, Treasury had obligated $5.5 billion and 
outlayed about 25.5 percent ($1.4 billion) as of July 31, 2010, up 
from the 13.6 percent outlayed as of April 30, 2010 (see figure 29).

Figure 29: Treasury Outlays of Section 1602 Program Funds as a 
Percentage of Total Recovery Act Obligations as of April 30 and July 
31, 2010:

[Refer to PDF for image: 2 pie-charts] 

April 30, 2010: $5.5 billion; 
Treasury Outlays of Section 1602 Program Funds: $742 million; 13.5%. 

July 31, 2010: $5.5 billion; 
Treasury Outlays of Section 1602 Program Funds: $1.4 billion; 25.5%. 

Source: GAO analysis of Treasury data. 

[End of figure]

Unlike HUD, Treasury has not taken back any funds because the first 
deadline for the HFAs to disburse funds is December 31, 2010. 
Specifically, under Section 1602 Program rules, HFAs must commit the 
funding to projects by December 2010 and can continue to disburse 
funds to awarded projects through December 31, 2011, provided that the 
project owners spend at least 30 percent of the eligible project costs 
by December 31, 2010.[Footnote 137] HFAs must disburse all Section 
1602 Program funds by December 2011, or the funds the HFAs have not 
disbursed must be returned to Treasury. Originally, Treasury's 
guidance required that HFAs had to make all Section 1602 Program 
disbursements by December 31, 2010, or return the undisbursed funds to 
Treasury, but Treasury extended the disbursement deadline to December 
31, 2011.

In the six previous Recovery Act reports, we have collected and 
reported data on programs receiving substantial Recovery Act funds in 
16 selected states and the District of Columbia. These 16 states and 
the District of Columbia together have about 65 percent of the U.S. 
population and will receive an estimated two-thirds of the TCAP funds 
and about 60 percent of the Section 1602 Program funds. Figure 30 
lists the TCAP and Section 1602 Program obligations and outlays for 
the 16 states and the District of Columbia as of July 31, 2010.

Figure 30: HUD and Treasury Obligations and Outlays for TCAP and 
Section 1602 Program for the 16 States and the District of Columbia as 
of July 31, 2010, Compared to April 30, 2010:

[Refer to PDF for image: illustrated table] 

State: Arizona; 
TCAP: 
July 31, 2010 Obligations: $32.3 million; 
July 31, 2010 Outlays: $25.0 million; 
July 31, 2010 Percentage: 77.5%; 
April 30, 2010 Percentage: 41.7%; 
Section 1602 Program: 
July 31, 2010 Obligations: $36.5 million; 
July 31, 2010 Outlays: $6.0 million; 
July 31, 2010 Percentage: 16.0%; 
April 30, 2010 Percentage: 0.0%. 

State: California; 
TCAP: 
July 31, 2010 Obligations: $325.9 million; 
July 31, 2010 Outlays: $53.5 million; 
July 31, 2010 Percentage: 16.4%; 
April 30, 2010 Percentage: 7.8%; 
Section 1602 Program: 
July 31, 2010 Obligations: $478.1 million; 
July 31, 2010 Outlays: $120.3 million; 
July 31, 2010 Percentage: 25.2%; 
April 30, 2010 Percentage: 8.9%. 

State: Colorado; 
TCAP: 
July 31, 2010 Obligations: $27.3 million; 
July 31, 2010 Outlays: $11.5 million; 
July 31, 2010 Percentage: 42.0%; 
April 30, 2010 Percentage: 26.5%; 
Section 1602 Program: 
July 31, 2010 Obligations: $17.8 million; 
July 31, 2010 Outlays: $6.8 million; 
July 31, 2010 Percentage: 38.2%; 
April 30, 2010 Percentage: 31.5%. 

State: Washington, D.C. 
TCAP: 
July 31, 2010 Obligations: $11.6 million; 
July 31, 2010 Outlays: $7.9 million; 
July 31, 2010 Percentage: 67.9%; 
April 30, 2010 Percentage: 49.3%; 
Section 1602 Program: 
July 31, 2010 Obligations: $33.8 million; 
July 31, 2010 Outlays: $4.5 million; 
July 31, 2010 Percentage: 13.3%; 
April 30, 2010 Percentage: 0.7%. 

State: Florida; 
TCAP: 
July 31, 2010 Obligations: $101.1 million; 
July 31, 2010 Outlays: $46.1 million; 
July 31, 2010 Percentage: 45.6%; 
April 30, 2010 Percentage: 16.5%; 
Section 1602 Program: 
July 31, 2010 Obligations: $580.4 million; 
July 31, 2010 Outlays: $61.8 million; 
July 31, 2010 Percentage: 10.7%; 
April 30, 2010 Percentage: 3.9%. 

State: Georgia; 
TCAP: 
July 31, 2010 Obligations: $54.5 million; 
July 31, 2010 Outlays: $20.8 million; 
July 31, 2010 Percentage: 38.2%; 
April 30, 2010 Percentage: 24.4%; 
Section 1602 Program: 
July 31, 2010 Obligations: $195.6 million; 
July 31, 2010 Outlays: $62.7 million; 
July 31, 2010 Percentage: 32.1%; 
April 30, 2010 Percentage: 14.1%. 

State: Illinois; 
TCAP: 
July 31, 2010 Obligations: $94.7 million; 
July 31, 2010 Outlays: $43.6 million; 
July 31, 2010 Percentage: 46.1%; 
April 30, 2010 Percentage: 24.2%; 
Section 1602 Program: 
July 31, 2010 Obligations: $264.5 million; 
July 31, 2010 Outlays: $29.5 million; 
July 31, 2010 Percentage: 11.2%; 
April 30, 2010 Percentage: 6.4%. 

State: Iowa; 
TCAP: 
July 31, 2010 Obligations: $19.0 million; 
July 31, 2010 Outlays: $11.5 million; 
July 31, 2010 Percentage: 60.8%; 
April 30, 2010 Percentage: 23.9%; 
Section 1602 Program: 
July 31, 2010 Obligations: $72.8 million; 
July 31, 2010 Outlays: $42.3 million; 
July 31, 2010 Percentage: 58.1%; 
April 30, 2010 Percentage: 46.6%. 

State: Massachusetts; 
TCAP: 
July 31, 2010 Obligations: $59.6 million; 
July 31, 2010 Outlays: $22.8 million; 
July 31, 2010 Percentage: 38.3%; 
April 30, 2010 Percentage: 17.1%; 
Section 1602 Program: 
July 31, 2010 Obligations: $110.3 million; 
July 31, 2010 Outlays: $33.3 million; 
July 31, 2010 Percentage: 30.2%; 
April 30, 2010 Percentage: 3.8%. 

State: Michigan; 
TCAP: 
July 31, 2010 Obligations: $64.0 million; 
July 31, 2010 Outlays: $19.8 million; 
July 31, 2010 Percentage: 31.0%; 
April 30, 2010 Percentage: 14.4%; 
Section 1602 Program: 
July 31, 2010 Obligations: $285.9 million; 
July 31, 2010 Outlays: $29.6 million; 
July 31, 2010 Percentage: 10.4%; 
April 30, 2010 Percentage: 4.3%. 

State: Mississippi; 
TCAP: 
July 31, 2010 Obligations: $21.9 million; 
July 31, 2010 Outlays: $4.6 million; 
July 31, 2010 Percentage: 21.0%; 
April 30, 2010 Percentage: 0.0%; 
Section 1602 Program: 
July 31, 2010 Obligations: $29.7 million; 
July 31, 2010 Outlays: $0.0 million; 
July 31, 2010 Percentage: 0.0%; 
April 30, 2010 Percentage: 0.0%. 

State: New Jersey; 
TCAP: 
July 31, 2010 Obligations: $61.2 million; 
July 31, 2010 Outlays: $14.3 million; 
July 31, 2010 Percentage: 23.4%; 
April 30, 2010 Percentage: 5.9%; 
Section 1602 Program: 
July 31, 2010 Obligations: $123.5 million; 
July 31, 2010 Outlays: $41.5 million; 
July 31, 2010 Percentage: 33.6%; 
April 30, 2010 Percentage: 23.9%. 

State: New York; 
TCAP: 
July 31, 2010 Obligations: $252.7 million; 
July 31, 2010 Outlays: $101.7 million; 
July 31, 2010 Percentage: 40.3%; 
April 30, 2010 Percentage: 25.2%; 
Section 1602 Program: 
July 31, 2010 Obligations: $0.0 million; 
July 31, 2010 Outlays: $0.0 million; 
July 31, 2010 Percentage: 0.0%; 
April 30, 2010 Percentage: 0.0%. 

State: North Carolina; 
TCAP: 
July 31, 2010 Obligations: $52.2 million; 
July 31, 2010 Outlays: $4.6 million; 
July 31, 2010 Percentage: 8.9%; 
April 30, 2010 Percentage: 5.8%; 
Section 1602 Program: 
July 31, 2010 Obligations: $95.0 million; 
July 31, 2010 Outlays: $66.4 million; 
July 31, 2010 Percentage: 69.9%; 
April 30, 2010 Percentage: 51.4%. 

State: Ohio; 
TCAP: 
July 31, 2010 Obligations: $83.5 million; 
July 31, 2010 Outlays: $15.6 million; 
July 31, 2010 Percentage: 18.6%; 
April 30, 2010 Percentage: 6.6%; 
Section 1602 Program: 
July 31, 2010 Obligations: $118.1 million; 
July 31, 2010 Outlays: $23.9 million; 
July 31, 2010 Percentage: 20.3%; 
April 30, 2010 Percentage: 16.5%. 

State: Pennsylvania; 
TCAP: 
July 31, 2010 Obligations: $95.1 million; 
July 31, 2010 Outlays: $43.4 million; 
July 31, 2010 Percentage: 45.6%; 
April 30, 2010 Percentage: 18.7%; 
Section 1602 Program: 
July 31, 2010 Obligations: $229.9 million; 
July 31, 2010 Outlays: $117.6 million; 
July 31, 2010 Percentage: 51.2%; 
April 30, 2010 Percentage: 33.0%. 

State: Texas; 
TCAP: 
July 31, 2010 Obligations: $148.4 million; 
July 31, 2010 Outlays: $17.0 million; 
July 31, 2010 Percentage: 11.4%; 
April 30, 2010 Percentage: 3.1%; 
Section 1602 Program: 
July 31, 2010 Obligations: $594.1 million; 
July 31, 2010 Outlays: $71.1 million; 
July 31, 2010 Percentage: 12.0%; 
April 30, 2010 Percentage: 2.6%. 

State: Total; 
TCAP: 
July 31, 2010 Obligations: $1.505 billion; 
July 31, 2010 Outlays: $463.7 million; 
July 31, 2010 Percentage: 30.8%; 
April 30, 2010 Percentage: 15.1%; 
Section 1602 Program: 
July 31, 2010 Obligations: $3.27 billion; 
July 31, 2010 Outlays: $717.4 million; 
July 31, 2010 Percentage: 22.0%; 
April 30, 2010 Percentage: 10.9%. 

2010Source: GAO analysis of HUD and Treasury data. 

[End of figure]

According to HUD and Treasury data, nearly all the HFAs have made 
progress in disbursing TCAP and Section 1602 Program funds to project 
owners. Figure 30 shows HUD outlays to HFAs in the 16 selected states 
and the District of Columbia. Because HFAs must disburse their TCAP 
and Section 1602 Program funds to project owners within 3 days, these 
figures would closely track disbursements. As shown in figure 30, 
Arizona, Iowa, and the District of Columbia have drawn down more than 
50 percent of their TCAP funds, and Iowa, North Carolina, and 
Pennsylvania have drawn down more than 50 percent of their Section 
1602 Program funds as of July 31, 2010. When we reported in May, North 
Carolina was the only state out of the 16 selected states and the 
District of Columbia to have drawn down more than 50 percent of its 
funds from one of the programs.

However, the level of outlays, and therefore HFA spending, continues 
to vary considerably across the states. We previously reported that 
the difference in spending across the 16 states and the District of 
Columbia depended on when the HFA requested Section 1602 Program 
funds, the level of construction activity, and the HFA's 
implementation timeline.[Footnote 138] For example, Treasury officials 
told us that while 40 HFAs had requested funds by September 2009, the 
Mississippi Home Corporation (MHC) requested funds for the first time 
in February 2010. According to Treasury officials, Treasury outlayed 
funds to MHC for the first time on August 12, 2010. MHC officials told 
us that they expect to close on most of their projects in August and 
September 2010, which is when MHC will sign agreements with project 
owners that will meet HFA requirements to begin disbursing funds.

TCAP and the Section 1602 Program Have Had a Strong Impact on the 
LIHTC Market:

HFA officials, project owners, and third-party investors that we 
interviewed generally agreed that TCAP and the Section 1602 Program 
provided funds to many stalled LIHTC projects and enabled them to move 
forward.[Footnote 139] For example, some owners of stalled projects 
said that their projects could not have continued without TCAP and 
Section 1602 Program funds. TCAP and Section 1602 Program funds also 
made some rural projects and special needs population projects--such 
as farm worker housing, housing for formerly homeless, and housing for 
the disabled--more feasible and attractive to third-party investors. 
Officials from one HFA we interviewed told us that investors 
scrutinize the financial outlook for rural projects because they 
expect that the income for these projects will be tight or non-
existent. HFAs, project owners, and investors also told us that in a 
difficult market, investors are less likely to risk investments in 
these types of projects. We interviewed nine HFAs that awarded 
financing to 385 projects--154 (40 percent) were rural and 37 (10 
percent) were special needs population projects--which may not have 
moved forward without the assistance of the TCAP and Section 1602 
Program.

LIHTC projects that received TCAP and Section 1602 Program funds 
typically had less investor equity than LIHTC projects had prior to 
the economic downturn. The decrease in investor equity varied for each 
project and by state. The nine HFAs that we interviewed reported that 
equity in LIHTC projects prior to the economic downturn generally 
ranged from 50 to 80 percent of the total financing for a project. In 
contrast, for projects receiving TCAP and Section 1602 Program funds 
from the nine HFAs that we interviewed, investor equity represents on 
average 43 percent of a project's overall financing. For LIHTC 
projects receiving TCAP and Section 1602 Program funds, the decrease 
in investor equity has been offset by the increase in federal funds.

Some HFA officials, project owners, and third-party investors that we 
interviewed currently believe that demand for LIHTCs is re-emerging 
since the credit markets were severely disrupted in 2008. However, 
some of them said that third-party investor demand still was not at a 
level where most projects were feasible. Investor demand and tax 
credit prices have been picking up in some states and regions more 
than others. According to some investors with whom we spoke, investor 
demand and tax credit prices tended to be higher on the coasts than in 
the middle of the country. Investors also preferred certain types of 
projects, such as those that were larger, located in urban areas, and 
catered to seniors. Projects that were smaller, located in rural 
areas, and targeted special needs populations more often lacked third-
party investors.

Since the economic downturn, the composition of third-party investors 
also has changed. First, Fannie Mae and Freddie Mac, which according 
to an investor, had bought the largest share of tax credits (40 
percent in 2006) and were the primary third-party investors in special 
population projects, exited the marketplace. Second, according to 
another investor, the low tax credit prices have resulted in higher 
yields that in turn have attracted "yield-driven" investors, including 
insurance companies, large corporations, and individuals. Banks, which 
had invested in the tax credit markets primarily because of Community 
Reinvestment Act requirements, have continued to do so.[Footnote 140] 
However, if tax credit prices continue to rise, yields will decrease, 
which may cause "yield-driven" investors to exit the market.

Because the LIHTC market is still rebounding and some states continue 
to face challenges attracting investors, the majority of HFAs that we 
interviewed support temporarily extending the Section 1602 Program. If 
the Section 1602 Program were not extended, some project owners 
anticipated scaling back development activities and being more 
selective about which projects they develop. Some HFAs and project 
owners who supported the extension of the Section 1602 Program believe 
the funds would be most useful if used to fill financing gaps, to fund 
rural and special needs population projects, and to provide grants or 
funds to nonprofits that are developing projects that target such needs.

Some HFAs and Projects May Face Challenges in Meeting HUD and Treasury 
Deadlines for Using Funds:

Some HFAs and projects may face challenges in meeting TCAP and Section 
1602 Program deadlines for reasons ranging from increased workload to 
the time needed to assemble financing to construction delays. Some 
HFAs reported that the addition of TCAP and Section 1602 Program 
transactions this year has increased their workloads significantly. 
One HFA reported that it typically closed from 18 to 22 projects 
annually, but this year would close 60 projects. Two other HFAs 
reported that they typically closed from 8 to 15 projects annually, 
but expected to close 50 and 85 projects this year, respectively.

Most HFAs Likely Will Meet TCAP Deadlines, but Those That Have Delayed 
Disbursing TCAP Funds May Face Challenges:

For TCAP, the potential challenges HFAs face appear to be related to 
how they structured the timing of the TCAP disbursements. According to 
HUD officials, it is difficult to determine which states may have 
difficulty meeting TCAP spending deadlines because states took 
different approaches to awarding funds. A few HFAs may be at a 
disadvantage in terms of meeting 2011 and 2012 deadlines because they 
chose to award TCAP funds late in the development process to ensure 
that commitments from other financing sources are in place and the 
projects will be successfully completed. As a result, these HFAs have 
disbursed a small percentage of their TCAP funds to date. The HFA 
officials we interviewed in nine states did not believe the TCAP 
disbursement deadline was a challenge for their projects.

Treasury Plans for Ensuring That Section 1602 Program Projects Meet 
Spending Deadlines Remain Unclear:

According to some HFA officials, some project owners may face 
challenges meeting the 30 percent spending deadline (December 31, 
2010) for Section 1602 Program projects, due to reasons that affected 
some projects allocated Section 1602 Program or TCAP funds, ranging 
from the timing needed to assemble or disburse funding by HFAs, 
litigation, and routine construction delays. According to HFA 
officials with whom we spoke, some projects needed to wait for FHA 
mortgage insurance approval or approval from other sources of 
subsidies before receiving final HFA approval. Officials from one HFA 
with whom we spoke said that while all their Section 1602 Program 
projects were shovel-ready, getting all parties educated and 
comfortable about the requirements of the new program took time. Some 
projects had been stalled for months, and it took time to "ramp up" 
all parties engaged in the projects. In addition, some projects 
encountered delays during the construction process due to weather or 
other issues typical of development projects such as waiting for 
construction permits from local agencies. Other projects were delayed 
due to legal issues unrelated to the Section 1602 Program. For 
example, Florida Housing Finance Corporation officials told us that as 
of August 2010, about $22.3 million in Section 1602 Program funds were 
allocated to projects involved in litigation.[Footnote 141]

Furthermore, in HFAs that delayed the decision to participate in the 
Section 1602 Program or that had a slow start to launching the Section 
1602 Program projects have collectively had less time to spend 
eligible funds than in other states where funds were awarded earlier. 
For example, the MHC did not request Section 1602 Program funds from 
Treasury until February 2010.[Footnote 142] MHC told us that it is 
concerned that each of its 17 projects receiving Section 1602 Program 
funds may not meet the 30 percent spending deadline. One HFA said that 
a typical LIHTC project would take about 15 months from applying for 
funds to closing the project and commencing construction. Our review 
of projects in nine states shows that these HFAs had not yet awarded 
Section 1602 Program funds to 75 projects as of June 30, 2010. 
Further, as of June 30, 2010, about 39 percent of Section 1602 Program 
projects (98 of 252 projects) that have been awarded funds in these 
nine states have not yet closed, which is the first step to being able 
to draw funds from entities that provide financing.

Treasury initially required HFAs to return all Section 1602 Program 
funds not disbursed by December 31, 2010. In a regulation of August 
31, 2009, Treasury extended the deadline for disbursing Section 1602 
Program funds by 1 year, provided project owners met the 30 percent 
spending requirement. Treasury had determined that completion of 
projects by December 31, 2010, was too restrictive and would preclude 
funding of otherwise eligible projects. Treasury officials told us 
that the new 30 percent requirement was put in place to assure that 
project owners were making some progress by the original (December 31, 
2010) deadline date.

Missing the deadline for the 30 percent spending requirement could 
have significant implications for the viability of Section 1602 
Program projects. If project owners failed to meet this spending 
deadline, they would not be eligible to receive any additional Section 
1602 Program funds. If prevented from receiving the rest of their 
Section 1602 Program award, project owners might not be able to find 
replacement financing and committed financing sources might withdraw 
their funds. If projects could not secure replacement financing 
quickly, they would be unlikely to be completed in accordance with 
Section 1602 Program and LIHTC requirements and would be stalled 
again. Under such a scenario, the HFA would be responsible for 
recapturing any Section 1602 Program funds that were disbursed to the 
project prior to the 30 percent spending deadline.

Treasury officials told us that they plan to enforce the deadline 
requirement, and would provide written guidance to HFAs that will 
describe the kind and format of information to be reported to Treasury 
to document whether projects have met the spending deadline. Treasury 
officials told us that they do not plan to collect this information 
until after the deadline has passed. Without a plan in place for 
handling projects that do not meet the Section 1602 Program deadline, 
Treasury risks further project interruptions, including the possible 
loss of any job creation associated with projects that must be 
discontinued if alternate financing cannot be found.

TCAP and the Section 1602 Program Impose More Oversight 
Responsibilities on HFAs Than the LIHTC Program Alone, and HFAs Have 
Developed Approaches for Such Oversight:

TCAP and the Section 1602 Program require HFAs to assume a greater 
project oversight role than in the standard LIHTC program. Under the 
LIHTC program, HFAs need not monitor construction disbursements, but 
must report that projects are completed and occupied in accordance 
with LIHTC requirements and deadlines. For long-term monitoring under 
the LIHTC program, third-party investors in the project perform long-
term asset management, and HFAs perform limited compliance reviews. 
[Footnote 143]

* HFAs must review LIHTC projects at least annually to determine 
project owner compliance with tenant qualifications and rent and 
income limits.

* Additionally, every 3 years the HFAs must conduct on-site 
inspections of all buildings in each LIHTC project and inspect at 
least 20 percent of the LIHTC units and resident files associated with 
those units.

However, under TCAP and the Section 1602 Program, HFAs must monitor 
the disbursement and use of funds throughout the construction period. 
HFAs also must perform long-term asset management, which imposes 
ongoing responsibilities on the HFAs for the viability of each project.

* An HFA's asset management activities may include monitoring current 
financial and physical aspects of project operations. For example, an 
HFA may perform analyses or approvals of operating budgets, cash flow 
trends, and reserve accounts and conduct physical inspections more 
frequently than every 3 years.

* Asset management activities also examine long-term issues related to 
plans for addressing a project's capital needs, changes in market 
conditions, and recommendations and implementation of plans to correct 
troubled projects.

* HFAs also ensure compliance with LIHTC requirements as part of their 
asset-management activities.

Moreover, HFAs are responsible for returning TCAP and Section 1602 
Program funds to HUD and Treasury, respectively, if a project fails to 
comply with LIHTC requirements.[Footnote 144]

Given the increase in responsibilities and risks to HFAs, HFAs have 
developed approaches for oversight during the construction period as 
well as long-term asset management over the 15-year tax credit 
compliance period. These approaches are designed to monitor the 
physical and financial health of projects and compliance with LIHTC 
affordability restrictions.

In response to an open-ended question in our survey asking about what 
changes in oversight activities HFAs planned to put in place to assure 
compliance with the TCAP and Section 1602 Program, 37 HFAs said they 
would make some changes in oversight activities, 11 said they would 
make no changes in oversight activities, and 6 said they were not sure 
what changes they would make or they did not answer the question. 
[Footnote 145] Changes in activities varied across HFAs. For example, 
of the 37 HFAs that said they would make some changes, 13 HFAs noted 
that they would make changes to their disbursement process to more 
closely track the use of TCAP and Section 1602 Program funds, 9 HFAs 
said they would increase overall monitoring of projects or reporting 
required by project owners, and 7 HFAs planned to implement or 
increase the frequency of site visits or inspections. Eleven HFAs said 
they would not change their oversight activities, but 6 of those 11 
HFAs noted that they would rely on their experience in and established 
procedures for monitoring their lending programs or disbursement of 
other federal funds.

HFAs Have Increased Oversight during Construction Phase of TCAP and 
Section 1602 Program Projects:

HFAs have been providing greater oversight during the construction 
period for projects that receive TCAP and Section 1602 Program funds. 
This oversight includes monitoring disbursements of the program funds, 
overseeing the construction process, and ensuring compliance by TCAP 
projects with federal cross-cutting requirements such as Davis-Bacon 
wage requirements and the National Environmental Policy Act of 1969 
(NEPA).[Footnote 146] For example, HFAs must review payrolls for all 
TCAP projects to ensure that project owners and contractors are paying 
prevailing wages to individuals employed in the construction of the 
projects. HFAs also had to ensure that all TCAP projects complied with 
the NEPA environmental review process prior to receiving any TCAP 
funds. However, according to HUD officials, up to one-third of HFAs 
lacked prior experience in overseeing compliance with these federal 
cross-cutting requirements.

Under TCAP and the Section 1602 Program, HFAs have been disbursing a 
greater volume of funds than in the past and, as a result, have taken 
additional steps to limit risk and increase monitoring. For example, 
one HFA we interviewed expected to disburse the same amount of funds 
in 1 month as it previously disbursed annually. For standard LIHTC 
projects, HFAs only allocate tax credits and do not disburse funds. 
HFAs assume greater risk by disbursing TCAP and Section 1602 Program 
funds because they are responsible for repaying funds to HUD and 
Treasury, respectively, in the event of noncompliance. The nine HFAs 
we interviewed are supporting an average of 23 to 62 percent of the 
total development costs of projects through awards of TCAP or Section 
1602 Program funds. Prior to the Recovery Act, three of these HFAs 
typically did not provide loans or grants to LIHTC projects, but now 
they are providing an average of 23 to 47 percent of total project 
financing through TCAP and Section 1602 Program project awards. The 
remaining six HFAs typically funded up to about 33 percent of the 
total project financing for some LIHTC projects through other loan 
programs prior to the Recovery Act. HFAs have mitigated risks by 
broadening the scope of guarantees and by requiring project owners to 
certify the accuracy of the information provided.

Approaches to overseeing the construction process varied across HFAs, 
although most HFAs we interviewed planned to apply their existing 
construction oversight framework to oversee TCAP and Section 1602 
Program projects. These activities include site inspections of varying 
frequency. For example, some HFAs we interviewed planned to conduct 
monthly site inspections, while two HFAs said that construction 
superintendents would visit project sites twice per month or more 
frequently if needed. Site inspections help confirm whether work 
performed on a project is carried out as planned and approved by the 
HFA. One HFA also told us that it planned to facilitate communication 
among project owners, investors, and other lenders by sharing 
information or holding more frequent meetings with these stakeholders.

HFAs and project owners told us that meeting Davis-Bacon wage 
reporting and NEPA environmental review requirements for TCAP projects 
required time and resources, and it was easier for HFAs with prior 
experience to meet the requirements. We previously reported that HFAs 
viewed Davis-Bacon and NEPA requirements as a challenge and followed 
up with HFAs and project owners on ways that they have been meeting 
the requirements. To comply with Davis-Bacon wage requirements, some 
HFAs developed new processes for data collection and planned to apply 
additional scrutiny to data received from project owners or more 
frequent reporting, and other HFAs developed training for project 
owners. To comply with NEPA requirements, some HFAs and project owners 
drew upon their experience administering HOME funds, which also 
require NEPA compliance.[Footnote 147] Project owners said that in 
some cases they allocated additional resources to projects to complete 
environmental reviews ahead of project closings.

In Response to New Asset Management Responsibilities, HFAs Have 
Increased Long-Term Monitoring and Put in Place Stricter Requirements 
for Project Owners:

In response to the new asset management responsibilities HFAs have 
accepted under TCAP and the Section 1602 Program, all HFAs we 
interviewed reported that they had strengthened their procedures for 
long-term monitoring to meet the program requirements, mitigate risks, 
and help ensure projects' long-term physical and financial viability. 
Approaches to long-term asset management varied depending on an HFA's 
resources, workload, and asset management experience. However, all 
nine of the HFAs we interviewed have implemented some oversight 
changes, such as increasing the number of inspection visits over the 
15-year tax credit compliance period and the frequency of reporting, 
as well as enhancing financial monitoring of projects receiving TCAP 
and Section 1602 Program funds when compared with standard LIHTC 
projects.

Of the nine HFAs we interviewed, four HFAs said that instead of 
inspecting projects every 3 years as required by the LIHTC program, 
they will inspect projects annually or more often. Seven HFAs said 
that they will require reports from project owners on a monthly, 
quarterly, or as-requested basis that may include information such as 
project income statements. Five of the nine HFAs we interviewed have 
the ability to approve and remove the project's management agent and 
general partner of the project owner if the project is in 
noncompliance with LIHTC requirements or the terms of the HFA's 
agreement with the project owner. Two HFAs said that they have new 
software systems in place to manage asset management activities, and 
four said they plan to provide additional training for staff to manage 
the monitoring and reporting for TCAP and Section 1602 Program 
projects. HFAs said that they have also strengthened financial 
requirements for project owners. All nine HFAs require annual 
financial audits or reports. Other changes HFAs have made include 
requiring or performing capital needs assessments to determine the 
condition and expected life of the physical infrastructure, 
calculating replacement costs, and assessing whether a project's 
replacement reserve will be adequate to meet the expected capital 
needs of a project. Some HFAs also require project owners to provide 
guaranties that the project owner will ensure compliance with program 
requirements or the project owner will be personally liable to repay 
TCAP and Section 1602 Program funds to the HFA. Some HFAs also have 
strengthened requirements for financial reserves or changed how and 
when the reserves can be accessed to ensure that there is a source of 
funds to draw upon in the event the project encounters operating 
difficulties. Some project owners with whom we spoke said that HFAs 
have been careful in structuring requirements to protect the HFAs' 
interests and that in some cases the HFAs' requirements and plans for 
monitoring were stricter than those typically required by third-party 
investors.

Nearly all HFAs we interviewed noted that a third-party investor 
provides additional oversight and monitoring or financial interest in 
a project. TCAP requires tax credits to remain in transactions, and 
project owners typically sell the tax credits to third-party 
investors. Therefore, most TCAP projects have some level of private 
investment and oversight. In contrast, the Section 1602 Program allows 
HFAs to exchange all of the tax credits awarded to a project in return 
for Section 1602 Program funds. As a result, many Section 1602 Program 
projects do not have third-party investor oversight. However, some 
HFAs have required third-party investor participation in all or the 
majority of their Section 1602 Program projects, and they plan to work 
in coordination with investors on asset management activities. Based 
on information from our survey, 32 HFAs expected to have a total of 
485 projects without third-party investors out of a total of 825 
projects expected to be financed with Section 1602 Program funds. 
[Footnote 148] In our survey, about half of the HFAs planned to 
outsource asset management functions for TCAP and the Section 1602 
Program. Based on our interviews with nine HFAs, we found that HFAs 
with past asset management experience and HFAs with a smaller volume 
of projects often chose to conduct their own asset management 
activities over the 15-year compliance period. In contrast, HFAs with 
little asset management experience or many projects requiring 
oversight often chose to hire a third-party contractor to perform 
asset management activities. However, one HFA in each of these 
categories chose to work in coordination with individual investors on 
asset management activities rather than relying solely on its own 
asset management efforts or the work of outsourced asset managers.

Five of the nine HFAs we interviewed are conducting their own asset 
management activities because they have significant experience 
managing loan portfolios or because the number of projects is 
manageable. One HFA we interviewed has 35 years of asset management 
experience, and two have 20 years of asset management experience. One 
of these HFAs also conducts asset management for HUD's performance-
based contract administration program and has won awards for its asset 
management systems. Six HFAs we interviewed said they have or are 
developing policies, procedures, or "watch lists" to assess project 
performance and identify projects that may be in need of additional 
monitoring.

One of the two HFAs we interviewed planning to outsource asset 
management activities has contracted with a national syndicator to 
provide asset management for its projects without private investment. 
[Footnote 149] The syndicator has said that it will provide the same 
asset management services to the HFA as it would provide to investors 
in its LIHTC investment funds. The HFA has a staff person that is 
receiving an asset management certification and will work closely with 
the syndicator to ensure that asset management functions are performed 
in accordance with the syndicator's scope of work. The syndicator's 
scope of work covers both the leasing and asset management phases and 
includes activities such as providing quarterly project performance 
reports that rate the risk of the project based on market conditions 
and project owner capacity, conducting annual property inspections, 
and performing annual long-term financial analysis. The syndicator 
said that it helped the HFA structure a more comprehensive scope of 
work because it felt that the asset management activities started too 
late to ensure project success.

HFAs noted a range of challenges associated with asset management. One 
HFA we interviewed said that explaining the HFA's new asset management 
role to developers has been a challenge because the HFA does not 
usually act as a lender or party with long-term interests in the 
projects. Rather, the agency's primary role is that of tax credit 
allocation with compliance monitoring as required by IRS. HFAs also 
noted the cost of asset management as a challenge. A few HFAs are 
charging low or no fees for asset management because of the stress the 
fee puts on the project budgets. Other HFAs have estimated a fee based 
on market research and costs associated with their current operations, 
but they are not sure the fee will be sufficient to cover costs. Most 
HFAs we interviewed estimated that their initial asset management 
costs would be highest during the first years implementing TCAP and 
the Section 1602 Program, including the initial construction 
monitoring period. For example, one HFA estimated that 20 - 30 percent 
of its asset management costs would be incurred within the first 2 
years of overseeing TCAP and Section 1602 Program projects. However, 
some HFAs and investors noted future challenges as projects age. They 
said that between the fifth to twelfth year of a project's life, 
projects may begin to show signs of physical and financial stress due 
to capital replacement needs, diminishing reserves, or resident 
turnover. One investor said that HFAs may not have the financial 
resources to support troubled projects in the same way as an investor 
would.

HUD Strategy for Monitoring TCAP Does Not Fully Consider Project Risks:

HUD officials told us that the agency has been relying on existing 
monitoring systems to determine whether funds have been spent properly 
or to track projects that have not been complying with the terms and 
conditions of TCAP agreements. The monitoring systems consist of HUD 
Office of Inspector General (OIG) audits (thus far ongoing in three 
states), HUD Office of Fair Housing and Equal Opportunity (OFHEO) 
reviews in 10 states, HOME reviews done by HUD field offices when 
projects include both TCAP and HOME funds, and HFA reviews. HUD 
officials told us that they can rely on existing Office of Community 
Planning and Development (CPD) field staff to carry out HUD's 
monitoring and also would plan to look for patterns of problems 
identified by the OIG, OFHEO, CPD staff, or HFAs during oversight and 
review activities. HUD officials noted that the agency's emphasis so 
far has been on the obligation, outlay, and tracking of funds to the 
HFAs and their disbursement to project owners.

As well as HFAs, HUD officials also expect that third-party investors 
will monitor TCAP projects for compliance in the same way that these 
stakeholders have been responsible for monitoring LIHTC projects. TCAP 
requires tax credits to remain in transactions, and project owners 
typically sell the tax credits to third-party investors. However, we 
found that in some cases projects included a limited amount of LIHTCs 
and project owners chose not to sell these credits to a third-party, 
thereby limiting or precluding third-party oversight of these 
projects. In traditional LIHTC projects, third-party investors play an 
important role in ensuring compliance with tax credit program 
requirements because they risk losing their ability to claim the tax 
credits if the project is not in compliance with these requirements. 
Some HFAs told us that they will coordinate with and rely on reviews 
and audits that investors and private construction lenders perform to 
satisfy the HFAs' asset management obligations under TCAP.[Footnote 
150] In cases when an HFA is coordinating with a third-party investor, 
the investor may provide early warning information that would be 
useful to the HFA if the HFA had to act quickly to assist the project 
or ensure compliance with TCAP requirements. But, some TCAP projects 
received a nominal amount of tax credits, and project owners chose not 
to sell the tax credits. These projects lack the additional oversight 
provided by third-party investors. In these cases, HFAs may be the 
sole monitor, other than HUD, ensuring that funds are spent properly 
and that the project owners comply with TCAP terms and conditions.

HUD officials acknowledged that in the absence of a significant third- 
party investment, the amount of overall scrutiny a TCAP project would 
receive is reduced; however, HUD officials told us that at this point 
in time they were not aware of how many projects either had nominal 
LIHTC awards or lacked third-party investors. Our limited review 
showed that some TCAP projects in Florida received a nominal amount of 
tax credits and lacked third-party investors that otherwise would 
provide an added layer of oversight for compliance with TCAP 
requirements. Specifically, we found that 13 of 25 projects (52 
percent) that were allocated TCAP funds in Florida had received a 
nominal amount of LIHTCs. The Florida Housing Finance Corporation 
(FHFC) explained that it had awarded $100 in LIHTCs to each of these 
projects and that the project owners made $650 equity investments to 
the projects in return for the tax credit awards instead of selling 
the tax credits to a third-party investor.[Footnote 151] FHFC plans to 
institute oversight activities for all of its TCAP and Section 1602 
Program projects.[Footnote 152] Nonetheless, HUD has not required HFAs 
to enhance their oversight or take other actions to account for the 
absence or limited involvement of third-party investors. Without the 
oversight provided by third-party investors and with the limited 
monitoring planned by HUD, these TCAP projects may constitute a higher 
risk to HUD and to the HFAs that they will become troubled or fall out 
of compliance with LIHTC requirements.

In addition, although HUD's monitoring strategy relies partly on 
monitoring by third-party investors and HOME program reviews, HUD 
officials told us that they will not know how many TCAP projects have 
third-party investors or how many also have HOME funds until projects 
are completed and HFAs submit final reports on the projects. 
Therefore, HUD cannot currently determine the number of projects that 
are being monitored by others. Additionally, HUD does not currently 
know how many TCAP projects will be covered through HOME reviews. 
According to HUD officials, once projects are complete and all project 
information has been reported to HUD, it plans to use that information 
to tailor a monitoring plan to these projects. It will be important 
for HUD's TCAP monitoring strategy to recognize the differences in 
risk for projects without third-party investor oversight and those 
with investor oversight as well as those projects not covered by HOME 
reviews.

As discussed above, HUD officials said they have been focused on 
getting Recovery Act funds to HFAs. Since beginning TCAP, HUD has 
drawn upon limited staff resources in headquarters to administer and 
track the spending of TCAP funds--its Office of Affordable Housing 
Programs administers TCAP, and four existing headquarters staff from 
the HOME program work on TCAP (three part-time and one full-time). HUD 
officials noted that the Recovery Act does not set aside 
administrative resources to HUD to either implement the TCAP program, 
which was performed by existing HOME program staff, or to monitoring 
HFAs for compliance. In comparison, the Recovery Act provided 
additional resources for monitoring under the Neighborhood 
Stabilization Program, which HUD's CPD also performs.

Without a plan for identifying projects without third-party investor 
oversight and ensuring sufficient oversight when investors are absent, 
HUD will face constraints in ensuring that TCAP projects remain in 
compliance with program requirements, some of which apply for 15 years 
or more. Furthermore, without knowing whether projects involve third- 
party investors, HUD cannot focus its limited monitoring resources on 
the projects with the least oversight by others.

Treasury Developed a Risk-Based System for Monitoring HFAs:

Unlike HUD, which relies on existing program oversight resources, 
Treasury has developed a system to conduct compliance reviews to 
ensure that the HFAs are following the terms and conditions of the 
Section 1602 Program agreement, and are providing oversight over the 
project owners receiving the awards. Treasury officials told us that 
their Office of Fiscal Assistant Secretary received $3 million to 
administer the Section 1602 Program and the Section 1603 Renewable 
Energy Program from the total funds appropriated to Treasury for 
administrative expenses under the Recovery Act. According to Treasury 
officials, they have designed a risk-based system in which they plan 
to conduct compliance monitoring on-site for 23 HFAs and remote 
monitoring for the remainder of the HFAs by the end of calendar year 
2010. Whether monitoring is conducted on-site or remotely depends on 
factors such as identified risks and the size of the grant. The review 
generally consists of an interview, followed by a review of program 
files, a review of a sample of project files, a review of financial 
management information, and a cross-check to the records held at 
Treasury. After the review is completed, if there are any findings, 
staff request a corrective action or action plan, depending on the 
nature and severity of the noncompliance. According to Treasury 
officials, if staff recommend a corrective action or action plan, 
Treasury will follow up to ensure that the HFA takes the necessary 
corrective action. If the agency fails to take the corrective action, 
Treasury will take steps to bring the HFA into compliance and, if 
necessary, recapture funds.

As of August 2010, Treasury officials told us that they had completed 
nine compliance monitoring reviews and have been conducting six 
additional HFA reviews. Treasury officials said that the kinds of 
issues they found in their reviews relate to failure to properly 
document files, lack of a policy to handle fraud by project owners, 
and, in one case, unresponsiveness to Treasury's request for 
documentation. Treasury officials told us that these issues were often 
resolved during the compliance review, but that some issues required 
additional follow-up with the HFAs. In the case of the unresponsive 
HFA, Treasury officials said they have put a hold on the HFA's Section 
1602 Program funds until they are sure the HFA has provided all 
materials required to satisfy Treasury's requests.

TCAP Reporting Requirements Have Been More Complex Than Section 1602 
Program Requirements:

Recovery Act recipient reporting requirements are different and more 
complex for TCAP than for the Section 1602 Program. More specifically, 
the Recovery Act describes recipient reporting requirements, including 
that of estimated jobs created and retained.

The Recovery Act recipient reporting requirements apply only to 
programs under Division A of the Recovery Act, which includes TCAP. 
The Section 1602 Program is under Division B of the Recovery Act, and, 
therefore, not subject to recipient reporting requirements.

As Recovery Act-funded recipients, HFAs must file quarterly reports 
through FederalReporting.gov on a number of data elements, including 
the number of full-time equivalent jobs funded by TCAP funds during 
that quarter. Jobs must be counted in accordance with methodology 
provided by OMB. OMB guidance limits the number of jobs reported to 
the actual use of the funds in each quarter. In cases of construction 
funding based on a mix of financing sources, HFAs can count the jobs 
created or retained based on the proportion of TCAP funds. In addition 
to reporting through FederalReporting.gov, HFAs report information on 
TCAP projects through two HUD systems. HFAs use HUD's Integrated 
Disbursement and Information System to report on the selection of TCAP 
projects by HFAs as well as disbursement of TCAP funds. HFAs also use 
the Recovery Act Management and Performance System to report on 
project compliance with environmental reviews.

Although not subject to recipient reporting, Treasury chose to collect 
project information through quarterly performance reports submitted by 
HFAs on an Excel spreadsheet. HFAs need only make one report of all 
jobs created or retained by Section 1602 Program funds for each 
project. HFAs submit estimated information on the number of FTE jobs 
to be created or retained by the entire project with the first 
quarterly report for each project. The number of jobs reported to 
Treasury need not be reduced to reflect parts of the project not 
funded under the Section 1602 Program. Except for requiring the use of 
FTEs, Treasury has not issued detailed guidance specifying job 
estimation methodology under the Section 1602 Program.

Job counts between the programs and across HFAs are not comparable. 
About two-thirds of the HFAs in our survey said that they will conduct 
a review of the information being provided by the project owners, but 
others said that they relied on signed statements from the project 
owners attesting to the accuracy of the jobs estimates. Furthermore, 
because of the differences in job reporting methodology for TCAP and 
the Section 1602 Program, job counts reported for the programs varied 
widely. We previously reported that some HFAs were concerned about 
underreporting jobs that TCAP funds created because of OMB's 
requirement that they count only jobs directly funded by TCAP. 
[Footnote 153] They said that because projects funded under TCAP would 
not have moved forward without TCAP funds, all the jobs associated 
with the projects should be counted. For example, $2 million in TCAP 
funds could enable an $8 million project to be constructed that 
otherwise would not have been built, but only the jobs directly 
related to the $2 million TCAP expenditure would be reported.

Conclusions:

Although constrained by limited resources or time, HUD and Treasury 
developed two new programs, TCAP and the Section 1602 Program, 
respectively, that are designed to provide capital investment to LIHTC 
projects hit hard by the economic crisis. TCAP and the Section 1602 
Program have had a strong impact on the LIHTC market. However, our 
review identified two areas of concern: one that relates to HUD's 
identification of higher-risk TCAP projects and another that relates 
to challenges that some project owners may face in meeting a December 
2010 deadline for spending funds in Treasury's Section 1602 Program.

Under TCAP, HFAs have increased responsibilities for asset management 
and monitoring compliance of project owners with the terms and 
conditions of the program. However, some projects with a nominal 
amount of tax credits may lack the benefit of oversight by third-party 
investors. Nonetheless, HUD has not identified projects that lack this 
additional level of oversight and thus may be at higher risk of 
noncompliance with TCAP and LIHTC requirements. Although HUD relies in 
part on HFAs to provide oversight, HUD does not know the extent to 
which the HFAs will provide additional oversight for projects that 
lack third-party investors. HUD is relying on existing monitoring 
systems and resources, but has not fully identified those projects 
that may be subject to review under its existing system (such as TCAP 
projects that also have HOME funds) or developed additional guidance 
or oversight of TCAP projects where there is little or no third-party 
oversight. HUD could take a more active role in monitoring TCAP 
projects--first by identifying those projects that may present a 
higher risk of noncompliance, and second by identifying those projects 
that also have HOME funds. HUD could also more effectively use limited 
oversight resources by using a risk-based approach that considers 
whether a TCAP project has third-party investors and whether HFAs are 
providing enhanced oversight. Likewise, by gathering information about 
the number of the projects that have TCAP and HOME funding, HUD could 
more effectively plan reviews and deploy staff. Without a more 
rigorous approach to oversight, HUD will be limited in its efforts to 
ensure that TCAP projects meet program requirements and continue to 
provide a source of affordable housing.

Treasury's regulations require project owners to spend 30 percent of 
eligible project costs by December 31, 2010, to continue receiving 
additional Section 1602 Program funds in 2011. However, some of the 
HFAs and project owners expressed concerns about meeting the 30 
percent requirement because of unexpected delays stemming from the 
time needed to assemble funding, litigation, or construction or 
permitting issues. For instance, as of June 30, 2010, about 39 percent 
of Section 1602 Program projects that we reviewed have yet to close, 
leaving little time to meet the spending deadline. Projects that do 
not meet the deadline would not be eligible to receive any additional 
Section 1602 Program funds. In response, other sources of funding 
might withdraw from the projects, and project owners would face 
difficulty finding replacement financing. Thus, the 30 percent 
spending requirement might stop projects already under way--an 
unintended irony for a program designed to jumpstart stalled projects. 
Should there be a significant number of such projects, Treasury will 
be challenged in ensuring that the program achieves its intended 
goals. Specifically, although Treasury has been developing guidance 
for how HFAs should monitor project spending, it has yet to develop 
contingency plans in the event that significant numbers of projects 
stall again.

Recommendations for Executive Action:

Because the absence of third-party investors reduces the amount of 
overall scrutiny TCAP projects would receive and HUD is currently not 
aware of how many projects lack third-party investors, HUD should 
develop a risk-based plan for its role in overseeing TCAP projects 
that recognizes the level of oversight provided by others.

Treasury should expeditiously provide HFAs with guidance on monitoring 
project spending and develop plans for dealing with the possibility 
that projects could miss the spending deadline and face further 
project interruptions.

Agency Comments and Our Evaluation:

We provided a draft of this report to HUD for review and comment. HUD 
responded by saying it will identify projects that are not funded by 
HOME funds and projects that have a nominal tax credit award. HUD said 
it will make these identifications after projects are complete and 
develop a monitoring plan tailored to these projects. It will be 
important to ensure that HUD's approach includes a risk-based plan. We 
revised our section to recognize actions that HUD proposed in their 
response. HUD also provided technical comments that we incorporated as 
appropriate.

We provided a draft of this report to Treasury for review and comment. 
Treasury responded by saying that it has taken a number of steps to 
ensure HFAs and project owners have a complete understanding of the 30 
percent deadline and are prepared to comply with that requirement. 
Further, Treasury said it plans to continue monitoring the impact of 
the 30 percent spending deadline on the program and to provide 
additional guidance necessary to address unforeseen or unexpected 
circumstances. In our review of nine HFAs, we found that about 39 
percent of the projects awarded funds in those nine states had not yet 
closed, which is the first step to being able to draw funds from 
entities that provide financing. Treasury's development of timely 
guidance may be particularly important because the December 31 
deadline for spending 30 percent of program funding is quickly 
approaching. Treasury also provided technical comments that we 
incorporated as appropriate.

Many Recipients Are Citing Greater Ease Meeting Recovery Act Reporting 
Requirements, but Some Recipients Continue to Face Difficulties 
Calculating Jobs:

According to Recovery.gov, as of August 24, 2010, recipients reported 
on close to 200,000 awards indicating that the Recovery Act funded 
approximately 750,000 jobs during the quarter beginning April 1, 2010, 
and ending June 30, 2010.[Footnote 154] As reported by the Recovery 
Accountability and Transparency Board (the Board), the job 
calculations are based on the number of hours worked in a quarter and 
funded under the Recovery Act and expressed in FTEs.[Footnote 155] 
Officials from many states reported that the recipient reporting 
process was, by this fourth round, becoming routine. Given that no new 
reporting guidance was issued by OMB during the quarter and that a 
time extension was again granted by the Board, recipients indicated 
they had few problems reporting.[Footnote 156] The FTE calculations, 
however, continue to be difficult for some recipients as evidenced by 
our field work in selected jurisdictions covering two energy programs.

Fourth Round Data Indicate Progress in Linking of Recipient Reports, 
Which Can Facilitate Tracking Across Quarters:

We reviewed 74,249 prime recipient report records from Recovery.gov 
for this fourth round. This was 3,592 more than submitted in the 
previous quarter and represents about a 5 percent increase from round 
three. For our analyses, in addition to the round four recipient 
report data, we also used the round one, round two, and round three 
data as posted on Recovery.gov as of July 30, 2010.

We examined recipient reports to identify the extent to which progress 
was being made in addressing several key limitations we had found in 
our prior reports, including:

* the inability to link reports for the same project across quarters;

* reporting errors;

* unusual values, such as award amounts of zero, or relationships 
between values requiring further review because they are unexpected; or:

* flaws in the data logic and consistency, such as reports marked 
final that show a significant portion of the award amount not spent.

* Linking Reports for the Same Projects across Quarters:

Our analysis showed better linkage of reports across quarters, but we 
still found instances where it appears reporting on projects was 
discontinued and may indicate possible issues with linking. The 
ability to link reports across quarters is critical to tracking 
project funding and FTEs that are key indicators of project results. 
For example, if two consecutive quarterly reports on the same project 
are not linked, they become identified as two separate records, having 
an impact on the cumulative funding calculation and the ability to 
associate FTEs reported in the separate quarters with one another. 
Similarly, mislinked reports would result in funding and FTEs from two 
different projects being incorrectly associated with one another. For 
the data in Recovery.gov, the award key data field is used to track 
recipient reports across quarters.[Footnote 157]

In our previous report, we performed a series of matching operations 
between the three rounds of prime recipient reports using the award 
key data field. We extended these matches to the current fourth round 
of prime recipient reports to continue reviewing the tracking of 
reports from one quarter to the next and to identify potential 
mismatches of reports. We identified 1,111 fourth round prime 
recipient reports--1.3 percent of the fourth round prime recipient 
reports--that reflected a break in reporting (e.g., recipient reports 
that appeared in rounds one and four but not rounds two and three or, 
similarly, appeared in rounds two and four but not round three, etc.). 
Even though the number of prime recipient reports has increased for 
this fourth round, this is a smaller number of reports showing a break 
in reporting than we observed in the previous quarter. In our previous 
match across three rounds of reports, we identified 1,358 prime 
recipient reports that appeared in rounds one and three but not round 
two.

We performed another analysis using the final report and project 
status indicator fields that also suggested some concerns with missing 
linkages or potential errors in one of the reporting fields. As 
before, we identified recipient reports that only appeared in prior 
rounds, but not in round four. For prime recipients whose last report 
appeared in one of the prior three rounds, we examined the final 
report status and the project status fields, as those would presumably 
be the last reports from these projects. As shown in table 11, of the 
total 14,542 prime recipients that did not report in round four, 
overall, 34 percent of their last prior round reports were not marked 
as final and 27 percent showed project status as being less than 50 
percent complete or not started. These data suggest that, among other 
reasons, the projects may not have been completed, or they should have 
been linked to a report in a subsequent quarter, or that recipients 
were locked out of the reporting system.

The percentage not marked as final is less than we observed in our 
previous analysis. However, the number of recipient reports from round 
three that did not appear in round four, with no indication that the 
round three report was final or that it was not close to completion, 
is quite similar to the number of discrepancies found in our last 
report. Based on these results showing projects that were not marked 
as final and indicating that they were in the earlier stages of 
implementation, it seems reasonable to expect that a fourth round 
quarterly report should have been filed, but the necessary linkage has 
not been made. Alternatively, these fields may not show the correct 
status.

Table 11: Number, Final Report Designation, and Project Status of 
Prime Recipient Reports Not Appearing in Round Four:

Prime recipient reports last reported in: Round 1; 
Number of reports: 2,671; 
Percent not marked as final report: 50%; 
Percent project status is "not started" or "less than 50 percent 
complete": 43%.

Prime recipient reports last reported in: Round 2; 
Number of reports: 5,983; 
Percent not marked as final report: 30%; 
Percent project status is "not started" or "less than 50 percent 
complete": 23%.

Prime recipient reports last reported in: Round 3; 
Number of reports: 5,888; 
Percent not marked as final report: 30%; 
Percent project status is "not started" or "less than 50 percent 
complete": 23%.

Prime recipient reports last reported in: Total; 
Number of reports: 14,542; 
Percent not marked as final report: 34%; 
Percent project status is "not started" or "less than 50 percent 
complete": 27%.

Source: GAO analysis of Recovery.gov data as of July 30, 2010. 

[End of table] 

During the most recent reporting quarter, recipients were able to 
reorganize unlinked or mislinked reports between rounds three and 
four. This may have facilitated the reduction in the proportion of 
reports that did not appear in round four, but that were not marked as 
a final report.[Footnote 158]

Reporting Errors:

In addition to our examination of report linking across quarters, we 
continued our monitoring of errors or potential problems by repeating 
many of the analyses and edit checks reported in our earlier reports 
using the fourth reporting period data. The results of such analyses 
can help improve the accuracy and completeness of the Recovery.gov 
data and inform planning for analyses of recipient reports over time. 
In general, the overall results were similar to what we observed in 
the previous round.

For example, we identified a mismatch of 128 reports for Treasury 
Account Symbol (TAS) codes and 115 for Catalog of Federal Domestic 
Assistance (CFDA) numbers.[Footnote 159] This is a small increase from 
the previous round, where 117 reports for TAS codes and 112 reports 
for CFDA number were mismatched to the agency name fields. We also 
checked the data fields on the number and total amount of small 
subawards of less than $25,000 and identified 443 reports where the 
amount reported in both small subawards and small subawards to 
individuals were the same. This may be an indicator of improper keying 
of data or inaccurate placement of award data in a data field, both of 
which negatively affect data accuracy. The 443 reports is a small 
increase from the 436 reports identified in the previous round. 
However, the number of reports where the same value was entered for 
the number of subawards and the total dollar value of subawards was 
reduced, from 110 in round three to 101 in round four.

Unusual or Atypical Data Values:

Unusual or atypical data values alert the analyst to potential 
inaccuracies. We checked unusual or atypical data values by 
identifying reports where the award amount was zero or less than $10. 
We know that it is highly improbable that grants were awarded in these 
small amounts. Finding numbers like these suggests improper keying of 
data or a misinterpretation of the guidance for FederalReporting.gov, 
both of which negatively affect data quality. We determined that the 
number of reports where this occurred was reduced to 37 reports in 
this round out of the 74,249 prime recipient report records, down from 
74 reports in round three.

Flaws in Data Logic and Consistency:

Data logic and consistency inform the analyst about whether the data 
are believable, given program guidelines and objectives. To assess 
consistency in the range between award amount and amounts reported as 
received or expended, we repeated our analyses of reports marked as 
final to identify possible over or underspending or misreporting by 
identifying final reports where the amount received or expended by the 
recipient was less than 75 percent of the award amount or exceeded the 
award amount by 10 percent or more. If the final report status is 
correct, this check can help agencies identify where award funds were 
not being spent, which may indicate project implementation problems. 
If more funds were spent than were awarded, it may indicate problems 
with project financial accounts or controls. Similar to round three, 3 
percent of the round four reports marked as final showed an amount 
received or expended that was not within 75 percent of the award 
amount, and no reports exceeded the award amount by 10 percent or more.

Many State Officials Cited Increased Ease Compiling and Reporting 
Recipient Data:

Many state officials noted that the reporting process is starting to 
become routine. They highlighted the fact that guidance remained 
stable for this round of reporting and that the early decision to 
extend the reporting deadline from July 10 to July 14 contributed to 
the success of the reporting process. For example, officials in 
California stated that the fourth round of recipient reporting went a 
lot smoother than prior rounds; further, the extension of the deadline 
to July 14 allowed many of the state agencies to obtain more complete 
data through the end of the month of June and report this to 
FederalReporting.gov. Similarly, officials in Colorado reported that 
the deadline extension to July 14 allowed for three additional working 
days for recipients to review their submissions and make necessary 
corrections, which they felt improved the data quality. Officials in 
the District of Columbia reported that in general there are no 
difficulties in the District's recipient reporting process and the 
process has become smoother with each subsequent reporting period, 
while officials in Illinois stated that with the reporting guidance 
remaining the same, their agencies are becoming familiar with the 
reporting process. Officials in Georgia noted that they did not hear 
negative feedback from the state agencies regarding the recipient 
reporting process or the FederalReporting.gov Web site during this 
round.

A Few States Are Preparing for Changes in Leadership:

A number of the states we reviewed are anticipating leadership changes 
in the upcoming gubernatorial elections. In preparation, a few states 
noted that they are planning or are undertaking changes in procedures 
to ensure continuity during a transition. For example, Michigan 
Economic Recovery Office officials told us that because of anticipated 
changes to the state's administration, they moved to a decentralized 
process during this round of reporting to allow time for state 
agencies to adjust to reporting. Michigan state agencies submitted 
quarterly recipient reports directly to the federal government via 
FederalReporting.gov rather than to the state's Economic Recovery 
Office, which had previously served as a centralized reporting point. 
The officials told us that the decentralized reporting process for the 
quarter ending June 30, 2010, went as smoothly as they had 
anticipated, and the quality of the data submitted by state agencies 
to FederalReporting.gov has improved over time. The governor's office 
in Colorado is in the initial planning phase of transitioning to a new 
administration. Colorado state officials commented that the recipient 
reporting process has become a stable activity that should be able to 
move into a new administration with relatively little disruption. 
Officials in Georgia did not have any real concerns regarding a 
transition in administration, as the state now has recipient reporting 
systems and processes in place. California officials stated that steps 
have already been taken to ensure continuity in recipient reporting 
for the duration of the Recovery Act, while New Jersey officials noted 
that there were not many challenges related to recipient reporting 
amid a transition to a new administration in their state.

States Focus Their Recovery Act Web Sites on Providing Information to 
the Public and Continue to Enhance Web Site Features:

Many states noted that their Web sites were designed to provide 
information about Recovery Act programs, funding, and eligibility to 
the people of their states. For example, officials in California 
commented that the state Web site was designed for use by the average 
Californian to keep citizens informed about the Recovery Act's impact 
in California. Officials in Arizona noted that their Web site was 
designed to provide transparency to the public on how stimulus funds 
are being spent in the state. Several state Web sites were also used 
to provide potential applicants information on how to obtain grants, 
assistance, and contracts. For example, officials in the District of 
Columbia noted that their Web site provides information about Recovery 
Act funding received by the city and is a resource for people and 
organizations who are seeking opportunities to apply for grant 
funding, assistance, and potential contracts involving Recovery Act 
funds.

A number of state officials reported that they are continuing to add 
content to their Web sites. For example, Ohio's Recovery Act Web site 
recently added an interactive searchable map of funds awarded by 
location and enhanced information on the use of funds that are not 
covered by recipient reporting requirements. Officials in Texas said 
that enhancements in the past year have included new tracking reports 
to follow dollars, an interactive county map, and disbursement 
information. As another example, the Massachusetts Recovery and 
Reinvestment Office recently created a new Recovery Act Web site using 
an outside firm to help develop the most important features. An 
official from that office felt that the Recovery Act data collection 
and reporting effort will positively affect state government by 
improving policy and management discussions through the use of data.

Most DOE EECBG and Weatherization Program Recipients We Interviewed 
Followed OMB's FTE Calculation Guidance, and DOE's Recovery 
Operations' Data Quality Efforts Continue to Develop:

EECBG Program:

The EECBG program is administered within DOE and was funded for the 
first time with the passage of the Recovery Act. Because over 2,300 
state, local, and tribal governments are eligible for direct formula 
EECBG grants and the grants are also awarded on a competitive basis, 
the program has many different types and sizes of recipients. For 
example, each state-level recipient must use at least 60 percent of 
its allocation to provide subgrants to local government units that are 
not eligible for direct grants, making the state the prime recipient 
while the local government unit is a subrecipient. Larger local 
government units receive grants directly from DOE, making them prime 
recipients.[Footnote 160] For the fourth round of reporting, 2,116 
prime recipients of the program reported, as of July 30, 2010, that 
they created or retained about 2,265 FTEs funded by the Recovery Act.

We interviewed 13 EECBG state-level and 19 local government recipients 
from our 17 selected jurisdictions about their FTE calculations for 
the fourth round of reporting. Given that the EECBG program is new, 
some of them had not yet reported. For example, District of Columbia 
officials from the District's Department of the Environment told us 
that their work under the EECBG program had not started in time for 
them to report for the period that ended on June 30, 2010. California 
Energy Commission officials noted that they had only a few EECBG 
recipients for the last reporting round, but there were 50 or 60 
recipients for this fourth round. Another recipient commented that 
reporting was fairly easy now because they were only reporting 
internal data they controlled, as compared to contractor data, but the 
official anticipated more complexity as the program expands.

Officials from all of the state-level government units we interviewed 
that had FTEs to report said they followed OMB's December 18, 2009, 
guidance on FTE calculations. Specifically, they collected the number 
of hours worked that were funded by the Recovery Act and divided that 
total by the number of hours in a full-time work schedule, with 
defined processes in place to collect the EECBG recipient reported 
data. For example, Arizona Department of Commerce officials said that 
their office is responsible for reporting EECBG recipient data to the 
state's Office of Economic Recovery centralized reporting team. The 
Office of Economic Recovery works closely with the Arizona Department 
of Commerce to ensure that the reporting data are accurate. 
Additionally, Arizona officials said there is a review and approval 
process in place to check that the hours reported by the program's 
subrecipients are accurate. Officials in the Colorado state energy 
office noted that it has been easier collecting hours worked from 
EECBG subrecipients because DOE requires reporting the hours worked 
and the same data is used to convert hours to FTEs for OMB reporting. 
However, officials from a few other states said that generating the 
most comprehensive and complete job numbers available from 
subrecipients is still a challenge. The same challenge surfaced in 
education and housing programs that we previously reviewed.[Footnote 
161]

A few local government EECBG recipients we interviewed used methods 
other than the OMB guidance to estimate their number of FTEs, possibly 
resulting in over or undercounting. For example, while DOE guidance 
explicitly states that the job-year estimate issued by the Council of 
Economic Advisers for job creation potential is not appropriate in 
determining direct jobs created or retained and should not be used for 
reporting to either OMB or DOE, a New Jersey recipient informed us 
that she planned to use this number to estimate her township's FTEs. 
We informed the recipient that this was incorrect. In New York, a 
county official said that an EECBG contractor was conducting work 
under a Recovery Act contract, but the county did not report any FTEs 
in its most recent quarterly report because the official did not think 
the contractor had any documented jobs created or saved. Related to 
the problem with complete FTE numbers, several EECBG recipients 
reported confusion about including data from subrecipients on jobs, 
which OMB guidance states should be included. For example, officials 
from a county in California stated they received conflicting 
information about including jobs from subrecipients and vendors in 
their recipient reports. The officials said that the conflicting 
information emanated from different levels within DOE and between 
DOE's and OMB's guidance. The county officials believed they did not 
get a clear answer from DOE as to the difference between subrecipients 
and vendors. Deciding that it was better to over report jobs than to 
under report jobs, they included subrecipient and vendor hours that 
could be project-related in their recipient reports.

Based on the recipients we interviewed, there was some evidence that 
larger EECBG direct grant recipients seemed to conduct more thorough 
recipient reporting data quality reviews than smaller direct grant 
recipients, possibly due to their enhanced administrative capacity. 
For example, a large EECBG grant recipient in Georgia reported that it 
improves data accuracy by prepopulating reports for subrecipients so 
they only need to include job numbers and vendor disbursements. In 
some instances, it also compares the subrecipient data to other 
documents, such as invoices and Davis-Bacon reports. However, 
according to a city official in Georgia, for their small grant, no 
specific data quality reviews are conducted other than a city official 
reviewing the hours worked. Colorado state officials said that 
communities that received under $2 million in direct formula grants 
have more difficulty administering EECBG grants and meeting the 
reporting requirements because they have limited staff resources. As 
an example, they mentioned a Colorado city, which received 
approximately $1 million in its EECBG grant. Because of limited 
resources, the city has the person who administers its housing 
programs also administer the EECBG grant. The Colorado state officials 
believed that in the case of smaller communities, it would work better 
if the state administered the EECBG grants and could report for the 
locality.

According to DOE officials, their EECBG program project officers have 
as minimum responsibilities making sure the recipients that need to 
report are reporting, reviewing the quality of the recipient reporting 
data submitted, and ensuring that recipients correct the data if the 
project officers detect errors. DOE monitors grant recipients 
primarily through its project officers, and project officers work 
directly with recipients to provide guidance and evaluate performance. 
Project officers also gather and analyze information about project 
planning and implementation and outcomes to help ensure data quality 
and to ensure that statutory requirements are met. DOE stated that it 
has updated the checklist that project officers use to monitor 
recipients, and it is also developing guidance that includes best 
practices on how states should monitor their subrecipients. Such 
increased attention to monitoring recipients, including the quality of 
their data, could likely reduce the errors made by recipients.

Weatherization Assistance Program:

During the fourth round of recipient reporting, 58 prime recipients of 
DOE's Weatherization Assistance Program submitted their quarterly data 
to FederalReporting.gov, and as of July 30, 2010, reported 
approximately 12,980 FTEs funded by the Recovery Act. We interviewed 8 
state-level and 17 local weatherization assistance recipients from our 
17 selected jurisdictions about their FTE calculations for the fourth 
round of reporting. As with the EECBG grants, we found that most of 
the weatherization assistance recipients we interviewed followed OMB's 
December 18, 2009, guidance regarding FTE calculations. A few 
recipients, however, did not estimate the number of FTEs correctly for 
this round of reporting, resulting in under or over counting. For 
example, in one case, subrecipients in Florida did not include the 
hours worked by contractors who performed weatherization work at 
individual homes, which they attributed to a lack of awareness of the 
requirement to report the hours. In California, a local weatherization 
assistance provider also expressed confusion regarding reporting 
subcontractor hours. In Pennsylvania, a state official indicated some 
weatherization subrecipients experienced difficulties, at least in 
their initial reports, in submitting FTE information through a new Web-
based reporting system that collects and calculates FTE information 
from the subrecipients. The Pennsylvania weatherization recipients 
report hours through this system to the Department of Community and 
Economic Development, but the system does not currently provide a 
method for subrecipients to certify the accuracy of what they report.

A few states had processes in place to help ensure weatherization 
assistance recipient reporting accuracy. For example, a District of 
Columbia official said the weatherization program staff and Recovery 
Act grant managers review submitted recipient reporting data from 
community-based organizations on a monthly basis before it is reported 
into the District's centralized reporting system. A New York official 
reported reviewing data submitted by a sample of subrecipients and 
comparing jobs data to contract and payment information in the program 
base, while in Georgia, the state weatherization program officials 
reviewed each provider's submission and called each provider to 
discuss their numbers. This process resulted in some changes to vendor 
information and the number of jobs created or retained.

DOE's Recipient Reporting Data Quality Review:

According to DOE officials, during the quarter ending June 30, 2010, 
3,988 DOE recipients submitted reports, an increase of about 7 percent 
from the quarter ending March 31, 2010, and an increase of about 28 
percent from the 2009 year-end reporting period. DOE stated that only 
eight recipients are considered nonreporters for this quarter, the 
majority of whom belong to a group with consistent challenges in 
reporting.

According to a senior DOE official in the department's Recovery 
Operations Group, the department's data quality review process for 
fourth round recipient reports was enhanced by several factors. The 
DOE official noted that access to FederalReporting.gov during the 
reporting period helped DOE identify recipients who had not yet filed 
and helped assist those who had unsuccessfully filed, entered the 
wrong awarding agency code, or confused the reporting required by OMB 
with DOE's system. In addition, he said that communicating the 
extended time frame for reporting before the reporting period actually 
began alleviated last-minute confusion or frustration on the part of 
recipients or reviewers, causing fewer recipients to wait until the 
last minute to file. Also, the official commented that the July 14 to 
July 20, 2010, late submission period, during which recipients were 
still allowed to file, allowed recipients experiencing access issues 
to FederalReporting.gov to submit reports. During this time period, 
DOE staff was also able to identify and assist with issues such as 
Central Contractor Registration numbers and getting new passwords for 
the last approximately 100 recipients filing reports. The DOE official 
noted that while the continuous correction provision has added to the 
workload of the DOE team, the period allows them greater time to 
review more recipient reported data than previously, identify 
potential errors, and work with agency reviewers and recipients to 
improve data quality.

The senior official listed a number of frustrations DOE encountered 
during the fourth round of reporting, most of which are in areas where 
they felt FederalReporting.gov is technologically limited. For 
example, according to the official, FederalReporting.gov lacks some 
basic logic tests for matching award numbers, with most of the 
mismatches resulting from prefix differences. The lack of this 
matching capability creates extra work for the DOE staff, but the 
Board declined to run separate matching routines for each agency.

In an April 2010 audit report of DOE's efforts to ensure the accuracy 
and transparency of reported Recovery Act results, the DOE Inspector 
General's (IG) office found that the department had taken a number of 
actions designed to do so and made two recommendations, which DOE had 
already started to address.[Footnote 162] For example, recipient 
reported data elements are compared to information maintained in the 
department's financial systems. The IG recommended that DOE adjust the 
quality assurance process to include adding comparisons of other data 
elements, and a senior DOE official reported that for this round of 
reporting, the department has added several data elements to the 
original four that were reviewed centrally by the headquarters 
Recovery Operations Group. Now reviewers compare recipient reports in 
FederalReporting.gov against DOE systems to identify recipient 
information that falls outside expected results in seven different 
areas. According to DOE, these areas are key project markers being 
tracked by the public, the administration, Congress, and within the 
department to determine if the high-level goals of stimulating the 
economy and creating jobs outlined in the Recovery Act are being met. 
The DOE official said that increased attention has been placed on data 
quality within DOE systems as a result of this review process, which 
has created new communication channels and processes to identify 
issues and correct them. In line with the other IG recommendation, DOE 
developed a training program for officials responsible for reviewing 
recipient data submissions that includes detailed steps and procedures 
for officials to follow when reviewing recipient quarterly data for 
significant reporting errors and material omissions.

The Inspector General Community Has a Series of Efforts Aimed at 
Increasing Recipient Reported Data Quality:

The IG community is also performing data quality audits of federal 
agencies' data quality review efforts for their recipient reports. In 
June, an IG-led Board review of the effectiveness of the agencies' 
data quality review processes was completed.[Footnote 163] To identify 
material omissions and significant errors that were not identified by 
the reviewed agencies for the quarter ending December 31, 2009, the 
IGs performed reviews of the recipient reported data on 
FederalReporting.gov and attempted to compare that data with the data 
available in the agency-owned systems. In general, the IGs found that 
the agency systems were legacy systems that had been developed, 
designed, and implemented prior to the Recovery Act. As a result, data 
elements were not always consistent and at times were nonexistent, 
making matching the data difficult if not impossible. The final report 
provided three recommendations to the Board to pursue discussions with 
the appropriate government entities regarding improving the 
effectiveness of agency data quality reviews. These recommendations 
included establishing a uniform and consistent governmentwide award 
numbering system; making mandatory the suggested data logic checks 
identified in OMB guidance; and issuing guidance to better define 
material omissions and significant errors. Although consensus was not 
reached among the IGs regarding the award numbering system, there was 
general consensus regarding the logic checks and guidance 
recommendations. The next effort aimed at recipient reported data 
quality includes a Board review focusing on key data reporting 
elements and the factors contributing to errors in the recipient 
reports.

Intergovernmental Interaction Is a Critical Component of Recovery Act 
Operations and Will Likely Have Implications beyond the Act:

The new procedures and tools developed to implement the Recovery Act 
are reshaping intergovernmental interactions and ways that governments 
collect, maintain, and report information. For example, the federal 
government built a huge data warehouse, FederalReporting.gov, which is 
populated by thousands of governments and other Recovery Act fund 
recipients, to ensure that the public receives as much information as 
possible on the implementation of the Recovery Act. Because such a 
wide variety of information is required and since some elements are 
being reported for the first time, OMB used a variety of methods to 
train federal agencies and recipients of Recovery Act funding on how 
to comply with their reporting responsibilities. OMB and federal 
agencies provided several types of clarifying information to 
recipients, as well as opportunities to interact and ask questions or 
receive help with the reporting process. These included weekly phone 
calls between OMB and groups representing the state budget and 
comptrollers offices, weekly calls between state reporting leads, 
webinars, a call center, and e-mail outreach. In addition, the Board 
recently reported that, along with the IG community, they have 
provided more than 2,000 training and outreach sessions to federal, 
state, and local government employees and to private sector 
individuals involved in Recovery Act implementation.

According to many of the state officials we interviewed, the Recovery 
Act's reporting requirements also promoted more interaction between 
state and federal agencies, state agencies, and within departments of 
these state agencies. For example, Ohio officials stated that the 
governor's stimulus office had established contacts with OMB, 
administration officials, and other federal agency contacts through 
work on Recovery Act implementation and monitoring. Officials from 
Illinois noted that recipient reporting was one of the few efforts 
that brought their otherwise very independent state agencies together. 
Colorado state officials reported that the program and accounting 
staffs within each state agency are working together closely to help 
ensure the accuracy and quality of the Recovery Act data. A few state 
officials, however, commented that although communication with federal 
agencies and other entities has increased due to the recipient 
reporting requirements, the communication is aimed primarily at 
dispelling confusion and is not necessarily positive. For example, 
Texas state officials commented that the one change that has been 
prompted by recipient reporting is the significant effort required to 
communicate reporting requirements to subrecipients and to collect, 
review, and submit the data.

Officials from a number of states expressed hopes that the increase in 
intergovernmental interactions resulting from the Recovery Act 
reporting requirements will continue after the act's reporting 
requirements expire. For example, District of Columbia Recovery Act 
coordinators schedule a weekly teleconference for all District 
agencies receiving Recovery Act funds to provide status updates and 
have discussions relating to the Recovery Act. They intend to continue 
scheduling the meetings after the Recovery Act funds are expended in 
order to maintain communication on other grant-related topics. 
Michigan officials reported that state agencies are working with each 
other in a way they have not before. They said the Recovery Act has 
facilitated collaboration, citing that the act removed some barriers 
to interaction between state agencies because the timeline for 
complying with Recovery Act requirements has been so short that 
agencies must work together to meet requirements, which has yielded 
many positive effects. Michigan officials noted that they hope the 
changes will be long-standing. As another example, a representative 
from a state association described Recovery Act-related problem 
solving between the audit and technology communities. These 
interactions included discussions where there was a flow of 
information at the policy, technological, and political levels that 
they would like to see continued.

A recent report issued by the National Association of State Budget 
Officers echoed the responses from many of the state officials we 
interviewed.[Footnote 164] The report noted that during the months 
before recipient reporting began in October 2009 and in the months 
since, the Recovery Act helped to foster movement toward a more open 
and communicative atmosphere between both the federal government and 
states, as well as between individual states, while also providing 
important lessons currently being used in the implementation of the 
Federal Funding Accountability and Transparency Act of 2006 and the 
recent health care legislation. The report maintained that states have 
noted that increased transparency on government spending is a worthy 
goal which they support, as long as the federal government maintains a 
level of communication that allows for the effective and efficient 
implementation of any accountability requirements.

Oversight and Accountability Efforts:

Actions Are Needed to Improve Single Audit and Federal Follow-up as 
Oversight Accountability Mechanisms:

OMB has indicated that Single Audits play a key role in the 
achievement of its accountability objectives over Recovery Act funds, 
which include helping to ensure whether Recovery Act funds are used 
for authorized purposes and that risks of fraud, waste, error, and 
abuse are mitigated. A Single Audit includes the auditor's schedule of 
findings and questioned costs, internal control and compliance 
deficiencies, and the auditee's corrective action plans along with a 
summary of prior audit findings that includes planned and completed 
corrective actions. We identified significant concerns with the Single 
Audit process that (1) diminish the effectiveness of the Single Audit 
as an oversight accountability mechanism and (2) could allow risks 
associated with Recovery Act funds to persist. The Single Audit Act 
[Footnote 165] and related OMB Circular No. A-133 Audits of States, 
Local Governments, and Non-Profit Organizations[Footnote 166] do not 
adequately address the risks associated with the current environment 
in which billions of dollars in federal awards are being expended 
quickly through new and existing programs associated with the Recovery 
Act. In our prior bimonthly reports, we made several recommendations 
to improve OMB's oversight of Recovery Act-funded programs through the 
use of Single Audits. OMB has implemented some, but not all, of our 
recommendations.[Footnote 167]

OMB's Single Audit Internal Control Project (project) highlighted 
areas where significant improvements in the Single Audit process are 
needed. OMB encouraged auditors from states that volunteered to 
participate in the project to communicate internal control 
deficiencies[Footnote 168] over compliance for selected Recovery Act 
programs earlier than required under statute. The project has been a 
collaborative effort between volunteer states receiving Recovery Act 
funds, their auditors, and the federal government. One of the 
project's goals was to achieve more timely communication of internal 
control deficiencies for higher-risk Recovery Act programs so that 
corrective action can be taken more quickly. GAO assessed the results 
of the project and found that it met several of its objectives and 
that the project was helpful in identifying critical areas where 
further OMB actions are needed to improve the Single Audit process 
over Recovery Act funding. The project also required that auditee 
management provide, 2 months earlier than required under statute, 
plans for correcting internal control deficiencies to the cognizant 
agency for audit for immediate distribution to the appropriate federal 
awarding agency. The federal agency was then to have provided its 
concerns relating to management's plan of corrective actions in a 
written decision. We found, however, that (1) most federal awarding 
agencies did not issue their management decisions about the corrective 
actions within the project's required time frames, (2) the current 
reporting time frames for the Single Audit process are not conducive 
to the timely identification and correction of internal control 
deficiencies, and (3) OMB's Single Audit guidance is not timely--
specifically for 2010 audits, as well as guidance for a subsequent 
project. In our May 2010 bimonthly report, we recommended that OMB 
issue its Single Audit guidance, including guidance for future 
projects, in a timely manner so that auditors can efficiently plan 
their audit work, and OMB concurred with our recommendation. According 
to several state auditors who participated in the project, OMB's 
issuance of its guidance in an untimely manner adversely impacts the 
auditors' ability to plan and conduct their Single Audits. They added 
that untimely project guidance would also hinder their ability to 
participate in future OMB projects intended to provide earlier 
communication and correction of internal control deficiencies 
identified in Recovery Act programs.

We recommend that the Director of OMB strengthen the Single Audit and 
federal follow-up as oversight accountability mechanisms by (1) 
shortening the timeframes required for issuing management decisions by 
federal awarding agencies to grant recipients and (2) issuing the OMB 
Circular No. A-133 Compliance Supplement no later than March 31 of 
each year.

Single Audits as an Oversight Accountability Mechanism for Recovery 
Act Programs:

OMB has indicated that Single Audits would serve as important 
oversight accountability mechanism for Recovery Act programs, which 
have considerable risks. The most significant of these risks are 
associated with:

* new programs that may not have the internal 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 increases for existing programs that may exceed 
the capacity of existing internal controls and accounting systems,

* the more extensive accountability and transparency requirements for 
Recovery Act funds that require the implementation of new controls and 
procedures, and:

* increased risks because of the need to spend funds quickly.

We reported in our previous bimonthly reports that we were concerned 
that, as federal funding of Recovery Act programs accelerates, the 
Single Audit process may not provide the timely accountability and 
focus needed to assist recipients in making necessary adjustments to 
internal controls to provide assurances that the money is being spent 
as effectively as possible to meet program objectives. We also 
reported that the Single Audit reporting deadline is too late to 
provide audit results in time for the audited entity to take action on 
internal control deficiencies noted in Recovery Act programs.

In those prior reports, we made several recommendations to OMB for 
improving the Single Audit Process to address the increased risks by 
helping ensure that Recovery Act funds are not used for unauthorized 
purposes and that risks of fraud, waste, error, and abuse are 
mitigated. OMB has implemented some, but not all, of these 
recommendations. In response to one of our recommendations, in October 
2009 OMB implemented a project to encourage earlier reporting and 
timely correction of internal control deficiencies identified in 
Single Audits that included Recovery Act programs. OMB's guidance for 
the project stated that this earlier communication of internal control 
deficiencies over compliance would allow participating auditees to 
correct internal control deficiencies related to Recovery Act funds in 
a timely manner, thereby reducing potential future unallowable costs.

We assessed the results of the project and found that the project met 
its original objectives of (1) achieving more than 10 volunteer states 
participating in the project, (2) having the participating auditors 
issue interim internal control reports for the selected programs at 
least 3 months earlier, and (3) having auditee management issue 
corrective action plans to resolve internal control deficiencies at 
least 2 months earlier than required by OMB Circular No. A-133. The 
project also increased the level of awareness by the auditors of some 
of the risks associated with Recovery Act funds and, in some cases, 
increased the communication and interaction between the auditors, 
program officials, and the cognizant agency for audit concerning 
internal control deficiencies related to Recovery Act funds. For 
example, many of the auditors who responded to our survey stated that 
the project increased awareness of internal control deficiencies and 
focused attention on the need for federal agencies to be more involved 
in pursuing corrective actions to develop more timely corrective 
action plans for internal control deficiencies related to programs 
receiving Recovery Act funding.

The project also called for federal awarding agencies to actively work 
with auditees to resolve high-risk findings in the most expeditious 
manner. One of the project's goals was to achieve more timely 
communication of internal control deficiencies for higher-risk 
Recovery Act programs so that corrective action could be taken more 
quickly. The implementation of corrective actions of internal control 
deficiencies will help to ensure that Recovery Act funds are used as 
intended.

Most Federal Awarding Agencies Did Not Provide Their Management 
Decisions within the Prescribed Time Frames:

The project's guidelines called for the federal awarding agencies to 
complete two steps by April 30, 2010: (1) perform a risk assessment of 
the internal control deficiency and identify those with the greatest 
risk to Recovery Act funding, and (2) identify corrective actions 
taken or planned by the auditee. OMB guidance called for this 
information to be included in a management decision that the federal 
agency was to have issued to the auditee's management, the auditor, 
and the cognizant agency for audit. As of April 30, 2010, most federal 
awarding agencies had not provided their management decisions on the 
states' corrective action plans as required under the project's 
guidelines. Several of the state auditors and state program officials 
we surveyed emphasized the need for more timely communication from the 
federal awarding agencies, which is important for state agencies to 
gain a clear understanding of needed corrective actions. It is also 
important for auditors so that they can monitor progress towards 
addressing Single Audit results. OMB Circular No. A-133 requires 
management decisions to be issued by federal awarding agencies within 
6 months of receipt of the audit report. However, the project's 
guidelines required the federal awarding agencies to issue a 
management decision as promptly as possible and not later than 90 days 
after the date that the corrective action plan was received by the 
cognizant agency for audit.

The internal control reports for the project identified internal 
control deficiencies in at least 24 Recovery Act programs awarded by 
seven federal agencies by December 31, 2009.[Footnote 169] Moreover, 
under the project's guidelines, most corrective action plans were 
completed by January 31, 2010, 2 months earlier than the time frames 
under OMB Circular No. A-133 and were concurrently provided to the 
federal awarding agencies. Despite the federal awarding agencies 
having the internal control reports and corrective action plans in 
January 2010,[Footnote 170] only three of the seven federal awarding 
agencies had submitted some of the relevant management decisions on 
corrective actions by May 14, 2010. We asked OMB officials to provide 
us with an update of the number of management decisions that had been 
submitted by the federal awarding agencies through August 5, 2010. OMB 
provided a summarized list of the total number of management decisions 
by agency where the auditee and the federal agency had agreed on 
action to be taken to address the report findings but had not traced 
these totals to the detailed documentation to verify the summary 
information.

It is important to note that an awarding agency's issuance of a 
management decision does not mean that internal control deficiencies 
have been corrected; rather, the management decision reflects the 
agency's approval of the auditee's proposed corrective action. 
Although some corrective actions can be implemented quickly, others 
can take months or years to implement. The issuance of timely 
management decisions by federal agencies is important because it can 
affect the timeliness of the auditees' implementation of corrective 
actions to address internal control deficiencies concerning Recovery 
Act programs. For example, according to an HHS Office of Inspector 
General official, auditees sometimes wait until they receive a 
management decision before taking corrective action on internal 
control deficiencies.[Footnote 171] On March 22, 2010, OMB issued 
memorandum M-10-14, Updated Guidance on the American Recovery and 
Reinvestment Act, which among other things, instructs federal agencies 
to take immediate action as appropriate to review and act on Single 
Audit findings. However, as indicated by the project's results, 
further efforts by OMB are needed to help ensure that federal agencies 
provide their management decisions on the corrective action plans in a 
timely manner.

Time Frames of the Single Audit Process Do Not Facilitate the Timely 
Identification and Correction of Audit Findings in Recovery Act 
Programs:

Under the current time frames for identifying and correcting audit 
findings provided by the Single Audit Act and OMB Circular No. A-133, 
it could take years to correct significant deficiencies and material 
weaknesses that expose Recovery Act funds to misuse or fraud. For 
example, in accordance with current requirements, a material weakness 
that has been identified by the auditor for an entity that has a June 
30, 2009, fiscal year-end is to be reported in the Single Audit report 
to be issued by March 31, 2010, along with the auditee's corrective 
action plan. The federal awarding agency would have 6 months or until 
September 30, 2010, from receipt of the Single Audit report to 
communicate a written management decision to the auditee.[Footnote 
172] As a result, it may take 15 months or more since the end of the 
fiscal year in which the audit finding was initially identified before 
any work is begun. Auditee's management reports their progress in 
taking corrective action in the schedule of prior audit findings where 
the status of the finding is reported as either corrected (closed) or 
not (open). The auditor then reviews this schedule and it is included 
in the next Single Audit reporting package. If the awarding agency 
delayed issuing a management decision to the auditee, it is possible 
that corrective action on the finding was also delayed, and, as a 
result, the finding may have remained open. In addition, several state 
auditors have expressed frustration regarding Single Audit findings 
that remain open years after they were initially identified, without 
the auditee or the federal awarding agency taking action. The lack of 
attention to ensuring prompt corrective action impairs the federal 
government's ability to ensure that unallowable costs have been repaid 
or that internal control deficiencies have been corrected. Shortening 
the timeframes required for issuing management decisions by federal 
agencies and monitoring the auditee's implementation of timely 
corrective actions by the federal agency will help to ensure that 
appropriate audit follow-up and resolution are achieved.

Figure 31 illustrates an example of the Single Audit reporting time 
frames.

Figure 31: Illustration of the Single Audit Reporting Time Frames for 
Entities with a June 30, 2009, Fiscal Year-End:

[Refer to PDF for image: illustration] 

February 17, 2009: Recovery Act enacted. 

Finding occurs[A]. 

June 30, 2009: Fiscal year end. 

Auditor reports finding as a significant deficiency or a material 
weakness. 

March 31, 2010 (9 months): Single audit reporting package due[B]. 

Awarding federal agency decides if proposed corrective actions are 
acceptable. 

June 30, 2010: Fiscal year end. 

September 30, 2010 (15 months): Federal awarding agencies management 
decisions due[C]. 

Auditee management may (or may not) take corrective actions. Auditor 
reviews management's corrective actions. The status of finding (i.e. 
closed or open) is reported in the next Single Audit report. 

March 31, 2011 (21 months): Single audit reporting package due. 

If finding remains open, cycle repeats; auditee management may or may 
not take corrective action, and auditor reviews status to be reported 
in next Single Audit report. 

June 30, 2011: Fiscal year end. 

[A] Finding occurs: A finding can be a questioned cost, matter of 
noncompliance, or an internal control deficiency that exists in an 
entity's internal control. In accordance with OMB Circular No. A-133, 
an auditor reports the findings in the schedule of findings and 
questioned costs. The auditor identifies significant deficiencies and 
material weaknesses. 

[B] Single Audit report with corrective action plan: Single Audit 
reporting package includes audited financial statements, reports on 
internal controls, corrective action plan to address each finding 
identified in the in the auditor's reports, and other schedules 
according to OMB Circular No. A-133 guidance. 

[C] Management Decision: A written evaluation by the federal awarding 
agency of the corrective action plan proposed by the auditee to 
address the findings related to programs administered by that federal 
agency. The management decision can give concurrence with the 
auditee's proposed corrective actions or provide other guidance to 
address the finding. 

Source: GAO. 

[End of figure]

As we reported in prior Recovery Act reports, the problem that the 
Single Audit reports are not due until 9 months after the fiscal year- 
end was exacerbated by the extensions to the deadline to file Single 
Audit reports. The federal awarding agencies, consistent with OMB 
guidance, had routinely granted such extensions. In February 2010, 
HHS, the cognizant agency for audit, adopted a policy of no longer 
approving requests for such extensions. Further, in March 2010, OMB 
issued a memorandum, in response to our recommendation, that directed 
federal agencies to not grant any requests made to extend the Single 
Audit reporting deadlines for fiscal years 2009 through 2011. Despite 
this guidance, we found that the Federal Audit Clearinghouse (FAC) did 
not receive Single Audit reporting packages for fiscal year ending 
2009 from 5 of the 16 selected states and the District of Columbia 
within the 9-month time frame provided by statute.[Footnote 173] 
Single Audit reporting packages include a schedule of internal control 
deficiencies and the auditee's plans for correcting them. Thus, when 
submissions of reporting packages are late, the auditees' efforts to 
correct internal control deficiencies may be delayed. According to OMB 
guidance, late submissions of the Single Audit to FAC in either of the 
2 prior fiscal years would prevent the auditor from attaining low-risk 
auditee status, which could likely result in an increase in the scope 
of audit coverage to address the additional risk for the subsequent 
year's audit of the auditee. While the focus of our bi-monthly reports 
has been on Recovery Act funds, in general, the Single Audit pertains 
to federal expenditures awarded from the Recovery Act as well as from 
other federal sources; thus, internal control deficiencies identified 
in a program expending Recovery Act funds would generally affect all 
other sources of federal funds for that program as well.

As of August 5, 2010, five of the states participating in the project 
did not submit their completed fiscal year 2009 Single Audit reports 
to FAC by the March 31 due date; one of these states had not yet 
submitted its fiscal year 2009 Single Audit Report as of August 24, 
2010.[Footnote 174] While these states were able to meet the project's 
reporting deadline, they were not able to meet the deadline to submit 
the state's Single Audit reporting package.

Single Audit Guidance Continues to Be Issued in an Untimely Manner:

We identified other concerns through our review of the project that 
point to the need for OMB to issue all Single Audit guidance in a more 
timely manner. Specifically, 12 of the 14 participating state auditors 
who responded to our survey stated that guidance for any future OMB 
projects should be more timely. In addition, more than half of the 
auditors who responded to our survey indicated that they had concerns 
with timeliness issues relating to the release of OMB's 2009 Circular 
No. A-133 Compliance Supplement. OMB issued the Compliance Supplement 
in two stages, the initial one in May 2009 and an addendum in August 
2009. This guidance was issued after the Single Audits for entities 
with a June 30, 2009, fiscal year-end were already under way. Most of 
the participating auditors told us that they needed the information as 
early as February 2009, or at least by April 2009, to effectively plan 
their work. Some of these state auditors stated that the OMB guidance 
was issued too late, causing inefficiencies and disruptions in the 
planning of audit procedures.

OMB officials told us that they planned to issue the 2010 Compliance 
Supplement in late May 2010. In our May 2010 bi-monthly report, we 
recommended that OMB issue its Single Audit guidance, including 
guidance for future projects, in a timely manner so that auditors can 
efficiently plan their audit work. OMB concurred with our 
recommendation. However, OMB issued the 2010 Compliance Supplement on 
July 29, 2010--again after the audit planning and work for Single 
Audits for entities with a June 30, 2010, fiscal year end was already 
under way. OMB officials stated that the delay in issuing the 2010 
Compliance Supplement was primarily due to the additional attention 
needed to include more Recovery Act programs in the Compliance 
Supplement and information regarding the audit procedures for 
reviewing Recovery Act reporting requirements. OMB had provided the 
American Institute of Certified Public Accountants (AICPA) 
Governmental Audit Quality Center and the National Association of 
State Auditors, Comptrollers and Treasurers (NASACT) with draft Single 
Audit guidance in May 2010. AICPA and NASACT posted the draft to its 
Web sites for auditors to use for planning their work. However, some 
auditors we spoke with stated that because the guidance was not in a 
final form, it still impacted their ability to efficiently plan and 
conduct their work.

We also reported that OMB initiated the first project in October 2009 
well after most of the audit work had been underway, resulting in some 
of the project's benefits not being realized. The project's guidance 
called for the auditors to complete their internal control work as of 
November 30, 2009, and to report internal control deficiencies by 
December 31, 2009. The project's guidelines included incentives to 
provide the participating auditors with some relief in their workload 
to encourage them to participate in the project. Under the project's 
guidelines, auditors were not required to perform risk assessments of 
smaller federal programs that they would otherwise need to complete. 
However, since most of the auditors had already completed the risk 
assessments by the time the project had started, most of the 
participating auditors stated that they did not experience any audit 
relief.

OMB has stated that it plans to have a second phase of the Single 
Audit Internal Control Project for fiscal year 2010. However, as of 
August 5, 2010, OMB had not yet defined the parameters of the project 
and issued guidance for potential volunteer participants. OMB has not 
provided detailed guidance that would explain incentives for 
volunteering to participate in the project, types of entities that 
will be permitted to participate, the scope of the project (including 
the specific programs that participants could select from), the number 
of participants it is seeking, or the time frames for beginning and 
ending the project.

We continue to report concerns about the Single Audit process because 
it does not provide a means for the timely identification and 
correction of internal control deficiencies or other findings relating 
to Recovery Act programs. This limits the effectiveness of the Single 
Audit process as an oversight accountability mechanism and exposes 
Recovery Act funds to increased risk of misuse or fraud. We recommend 
that the Director of OMB strengthen the Single Audit and federal 
follow-up as oversight accountability mechanisms by (1) shortening the 
timeframes required for issuing management decisions by federal 
awarding agencies to grant recipients, and (2) issuing the OMB 
Circular No. A-133 Compliance Supplement no later than March 31 of 
each year.

Fraud, Waste, and Abuse Allegations GAO Has Received That Are Related 
to the Recovery Act:

As of August 11, 2010, we have received 224 allegations of Recovery 
Act wrongdoing from the public. We have closed 137 of these cases 
because the allegations were nonspecific or lacked information about 
fraud, waste, or abuse. Another 44 were investigated further and 
closed by us or the appropriate agency inspector general (IG) when no 
violations were found. Of allegations that are open, 16 are being 
handled by us and 27 by an IG. We generally refer allegations to an IG 
when that office is already pursuing the same or a similar complaint. 
We periodically contact the IGs to determine the status of our 
referrals. We will continue to evaluate all Recovery Act allegations 
received through FraudNet and provide updates in future reports.

Recovery Accountability and Transparency Board Initiatives:

The Recovery Accountability and Transparency Board (the Board) 
continues to take steps to identify and report on potential areas for 
risk to fraud, waste, and mismanagement of Recovery Act funds. The 
Board recently published its third report in its series of reviews 
regarding recipient reporting data quality. In addition, the Board 
continues to augment its various initiatives for detecting potential 
instances of risk in Recovery Act contracting and turn over 
information regarding such instances to the appropriate inspectors 
general for further review. The Board also continues to organize 
coordinated reviews performed by its inspectors general working group 
aimed at further assessments of the management and oversight of 
Recovery Act spending. The Board is also planning to expand on some of 
its initiatives to strengthen future oversight as implementation of 
the Recovery Act continues.

Board Reports Focus on Data Quality:

In June 2010, the Board reported on the third of three phases of its 
inspectors general working group's review of actions taken by agencies 
to improve the quality of data that recipients of Recovery Act funds 
are providing for posting to the public Web site.[Footnote 175] 
Working in conjunction with the Board, six inspectors general reported 
that their agencies had issued policies and general procedures that 
follow OMB's guidance; however, the implementation of their respective 
guidance differed significantly among the agencies and their subunits. 
[Footnote 176] We discuss the results of the inspectors general work 
in more detail under the recipient reporting section of this report.

Current Board Initiatives:

The Board continues to use a variety of initiatives to monitor 
Recovery Act spending in an effort to identify potential areas at risk 
for fraud, waste, and abuse. The Board's current oversight initiatives 
include the following:

* maintaining a Fraud Hotline, which receives complaints of potential 
fraud, waste, and abuse from the public, and referring potential cases 
to the respective inspector general for further review.

* performing data analyses on publicly available information about 
Recovery Act recipients. The Board continues to modify its analytical 
efforts to provide insights on potential risk areas for the oversight 
community. The Board increased its staff, added more software, and 
obtained new public data sources to provide for additional analyses.

As of July 31, 2010, the Board had received 2,398 Fraud Hotline 
complaints.[Footnote 177] As a result of these complaints as well as 
the Board's data analyses, the Board had referred 184 leads to various 
inspectors general as of July 31, 2010. Over half of these leads 
involved the potential misappropriation of funds or nonperformance of 
services.

Board Coordination and Monitoring of Inspectors General Initiatives:

The Board continues to coordinate audits carried out by the inspectors 
general working group and monitor the independent efforts of the 
inspectors general related to the Recovery Act. The inspectors general 
working group has one audit under way reviewing the accuracy of 
selected fields of recipient reporting data. In addition, the working 
group is beginning a review of potential fraud indicators for grants 
programs in September 2010.

The Board continues to review monthly reports submitted by the 
inspectors general on the number and status of Recovery Act-related 
audits and investigations each has initiated. As of July 31, 2010, the 
inspectors general received 3,806 complaints related to the Recovery 
Act and reported that they have 424 active investigations; 141 
investigations closed without action; and 474 audits, inspections, 
evaluations, or reviews in process. The inspectors general also 
reported they have completed 689 work products on Recovery Act-related 
issues since the act was passed--534 of which are published on 
Recovery.gov and 155 of which are not publicly available since they 
contain proprietary or sensitive information.[Footnote 178] In 
addition, the inspectors general, in conjunction with the Board, 
reported that they have conducted 2,231 training and outreach sessions 
related to Recovery Act issues.

Impact of the Board and Inspectors General Efforts:

According to Board representatives, an outcome of the Board and its 
work has been to shift the focus of the inspectors general community 
to the prevention of fraud, rather than just the identification and 
correction of it. As discussed earlier, the Board's data analysis 
capabilities provides the inspectors general with leads regarding 
potential risks associated with Recovery Act funds and recipients. In 
addition, over half of the training sessions provided have been 
focused on preventing fraudulent use of Recovery Act funds. According 
to Board representatives, the Board's work has also resulted in 
changes in the data to provide for better visibility over the use of 
federal funds. For example, a data field was added in FedBizOpps for 
recording a company's DUNS number;[Footnote 179] a DUNS number is an 
important data element in tracking companies' transactions with the 
government, and including this information is expected to enhance data 
matching capabilities.

Board Plans for the Future:

Board representatives explained that the Board and its predictive 
analysis capabilities are considered a template for changing how the 
government does business. In the short-term, the Board would like to 
develop predictive analysis tools for federal agencies' use, such as a 
list of databases to search and steps to be taken to identify risks. 
In addition, the Board is considering plans for the transition of its 
analytic capabilities elsewhere in the federal government when the 
Board's authorization expires at the end of fiscal year 2013.

Recovery Independent Advisory Panel:

In February 2009, the Recovery Act provided for a Recovery Independent 
Advisory Panel to make recommendations to the Board on ways to prevent 
fraud, waste, and abuse relating to Recovery Act funds.[Footnote 180] 
Four members of the Advisory Panel were appointed by the President in 
March 2010. At its first public meeting in Cambridge, Massachusetts, 
in August 2010, state and City of Boston officials presented 
information and addressed the panel's questions about their actions to 
prevent fraud, waste, and abuse. In addition, they discussed the 
content and structure of the state Recovery Act Web site, as well as 
continuity among state and local Web sites with the federal 
government's Recovery.gov Web site. The panel also held a closed 
session to discuss techniques to investigate fraud. Currently, the 
panel plans to hold a series of public meetings across the United 
States, and has tentatively planned its next public meeting for 
November 2010.

Audit Activities Involving Recovery Act Funds Continue at the State 
and Local Levels:

State and local oversight and audit entities across the 16 selected 
states and the District continue to actively audit Recovery Act funds. 
As mentioned in our May 2010 report, many of these audits are 
conducted through the state Single Audit process--an accountability 
mechanism for overseeing federal funds at the state and local levels. 
These audits spanned many programs and primarily focused on programs 
that have been assessed as having higher risk of noncompliance with 
federal program requirements, such as weatherization, transportation, 
and Medicaid. However, according to officials from several of our 
selected states and the District, budget and staffing constraints have 
limited the number of Recovery Act audit reviews they could perform. 
Audit report findings have covered various areas including financial 
management and compliance laws or regulations. In some cases, the 
audits of Recovery Act funds identified and reported audit findings 
that were subsequently addressed by audited entities. In other cases, 
audits of Recovery Act funds did not identify or report findings.

Examples of audit findings relating to financial management practices 
identified in audits of Recovery Act funds include the following:

* In California, the State Auditor found that cash management 
practices were not in compliance with federal rules in the state's 
Weatherization Assistance Program.

* The Illinois Office of Internal Audit reported on the failure of 
state agencies to minimize the time between drawdowns of federal funds 
and expenditure of those funds and failure to charge hours worked to 
the proper federal grant at one agency.

* In Iowa, auditors found that a local school district possibly 
commingled Recovery Act funds with other school district revenue, 
which led to the replacement of the district's accounting supervisor.

* In New Jersey, an audit of the Weatherization Assistance Program 
found inadequate policies and controls in place to ensure that federal 
financial reporting was properly completed, supported by adequate 
documentation, and reviewed by a supervisor prior to submission.

* In Ohio, the Auditor of the State identified deficiencies related to 
unallowable expenditures and inadequate cash management in some 
programs funded through the Recovery Act.

Examples of audit findings relating to program compliance with laws 
and regulations that were identified in various audits of Recovery Act 
funds include the following:

* In Arizona, Single Audits found that the Arizona Department of 
Education failed to have current central contractor registrations on 
file prior to awarding Recovery Act ESEA Title I grants to LEAs but 
have developed a corrective action plan to correct these findings.

* In Colorado, a local government audit revealed that some Federal 
Transit Formula Grant funds had been spent without a check on whether 
the vendor had been suspended or debarred from participating in 
federal programs.

* In Florida, state auditors found that the program officials were 
unable to document that certain individuals were eligible for Medicaid 
benefits as required by law, and that their procedures did not ensure 
that all health care providers receiving Medicaid payments had 
provider agreements in effect.

* In Massachusetts, the state auditors found that the actual number of 
youths being reported as participating in the state's WIA summer jobs 
program was overstated, that the calculation of job numbers needed to 
be monitored more closely, and that compliance with participation 
levels needed to be reviewed.

* In Michigan, the Single Audit of the Medicaid program found that the 
Michigan Department of Community Health did not fully monitor its 
Medicaid payments to ensure that such claims are paid promptly. 
Failure to comply with the "prompt pay" requirements could result in 
Michigan not being eligible to receive increased FMAP for certain 
claims.

* In Mississippi, auditors found many instances of noncompliance with 
recipient reporting requirements. In these cases, state agencies were 
not providing clear and consistent guidance to subrecipients.

* In North Carolina, the state auditor's office found that a state 
department did not consistently perform effective monitoring to ensure 
that subrecipients of Recovery Act funds were in compliance with Davis-
Bacon wage-rate requirements.

* In Texas, the Single Audit for fiscal year 2009 identified program 
weaknesses in determining eligibility in Medicaid, Temporary 
Assistance for Needy Families, and the Supplementary Nutrition 
Assistance Program.

In addition to audits of Recovery Act funds, several states took steps 
to strengthen their accountability efforts to help to ensure 
appropriate uses of Recovery Act funds by implementing new work groups 
or entities to help manage and oversee Recovery Act-funded programs. 
In addition, these new entities have helped state and local 
governments address the new requirements associated with Recovery Act 
funding, coordinate efforts among the accountability community, and 
inform the public. Other activities performed by these entities 
included maintaining a Recovery Act Web site, providing technical 
assistance, tracking the use of funds, issuing advisories, conducting 
training on internal controls, and providing assistance with recipient 
reporting. Examples of such activities are as follows:

* In California, the Recovery Task Force meets regularly with state 
agencies receiving Recovery Act funds, maintains a Recovery Act Web 
site as a central repository of information, and has issued more than 
30 Recovery Act bulletins providing instructions and guidelines to 
state agencies. Also, the Recovery Act Inspector General published an 
advisory which included steps to ensure that contractors perform in 
accordance with contract terms and to reduce the potential of fraud.

* In Georgia, the State Accounting Office launched an internal control 
initiative to enhance accountability for Recovery Act funds that began 
in June 2010 and provided internal control training to 28 state 
agencies.[Footnote 181] More specifically, these agencies completed a 
self-assessment tool covering internal controls in areas such as 
financial reporting, revenue, and Recovery Act funds.

* In Massachusetts, the City of Boston contracted auditor is 
developing a computerized worksheet in which Recovery Act fund 
recipients will submit their reporting data in a standardized format 
that will be centrally stored at the City Auditor's office. According 
to city officials, this will make the managing of subrecipients and 
the reporting process easier and more efficient.

* In New Jersey, the Recovery Accountability Task force is responsible 
for monitoring the distribution of Recovery Act funds in the state and 
promoting the effective and efficient use of those funds. The task 
force discusses issues related to the oversight of Recovery Act funds 
and receives updates from state agencies to ensure funds are dispersed 
with the goals of the Recovery Act in mind.

* In New York, the Governor created a Stimulus Oversight Panel which 
meets biweekly to examine the use of Recovery Act funds by each of the 
22 state agencies designated to receive them. In addition to other 
responsibilities, individual panel members also conduct reviews and 
audits in their areas of expertise.

* In North Carolina, the Office of Economic Recovery and Investment 
(OERI) tracks, monitors, and reports on Recovery Act funds and works 
with state agencies on corrective action plans to help resolve 
Recovery Act-related findings. OERI also conducted several technical 
assistance seminars around the state and provides resources such as 
webinars and checklists on its Web site to help agencies comply with 
Recovery Act requirements.

* In Pennsylvania, the Governor appointed the Chief Accountability 
Officer to help oversee reporting and transparency for Recovery Act 
activities of state agencies. For the quarter ending June 30, 2010, 
the office filed 371 recipient reports on behalf of state agencies and 
posted them to the state's Recovery Act Web site.

* In Texas, the Governor's Stimulus Working Group, which includes 
representatives from state agencies receiving significant amounts of 
Recovery Act funding, is a vehicle for sharing information. This group 
has been used to inform state agencies about recipient reporting 
requirements, help focus auditing and monitoring efforts, and address 
program concerns.

Observations on States' Use of Contracts and Contract Outcomes:

During our Recovery Act reviews, we tracked and observed 208 contracts 
awarded by state and local governments. While this is a small number 
of contracts, our observations indicate that state and local 
governments receiving Recovery Act funds reported that they are 
generally using competition and fixed-price contracts, and are not 
facing major issues with cost, schedule, or contractor performance.

State and Local Recovery Act Contracts Generally Are Reported to Use 
Competition and Fixed-Price Arrangements:

Between July 2009 and March 2010, we selected and subsequently 
analyzed contracts from a variety of programs and held discussions 
with state and local officials to gain an understanding of the extent 
to which they believe contracts were awarded competitively and used 
pricing structures, particularly fixed-price contracts, which reduced 
the government's financial risk.[Footnote 182] The use of competition 
is generally considered a fundamental tenant of public procurement. In 
addition, fixed-price contracting generally places the maximum amount 
of risk on the contractor because the government pays a fixed price 
even if actual costs of the product or service exceed the contract 
price. Of the 208 contracts we reviewed, 86 percent were reported by 
state and local officials as being competed and 79 percent were 
reported as fixed-price contracts.[Footnote 183] Further, in five 
states all of the contracts we reviewed were reported as being 
competed, and in four states all of the contracts we reviewed were 
reported as being fixed-price contracts. Almost all contracts for 
highway projects were reported as competed, and all public housing 
contracts as fixed-price. Table 12 shows the number of contracts 
reported by officials as being competed and awarded with fixed prices 
in the various programs we are monitoring across the selected states.

Table 12: Number of Contracts Reported as Competed and Fixed Price, by 
Program Area as of June 2010:

Program area: Public Housing Authority officials; 
Total contracts reviewed: 55; 
Contracts reported as competed: 52; 
Contracts reported as fixed-price: 55.

Program area: Highway programs--state level; 
Total contracts reviewed: 52; 
Contracts reported as competed: 51; 
Contracts reported as fixed-price: 35.

Program area: Weatherization; 
Total contracts reviewed: 27; 
Contracts reported as competed: 17; 
Contracts reported as fixed-price: 21.

Program area: Workforce Investment Act Youth Program--local level; 
Total contracts reviewed: 19; 
Contracts reported as competed: 14; 
Contracts reported as fixed-price: 7.

Program area: Highway Programs--local project; 
Total contracts reviewed: 16; 
Contracts reported as competed: 16; 
Contracts reported as fixed-price: 12.

Program area: Title I, Part A of the Elementary and Secondary 
Education Act of 1965--local level; 
Total contracts reviewed: 15; 
Contracts reported as competed: 6; 
Contracts reported as fixed-price: 14.

Program area: Transit programs; 
Total contracts reviewed: 12; 
Contracts reported as competed: 11; 
Contracts reported as fixed-price: 10.

Program area: Other; 
Total contracts reviewed: 12; 
Contracts reported as competed: 11; 
Contracts reported as fixed-price: 11.

Program area: Total; 
Total contracts reviewed: 208; 
Contracts reported as competed: 178; 
Contracts reported as fixed-price: 165.

Source: GAO analysis of data reported by state and local officials. 

[End of table] 

State and local officials cited various reasons why some contracts 
were awarded noncompetitively. For instance, officials reported that, 
for several contracts, the contractors provided a unique service and 
were the only source available. In another instance, officials said 
that the state was granted a waiver of some competition requirements 
in order to, in part, expedite the delivery of goods and services. 
Officials also gave various reasons why some contracts were not 
awarded as fixed-price contracts. For instance, officials reported 
that, for many contracts, fixed-price contracts were not used because 
use of another contract type was the agency's standard practice for a 
particular type of project. In other cases, officials stated that 
other contract types enabled the program to award a contract and begin 
performance faster than a fixed-price contract would.

As part of our overall body of work on the Recovery Act, in July 2010 
we reported on the level of insight and oversight regarding the use of 
noncompetitive Recovery Act contracts in 5 of the 16 states covered in 
our bimonthly reviews: California, Colorado, Florida, New York, and 
Texas.[Footnote 184] We found that the five states varied on the type 
and amount of data routinely collected on noncompetitive Recovery Act 
contracts and that the states do not routinely provide state-level 
oversight of contracts awarded at the local level, where a portion of 
Recovery Act contracting occurs.[Footnote 185] According to state 
officials, they were generally following the contracting policies and 
practices for awarding and overseeing contracts that were in place 
prior to passage of the Recovery Act. Officials from the selected 
states' audit organizations said that if they were to address Recovery 
Act contracting issues, it could be done through the annual Single 
Audit or other reviews of programs that involve Recovery Act funds.

Majority of State and Local Recovery Act Contracts Are Reported to Be 
on Cost and Schedule and Performing Satisfactorily:

Between March and June 2010, we followed up with state and local 
officials to understand whether the contracts we had selected were 
achieving the key acquisition outcomes of delivering on cost, on 
schedule, and with satisfactory performance. State and local officials 
reported that most of the Recovery Act contracts we reviewed are 
meeting these goals. According to state and local officials, of the 
208 contracts we reviewed, 51 percent had no change to overall 
contract cost, 12 percent had decreased costs, and 1 percent had 
changes to cost and prices but remained within the contracts' total 
cost permitted. Approximately one-third of the contracts reported cost 
increases. In addition, officials reported that 52 percent of 
contracts had no change to schedule and 11 percent delivered early. 
The remaining 36 percent of contracts reported schedule delays. Thirty-
six percent--or 74 contracts--had no changes to either cost or 
schedule.[Footnote 186] Table 13 shows the number of contracts 
reported by officials as having cost or schedule changes by the 
various programs we are monitoring across the selected states.

Table 13: Number of Contracts Officials Reported as Having Cost or 
Schedule Changes, by Program Area as of June 2010:

Program area: Public Housing Authority; 
Total contracts reviewed: 55; 
Contracts reporting no cost or schedule changes: 12; 
Contracts reporting increased costs: 23; 
Contracts reporting decreased costs: 4; 
Contracts reporting schedule delay: 27; 
Contracts reporting early delivery: 3.

Program area: Highway programs--state level; 
Total contracts reviewed: 52; 
Contracts reporting no cost or schedule changes: 7; 
Contracts reporting increased costs: 20; 
Contracts reporting decreased costs: 13; 
Contracts reporting schedule delay: 23; 
Contracts reporting early delivery: 15.

Program area: Weatherization; 
Total contracts reviewed: 27; 
Contracts reporting no cost or schedule changes: 18; 
Contracts reporting increased costs: 4; 
Contracts reporting decreased costs: 0; 
Contracts reporting schedule delay: 7; 
Contracts reporting early delivery: 0.

Program area: Workforce Investment Act Youth Program--local level; 
Total contracts reviewed: 19; 
Contracts reporting no cost or schedule changes: 9; 
Contracts reporting increased costs: 3; 
Contracts reporting decreased costs: 4; 
Contracts reporting schedule delay: 6; 
Contracts reporting early delivery: 1.

Program area: Highway programs--local project; 
Total contracts reviewed: 16; 
Contracts reporting no cost or schedule changes: 4; 
Contracts reporting increased costs: 10; 
Contracts reporting decreased costs: 1; 
Contracts reporting schedule delay: 5; 
Contracts reporting early delivery: 1.

Program area: Title I, Part A of the Elementary and Secondary 
Education Act of 1965--local level; 
Total contracts reviewed: 15; 
Contracts reporting no cost or schedule changes: 13; 
Contracts reporting increased costs: 0; 
Contracts reporting decreased costs: 1; 
Contracts reporting schedule delay: 0; 
Contracts reporting early delivery: 1.

Program area: Transit programs; 
Total contracts reviewed: 12; 
Contracts reporting no cost or schedule changes: 5; 
Contracts reporting increased costs: 7; 
Contracts reporting decreased costs: 0; 
Contracts reporting schedule delay: 4; 
Contracts reporting early delivery: 1.

Program area: Other; 
Total contracts reviewed: 12; 
Contracts reporting no cost or schedule changes: 6; 
Contracts reporting increased costs: 3; 
Contracts reporting decreased costs: 1; 
Contracts reporting schedule delay: 3; 
Contracts reporting early delivery: 0.

Program area: Total; 
Total contracts reviewed: 208; 
Contracts reporting no cost or schedule changes: 74; 
Contracts reporting increased costs: 70; 
Contracts reporting decreased costs: 24; 
Contracts reporting schedule delay: 75; 
Contracts reporting early delivery: 22.

Source: GAO analysis of data reported by state and local officials.

Note: Some contracts fell into more than one category, so figures do 
not total across each program. 

[End of table] 

For three-quarters of the 70 contracts where price increased, state 
and local officials attributed these increases to conditions that were 
not anticipated at the time of contract award. For example, officials 
reported that total costs increased by over $300,000 for one public 
housing project because materials containing asbestos were found on 
boilers, which had to be taken apart to remove asbestos before they 
could be demolished, and several boilers intended to be repaired or 
reused needed to be replaced instead. The most common factors state 
and local officials pointed to for schedule delays were circumstances 
beyond the control of the contractor and conditions not anticipated at 
the time of contract award. For instance, in several cases, officials 
noted that severe weather caused schedule delays.

According to state and local officials, 91 percent of the contracts we 
reviewed had no contractor work performance issues that adversely 
impacted the work being performed or deliverables being provided. Only 
14 of 208 contracts we reviewed reported that there had been issues 
with contractor performance.[Footnote 187] Of those, seven were 
highway construction projects at the state and local level and three 
of the contracts were for public housing projects. While the nature of 
these issues varied, in most cases officials reported that the 
contractor was able to satisfactorily continue or complete the 
project. In some of these cases, the contractor was assessed fees to 
compensate for the contractor's performance issues. Officials reported 
only two instances where the contractor ceased to perform the 
remaining work, which will now be performed by another contractor or 
the agency's staff.

Local Governments' Use of Recovery Act Funds:

For this report, we continue our focus on the use of Recovery Act 
funds at the local government level while updating our review of 
states' uses of Recovery Act funds in proposed and enacted budgets. As 
shown in figure 32, we visited 24 local governments in our 16 selected 
states and the District to collect information regarding their use of 
Recovery Act funds. Similar to the approach taken for our May 2010 
report,[Footnote 188] we identified localities representing a range of 
types of governments (cities and counties), population sizes, and 
economic conditions (unemployment rates greater and less than the 
state's overall unemployment rate). We balanced these criteria with 
other considerations, including other scheduled Recovery Act work, 
local contacts established during prior reviews, and the geographic 
proximity of the local government entities. Officials from the 24 
local governments we interviewed ranged in population from 258 in 
Steward, Illinois, to approximately 2.5 million in Miami-Dade County, 
Florida. Unemployment rates in our selected localities ranged from 6.7 
percent in Round Rock, Texas, to 13.4 percent in Redding, California. 
[Footnote 189]

Figure 32: Selected Local Governments Included in Our September 2010 
Review:

[Refer to PDF for image: map of the U.S.]

Austin, Texas; 
Berks County, Pennsylvania; 
Boston, Massachusetts; 
Brookhaven, New York; 
Chrisman, Illinois; 
Cincinnati, Ohio; 
Colorado Springs, Colorado; 
Columbus Consolidated Government, Georgia; 
Des Moines, Iowa; 
Farmington Hills, Michigan; 
Jersey City, New Jersey; 
Marshalltown, Iowa; 
Miami-Dade County, Florida; 
Philadelphia, Pennsylvania; 
Redding, California; 
Round Rock, Texas; 
San Jose, California; 
Steuben County, New York; 
Steward, Illinois; 
The Unified Government of Athens-Clarke County, Georgia; 
Tupelo, Mississippi; 
Weld County, Colorado; 
Wilmington, North Carolina. 

Sources: U.S. Census Bureau, U.S. Department of Labor, Bureau of Labor 
Statistics, and Local Area Unemployment Statistics (data); MapInfo 
(map). 

[End of figure]

Local Governments Continue to Use Recovery Act Funds to Initiate One- 
Time Projects, Provide Services, and Support Staff, While Fiscal 
Challenges Persist:

Local officials reported their governments' continued use of Recovery 
Act funds in a range of program areas such as public safety (Community 
Oriented Policing Services (COPS) and Edward Byrne Memorial Justice 
Assistance Grants (JAG)), energy (EECBG), housing (Homelessness 
Prevention and Rapid Re-housing Program (HPRP) and Community 
Development Block Grant (CDBG)), and transportation and transit. Other 
Recovery Act funds received by the selected localities include grants 
for lead mitigation, wastewater treatment, and airport improvement. 
Some examples of the uses of Recovery Act funds appear in table 14.

Table 14: Selected Examples of Local Governments' Uses of Recovery Act 
Funds:

Recovery Act grant: Grants-in-Aid for Airports; 
Local government receiving funds: Phoenix, AZ; 
Examples of local use of funds: The Phoenix Aviation Department 
obligated approximately $10.4 million in Grants-in-Aid for Airports 
funds to construct Taxiway C at the Phoenix Sky Harbor Airport to 
improve traffic flow. 

Recovery Act grant: Lead-Based Paint Hazard Control Program; 
Local government receiving funds: Marshalltown, IA; 
Examples of local use of funds: The City of Marshalltown was awarded 
approximately $2.6 million to fund lead-mitigation efforts, including 
eliminating lead-based paint, repainting affected homes, replacing 
leaded windows, and housing citizens affected by renovations in 
temporary quarters. 

Recovery Act grant: Highway Infrastructure Investment grant; 
Local government receiving funds: Wilmington, NC; 
Examples of local use of funds: Wilmington received a $4 million 
highway surface transportation grant to construct a multiuse trail 
linking key city resources and providing access to shopping, 
recreational, cultural, and educational destinations. The grant is 
expected to allow the city to complete 75 percent of the trail by 
2011. The city had previously estimated completion by 2030 without 
federal funding. 

Recovery Act grant: Retrofit Ramp-Up; 
Local government receiving funds: Austin, TX; 
Examples of local use of funds: The City of Austin was awarded $10 
million for use of the Retrofit Ramp-Up program (part of the EECBG 
program) which may provide alternative financing options for property 
owners to make energy-efficiency improvements to their property, such 
as installing solar panels and roof water heating mechanisms. 
Alternative financing options include new financing mechanisms, 
interest rate buy-downs, and on-bill repayment. Austin city officials 
said they are coordinating with the City of San Antonio, which also 
received competitive EECBG funds. 

Source: GAO analysis of local governments' reported use of funds. 

[End of table] 

Several local government officials said that Recovery Act funds were 
used for projects including purchase of law enforcement and transit 
equipment and investment in public works and infrastructure projects 
such as road and sewer improvements. For example, Redding, California, 
officials said Federal Transit Administration Recovery Act funds 
helped the Redding Area Bus Authority (RABA) accelerate the purchase 
of three new buses and nine new paratranist vans, thus allowing RABA 
to avoid implementing service cuts and fare increases. Officials in 
Farmington Hills, Michigan, reported using Recovery Act funds from the 
JAG program to purchase a range of public safety equipment, such as 
radio equipment, digital camcorders, undercover transmitters, and a 
Digital Eyewitness Media Manager Server System that otherwise would 
not have been purchased. Officials in Athens-Clarke County, Georgia, 
reported using Recovery Act funds from the Clean Water State Revolving 
Fund program to help construct four sewer inceptors. Columbus, 
Georgia, officials said they were using Recovery Act funds to enhance 
the implementation of transportation projects including the 
construction of a bike/pedestrian trail and streetscape improvements.

The use of Recovery Act funds also helped several local governments 
continue to provide local services. Philadelphia, Pennsylvania, 
officials said that the use of Recovery Act funds from the COPS Hiring 
Recovery Program (CHRP) grant helped support community policing and 
crime prevention efforts by allowing the city to hire 50 additional 
police officers. Similarly, officials in Colorado Springs, Colorado, 
reported using Recovery Act funds from the JAG program to fund the 
salaries of community service officers. Officials in Austin, Texas, 
reported using Recovery Act funds from the Edward Byrne Memorial 
Justice Assistance Grant program to fund 12 new emergency dispatchers. 
With regard to local services provided, officials in Weld County, 
Colorado, and Boston, Massachusetts, reported using Recovery Act funds 
from the Congregate Nutrition Services program to provide meal 
deliveries to low-income senior citizens. Officials in Berks County, 
Pennsylvania, said the county would not have been able to provide rent 
and utility assistance to persons at risk of becoming homeless without 
Recovery Act funds from the HPRP grant.

In most localities we visited, government officials reported working 
in partnership with other local entities, such as nonprofit 
organizations, the private sector, transit authorities, and other 
local jurisdictions to apply for or administer Recovery Act funds. For 
example, officials in Round Rock, Texas, said the city partnered with 
the Capital Area Metropolitan Planning Organization to apply for a 
Transit Capital Assistance Recovery Act grant. The application was 
successful with Round Rock receiving $2 million to construct a transit 
facility consisting of bus lanes, a transit pavilion, bicycle racks, 
and more than 100 parking spaces. Officials in Marshalltown, Iowa, 
reported that the city worked extensively with partners from 
surrounding counties, educational institutions, and other agencies to 
administer funds for the Lead-Based Paint Hazard Control Program. In 
Miami-Dade County, Florida, the local officials said the county 
partnered with private commercial farmers to administer Recovery Act 
funds from the National Clean Diesel Assistance Program. This program 
provided $2 million to farmers to purchase approximately 300 more 
efficient diesel motors used in portable and fixed irrigation equipment.

Most local governments we contacted for this review reported 
experiencing fiscal challenges due to revenue declines or reductions 
in state aid. In Jersey City, New Jersey, officials said the city 
faces an $80 million budget deficit and an estimated $27.5 million 
reduction in state aid for fiscal year 2011. Officials in Steuben 
County, New York, reported a decline in all categories of revenue 
receipts and state funding cuts of $858,000. Officials also noted that 
delays in state reimbursements have resulted in substantial use of 
county reserves. Officials in Miami-Dade County, Florida, said a 
decrease in property and sales tax revenue combined with a reduction 
in state funding contributed to a $426 million budget gap for 2010. 
Officials in San José and Redding, California, also cited budget gaps 
for the current fiscal year and reductions in revenue from property 
taxes and other sources as examples of their governments' fiscal 
challenges. In Colorado Springs, Colorado, officials said their fiscal 
condition has slightly improved due to an unanticipated 4 percent 
increase in 2010 sales tax revenue over actual 2009 revenue. Despite 
this increase, Colorado Springs is not planning to expand services in 
2010. Officials from the city of Austin reported an increase in sales 
tax revenue and declines in other revenue sources, such as fees and 
charges for commercial and residential development. Specifically, 
Austin, Texas, officials reported a 3.2 percent sales tax revenue 
increase and anticipate using this revenue to help address the city's 
budget gap of between $11 million and $28 million.

Officials in several localities reported that they are developing 
plans to continue funding Recovery Act programs using local government 
funds or by pursuing other funds after Recovery Act funding ends. For 
example, Cincinnati, Ohio, officials said the city hopes to continue 
funding the 50 police officers hired under the 3-year CHRP grant by 
using city revenues to cover expenditures after 2012. Officials in 
Wilmington, North Carolina, reported that the city intends to replace 
JAG funding for law enforcement equipment and services with general 
funds and other grant funds. San José, California, officials said the 
city plans to pursue other grant opportunities in order to continue 
funding city infrastructure projects currently benefiting from the use 
of Recovery Act funds. In contrast, officials in a number of 
localities said that because Recovery Act funds were primarily used 
for one-time projects they do not need to develop a specific plan to 
prepare for the end of Recovery Act funding. For example, officials in 
Farmington Hills, Michigan, reported that the city used Recovery Act 
funds for one-time expenditures, such as equipment purchases and 
energy-efficiency upgrades, and therefore does not need to develop an 
exit strategy. Similarly, in Tupelo, Mississippi, officials said the 
city used Recovery Act funds for infrastructure-related, "stand-alone" 
projects requiring minimal or no long-term financial support and 
specifically avoided applying for a CHRP grant because of the 
requirement to retain officers hired under the grant after Recovery 
Act funding ends. A few local governments reported that they plan to 
end Recovery Act-funded projects or reduce staff or funding for these 
programs after Recovery Act funding ends.

States' Use of Recovery Act Funds for Programs and Services Continues 
to Prevent Deeper Budget Cuts:

Recovery Act funds continued to help states maintain services in areas 
such as education, health care, and transportation. A few states 
reported that they recently received additional Recovery Act funding 
in other areas. For example, New Jersey received $8 million for an 
energy rebate program and $14 million for energy-efficiency programs. 
Michigan received $30 million in Recovery Act funds to provide energy-
efficiency retrofits for residential, commercial, industrial, and 
public buildings. Many of our selected states, as well as the 
District, reported that the Recovery Act continues to have a positive 
effect on their fiscal stability. As an example, Arizona state 
officials told us that Recovery Act funds helped their state through 
the worst part of the recession by preventing deeper cuts in social 
programs, and giving officials breathing room to figure out what 
fiscal steps to take in the long term. Officials in Ohio credit the 
over $7.9 billion in Recovery Act funds they have received as of 
August 1, 2010, with helping to protect jobs and continue services in 
their state. Officials in Illinois and the District said that they 
would be in more dire fiscal condition without SFSF and the increased 
FMAP funds from the Recovery Act. In Iowa, Recovery Act funds received 
in fiscal year 2011 helped officials balance their fiscal year 2011 
budget while avoiding tax increases and reducing the amount by which 
officials needed to draw down the state's reserve fund. Recovery Act 
funds also reduced the need in Massachusetts to use more of the 
state's authorized fiscal year 2010 rainy-day reserve funds to balance 
the budget, according to state officials. City officials told us that 
Recovery Act funds helped the District maintain a balanced budget for 
fiscal year 2011 without tapping into the city's rainy-day fund.

Several states and the District contacted for this review reported 
that they incorporated measures to prepare for the end of Recovery Act 
funding in their fiscal year 2011 budget or in budgets in prior 
cycles.[Footnote 190] For example, in Mississippi officials told us 
the legislature sharply reduced spending to offset reductions in 
Recovery Act funding. According to city officials, the District's 
fiscal year 2010 budget, as well as the mayor's proposed fiscal year 
2011 budget, reflects the reduction in revenues that will result from 
the reduction in Recovery Act funds in fiscal year 2011. Officials in 
some states reported they were planning for the end of Recovery Act 
funding. For example, Florida officials told us they were in the early 
stages of developing their fiscal year 2012 budget which will include 
a plan to address the phasing out of Recovery Act funds. According to 
Michigan officials, they have made some structural changes such as 
reforms to the public school employees' retirement plan and are 
working to devise solutions for when the Recovery Act funds run out in 
fiscal year 2012. In Georgia, officials said they are preparing for 
the cessation of Recovery Act funds by planning additional budget 
reductions. They also are projecting moderate revenue growth. New York 
officials told us that they will address the phasing out of Recovery 
Act funds this fall when they develop the budget for the next fiscal 
year.

State officials reported mixed assessments of changes to their states' 
fiscal conditions since we contacted them for our May 2010 report. 
Officials in several states noted that they continue to face difficult 
budget challenges. Several states told us that their fiscal condition 
has generally remained the same since our May report. Some states have 
seen signs that their fiscal condition is shifting and showing signs 
of improvement. For example, state officials reported that tax revenue 
collections in Massachusetts during the last 2 months of fiscal year 
2010 were above revenue estimates by $191 million and $149 million 
respectively, and the commonwealth ended fiscal year 2010 with tax 
collections above budget estimates. State officials in Pennsylvania 
also reported that revenues were $58 million ahead of estimates in 
June--the first month since December 2007 that revenues exceeded 
estimates. Arizona officials also told us that their April and May 
revenues were much better than they had projected, however, they noted 
that the trend did not continue in June and July. In another example, 
Michigan officials told us that in June 2010, total wage and salary 
employment was up 23,400 jobs compared to June 2009. This was the 
first year-over-year increase in total wage and salary employment in 
Michigan since March 2005. These signs of improvement, in contrast to 
revenue declines, are consistent with national trends reported in the 
June 2010 Fiscal Survey of States issued by the National Governors 
Association and the National Association of State Budget Officers. 
[Footnote 191] According to the Fiscal Survey, states are projecting a 
slight rise of 3.9 percent in tax collections for fiscal year 2011 
recommended budgets relative to fiscal year 2010 estimates. However, 
states estimate that their 2010 tax revenues will represent an almost 
12 percent decline in states' sales, personal income, and corporate 
income tax collections since fiscal year 2008, the last fiscal year in 
which states were not significantly affected by the national 
recession. The Fiscal Survey attributes reduced state sales, personal 
income, and corporate income tax collections to the lack of economic 
expansion and job losses.

New and Open Recommendations; Matters for Congressional Consideration:

For this report, GAO both updates the status of agencies' efforts to 
implement GAO's 25 open recommendations and makes 5 new 
recommendations to the Departments of Transportation (DOT), Housing 
and Urban Development (HUD), Labor, Energy (DOE), Health and Human 
Services, and Treasury, and to the Environmental Protection Agency 
(EPA), and to the Office of Management and Budget (OMB).[Footnote 192] 
Agency responses to our new recommendations are included in the 
program sections of this report. Lastly, we update the status of our 
Matters for Congressional Consideration.

Department of Transportation:

New Recommendations:

To ensure that Congress and the public have accurate information on 
the extent to which the goals of the Recovery Act are being met, we 
recommend that the Secretary of Transportation direct FHWA to take the 
following two actions:

* Develop additional rules and data checks in the Recovery Act Data 
System, so that these data will accurately identify contract 
milestones such as award dates and amounts, and provide guidance to 
states to revise existing contract data.

* Make publicly available--within 60 days after the September 30, 
2010, obligation deadline--an accurate accounting and analysis of the 
extent to which states directed funds to economically distressed 
areas, including corrections to the data initially provided to 
Congress in December 2009.

Open Recommendations:

To better understand the impact of Recovery Act investments in 
transportation, we believe that the Secretary of Transportation should 
ensure that the results of these projects are assessed and a 
determination made about whether these investments produced long-term 
benefits. Specifically, in the near term, we recommend the Secretary 
direct FHWA and FTA to determine the types of data and performance 
measures they would need to assess the impact of the Recovery Act and 
the specific authority they may need to collect data and report on 
these measures.

Agency Actions:

In its response, DOT noted that it expected to be able to report on 
Recovery Act outputs, such as the miles of road paved, bridges 
repaired, and transit vehicles purchased, but not on outcomes, such as 
reductions in travel time, nor did it commit to assessing whether 
transportation investments produced long-term benefits. DOT further 
explained that limitations in its data systems, coupled with the 
magnitude of Recovery Act funds relative to overall annual federal 
investment in transportation, would make assessing the benefits of 
Recovery Act funds difficult. DOT indicated that, with these 
limitations in mind, it is examining its existing data availability 
and, as necessary, would seek additional data collection authority 
from Congress if it became apparent that such authority were needed. 
While we are encouraged that DOT plans to take some steps to assess 
its data needs, it has not committed to assessing the long-term 
benefits of Recovery Act investments in transportation infrastructure. 
We are therefore keeping our recommendation on this matter open.

Open Recommendation:

The Secretary of Transportation should gather timely information on 
the progress they are making in meeting the maintenance-of-effort 
requirement and to report preliminary information to Congress within 
60 days of the certified period (September 30, 2010), (1) on whether 
states met required program expenditures as outlined in their 
maintenance-of-effort certifications, (2) the reasons that states did 
not meet these certified levels, if applicable, and (3) lessons 
learned from the process.

Agency Actions:

DOT concurred in part with our March 2010 recommendation that it 
gather and report more timely information on the progress states are 
making in meeting the maintenance-of-effort requirements. Because more 
timely information could better inform policymakers' decisions on the 
usefulness and effectiveness of the maintenance-of-effort requirements 
and is important to assessing the impact of Recovery Act funding in 
achieving its intended effect of increasing overall spending, we are 
leaving this recommendation open and plan to continue to monitor DOT's 
actions.

In its August 2010 response, DOT officials stated that DOT will 
encourage states to report preliminary data for the certified period 
ending September 30, 2010, and deliver a preliminary report to 
Congress within 60 days of the certified period. DOT officials said 
they have developed a timeline for obtaining information to produce 
this report and will issue guidance by October 1, 2010, requesting 
that states update actual aggregate expenditure data and provide the 
data to DOT by November 15, 2010. DOT officials said they will use 
this information to develop the report to Congress, and it will submit 
the report no later than November 30, 2010.

Department of Housing and Urban Development:

New Recommendation:

Because the absence of third-party investors reduces the amount of 
overall scrutiny TCAP projects would receive and HUD is currently not 
aware of how many projects lacked third-party investors, HUD should 
develop a risk-based plan for its role in overseeing TCAP projects 
that recognizes the level of oversight provided by others.

Department of Labor:

Open Recommendations:

To enhance Labor's ability to manage its Recovery Act and regular WIA 
formula grants and to build on its efforts to improve the accuracy and 
consistency of financial reporting, we recommend that the Secretary of 
Labor take the following actions:

* To determine the extent and nature of reporting inconsistencies 
across the states and better target technical assistance, conduct a 
one-time assessment of financial reports that examines whether each 
state's reported data on obligations meet Labor's requirements.

* To enhance state accountability and to facilitate their progress in 
making reporting improvements, routinely review states' reporting on 
obligations during regular state comprehensive reviews.

Agency Actions:

Labor agreed with both of our recommendations and has begun to take 
some actions to implement them. To determine the extent of reporting 
inconsistencies, Labor plans to conduct an assessment of state 
financial reports to determine if the data reported is accurate and 
reflects Labor's guidance on reporting of obligations and 
expenditures. After the assessment, Labor plans to provide technical 
assistance to states that need further instruction and guidance. To 
enhance states' accountability and facilitate their progress in making 
improvements in reporting, Labor has instructed all its regional 
offices to begin routinely reviewing state's reporting on obligations 
during state comprehensive reviews. In addition, Labor plans to issue 
guidance on the definitions of key financial terms such as 
obligations, provide online training to ensure that the terms are 
accurately and consistently applied, and conduct workshops on 
financial and administrative management.

Open Recommendation:

Our September 2009 bimonthly report identified a need for additional 
federal guidance in two areas--measuring the work readiness of youth 
and defining green jobs --and we made the following two 
recommendations to the Secretary of Labor:

* To enhance the usefulness of data on work readiness outcomes, 
provide additional guidance on how to measure work readiness of youth, 
with a goal of improving the comparability and rigor of the measure.

* To better support state and local efforts to provide youth with 
employment and training in green jobs, provide additional guidance 
about the nature of these jobs and the strategies that could be used 
to prepare youth for careers in green industries.

Agency Actions:

Labor agreed with both of our recommendations and has begun to take 
some actions to implement them. With regard to the work readiness 
measure for WIA Youth summer employment activities, Labor issued 
guidance on May 13, 2010 for the WIA Youth Program that builds on the 
experiences and lessons learned during implementation of Recovery Act- 
funded youth activities in 2009. Labor broadly identified some 
additional requirements for measuring work readiness of youth that it 
plans to address in future guidance. This includes having the employer 
observe and assess workplace performance and determine what worksite 
skills are necessary to be successful in the workplace.

Regarding our recommendation on the green jobs, Labor told us that the 
Bureau of Labor Statistics published a Federal Register Notice on 
March 16, 2010 for comment on a proposed definition for measuring 
green jobs, which includes an approach for identifying environmental 
industries and counting associated jobs. Labor officials hope this 
will inform state and local workforce development efforts to identify 
and target green jobs and their training needs. In addition, Labor is 
using the Recovery Act-funded green jobs training grants to document 
lessons learned on designing and providing green jobs training.

Department of Energy:

Open Recommendations:

Given the concerns we have raised about whether program requirements 
are being met, we recommend that DOE, in conjunction with both state 
and local weatherization agencies, develop and clarify weatherization 
program guidance that:

* establishes best practices for how income eligibility should be 
determined and documented and issues specific guidance that does not 
allow the self-certification of income by applicants to be the sole 
method of documenting income eligibility.

* clarifies the specific methodology for calculating the average cost 
per home weatherized to ensure that the maximum average cost limit is 
applied as intended.

* accelerates current DOE efforts to develop national standards for 
weatherization training, certification, and accreditation, which is 
currently expected to take 2 years to complete.

* develops a best practice guide for key internal controls that should 
be present at the local weatherization agency level to ensure 
compliance with key program requirements.

* sets time frames for development and implementation of state 
monitoring programs.

* revisits the various methodologies used in determining the 
weatherization work that should be performed based on the 
consideration of cost-effectiveness and develops standard 
methodologies that ensure that priority is given to the most cost-
effective weatherization work. To validate any methodologies created, 
this effort should include the development of standards for accurately 
measuring the long-term energy savings resulting from weatherization 
work conducted.

* considers and addresses how the weatherization program guidance is 
impacted by the introduction of increased amounts of multifamily units.

In addition, given that state and local agencies have felt pressure to 
meet a large increase in production targets while effectively meeting 
program requirements and have experienced some confusion over 
production targets, funding obligations, and associated consequences 
for not meeting production and funding goals, we recommend that DOE 
clarify its production targets, funding deadlines, and associated 
consequences while providing a balanced emphasis on the importance of 
meeting program requirements.

Agency Actions:

In our May 2010 report, we provided eight recommendations and raised 
concerns about whether program requirements were being met. DOE 
generally agreed with all of our recommendations and has begun to take 
several steps in response. For example, DOE reported that it has 
drafted national workload standards to address our concerns regarding 
training, certification, and accreditation. DOE plans to issue these 
standards to recipients in October 2010. DOE is still in the process 
of considering our recommendations and will provide additional 
information on how they plan to fully implement our recommendations at 
a later date.

Environmental Protection Agency:

Open Recommendation:

We recommend that the EPA Administrator work with the states to 
implement specific oversight procedures to monitor and ensure 
subrecipients' compliance with the provisions of the Recovery Act- 
funded Clean Water and Drinking Water SRF program.

Agency Actions:

In response to our recommendation, EPA provided additional guidance to 
the states regarding their oversight responsibilities, with an 
emphasis on enhancing site specific monitoring and inspections. 
Specifically, in June 2010, the agency developed and issued an 
oversight plan outline for Recovery Act projects that provides 
guidance on the frequency, content, and documentation related to 
regional reviews of state Recovery Act programs and regional and state 
reviews of specific Recovery Act projects. For example, EPA's guidance 
states that regions and states should be reviewing the items included 
on the EPA "State ARRA Inspection Checklist" or use a state equivalent 
that covers the same topics. The plan also describes EPA headquarters 
role in ongoing Recovery Act oversight and plans for additional 
webcasts. EPA also reiterated that contractors are available to 
provide training and to assist with file reviews and site inspections.

Department of Health and Human Services: Office of Head Start:

Our May 2010 bimonthly report identified the need for improved 
management information on regional offices and grantees' decisions and 
activities to consistently oversee the rapid expansion and program 
performance of Head Start and Early Head Start under the Recovery Act. 
We made three recommendations to the Director of the Office of Head 
Start (OHS), part of the Department of Health and Human Services' 
Administration for Children and Families. In May, HHS disagreed with 
our conclusion that a lack of management information limits its 
ability to consistently oversee the rapid expansion of Head Start and 
Early Head Start under the Recovery Act. We provided a draft of all 
materials related to Head Start and Early Head Start to OHS and HHS 
for comment, but they did not provide comments in time for us to 
consider them in this report.

Open Recommendation:

To provide grantees with appropriate guidelines on their use of Head 
Start and Early Head Start grant funds, and enable OHS to monitor the 
use of these funds, the Director of OHS should direct regional office 
staff to stop allocating all grant funds to the "other" budget 
category, and immediately revise all financial assistance awards 
(FAAs) in which all funds were allocated to the "other" category.

Open Recommendation:

To facilitate understanding of whether regional decisions regarding 
waivers of the program's matching requirement are consistent with 
Recovery Act grantees' needs across regions, the Director of OHS 
should regularly review waivers of the nonfederal matching requirement 
and associated justifications.

Open Recommendation:

To oversee the extent to which grantees are meeting the program goal 
of providing services to children and families and to better track the 
initiation of services under the Recovery Act, the Director of OHS 
should collect data on the extent to which children and pregnant women 
actually receive services from Head Start and Early Head Start grantees.

Department of Treasury:

New Recommendation:

Treasury should expeditiously provide HFAs with guidance on monitoring 
project spending and develop plans for dealing with the possibility 
that projects could miss the spending deadline and face further 
project interruptions.

Executive Office of the President: Office of Management and Budget 
(OMB):

New Recommendation:

To strengthen the Single Audit and federal follow up as oversight 
accountability mechanisms, we recommend that the Director of OMB (1) 
shorten the timeframes required for issuing management decisions by 
federal awarding agencies to grant recipients, and (2) issue the OMB 
Circular No. A-133 Compliance Supplement no later than March 31 of 
each year.

Open Recommendation:

To leverage Single Audits as an effective oversight tool for Recovery 
Act programs, in our prior bimonthly reports, we recommended that the 
Director of OMB should:

1. provide more direct focus on Recovery Act programs through the 
Single Audit to help ensure that smaller programs with higher risk 
have audit coverage in the area of internal controls and compliance;

2. take additional efforts to provide more timely reporting on 
internal controls for Recovery Act programs for 2010 and beyond; and:

3. evaluate options for providing relief related to audit requirements 
for low-risk programs to balance new audit responsibilities associated 
with the Recovery Act.

4. issue Single Audit guidance in a timely manner so that auditors can 
efficiently plan their audit work; and:

5. explore alternatives to help ensure that federal awarding agencies 
provide their management decisions on the corrective action plans in a 
timely manner.

Agency Actions:

OMB has taken several steps in response to our recommendations. Its 
efforts, however, are ongoing, and further actions are needed to fully 
implement our recommendations to help mitigate risks related to 
Recovery Act funds. We include a summary of OMB's efforts to implement 
these recommendations.

To focus auditor risk assessments on Recovery Act-funded programs and 
to provide guidance on internal control reviews for Recovery Act 
programs, OMB worked within the framework defined by existing 
mechanisms--Circular No. A-133 and the Circular No. A-133 Compliance 
Supplement (Compliance Supplement).[Footnote 193] In this context, OMB 
has made limited adjustments to its Single Audit guidance. OMB issued 
the Compliance Supplement in May 2009, which focused risk assessments 
on Recovery Act-funded programs. In August 2009, OMB issued the 
Circular No. A-133 Compliance Supplement Addendum I, which provided 
additional guidance for auditors and modified the Compliance 
Supplement to, among other things, focus on new Recovery Act programs 
and new program clusters.

In October 2009, OMB began a Single Audit Internal Control Project 
(project), which is nearing its completion as of May 14, 2010. One of 
the project's goals is to encourage auditors to identify and 
communicate significant deficiencies and material weaknesses in 
internal control over compliance for selected major Recovery Act 
programs 3 months sooner than the 9-month time frame currently 
required under OMB Circular No. A-133. OMB plans to analyze the 
results to identify the need for potential modifications to improve 
OMB guidance related to Single Audits.

Although OMB noted the increased responsibilities falling on those 
responsible for performing Single Audits, it has yet to issue 
proposals or plans to address this issue. States that volunteered to 
participate in the project were eligible for some relief in their 
workloads because OMB modified the requirements under Circular No. A-
133 to reduce the number of low-risk programs for inclusion in the 
Single Audits.

Open Recommendation:

To provide more direct focus on Recovery Act programs through the 
Single Audit with regard to smaller programs with higher risk, OMB 
provided guidance in the 2009 OMB Circular No. A-133 Compliance 
Supplement that required auditors to consider all federal programs 
with expenditures of Recovery Act awards to be considered higher risk 
programs when performing the standard risk-based tests for selection 
of programs to be audited. OMB also issued clarifying information on 
determining risk for programs with Recovery Act expenditures. However, 
since most of the funding for Recovery Act programs will be expended 
in 2010 and beyond, we remain concerned that some smaller programs 
with higher risk would not likely receive adequate audit coverage. One 
approach for OMB to consider in helping to ensure that smaller 
programs with higher risk have audit coverage is to explore various 
options to provide auditors with the flexibility needed to select 
programs that are considered high risk, even though the federal 
expenditures for a smaller program may be less than the expenditure 
threshold provided under the Single Audit Act.

With regard to taking additional efforts to provide more timely 
reporting on internal controls for Recovery Act programs for 2010 and 
beyond, OMB has not yet put into place measures to achieve earlier 
communication of the reporting of internal control deficiencies for 
fiscal years 2010 and beyond--years where considerable amounts of 
Recovery Act funds will be expended. OMB officials have stated in 
August 2010, that they plan to initiate a subsequent Single Audit 
Internal Control Project for fiscal year 2010. Similar to the 2009 
project, one of the project's goals will be to encourage more timely 
identification and earlier communication of internal control 
deficiencies in selected programs expending Recovery Act funding.

OMB designed its Single Audit Internal Control Project to grant some 
relief to the auditors for the states that volunteered to encourage 
participation in the project. Specifically, participating auditors 
were not required to perform risk assessments of smaller federal 
programs. OMB had also modified the requirements under Circular No. A-
133 to reduce the number of low-risk programs that must be included in 
some project participants' Single Audits. Although the project which 
began in October 2009, was designed to provide the auditors some 
relief in their workload, many auditors had already completed their 
risk assessment for audits with fiscal years ending June 30, 2009. As 
a result, the auditors did not experience the audit relief intended by 
the project.

With regard to issuing Single Audit Guidance in a timely manner, we 
reported in May 2010 that OMB officials told us that they had planned 
to issue the Compliance Supplement in late May 2010. However, OMB did 
not issue the Compliance Supplement until July 29, 2010. Several of 
the auditors that we surveyed stated that they needed the information 
as early as February, or at least by April, to effectively plan their 
work. OMB officials stated that the delay in issuing the 2010 
compliance supplement was primarily due to the additional attention 
needed to include more Recovery Act programs in the Compliance 
Supplement and information regarding the audit procedures for 
reviewing Recovery Act reporting requirements. In May 2010, OMB 
provided the American Institute of Certified Public Accountants 
(AICPA) Governmental Audit Quality Center and the National Association 
of State Auditors, Comptrollers and Treasurers (NASACT) with draft 
Single Audit guidance in May 2010. AICPA and NASACT posted the draft 
to its Web sites for auditors to use for planning their work. However, 
some auditors we spoke with stated that because the guidance was not 
in a final form, it still impacted their ability to efficiently plan 
and conduct their work. In addition, OMB has stated that it plans to 
have a second phase of the Single Audit Internal Control Project for 
fiscal year 2010. However, as of August 5, 2010, OMB had not yet 
defined the parameters of the project and issued guidance for 
potential volunteer participants. OMB also has not provided detailed 
guidance that would explain incentives for volunteering to participate 
in the project, types of entities that will be permitted to 
participate, the scope of the project (including the specific programs 
that participants could select from), the number of participants it is 
seeking, or the timeframes for beginning and ending the project.

OMB officials have stated that they have discussed alternatives for 
helping to ensure that federal awarding agencies provide their 
management decisions on the corrective action plans in a timely manner 
but have yet to decide on the course of action that they will pursue 
to implement this recommendation.

Open Recommendation:

As we noted in our July 2009 report, reporting on Recovery Act 
performance results is broader than the employment-related reporting 
required by the act. We continue to recommend that the Director of 
OMB--perhaps through the Senior Management Councils--clarify what 
other program performance measures recipients are expected to report 
on to demonstrate the impact of Recovery Act funding.

Matters for Congressional Consideration:

Matter:

To the extent that appropriate adjustments to the Single Audit process 
are not accomplished under the current Single Audit structure, 
Congress should consider amending the Single Audit Act or enacting new 
legislation that provides for more timely internal control reporting, 
as well as audit coverage for smaller Recovery Act programs with high 
risk.

GAO continues to believe that Congress should consider changes related 
to the Single Audit process.

Matter:

To the extent that additional coverage is needed to achieve 
accountability over Recovery Act programs, Congress should consider 
mechanisms to provide additional resources to support those charged 
with carrying out the Single Audit Act and related audits.

GAO continues to believe that Congress should consider changes related 
to the Single Audit process.

Matter:

To provide housing finance agencies (HFA) with greater tools for 
enforcing program compliance, in the event the Section 1602 Program is 
extended for another year, Congress may want to consider directing 
Treasury to permit HFAs the flexibility to disburse Section 1602 
Program funds as interest-bearing loans that allow for repayment.

GAO continues to believe that Congress should consider directing 
Treasury to permit HFAs the flexibility to disburse Section 1602 
Program funds as interest-bearing loans that allow for repayment.

We are sending copies of this report to the Office of Management and 
Budget and the Departments of Health and Human Services (Centers for 
Medicare and Medicaid Services), Education, Transportation, Energy, 
and Housing and Urban Development. In addition, we are sending 
sections of the report to officials in the 16 states and the District 
and the 24 local governments covered in our review. The report is 
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 V. 

Signed by: 

Gene L. Dodaro: 
Acting Comptroller General of the United States:

List of Addressees:

The Honorable Nancy Pelosi:
Speaker of the House of Representatives:

The Honorable Daniel K. Inouye:
President Pro Tempore of the Senate:

The Honorable Harry Reid:
Majority Leader:
United States Senate:

The Honorable Mitch McConnell:
Republican Leader:
United States Senate:

The Honorable Steny Hoyer:
Majority Leader:
House of Representatives:

The Honorable John Boehner:
Republican Leader:
House of Representatives:

The Honorable Daniel K. Inouye:
Chairman:
The Honorable Thad Cochran:
Vice Chairman:
Committee on Appropriations:
United States Senate:

The Honorable Dave Obey:
Chairman:
The Honorable Jerry Lewis:
Ranking Member:
Committee on Appropriations:
House of Representatives:

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 Edolphus Towns:
Chairman:
The Honorable Darrell E. Issa:
Ranking Member:
Committee on Oversight and Government Reform:
House of Representatives:

[End of section]

Appendix I: Objectives, Scope, and Methodology:

This appendix describes our objectives, scope, and methodology for 
this seventh of our bimonthly reviews on the American Recovery and 
Reinvestment Act of 2009 (Recovery Act). A detailed description of the 
criteria used to select the core group of 16 states and the District 
of Columbia (District) and programs we reviewed is found in appendix I 
of our April 2009 Recovery Act bimonthly report.[Footnote 194]

Objectives and Scope:

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 assess (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) state activities to evaluate the impact of the 
Recovery Act funds they have received to date. We selected programs 
for review primarily because they have begun disbursing funds to 
states or because they have known or potential risks. The risks can 
include existing programs receiving significant amounts of Recovery 
Act funds or new programs. In some cases, we have also collected data 
from all states and from a broader array of localities to augment the 
in-depth reviews.

Our teams visited the 16 selected states, the District, and a 
nonprobability sample of entities (e.g., state and local governments, 
local educational agencies, public housing authorities) during the 
period from May 2010 through September 2010. As with our previous 
Recovery Act reports, our teams met with a variety of state and local 
officials from executive-level and program offices. During the 
discussions with state and local officials, teams used a series of 
program review and semistructured interview guides that addressed 
state plans for management, tracking, and reporting of Recovery Act 
funds and activities. We also reviewed state statutes, legislative 
proposals, and other state legal materials for this report. Where 
attributed, we relied on state officials and other state sources for 
descriptions and interpretation of state legal materials. Appendix IV 
details the states and localities visited by GAO. Criteria used to 
select localities within our selected states follows below.

The act requires that nonfederal recipients of Recovery Act-funded 
grants, contracts, or loans submit quarterly reports on each project 
or activity including information concerning the amount and use of 
funds and jobs created or retained.[Footnote 195] The first of these 
recipient reports covered cumulative activity since the Recovery Act's 
passage through the quarter ending September 30, 2009. The Recovery 
Act requires us to comment on the estimates of jobs created or 
retained after the recipients have reported. We issued our initial 
report related to recipient reporting, including recommendations for 
recipient report improvements, on November 19, 2009.[Footnote 196] A 
second major focus of the current report is to provide updated 
information concerning recipient reporting in accordance with our 
mandate for quarterly reporting.[Footnote 197]

States' and Localities' Uses of Recovery Act Funds:

Using criteria described in our earlier bimonthly reports, we selected 
the following streams of Recovery Act funding flowing to states and 
localities for review during this report: Medicaid Federal Medical 
Assistance Percentage (FMAP) grant awards; the State Fiscal 
Stabilization Fund (SFSF); Title I, Part A of the Elementary and 
Secondary Education Act of 1965 (ESEA); Parts B and C of the 
Individuals with Disabilities Education Act (IDEA); the Federal-Aid 
Highway Surface Transportation and Transit Capital Assistance 
programs; the State Energy Program (SEP); the Energy Efficiency and 
Conservation Block Grant program (EECBG); the Weatherization 
Assistance Program; the Public Housing Capital Fund; the Tax Credit 
Assistance Program (TCAP); and Grants to States for Low-Income Housing 
Projects in Lieu of Low-Income Housing Credits Program under Section 
1602 of the Recovery Act (Section 1602 Program). We also reviewed how 
Recovery Act funds are being used by states and localities. In 
addition, we analyzed www.Recovery.gov data on federal spending.

Federal Medical Assistance Percentage:

To examine Medicaid enrollment, states' efforts to comply with the 
provisions of the Recovery Act, states' uses of the grant awards, and 
other related information, we conducted a Web-based survey, asking the 
16 states and the District to provide new information, as well as to 
update information they had previously provided to us. To establish 
the reliability of our Web-based survey data, we pretested the survey 
with Medicaid officials in two states and also conducted follow-up 
with sample states as needed. For the increased FMAP grant awards, we 
obtained increased FMAP grant and draw down figures for each state in 
our sample and the District from the Centers for Medicare & Medicaid 
Services (CMS). We discussed with CMS issues related to the agency's 
oversight of increased FMAP grant awards and its guidance to states on 
Recovery Act provisions. To assess the reliability of increased FMAP 
draw down figures, we previously interviewed CMS officials on how 
these data are collected and reported. Based on these steps, we 
determined that the data provided by CMS and submitted by states were 
sufficiently reliable for the purposes of our engagement.

SFSF, ESEA Title I, and IDEA:

To obtain national level information on how Recovery Act funds made 
available by the U.S. Department of Education under SFSF, ESEA Title 
I, and IDEA were used at the local level, we designed and administered 
a Web-based survey of local education agencies (LEAs) in the 50 states 
and the District of Columbia. We surveyed school district 
superintendents across the country to learn how Recovery Act funding 
was used and what impact these funds had on school districts. We 
conducted our survey between March and April 2010, with a 78 percent 
final weighted response rate. We selected a stratified[Footnote 198] 
random sample of 575 LEAs from the population of 16,065 LEAs included 
in our sample frame of data obtained from Education's Common Core of 
Data (CCD) in 2007-08.

We took steps to minimize nonsampling errors by pretesting the survey 
instrument with officials in 5 LEAs in January and February 2010. 
Because we surveyed a sample of LEAs, survey results are estimates of 
a population of LEAs and thus are subject to sampling errors that are 
associated with samples of this size and type. Our sample is only one 
of a large number of samples that we might have drawn. As each sample 
could have provided different estimates, we express our confidence in 
the precision of our particular sample's results as a 95 percent 
confidence interval (e.g., plus or minus 10 percentage points). We 
excluded 16 of the sampled LEAs for various reasons - because they 
were no longer operating in the 2009-10 school year, were a duplicate 
entry, or were not an LEA--and therefore were considered out of scope. 
All estimates produced from the sample and presented in this report 
are representative of the in-scope population and have margins of 
error of plus or minus 7 percentage points or less for our sample, 
unless otherwise noted.

To obtain specific examples of how LEAs are using Recovery Act funds, 
we selected LEAs in each of the following states: California, 
Massachusetts and Michigan to visit and interview LEA officials. We 
selected these states from among the 16 states and the District of 
Columbia in our review based on geographic diversity and varying state 
budget situations for K-12 education.

Within the selected states, we identified a mix of local districts 
that would represent urban, rural, and suburban districts, LEAs among 
the 100 largest LEAs as well as districts that were not as large, and 
local districts with different budget situations. We also obtained 
selected additional information from LEA officials in New York. In 
addition to interviewing local officials, we interviewed selected 
state officials. Specifically, we interviewed ESEA Title I officials 
in states with relatively low Recovery Act Title I drawdown rates to 
assess to what extent state officials in these states are monitoring 
LEA obligations and also discussed implementation of School 
Improvement Grants. We also interviewed officials at the U.S. 
Department of Education (Education) and reviewed relevant laws, 
guidance, and communications to the states. Further, we obtained 
information from Education's website about the amount of funds these 
states have drawn down from their accounts with Education. We also 
reviewed data on state level funding changes from the National 
Association of State Budget Officers (NASBO). To assess the 
reliability of the NASBO data, we (1) reviewed existing documentation 
related to the data sources and (2) interviewed knowledgeable agency 
officials about the data. We determined that the data are sufficiently 
reliable for the purposes of this report.

Federal-Aid Highway Surface Transportation Program:

For highway infrastructure investment, we reviewed status reports and 
guidance to the states and discussed these with the U.S. Department of 
Transportation and Federal Highway Administration (FHWA) officials. We 
obtained funding data for each of the 16 states and the District in 
our review. We also reviewed data related to contracts and 
economically distressed areas--submitted by states--in the FHWA 
Recovery Act Data System (RADS) for completeness and compliance with 
FHWA guidance. We also interviewed or obtained information from state 
department of transportation officials in Arizona, California, 
Florida, Illinois, Massachusetts, Mississippi, North Carolina, 
Pennsylvania, and Texas. Specifically, we discussed rates of 
deobligations in suballocated and nonsuballocated areas, accuracy of 
contract data entered into RADS, and rates of spending from regular 
FHWA highway program during the period of the Recovery Act.

Transit Capital Assistance Program:

For public transit investment, we reviewed status reports and guidance 
to the states and transit agencies and discussed these with U.S. 
Department of Transportation and Federal Transit Administration (FTA) 
officials as part of our review of the Transit Capital Assistance 
Program and Fixed Guideway Infrastructure Investment program. We 
obtained funding data on the amounts of funding transferred from FHWA 
to FTA and funding levels used for transit operating expenses for each 
of our urbanized and nonurbanized areas. We also interviewed FTA 
officials about operating expense data. Finally we interviewed or 
obtained information from state and transit agency officials in 
California, Illinois, Massachusetts, Michigan, New Jersey, and Texas 
regarding these issues.

State Energy Program, Energy Efficiency Conservation Block Grant, and 
Weatherization Assistance Program:

For the State Energy Program (SEP), the Energy Efficiency and 
Conservation Block Grant program (EECBG), and Weatherization 
Assistance Program, we reviewed relevant regulations and federal 
guidance and interviewed Department of Energy officials who administer 
the programs at the federal level. Specifically, for the SEP and the 
EECBG programs, we collected information from 6 and 12 of our selected 
states and the District, respectively.[Footnote 199] Also, we 
conducted semistructured interviews of officials in state and local 
agencies that administer the programs and with local subrecipients who 
received Recovery Act funds. These interviews covered the respective 
state's and locality's usage of funds, internal controls, and 
reporting procedures. We also collected data on the number and types 
of projects funded with Recovery Act money for the SEP and EECBG 
programs. In addition, for this report, we collected updated 
information from seven of our selected states and the District on 
their weatherization programs.[Footnote 200] We conducted 
semistructured interviews of officials in the states' agencies that 
administer the weatherization program and with local service providers 
responsible for weatherization production. We interviewed officials at 
local service providers in the District and the seven states, and 
reviewed local agencies' client case files for homes weatherized with 
Recovery Act funds. We also conducted site visits to interview local 
providers of weatherization and to observe weatherization activities. 
For all three programs, we collected data about each state's total 
allocation under the Recovery Act, as well as the allocation already 
provided to the states and the obligations and expenditures-to-date.

Public Housing Capital Fund:

For public housing, we obtained data from HUD's Electronic Line of 
Credit Control System on the amount of Recovery Act funds that have 
been obligated and expended by each housing agency in the country that 
received Public Housing Capital Funds. To monitor progress on how 
housing agencies are using these funds, we visited 12 housing agencies 
in nine states.[Footnote 201] For each state, we selected at least 1 
public housing agency from a list of 47 housing agencies visited for 
previous Recovery Act reports to update the status of their grant 
projects. At the selected housing agencies, we interviewed housing 
agency officials and conducted site visits of Recovery Act projects. 
We also interviewed officials of the U.S. Department of Housing and 
Urban Development (HUD) to follow up on HUD's efforts in monitoring 
public housing agency obligations and uses of Recovery Act funds and 
to understand HUD's capacity to administer Recovery Act funds. 
Further, we interviewed HUD officials to understand their procedures 
for reviewing data that housing agencies reported to 
FederalReporting.gov.

Tax Credit Assistance Program:

To further assess state implementation of the Tax Credit Assistance 
Program (TCAP) and Section 1602 program, we asked managers of state 
housing finance agencies in all 50 states, the District, Puerto Rico, 
Guam, and the U.S. Virgin Islands to complete a Web survey. Our 
questionnaire asked about the status of program delivery, program 
design, safeguards and controls, expected results, and challenges to 
implementation. We designed and tested the self-administered 
questionnaire in consultation with experts, representatives of housing 
finance stakeholders, and state agency managers. Survey data 
collection took place in November and early December of 2009. We 
received usable responses from all 54 agencies.

While all state agencies returned questionnaires, and thus our data is 
not subject to sampling or overall questionnaire nonresponse error, 
the practical difficulties of conducting any survey may introduce 
other errors in our findings. We took steps to minimize errors of 
measurement, question-specific nonresponse, and data processing. In 
addition to the questionnaire development activities listed above, and 
pretesting the questionnaire with four state agency officials before 
the survey, GAO analysts also recontacted selected respondents to 
follow up on answers that were missing or that required clarification. 
In addition, GAO analysts resolved respondent difficulties in 
answering our questions during the survey. Before the survey, we also 
contacted each agency to determine whether our originally identified 
respondent was the most appropriate and knowledgeable person to answer 
our questions, and made changes to our contact list as necessary. 
Finally, analysis programs and other data analyses were independently 
verified.

Head Start and Early Head Start:

Owing to the focus on Early Head Start expansion under the Recovery 
Act, we visited nine Early Head Start expansion grantees in four 
states: Florida, Georgia, North Carolina, and Ohio. Due to time and 
resource considerations, we chose these states based on GAO staff 
expertise in Head Start. For each state, all but one Early Head Start 
grantee selected had received a grant above the median for all 
Recovery Act expansion funds awarded in each state in order to focus 
our limited resources on relatively sizable grants. We also included 
four grantees that had been awarded expansion funds for constructing 
or renovating facilities. The grantees we visited included grantees 
that had not previously provided an Early Head Start program but that 
had provided Head Start, as well as experienced Early Head Start 
grantees. For each selected grantee, we reviewed federal assistance 
award information, enrollment data, proposals for the use of Quality 
Improvement funds, and facilities under construction or renovation. We 
conducted structured interviews with grantee officials covering 
updates on the use of Recovery Act funds, challenges to spending funds 
within Office of Head Start (OHS) deadlines, OHS monitoring of 
grantees, and grantees' interpretation of enrollment and attendance 
requirements. We also reviewed files on-site at each grantee on 
enrollment, income eligibility, and health screening. The grantees we 
visited were purposefully chosen and are not a representative sample 
of all expansion grantees. The information gathered from these site 
visits is not generalizable to the population of Early Head Start 
expansion grantees.

Recipient Reporting:

The recipient reporting section of this report responds to the 
Recovery Act's mandate that we comment on the estimates of jobs 
created or retained by direct recipients of Recovery Act funds. For 
our review of the fourth submission of recipient reports, covering the 
period from April 1, 2010, through June 30, 2010, we built on findings 
from our three prior reviews of the reports, covering the period from 
February 2009 through March 30, 2010. We performed edit checks and 
basic analyses on the fourth submission of recipient report data that 
became publicly available at Recovery.gov on July 30, 2010. We 
interviewed federal agency officials from the Department of Energy, 
who have responsibility for ensuring a reasonable degree of quality 
across their programs' recipient reports. We also interviewed 
representatives from a variety of state associations, such as the 
National Association of State Auditors, Comptrollers, and Treasurers 
and the National Association of State Budget Officers, to obtain their 
views on whether the process of recipient reporting has had an effect 
on intergovernmental interactions.

From the fourth submission of recipient reports, we reviewed reports 
for two energy programs, EECBG and the Weatherization Assistance 
Program, to determine whether they had used Office of Management and 
Budget (OMB) guidance for calculating their full-time equivalents 
(FTE) funded by the Recovery Act. We interviewed 13 EECBG state-level 
and 19 local government recipients from our 17 selected jurisdictions 
about their FTE calculations for the fourth round of reporting. We 
also interviewed 8 state-level weatherization assistance recipients 
and 17 local government weatherization assistance subrecipients from 
our 17 selected jurisdictions about their FTE calculations. In some 
instances, we reviewed supporting documentation with quarterly FTE 
reports, and assessed the validity of those calculations in complying 
with OMB guidance. Due to the limited number of recipients reviewed 
and the judgmental nature of the selection, GAO's FTE findings are not 
generalizable beyond the programs examined. In addition, state teams 
also interviewed government officials from our 16 selected states and 
the District to discuss issues that arose in the fourth reporting 
period statewide, specifically related to any difficulties they 
encountered during the fourth round of reporting, development of their 
state Web sites, and their views on whether the recipient reporting 
requirements have affected intergovernmental interactions. We also 
asked these officials about ongoing state plans for managing, 
tracking, and reporting on Recovery Act funding and activities and 
solicited feedback from state officials regarding how states are using 
data generated from the recipient reporting effort and ways the 
recipient reporting process could be improved.

Single Audit as an Accountability and Oversight Mechanism:

To perform our audit work, we interviewed federal officials, state 
auditors, and officials from the cognizant agency for audit from the 
Department of Health and Human Services (HHS). We examined documents 
related to Single Audits, including the 2010 OMB Circular No. A-133 
Audits of States, Local Governments, and Non-Profit Organizations 
Compliance Supplement,[Footnote 202] OMB's and HHS's evaluations of 
the OMB Single Audit Internal Control project, and related federal 
agency management decisions. We reviewed Federal Audit Clearinghouse 
documents, such as selected Single Audit reports. We also conducted a 
survey of the state auditors and state program and finance officials 
that participated in the OMB Internal Control Single Audit Project. We 
analyzed and summarized the responses to our survey.[Footnote 203] We 
conducted our surveys in March 2010 and interviewed several state 
auditors, officials from the Department of Health and Human Services, 
which is the cognizant agency for audit, and officials from awarding 
federal agencies whose programs were selected for audit under the 
project. We also participated in an OMB-led discussion of the 
project's participants to obtain their views on the project.

Recovery Accountability and Transparency Board Initiatives:

To determine the status and results of oversight activities of the 
Recovery Accountability and Transparency Board (the Board), we met 
with representatives of the Board to discuss the initiatives they have 
taken to coordinate and monitor the efforts of the inspectors' general 
oversight activities as well as the Board's initiatives to prevent and 
detect fraud, waste, and abuse of Recovery funds. We reviewed 
available documentation related to the Board's efforts.

Observations on States' Use of Contracts and Contract Outcomes:

To provide observations on selected states' use of competitive 
procedures and fixed prices in awarding contracts for Recovery Act 
funds, between July 2009 and March 2010, we met with state and local 
officials to discuss the contract award process for a sample of 208 
contracts in 16 states and the District. Between March and June 2010, 
we met again with the officials responsible for these same contracts 
to discuss the extent to which there had been cost or schedule changes 
or contractor performance issues. The contracts we reviewed with state 
officials were selected based on a combination of several factors to 
obtain a mix of various programs and dollar values that varied among 
the states. Our methodology for selecting these contracts does not 
allow for reported information to be generalized.

State and Local Accountability:

To assess actions taken by the state and local audit community to 
monitor the use of Recovery Act funds, we have interviewed selected 
state and local auditors and state inspectors general about their 
ongoing and planned audit activities. We have also reviewed state and 
local audit reports. We have also spoken to some of the Recovery Act 
oversight entities created in many of the selected states such as New 
Jersey's Recovery Accountability Task Force and the Recovery Task 
Force in California. In addition, in an effort to update the audit 
community concerning our Recovery Act work and participate in 
information sharing about Recovery Act issues, we are working with 
state and local auditors and their associations to facilitate routine 
telephone conference calls to discuss Recovery Act issues with a broad 
community of interested parties. The conference call participants 
include the Association of Government Accountants; the Association of 
Local Government Auditors; the National Association of State Auditors, 
Comptrollers, and Treasurers; OMB; the Board; federal inspectors 
general; the National Governors Association; and the National 
Association of State Budget Officers. In an effort to ensure 
information sharing about allegations of fraud, we are also working 
with state and local auditors to develop plans for routine sharing of 
information.

State and Local Budget:

We continued our review of the use of Recovery Act funds for the 16 
selected states, the District, and selected localities. We conducted 
interviews with state budget officials and reviewed proposed and 
enacted budgets and revenue forecasts to update our understanding of 
the use of Recovery Act funds in the 16 selected states and the 
District. To update our understanding of local governments' use of 
Recovery Act funds, we met with finance officials and city 
administrators at the selected local governments.

The topics covered in our meetings included what Recovery Act funds 
the states and localities received, how they used the funds, and their 
exit strategy to prepare for the phasing out of Recovery Act funding. 
In the course of our discussions with officials we explored the extent 
to which the receipt of Recovery Act funds has stabilized state and 
local government budgets. We also reviewed reports and analyses 
regarding the fiscal conditions of states and localities.

The selected states and the District for our review contain about 65 
percent of the U.S. population and are estimated to receive 
collectively about two-thirds of the intergovernmental grant funds 
available through the Recovery Act. To select local governments for 
our review, we identified localities representing a range of 
jurisdictions (cities and counties) and variations in population sizes 
and economic conditions (unemployment rates greater than or less than 
the state's overall unemployment rate). In making our selections, we 
also considered proximity to our other scheduled Recovery Act work and 
local contacts established during prior reviews. The GAO teams visited 
a total of 24 local governments in our 16 selected states that ranged 
in population from approximately 258 in Steward, Illinois, to 
approximately 2.5 million in Miami-Dade County, Florida. Unemployment 
rates in our selected localities ranged from 6.7 percent in Round 
Rock, Texas, to 13.4 percent in Redding, California.[Footnote 204] Due 
to the small number of jurisdictions visited and judgmental nature of 
their selection, GAO's findings are not generalizable to all local 
governments.

The list of local governments selected in each state is found in 
appendix IV.

Data and Data Reliability:

We collected funding data from www.Recovery.gov and federal agencies 
administering Recovery Act programs for the purpose of providing 
background information. We used funding data from www.Recovery.gov-- 
which is overseen by the Board--because it is the official source for 
Recovery Act spending. Except as may be noted with regard to specific 
analyses appearing in other sections of this report and based on our 
examination of this information thus far, we consider these data 
sufficiently reliable with attribution to official sources for the 
purposes of providing background information on Recovery Act funding 
for this report. Our sample of states, localities, and entities has 
been purposefully selected and the results of our reviews are not 
generalizable to any population of states, localities, or entities.

We conducted this performance audit from May 27, 2010, to September 
20, 2010, 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.

[End of section]

Appendix II: Implemented and Closed Recommendations:

The following are 31 GAO recommendations that Departments of 
Transportation (DOT), Housing and Urban Development (HUD), Education, 
Treasury, and the Office of Management and Budget (OMB) have 
implemented since we began conducting bimonthly reviews in April 2009. 
[Footnote 205] We have also closed 2 recommendations.

Department of Transportation:

Implemented Recommendation:

To ensure that the public has accurate information regarding 
economically distressed areas, we also recommend that the Secretary of 
Transportation direct FHWA to issue guidance to the states advising 
them to update information in the Recovery Act Data System to reflect 
current DOT decisions concerning the special-need criteria. Projects 
in areas currently lacking documentation showing that the areas meet 
the criteria to be designated as economically distressed should be 
reported as a project in a noneconomically distressed area.

Agency Actions:

In July 2010, FHWA directed Arizona, California, and Illinois to 
revise their designations and to report these projects as being in 
noneconomically distressed areas. FHWA also directed all states to 
ensure that future Recovery Act Data System entries be coded as 
economically distressed only if FHWA division and headquarters offices 
had approved the designation.

Implemented Recommendation:

Recipients of highway and transit Recovery Act funds, such as state 
departments of transportation and transit agencies, are subject to 
multiple reporting requirements. Both DOT and OMB have issued 
implementation guidance for recipient reporting. Despite these 
efforts, state and local highway and transit officials expressed 
concerns and challenges with meeting the Recovery Act reporting 
requirements. We recommended in our September 2009 report that the 
Secretary of Transportation should continue the department's outreach 
to state departments of transportation and transit agencies to 
identify common problems in accurately fulfilling reporting 
requirements and provide additional guidance, as appropriate.

Agency Actions:

In September 2009, in responding to our recommendation, DOT said that 
it had conducted outreach, including providing technical assistance, 
training, and guidance to recipients, and will continue to assess the 
need to provide additional information. For example, in February 2010, 
FTA continued three training webinars to provide technical assistance 
in complying with reporting requirements under section 1201(c) of the 
Recovery Act. In addition, on February 1, 2010, FTA issued guidance to 
transit agencies instructing them to use the same methodology for 
calculating jobs retained through vehicles purchased under section 
1201 as they had been for the recipient reporting. This reversed 
previous guidance that had instructed transit agencies to use a 
different methodology for vehicle purchases under sections 1201 and 
recipient reporting.

Implemented Recommendation:

DOT and FHWA have yet to provide clear guidance regarding how states 
are to implement the Recovery Act requirement that economically 
distressed areas (EDA) are to receive priority in the selection of 
highway projects for funding. We found substantial variation both in 
how states identified EDAs and how they prioritized project selection 
for these areas. To ensure states meet Congress's direction to give 
areas with the greatest need priority in project selection, we 
recommended in our July 2009 report that the Secretary of 
Transportation develop clear guidance on identifying and giving 
priority to EDAs that are in accordance with the requirements of the 
Recovery Act and the Public Works and Economic Development Act of 
1965, as amended, and more consistent procedures for FHWA to use in 
reviewing and approving states' criteria.

Agency Actions:

In August 2009, in response to our recommendation, FHWA, in 
consultation with the Department of Commerce, developed guidance that 
addresses our recommendation. In particular, FHWA's August 2009 
guidance defines "priority," directing states to give priority to 
projects that are located in an economically distressed area and can 
be completed within the 3-year time frame over other projects. In 
addition, FHWA's guidance sets out criteria that states may use to 
identify economically distressed areas based on "special need." The 
criteria align closely with special need criteria used by the 
Department of Commerce's Economic Development Administration in its 
own grant programs, including factors such as actual or threatened 
business closures (including job loss thresholds), military base 
closures, and natural disasters or emergencies.

Department of Housing and Urban Development:

Implemented Recommendation:

To ensure housing agencies use the correct job calculation, we 
recommend that the Secretary of Housing and Urban Development clearly 
emphasize to housing agencies that they discontinue use of the 
outdated jobs calculator provided by HUD in the first round of 
recipient reporting.

Agency Actions:

In response to our recommendation, HUD sent an e-mail to housing 
agencies on June 30, 2010, that explicitly instructed them not to use 
the outdated jobs-counting calculator, as it was not correctly 
computing the FTE calculation per updated OMB guidance. This e-mail 
also included a link to HUD's new online jobs-counting calculator and 
instructed housing agencies to use this calculator for the July and 
all future reporting periods.

Implemented Recommendation:

To help clarify the recipient reporting responsibilities of housing 
agencies and to improve the consistency and completeness of jobs data 
reported by housing agencies, we recommend that the Secretary of 
Housing and Urban Development issue guidance that explains when FTEs 
attributable to subcontractors should be reported by the prime 
recipient.

Agency Actions:

In response to our recommendation, HUD notified housing agencies in a 
June 30, 2010, e-mail that it had developed additional guidance for 
housing agencies to use when determining whether prime recipients 
should report FTEs for subcontractors and provided a link to the 
guidance on its Web site. The guidance noted that housing agencies 
should include Recovery Act-funded hours that contractors and 
subcontractors worked as part of their FTE calculation.

Implemented Recommendation:

To help HUD achieve Recovery Act objectives and address challenges 
with its continued administration of Recovery Act funds, we recommend 
that the Secretary of Housing and Urban Development develop a 
management plan to determine the adequate level of agency staff needed 
to administer both the Recovery Act funds and the existing Capital 
Fund program going forward, including identifying future resource 
needs and determining whether current resources could be better 
utilized to administer these funds.

Agency Actions:

In response to our recommendation, HUD developed a management plan for 
administration of Recovery Act funds, including the need for an 
additional 11 FTEs to carry out Recovery Act responsibilities. In July 
2010, HUD also provided us with its management plan for the Public 
Housing Capital Fund program. The plan summarized the key activities 
HUD undertakes to monitor and facilitate the use of these funds by 
program area, including rule and policy development, planning, program 
awards, program management, technical assistance, and reporting. The 
plan also included the specific activities, tasks, and resources used 
for each of these existing program areas, identifying approximately 91 
existing FTEs in its headquarters and field offices to support these 
activities. According to HUD's management plan, HUD's current staffing 
level is sufficient to manage its existing Capital Fund program, but 
the agency could more efficiently utilize its current resources. As a 
result, HUD plans to realign current staff to focus on its core 
missions including Recovery Act responsibilities.

Implemented Recommendation:

We recommended on March 3, 2010 that the Secretary of Housing and 
Urban Development instruct housing agencies to discontinue use of the 
jobs calculator provided by HUD in the first round of recipient 
reporting for subsequent rounds of reporting to ensure the correct job 
calculation is used.

Agency Actions:

In a March 26, 2010, e-mail to housing agencies, HUD included 
instructions to discontinue use of the jobs calculator originally 
posted on the HUD Recovery Act Web site in October 2009. HUD 
reiterated these instructions in a subsequent e-mail it sent to 
housing agencies on March 31, 2010.

Implemented Recommendation:

To enhance HUD's ability to prevent, detect, and correct noncompliance 
with the use of Recovery Act funds, we recommended in September 2009 
that the Secretary of Housing and Urban Development expand the 
criteria for selecting housing agencies for on-site reviews to include 
housing agencies with open Single Audit findings that may affect the 
use of and reporting on Recovery Act funds.

Agency Actions:

In October 2009, HUD expanded its criteria for selecting housing 
agencies for on-site reviews to include all housing agencies with open 
2007 and 2008 Single Audit findings as of July 7, 2009, relevant to 
the administration of Recovery Act funds. HUD has identified 27 such 
housing agencies and planned to complete these on-site reviews by 
February 15, 2010.

Department of Education:

Implemented Recommendation:

To ensure that FTEs are properly accounted for over time, we recommend 
that the Secretary of Education clarify how LEAs and IHEs should 
report FTEs when additional Recovery Act funds are received in a 
school year and are reallocated to cover costs incurred in previous 
quarters, particularly when the definite term methodology is used.

Agency Actions:

In response to our recommendation, Education issued clarifying 
guidance on August 26, 2010, that addressed how FTEs should be 
reported when funds are expended in one quarter to cover costs 
incurred in previous quarters.

Implemented Recommendation:

To ensure that subrecipients do not underreport vendor FTEs directly 
paid with Recovery Act funds, we recommend that the Secretary of 
Education re-emphasize the responsibility of subrecipients to include 
hours worked by vendors in their quarterly FTE calculations to the 
maximum extent practicable.

Agency Actions:

In response to our recommendation, Education issued clarifying 
guidance on August 26, 2010, that re-emphasized the responsibility of 
subrecipients to include hours worked by vendors in their quarterly 
FTE calculations.

Implemented Recommendation:

To improve consistency in how FTEs generated using the definite term 
are calculated, we recommend that the Secretary of Education and the 
Director of OMB clarify whether IHE and LEA officials using this 
methodology should include the cost of benefits in their calculations.

Agency Actions:

In response to our recommendation, Education issued clarifying 
guidance on August 26, 2010, that addressed whether benefits should be 
included in the calculation of jobs under the OMB guidance released 
December 18, 2009.

Implemented Recommendation:

To improve the consistency of FTE data collected and reported, we 
recommend that the Secretary of Education and the Director of OMB 
provide clarifying guidance to recipients on how to best calculate 
FTEs for education employees during quarters when school is not in 
session.

Agency Actions:

In response to our recommendation, Education issued clarifying 
guidance on August 26, 2010, that explained that the length of a full-
time contract (i.e., 10 or 12 months) should not affect FTE 
calculations.

Implemented Recommendation:

We recommended in September 2009 that the Secretary of Education take 
further action such as collecting and reviewing documentation of state 
monitoring plans to ensure that states understand and fulfill their 
responsibility to monitor subrecipients of SFSF funds and consider 
providing training and technical assistance to states to help them 
develop and implement state monitoring plans for SFSF.

Agency Actions:

In February 2010, Education instructed states to submit to Education 
for review their plans and protocols for monitoring subrecipients of 
SFSF funds. Education also issued its plans and protocols for 
monitoring state implementation of the SFSF program. The plan includes 
on-site visits to about half the states and desk reviews of the other 
states to be conducted over the next year.

Implemented Recommendation:

We recommended in November 2009 that the Secretary of Education take 
further action to enhance transparency by requiring states to include 
an explanation of changes to maintenance-of-effort levels in their 
SFSF funding application resubmissions.[Footnote 206]

Agency Actions:

Education notified states that, if states made changes to their 
maintenance-of-effort data in their State Fiscal Stabilization Fund 
applications, they must provide a brief explanation of the reason the 
data changed.

Department of the Treasury:

Implemented Recommendation:

In order to increase the likelihood that state Housing Finance 
Agencies (HFA) will comply with Treasury's requirements for 
recapturing funds, the Secretary of the Treasury should define what it 
considers appropriate actions by HFAs to recapture funds in order to 
avoid liability when they are unable to collect funds from project 
owners that do not comply.

Agency Actions:

Treasury agreed with our recommendation and in response to our 
recommendation, Treasury provided additional guidance to state HFAs to 
clarify what constitutes appropriate actions by HFAs to recapture 
funds in order to avoid liability in the event of project owner 
noncompliance. Specifically, in August 2010, the agency developed and 
issued a Recapture Guidance for Recovery Act projects that receive 
Section 1602 Program funds that defines a recapture event, specifies 
the amount of funds owed in the event of recapture, describes an HFA's 
obligation and responsibilities in avoiding project owner 
noncompliance, sets forth the kinds of recapture actions an HFA may 
take in the event of noncompliance, and directs HFAs on how to report 
noncompliance.

Executive Office of the President: Office of Management and Budget 
(OMB):

Implemented Recommendation:

We were concerned that since the scope of Single Audit workloads due 
to Recovery Act programs being subject to Single Audits will increase, 
consideration should be given to determining what funds can be used to 
support Single Audit efforts related to Recovery Act programs, 
including whether legislative changes are needed to specifically 
direct resources to cover incremental audit costs related to Recovery 
Act programs. We recommended that the Director of OMB develop 
mechanisms to help fund the additional Single Audit costs and efforts 
for auditing Recovery Act programs.

Agency Actions:

OMB addressed our recommendation by issuing guidance[Footnote 207] to 
executive departments and agencies to help states with various 
approaches to recover administrative costs associated with the wide 
range of activities to comply with the Recovery Act. Administrative 
costs include, but are not limited to, oversight and audit costs and 
the costs of performing additional Single Audits. OMB issued the 
guidance to clarify actions (within the existing legal framework for 
identifying allowable reimbursable costs) that states could take to 
recover administrative costs in a more timely manner. In addition to 
our recommendation to OMB, as we previously noted in our bimonthly 
reports, it is our view that, to the extent that additional audit 
coverage is needed to achieve accountability over Recovery Act 
programs, Congress should consider mechanisms to provide additional 
resources to support those charged with carrying out the Single Audit 
Act and related audits.

Implemented Recommendation:

We reported in July 2009 that OMB was encouraging communication of 
weaknesses to management early in the audit process, but did not add 
requirements for auditors to take these steps. This step did not 
address our concern that internal controls over Recovery Act programs 
should be reviewed before significant funding is expended. Under the 
current Single Audit framework and reporting timelines, the auditor 
evaluation of internal control and related reporting will occur too 
late--after significant levels of federal expenditures have already 
occurred. As a result of our recommendation, OMB implemented a Single 
Audit Internal Control Project under which a limited number of 
voluntarily participating auditors performing the Single Audits for 
states would communicate in writing internal control deficiencies 
noted in the single audit within 6 months of the 2009 fiscal year-end, 
rather than the 9 months required by the Single Audit Act. We 
recommended that the Director of OMB take steps to achieve sufficient 
participation and coverage in OMB's Single Audit Internal Control 
Project that provides for early written communication of internal 
control deficiencies to achieve the objective of more timely 
accountability over Recovery Act funds.

Agency Actions:

OMB implemented its Single Audit Internal Control Project in October 
2009. The project called for a minimum of 10 participants. OMB 
solicited the 50 states, the District of Columbia, Puerto Rico, and 
Guam, from which 16 states volunteered to participate.[Footnote 208] 
The volunteer states were diverse in geographic characteristics and 
population and included states that use auditors within state 
government as well as external auditors to conduct Single Audits. In 
addition, the volunteer states included California and Texas, which 
are among the top three states with the highest levels of Recovery Act 
obligations from the federal government. Each state selected at least 
two Recovery Act programs from a list of 11 high-risk Recovery Act 
programs for internal control testing. OMB designed the project to be 
voluntary and OMB officials stated that, overall, they were satisfied 
with the population and geographic diversity among the states that 
volunteered. Although the project's coverage could be more 
comprehensive to provide greater assurance over Recovery Act funding, 
the results of the project could provide meaningful insight for making 
improvements to the Single Audit process.

Implemented Recommendation:

The Single Audit Act requires that recipients submit their financial 
reporting packages, including the Single Audit report, to the federal 
government no later than 9 months after the end of the period being 
audited. As a result, an audited entity may not receive feedback 
needed to correct an identified internal control or compliance 
weakness until the latter part of the subsequent fiscal year. The 
timing problem is exacerbated by the extensions to the 9-month 
deadline that are routinely granted by the awarding agencies, 
consistent with OMB guidance. We made two recommendations in this 
area. First, we recommended that the Director of OMB formally advise 
federal cognizant agencies to adopt a policy of no longer approving 
extensions of the due dates of Single Audit reporting package 
submissions beyond the 9-month deadline. Second, we also recommended 
that the Director of OMB widely communicate this revised policy to the 
state audit community and others who have responsibility for 
conducting Single Audits and submitting the Single Audit reporting 
package.

Agency Actions:

On March 22, 2010, OMB addressed these two recommendations by issuing 
memorandum M-10-14, Updated Guidance on the American Recovery and 
Reinvestment Act. This guidance directed federal agencies to not grant 
any requests made to extend the Single Audit reporting deadlines for 
fiscal years 2009 to 2011. OMB further stated that to meet the 
criteria for a low-risk auditee in the current year, the auditee must 
have submitted the prior 2 years' audit reports by the required due 
dates. OMB communicated this revised policy though the OMB Web site, 
the American Institute of Certified Public Accountants, and the 
National Association of State Auditors, Comptrollers, and Treasurers.

Implemented Recommendation:

OMB should work with the Recovery Accountability and Transparency 
Board (the Board) and federal agencies, building on lessons learned, 
to establish a formal and feasible framework for review of recipient 
changes during the continual update period and consider providing more 
time for agencies to review and provide feedback to recipients before 
posting updated reports on Recovery.gov.

Agency Actions:

In our March 3, 2010 report, we recommended that OMB work with the 
Board and federal agencies to establish a formal and feasible 
framework for review of recipient changes during the new continuous 
review period and consider providing more time for federal agencies to 
review and provide feedback to recipients before posting updated 
reports on Recovery.gov. On March 22, 2010, OMB issued updated 
guidance which highlighted the steps federal agencies must take to 
review data quality of recipient reports during the continuous review 
period. The guidance specified that federal agencies must, at a 
minimum, conduct a final review of the data upon the close of the 
continuous corrections period. In addition, now the Recovery Board 
reflects corrected data on Recovery.gov approximately every 2 weeks, 
allowing federal agencies time to review and provide feedback in the 
interim period.

Implemented Recommendation:

States have been concerned about the burden imposed by new 
requirements, increased accounting and management workloads, and 
strains on information systems and staff capacity at a time when they 
are under severe budgetary stress. We recommended in April 2009 that 
the Director of OMB 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.

Agency Actions:

On May 11, 2009, OMB released M-09-18, Payments to State Grantees for 
Administrative Costs of Recovery Act Activities, clarifying how state 
grantees could recover administrative costs of Recovery Act activities.

Implemented Recommendation:

States and localities are expected to report quarterly on a number of 
measures, including the use of funds and an estimate of the number of 
jobs created and the number of jobs retained as required by Section 
1512 of the Recovery Act. We recommended in our July 2009 report that 
to increase consistency in recipient reporting of jobs created and 
retained, the Director of OMB should work with federal agencies to 
have them provide program-specific examples of the application of 
OMB's guidance on recipient reporting of jobs created and retained.

Agency Actions:

OMB has issued clarifications and frequently asked questions (FAQ) on 
Recovery Act reporting requirements. During the first reporting 
period, OMB also deployed regional federal employees to serve as 
liaisons to state and local recipients in large population centers and 
established a call center for entities that did not have an on-site 
federal liaison. In addition, federal agencies issued additional 
guidance that builds on the OMB June 22 recipient reporting guidance 
for their specific programs. This guidance is in the form of FAQs, tip 
sheets, and more traditional guidance that builds on what was provided 
on June 22, 2009. Federal agencies have also taken steps to provide 
additional education and training opportunities for state and local 
program officials on recipient reporting, including Web-based seminars.

Implemented Recommendation:

To foster timely and efficient communications, we recommended in April 
2009 that the Director of OMB should continue to develop and implement 
an approach that provides easily accessible, real-time notification to 
(1) prime recipients in states and localities when funds are made 
available for their use and (2) states--where the state is not the 
primary recipient of funds but has a statewide interest in this 
information.

Agency Actions:

In response to our recommendation, OMB has made important progress in 
notifying recipients when Recovery Act funds are available, 
communicating the status of these funds at the federal level through 
agency Weekly Financial Activity reports, and disseminating Recovery 
Act guidance broadly while actively seeking public and stakeholder 
input. OMB has taken the additional step of requiring federal agencies 
to notify Recovery Act coordinators in states, the District of 
Columbia, commonwealths, and territories within 48 hours of an award 
to a grantee or contractor in their jurisdiction.

Implemented Recommendation:

Responsibility for reporting on jobs created and retained falls to 
nonfederal 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. 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, we 
recommended in April 2009 that the Director of OMB continue OMB's 
efforts to identify appropriate methodologies that can be used to (1) 
assess jobs created and retained from projects funded by the Recovery 
Act; (2) determine the impact of Recovery Act spending when job 
creation is indirect; and (3) 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. We also 
recommended that the Director of OMB consider whether the approaches 
taken to estimate jobs created and retained in these cases can be 
replicated or adapted to other programs.

Agency Actions:

On June 22, 2009, OMB issued additional implementation guidance on 
recipient reporting of jobs created and retained, (OMB memoranda M-09- 
21, Implementing Guidance for the Reports on Use of Funds Pursuant to 
the American Recovery and Reinvestment Act of 2009). This guidance is 
responsive to much of what we recommended. The June 2009 guidance 
provided detailed instructions on how to calculate and report jobs as 
FTEs. It also describes in detail the data model and reporting system 
to be used for the required recipient reporting on jobs. It clarifies 
that the prime recipient and not the subrecipient is responsible for 
reporting information on jobs created or retained. Federal agencies 
have issued guidance that expanded on the OMB June 22 governmentwide 
recipient reporting guidance and provided education and training 
opportunities for state and local program officials. Agency-specific 
guidance includes FAQs and tip sheets. Additionally, agencies are 
expected to provide examples of recipient reports for their programs, 
which is also consistent with what we recommended. In addition to the 
federal agency efforts, OMB has issued FAQs on Recovery Act reporting 
requirements. The June 22 guidance and subsequent actions by OMB are 
responsive to much of what we said in our recommendation.

Implemented Recommendation:

We have noted in prior reports that in order to achieve the delicate 
balance between robust oversight and the smooth flow of funds to 
Recovery Act programs, states may need timely reimbursement for these 
activities. We recommended in September 2009 that to the extent that 
the Director of OMB has the authority to consider mechanisms to 
provide additional flexibilities to support state and local officials 
charged with carrying out Recovery Act responsibilities, it is 
important to expedite consideration of alternative administrative cost 
reimbursement proposals.

Agency Actions:

In response to this recommendation, OMB issued a memorandum on October 
13, 2009, to provide guidance to address states' questions regarding 
specific exceptions to OMB Circular A-87, Cost Principles for State, 
Local and Indian Tribal Governments. In the memorandum, OMB provided 
clarifications for states regarding specific exceptions to OMB 
Circular A-87 that are necessary in order for the states to perform 
timely and adequate Recovery Act oversight, reporting, and auditing. 
We believe the October 2009 OMB guidance provides the additional 
clarification needed for states and localities to proceed with their 
plans to recoup administrative costs.

Implemented Recommendation:

To improve the consistency of FTE data collected and reported, we 
recommended in November 2009 that OMB clarify the definition and 
standardize the period of measurement for the FTE data element in the 
recipient reports.

Agency Actions:

After the first round of reporting by states on their use of Recovery 
Act funds in October 2009, OMB updated the recipient reporting 
guidance on December 18, 2009. According to the agency, this guidance 
aligns with GAO's recommendation by requiring recipients to report job 
estimates on a quarterly rather than a cumulative basis. As a result, 
recipients will no longer be required to sum various data on hours 
worked across multiple quarters of data when calculating job 
estimates. The December guidance incorporated lessons learned from the 
first round of recipient reporting and also addressed recommendations 
we made in our November 2009 report on recipient reporting.[Footnote 
209] According to OMB, the December guidance is intended to help 
federal agencies improve the quality of data reported under Section 
1512 and simplifies compliance by revising the definitions and 
calculations needed to define and estimate the number of jobs saved.

Implemented Recommendation:

To improve the consistency of FTE data collected and reported, we also 
recommended in November 2009 that OMB consider being more explicit 
that "jobs created or retained" are to be reported as hours worked and 
paid for with Recovery Act funds.

Agency Actions:

In response to our recommendation, OMB issued guidance on December 18, 
2009, that no longer requires recipients make a subjective judgment of 
whether jobs were created or retained as a result of the Recovery Act. 
Instead, recipients will more easily and objectively report on jobs 
funded with Recovery Act dollars.

Implemented Recommendation:

To improve the consistency of FTE data collected and reported, we also 
recommended in our November 2009 report that OMB continue working with 
federal agencies to provide or improve program-specific guidance to 
assist recipients, especially as it applies to the full-time 
equivalent calculation for individual programs.

Agency Actions:

In response to our recommendation, OMB issued guidance on December 18, 
2009, that required federal agencies to submit their guidance 
documents to OMB for review and clearance to ensure consistency 
between federal agency guidance and the guidance released by OMB.

Implemented Recommendation:

To improve the consistency of FTE data collected and reported, we 
recommended in November 2009 that OMB work with the Recovery 
Accountability and Transparency Board and federal agencies to re- 
examine review and quality assurance processes, procedures, and 
requirements in light of experiences and identified issues with the 
initial round of recipient reporting and consider whether additional 
modifications need to be made and if additional guidance is warranted.

Agency Actions:

In response to our recommendation, on December 18, 2009, OMB issued 
updated guidance on data quality, nonreporting recipients, and 
reporting of job estimates. The agency stated that the updated 
guidance incorporates lessons learned from the first reporting period 
and further addresses GAO's recommendations. The guidance also 
provides federal agencies with a standard methodology for effectively 
implementing reviews of the quality of data submitted by recipients.

Implemented Recommendation:

In our July 2009 report we recommended that to strengthen the effort 
to track the use of funds, the Director of OMB should (1) clarify what 
constitutes appropriate quality control and reconciliation by prime 
recipients, especially for subrecipient data, and (2) specify who 
should best provide formal certification and approval of the data 
reported.

Agency Actions:

Although OMB clarified that the prime recipient is responsible for 
FederalReporting.gov data in its June 22 guidance, no statement of 
assurance or certification will be required of prime recipients on the 
quality of subrecipient data. Moreover, federal agencies are expected 
to perform data quality checks, but they are not required to certify 
or approve data for publication. We continue to believe that there 
needs to be clearer accountability for the data submitted and during 
the subsequent federal review process. OMB agreed with the 
recommendation in concept but questioned the cost/benefit of data 
certification given the tight reporting time frames for recipients and 
federal agency reviewers. OMB staff stated that grant recipients are 
already expected to comply with data requirements appropriate to the 
terms and conditions of a grant. Furthermore, OMB will be monitoring 
the results of the quarterly recipient reports for data quality issues 
and would want to determine whether these issues are persistent 
problems before concluding that certification is needed.

Through issuance of additional guidance and clarification we are now 
satisfied OMB has implemented this recommendation.

Implemented Recommendation:

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.

Agency Actions:

OMB has taken steps to ensure data quality through issuance of 
additional guidance. OMB has also worked with the states to minimize 
to the extent possible the new reporting burdens under the Recovery Act.

Closed Recommendation:

We recommended in our April report the addition of a master schedule 
for anticipated, new, or revised federal Recovery Act program guidance 
and a more structured, centralized approach to making this information 
available, such as what is provided at Recovery.gov on recipient 
reporting.

Agency Actions:

This recommendation is closed because it is no longer applicable.

Closed Recommendation:

In addition to providing additional types of program-specific examples 
of guidance, the Director of OMB should work with federal agencies to 
use other channels to educate state and local program officials on 
reporting requirements, such as Web-or telephone-based information 
sessions or other forums.

Agency Actions:

In addition to the federal agency efforts, OMB has issued FAQs on 
Recovery Act reporting requirements. The June 22 guidance and 
subsequent actions by OMB are responsive to much of what we said in 
our April 2009 report. OMB deployed regional federal employees to 
serve as liaisons to state and local recipients in large population 
centers. The objective was to provide on-site assistance and, as 
necessary, direct questions to appropriate federal officials in 
Washington, D.C. OMB established a call center for entities that do 
not have an on-site federal liaison. These actions by OMB, together 
with an overall increase in state and local program officials' 
knowledge of reporting requirements, have made this recommendation 
inapplicable.

[End of section]

Appendix III: Program Descriptions:

Airport Improvement Program:

Within the Department of Transportation, the Federal Aviation 
Administration's Airport Improvement Program provides formula and 
discretionary grants for the planning and development of public-use 
airports. The Recovery Act provides $1.1 billion for discretionary 
Grant-in-Aid for Airports under this program with priority given to 
projects that can be completed within 2 years. The Recovery Act 
requires that the funds must supplement, not supplant, planned 
expenditures from airport-generated revenues or from other state and 
local sources for airport development activities.

Assistance to Rural Law Enforcement to Combat Crime and Drugs Program:

The Recovery Act Assistance to Rural Law Enforcement to Combat Crime 
and Drugs Program is administered by the Bureau of Justice Assistance 
(BJA), a component of the Office of Justice Programs, Department of 
Justice. The purpose of this program is to help rural states and rural 
areas prevent and combat crime, especially drug-related crime, and 
provides for national support efforts, including training and 
technical assistance programs strategically targeted to address rural 
needs. The Recovery Act provides $125 million for this program, and 
BJA has made 212 awards.

Brownfields Program:

The Recovery Act provides $100 million to the Brownfields Program, 
administered by the Office of Solid Waste and Emergency Response 
within the Environmental Protection Agency, for cleanup, 
revitalization, and sustainable reuse of contaminated properties. The 
funds will be awarded to eligible entities through job training, 
assessment, revolving loan fund, and cleanup grants.

Broadband Technology Opportunities Program:

The Broadband Technology Opportunities Program (BTOP), funded by the 
Recovery Act and administered by the Department of Commerce's National 
Telecommunications and Information Administration provides grants to 
increase broadband infrastructure in unserved and underserved areas of 
the country. BTOP grants fund projects for new or improved internet 
facilities in schools, libraries, hospitals, and public safety 
facilities, projects to establish or upgrade public computer 
facilities that provide broadband access to the general public or 
vulnerable populations, and projects that increase broadband internet 
usage among populations where broadband technology has been 
underutilized. Projects may include training and outreach activities 
that will increase broadband activities in people's everyday lives.

Build America Bonds:

Build America Bonds (BAB) administered by the Internal Revenue Service 
within the Department of the Treasury are taxable government bonds 
created by the Recovery Act that can be issued with federal subsidies 
for a portion of the borrowing costs delivered either through 
nonrefundable tax credits provided to holders of the bonds (tax credit 
BAB) or as refundable tax credits paid to state and local governmental 
issuers of the bonds (direct payment BAB). Direct payment BABs are a 
new type of bond that provide state and local government issuers with 
a direct subsidy payment equal to 35 percent of the bond interest they 
pay. Tax credit BABs provide investors with a nonrefundable tax credit 
of 35 percent of the net bond interest payments (excluding the 
credit), which represents a federal subsidy to the state or local 
governmental issuer equal to approximately 25 percent of the total 
return to the investor. State and local governments may issue an 
unlimited number of BABs through December 31, 2010, and all BAB 
proceeds must be used for capital expenditures.

Capital Improvement Program:

The Department of Health and Human Services' Health Resources and 
Services Administration has allocated $862.5 million in Recovery Act 
funds for Capital Improvement Program grants to health centers to 
support the construction, repair, and renovation of more than 1,500 
health center sites nationwide, including purchasing health 
information technology and expanding the use of electronic health 
records.

Child Care and Development Block Grants:

Administered by the Administration for Children and Families within 
the Department of Health and Human Services, Child Care and 
Development Block Grants, one of the funding streams comprising the 
Child Care and Development Fund, are provided to states, according to 
a formula, to assist low-income families in obtaining child care, so 
that parents can work or participate in education or training 
activities. The Recovery Act provides $1.9 billion in supplemental 
funding for these grants.

Clean Cities Program:

The Department of Energy's Clean Cities program, administered by the 
Office of Energy Efficiency and Renewable Energy, is a government- 
industry partnership that works to reduce America's petroleum 
consumption in the transportation sector. The Department of Energy is 
providing nearly $300 million in Recovery Act funds for projects under 
the Clean Cities program, which provide a range of energy-efficient 
and advanced vehicle technologies, such as hybrids, electric vehicles, 
plug-in electric hybrids, hydraulic hybrids, and compressed natural 
gas vehicles, helping reduce petroleum consumption across the United 
States. The program also supports refueling infrastructure for various 
alternative fuel vehicles, as well as public education and training 
initiatives, to further the program's goal of reducing the national 
demand for petroleum.

Clean and Drinking Water State Revolving Funds:

The Recovery Act appropriated $4 billion for the Clean Water State 
Revolving Fund (SRF) programs and $2 billion for the Drinking Water 
SRF programs. These amounts are a significant increase compared to 
federal funds awarded as annual appropriations to the SRF programs in 
recent years. From fiscal years 2000 through 2009, annual 
appropriations averaged about $1.1 billion for the Clean Water SRF 
program and about $833 million for the Drinking Water SRF program. The 
Environmental Protection Agency (EPA) distributed the Recovery Act 
funds to the 50 states, the District of Columbia, and Puerto Rico to 
make loans and grants to subrecipients--local governments and other 
entities awarded Recovery Act funds--for eligible wastewater and 
drinking water infrastructure projects and "nonpoint source" pollution 
projects intended to protect or improve water quality by, for example, 
controlling runoff from city streets and agricultural areas.[Footnote 
210] The Clean Water and Drinking Water SRF programs, established in 
1987 and 1996 respectively, provide states and local communities 
independent and permanent sources of subsidized financial assistance, 
such as low or no-interest loans, for projects that protect or improve 
water quality and that are needed to comply with federal drinking 
water regulations and protect public health.

In addition to providing increased funds, the Recovery Act included 
specific requirements for states beyond those that are part of base 
Clean Water and Drinking Water SRF programs. For example, states were 
required to have all Recovery Act funds awarded to projects under 
contract within 1-year of enactment--which was February 17, 2010 
[Footnote 211]--and EPA was directed to reallocate any funds not under 
contract by that date.[Footnote 212]

Further, states were required to use at least 50 percent of Recovery 
Act funds to provide assistance in the form of principal forgiveness, 
negative interest loans, or grants.[Footnote 213] States were also 
required to use at least 20 percent of funds as a "green reserve" to 
provide assistance for green infrastructure projects, water or energy 
efficiency improvements, or other environmentally innovative activities.

Communities Putting Prevention to Work:

The Recovery Act provides $650 million to carry out evidence-based 
clinical and community-based prevention and wellness strategies 
authorized by the Public Health Service Act that deliver specific, 
measurable health outcomes that address chronic disease rates. In 
response to the act, the Department of Health and Human Services 
launched the Communities Putting Prevention to work initiative on 
September 17, 2009. The goals of the initiative, which is to be 
administered by the Centers for Disease Control and Prevention, are to 
increase levels of physical activity, improve nutrition, decrease 
obesity rates, and decrease smoking prevalence, teen smoking 
initiation, and exposure to second-hand smoke through an emphasis on 
policy and environmental change at both the state and local levels. Of 
the $650 million appropriated for this initiative, approximately $450 
million will support community approaches to chronic disease 
prevention and control; $120 million will support the efforts of 
states and territories to promote wellness, prevent chronic disease, 
and increase tobacco cessation; $32.5 million is allocated for state 
chronic disease self-management programs; and $40 million is allocated 
to establish a National Prevention Media Initiative and a National 
Organizations Initiative to encourage the development of prevention 
and wellness messages and advertisements.

Community Development Block Grants:

The Community Development Block Grant (CDBG) program, administered by 
the Office of Community Planning and Development within the Department 
of Housing and Urban Development, enables state and local governments 
to undertake a wide range of activities intended to create suitable 
living environments, provide affordable housing, and create economic 
opportunities, primarily for persons of low and moderate income. Most 
local governments use this investment to rehabilitate affordable 
housing and improve key public facilities. The Recovery Act includes 
$1 billion for the CDBG.

Community Services Block Grants:

Community Services Block Grants (CSBG), administered by the 
Administration for Children and Families within the Department of 
Health and Human Services, provide federal funds to states, 
territories, and tribes for distribution to local agencies to support 
a wide range of community-based activities to reduce poverty. The 
Recovery Act appropriated $1 billion for CSBG.

Community Oriented Policing Services Hiring Recovery Program:

The Recovery Act provided $1 billion through the Department of 
Justice's (DOJ) Community Oriented Policing Service's (COPS) Hiring 
Recovery Program (CHRP) for competitive grant funding to law 
enforcement agencies to create and preserve jobs and to increase 
community policing capacity and crime-prevention efforts. CHRP grants 
provide 100 percent funding for 3 years to cover approved entry-level 
salaries and benefits for newly-hired, full-time sworn officers, 
including those who were hired to fill positions previously unfunded, 
as well as rehired officers who had been laid off. CHRP funds can also 
be used in the same manner to retain officers who were scheduled to be 
laid off as a result of local budget cuts. There is no local funding 
match requirement for CHRP. When the grant term expires after 3 years, 
grantees must retain all sworn officer positions awarded under the 
CHRP grant for at least 1 additional year.

The DOJ COPS office selected local law enforcement agencies to receive 
funding based on fiscal health factors--such as changes in budgets for 
law enforcement, poverty, unemployment, and foreclosure rates--and 
reported crime and planned community policing activities. DOJ awards 
50 percent of CHRP funds to local law enforcement agencies with 
populations greater than 150,000 and awards the remaining 50 percent 
to local law enforcement agencies with populations of less than 
150,000. Awards were capped at no more than 5 percent of the applicant 
agency's actual sworn force strength (up to a maximum of 50 officers) 
and a minimum of $5 million was allocated to each state or eligible 
territory.

Diesel Emission Reduction Act Grants:

The program objective of the Diesel Emission Reduction Act Grants, 
administered by the Office of Air and Radiation in conjunction with 
the Office of Grants and Debarment, within the U.S. Environmental 
Protection Agency (EPA), is to reduce diesel emissions. EPA will award 
grants to address the emissions of in-use diesel engines by promoting 
a variety of cost-effective emission reduction strategies, including 
switching to cleaner fuels, retrofitting, repowering or replacing 
eligible vehicles and equipment, and idle reduction strategies. The 
Recovery Act appropriated $300 million for the Diesel Emission 
Reduction Act Grants. In addition, the funds appropriated through the 
Recovery Act for the program are not subject to the State Grant and 
Loan Program Matching Incentive provisions of the Energy Policy Act of 
2005.

Education:

Elementary and Secondary Education Act of 1965, Title I, Part A:

The Recovery Act provides $10 billion to help local educational 
agencies (LEA) educate disadvantaged youth by making additional funds 
available beyond those regularly allocated through Title I, Part A of 
the Elementary and Secondary Education Act of 1965 (ESEA), as 
amended.[Footnote 214] These additional funds are distributed through 
states to LEAs using existing federal funding formulas, which target 
funds based on such factors as high concentrations of students from 
families living in poverty. In using the funds, LEAs are required to 
comply with applicable statutory and regulatory requirements and must 
obligate 85 percent of the funds by September 30, 2010.[Footnote 215] 
The Department of Education is advising LEAs to use the funds in ways 
that will build the agencies' long-term capacity to serve 
disadvantaged youth, such as through providing professional 
development to teachers. The Recovery Act also appropriated $3 billion 
for ESEA Title I School Improvement Grants (SIG), which provides funds 
to states for use in ESEA Title I schools identified for improvement 
[Footnote 216] in order to substantially raise the achievement of 
their students.[Footnote 217] These funds are awarded by formula to 
states, which will then make competitive grants to LEAs. State 
applications for the $3 billion in Recovery Act SIG funding, as well 
as an additional $546 million in regular fiscal year 2009 SIG funding, 
were due to the Department of Education on February 28, 2010. SIG 
regulatory requirements effective in February 2010,[Footnote 218] 
prioritize the use of SIG funds in each state's persistently lowest-
achieving Title I schools.[Footnote 219]

To receive funds, states must identify their persistently lowest- 
achieving schools, and an LEA that wishes to receive SIG funds must 
submit an application to its state educational agency (SEA) 
identifying which schools it commits to serve and how it will use 
school improvement funds to implement one of four school intervention 
models: (1) turnaround model, which includes replacing the principal 
and rehiring no more than 50 percent of the school's staff; (2) 
restart model, in which an LEA converts the school or closes and 
reopens it as a charter school or under an education management 
organization; (3) school closure, in which an LEA closes the school 
and enrolls the students who attended the school in other, higher-
achieving schools in the LEA; or (4) the transformation model, which 
addresses four specific areas intended to improve schools.

Individuals with Disabilities Education Act, Parts B and C:

The Recovery Act provided supplemental funding for programs authorized 
by Part B and C of the Individuals with Disabilities Education Act 
(IDEA) as amended, the major federal statute that supports early 
intervention and special education and related services for children 
and youth with disabilities. Part B funds programs that ensure 
preschool and school-age children with disabilities access to a free 
and appropriate public education and is divided into two separate 
grants--Part B grants to states (for school-age children) and Part B 
preschool grants. Part C funds programs that provide early 
intervention and related services for infants and toddlers with 
disabilities--or at risk of developing a disability--and their families.

State Fiscal Stabilization Fund:

The State Fiscal Stabilization Fund (SFSF) included approximately 
$48.6 billion to award to states by formula and up to $5 billion to 
award to states as competitive grants. The Recovery Act created the 
SFSF in part to help state and local governments stabilize their 
budgets by minimizing budgetary cuts in education and other essential 
government services, such as public safety. Stabilization funds for 
education distributed under the Recovery Act must first be used to 
alleviate shortfalls in state support for education to LEAs and public 
institutions of higher education (IHE). States must use 81.8 percent 
of their SFSF formula grant funds to support education (these funds 
are referred to as education stabilization funds) and must use the 
remaining 18.2 percent for public safety and other government 
services, which may include education (these funds are referred to as 
government services funds). The SFSF funds are being provided to 
states in two phases. Phase 1 funds--at least 67 percent of education 
stabilization funds and all government services funds--were provided 
to each state after the Department of Education (Education) approved 
the state's Phase 1 application for funds. Phase 2 funds are being 
awarded to states as Education approves each state's Phase 2 
application. The Phase 1 application required each state to provide 
several assurances, including that the state will meet maintenance-of-
effort requirements (or will be able to comply with the relevant 
waiver provisions); will meet requirements for accountability, 
transparency, reporting, and compliance with certain federal laws and 
regulations; and that it will implement strategies to advance four 
core areas of education reform.[Footnote 220] The Phase 2 application 
requires each state to explain the information the state makes 
available to the public related to the four core areas of education 
reform or provide plans for making information related to the 
education reforms publicly available no later than September 30, 2011. 
States must use education stabilization funds to restore state funding 
to the greater of fiscal year 2008 or 2009 levels for state support to 
LEAs and public IHEs. When distributing these funds to LEAs, states 
must use their primary education funding formula, but they can 
determine how to allocate funds to public IHEs. In general, LEAs 
maintain broad discretion in how they can use education stabilization 
funds, but states have some ability to direct IHEs in how to use these 
funds.

Edward Byrne Memorial Justice Assistance Grant Program:

The Recovery Act provided $2 billion through the Department of 
Justice's (DOJ) Edward Byrne Memorial Justice Assistance Grant (JAG) 
Program for grants to state and local governments for law enforcement 
and criminal justice activities. JAG funds can be used to support a 
range of activities in seven broad program areas: (1) law enforcement; 
(2) prosecution and courts; (3) crime prevention and education; (4) 
corrections; (5) drug treatment and enforcement; (6) program planning, 
evaluation, and technology improvement; and (7) crime victim and 
witness programs. Within these areas, JAG funds can be used for state 
and local initiatives, training, personnel, equipment, supplies, 
contractual support, research, and information systems for criminal 
justice.

Although each state is guaranteed a minimum allocation of JAG funding, 
states and localities therein must apply to DOJ's Bureau of Justice 
Assistance (BJA) to receive their grant awards. BJA applies a 
statutory formula based on population and violent crime statistics to 
determine annual funding levels. After applying the formula, BJA 
distributes each state's allocation in two ways:

* BJA awards 60 percent directly to the state, and the state must in 
turn allocate a formula-based share of these funds--considered a 
"variable pass-through," to its local governments; and:

* BJA awards the remaining 40 percent directly to eligible units of 
local government within the state.

Electronic Baggage Screening Program:

Administered by the Transportation Security Administration (TSA) of 
the Department of Homeland Security, the Electronic Baggage Screening 
Program provides funding to strengthen screening of checked baggage in 
airports. The Recovery Act provided approximately $1 billion to invest 
in the procurement and installation of checked baggage explosives 
detection systems and checkpoint explosives detection equipment. 
According to TSA, it has allocated over $700 million to its Electronic 
Baggage Screening Program for purposes that include facility 
modifications; equipment purchase and installation; and programmatic, 
maintenance, and technological support.

Emergency Food and Shelter Program:

The Emergency Food and Shelter Program (EFSP), which is administered 
by the Federal Emergency Management Agency (FEMA) within the 
Department of Homeland Security, was authorized in July 1987 by the 
Stewart B. McKinney Homeless Assistance Act to provide food, shelter, 
and supportive services to the homeless.[Footnote 221] The program is 
governed by a National Board composed of a representative from FEMA 
and six statutorily designated national nonprofit 
organizations.[Footnote 222] Since its first appropriation in fiscal 
year 1983, EFSP has awarded over $3.4 billion in federal aid to more 
than 12,000 local private, nonprofit and government human service 
entities in more than 2,500 communities nationwide.

Energy Efficiency and Conservation Block Grants:

The Energy Efficiency and Conservation Block Grants (EECBG), 
administered by the Office of Energy Efficiency and Renewable Energy 
within the Department of Energy, provides funds through competitive 
and formula grants to units of local and state government and Indian 
tribes to develop and implement projects to improve energy efficiency 
and reduce energy use and fossil fuel emissions in their communities. 
The Recovery Act includes $3.2 billion for the EECBG. Of that total, 
$400 million is to be awarded on a competitive basis to grant 
applicants.

Green Capacity Building Grants:

Under the Recovery Act, the Green Capacity Building Grants program, 
administered by the Employment and Training Administration within the 
Department of Labor, provides funds to build the green training 
capacity of current Department of Labor (Labor) grantees. Grants will 
help individuals in targeted groups acquire the skills needed to enter 
and advance in green industries and occupations by building the 
capacity of active Labor-funded training programs. Grantees are 
required to give priority to targeted groups, including workers 
impacted by national energy and environmental policy, individuals in 
need of updated training related to energy-efficiency and renewable 
energy industries, veterans, unemployed individuals, and individuals 
with criminal records.

Health Information Technology Extension Program:

The Department of Health and Human Services' Health Information 
Technology Extension Program, administered by the Office of the 
National Coordinator for Health Information Technology, allocated $643 
million to establish 60 Health Information Technology Regional 
Extension Centers (REC) and $50 million to establish a national Health 
Information Technology Research Center (HITRC). The first cycle of 
awards, announced February 12, 2010, provided $375 million to create 
32 RECs, while the second cycle of awards, announced April 6, 2010, 
provided $267 million to establish 28 RECs. RECs offer technical 
assistance, guidance, and information on best practices for the use of 
Electronic Health Records (EHR) to health care providers. The HITRC 
supports RECs' efforts by collecting information on best practices 
from a wide variety of sources across the country and by acting as a 
virtual community for RECs to collaborate with one another and with 
relevant stakeholders to identify and share best practices for the use 
of EHRs. The goal of the RECs and HITRC is to enable nationwide health 
information exchange through the adoption and meaningful use of secure 
EHRs.

Head Start/Early Head Start:

The Head Start program, administered by the Office of Head Start of 
the Administration for Children and Families within the Department of 
Health and Human Services, provides comprehensive early childhood 
development services to low-income children, including educational, 
health, nutritional, social, and other services, intended to promote 
the school readiness of low-income children. Federal Head Start funds 
are provided directly to local grantees, rather than through states. 
The Recovery Act provided an additional $2.1 billion in funding for 
Head Start and Early Head Start programs. The Early Head Start program 
provides family-centered services to low-income families with very 
young children designed to promote the development of the children, 
and to enable their parents to fulfill their roles as parents and to 
move toward self-sufficiency.

High-Speed Intercity Passenger Rail Program:

The High-Speed Intercity Passenger Rail Program (HSIPR) is 
administered by the Federal Railroad Administration, within the 
Department of Transportation (DOT). The purpose of the HSIPR Program 
is to build an efficient, high-speed passenger rail network connecting 
major population centers 100 to 600 miles apart. In the near-term, the 
program will aid in economic recovery efforts and lay the foundation 
for this high-speed passenger rail network through targeted 
investments in existing intercity passenger rail infrastructure, 
equipment, and intermodal connections. In addition to the $8 billion 
provided in the Recovery Act, the HSIPR Program also included 
approximately $92 million in fiscal year 2009 and remaining fiscal 
year 2008 funds appropriated under the existing State Grant Program 
(formally titled, Capital Assistance to States--Intercity Passenger 
Rail Service). The fiscal year 2010 DOT appropriation included $2.5 
billion for high speed rail and intercity passenger rail projects.

Homelessness Prevention and Rapid Re-Housing Program:

The Homelessness Prevention and Rapid Re-Housing Program, administered 
by the Office of Community Planning and Development within the 
Department of Housing and Urban Development, awards formula grants to 
states and localities to prevent homelessness and procure shelter for 
those who have become homeless. Funding for this program is being 
distributed based on the formula used for the Emergency Shelter Grants 
program. According to the Recovery Act, program funds should be used 
for short-term or medium-term rental assistance; housing relocation 
and stabilization services, including housing search, mediation or 
outreach to property owners, credit repair, security or utility 
deposits, utility payments, and rental assistance for management; or 
appropriate activities for homeless prevention and rapid re-housing of 
persons who have become homeless. The Recovery Act includes $1.5 
billion for this program.

Highway Infrastructure Investment Program:

The Recovery Act provides funding to states for restoration, repair, 
and construction of highways and other activities allowed under the 
Federal Highway Administration's Federal-Aid Highway Surface 
Transportation Program and for other eligible surface transportation 
projects. The Recovery Act requires that 30 percent of these funds be 
suballocated, primarily based on population, for metropolitan, 
regional, and local use. Highway funds are apportioned to states 
through federal-aid highway program mechanisms, and states must follow 
existing program requirements. While the maximum federal fund share of 
highway infrastructure investment projects under the existing federal- 
aid highway program is generally 80 percent, under the Recovery Act, 
it is 100 percent.

Funds appropriated for highway infrastructure spending must be used in 
accordance with Recovery Act requirements. States were given a 1-year 
deadline (March 2, 2010) to ensure that all apportioned Recovery Act 
funds--including suballocated funds--were obligated.[Footnote 223] The 
Secretary of Transportation was to withdraw and redistribute to 
eligible states any amount that was not obligated by that time. 
[Footnote 224] Additionally, the governor of each state was required 
to certify that the state would maintain its level of spending for the 
types of transportation projects funded by the Recovery Act it planned 
to spend the day the Recovery Act was enacted. As part of this 
certification, the governor of each state was required to identify the 
amount of funds the state planned to expend from state sources from 
February 17, 2009, through September 30, 2010.[Footnote 225]

On March 2, 2009, the Federal Highway Administration apportioned 
$799.8 million in Recovery Act funds to states for its Transportation 
Enhancement program. States may use program funds for qualifying 
surface transportation activities, such as constructing or 
rehabilitating off-road shared use paths for bicycles and pedestrians; 
conducting landscaping and other beautification projects along 
highways, streets, and waterfronts; and rehabilitating and operating 
historic transportation facilities such as historic railroad 
depots.[Footnote 226] The Recovery Act requires that 3 percent of 
Highway Infrastructure Investment funds provided to states must be 
used for Transportation Enhancement activities. Additionally, states 
may decide to use additional Recovery Act Transportation Enhancement 
funds, beyond the 3 percent requirement, for qualifying activities 
such as those mentioned above. States determine the share of federal 
funds used for qualifying Transportation Enhancement projects up to 
100 percent of the projects' costs.

Increased Demand for Services:

The Department of Health and Human Services' Health Resources and 
Services Administration (HRSA) has allocated Recovery Act funds for 
Increased Demand for Services (IDS) grants to health centers to 
increase health center staffing, extend hours of operations, and 
expand existing services. The Recovery Act provided $500 million for 
health center operations. HRSA has allocated $343 million for IDS 
grants to health centers.[Footnote 227]

Internet Crimes Against Children Initiatives:

Internet Crimes Against Children Initiatives (ICAC), administered by 
the Department of Justice, Office of Justice Programs' Office of 
Juvenile Justice and Delinquency Prevention, seeks to maintain and 
expand state and regional ICAC task forces to address technology- 
facilitated child exploitation. This program provides funding to 
states and localities for salaries and employment costs of law 
enforcement officers, prosecutors, forensic analysts, and other 
related professionals. The Recovery Act appropriated $50 million for 
ICAC.

Lead-Based Paint Hazard Control Grants and Lead Hazard Reduction 
Demonstration Grant Program:

The Recovery Act provided approximately $78 million to the Lead-Based 
Paint Hazard Control Grant Program through the Department of Housing 
and Urban Development to assist states and localities in undertaking 
programs to identify and control lead-based paint hazards in eligible 
privately owned housing for rental or owner-occupants. Funds will be 
used to perform lead-based paint inspections, soil and paint-chip 
testing, risk assessments, and other activities that are in support of 
lead hazard abatement work. An additional $2.6 million was provided 
for the Lead Hazard Reduction Demonstration Grant Program which will 
assist urban areas with the greatest lead paint abatement needs to 
identify and control lead-based paint hazards in eligible privately 
owned single-family housing units and multifamily buildings occupied 
by low-income families.

Local Energy Assurance Planning Initiative:

The Recovery Act provided funding to support Local Energy Assurance 
Planning (LEAP) Initiatives to help communities prepare for energy 
emergencies and disruptions. The Department of Energy will award funds 
to cities and towns to develop or expand local energy assurance plans 
that will improve electricity reliability and energy security in their 
communities. LEAP aims to facilitate recovery from disruptions to the 
energy supply and enhance reliability and quicker repairs following 
energy supply disruptions.

Medicaid 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 Centers for 
Medicare and Medicaid Services, within the Department of Health and 
Human Services, approves state Medicaid plans, and the amount of 
federal assistance states receive for Medicaid service expenditures is 
determined by the Federal Medical Assistance Percentage (FMAP). The 
Recovery Act's temporary increase in FMAP funding will provide all 50 
states and the District with approximately $87 billion in assistance. 
Federal legislation was recently enacted amending the Recovery Act to 
provide for an extension of increased FMAP funding through June 30, 
2011, but at a lower level.

National Clean Diesel Funding Assistance Projects:

The Recovery Act provided $156 million in new funding to the National 
Clean Diesel Funding Assistance Program to support the implementation 
of verified and certified diesel emission reduction technologies. The 
competitive grant program funded projects that would achieve 
significant reductions in diesel emissions, especially from fleets 
operating in areas designated as having poor air quality. This is one 
of the Recovery Act-funded National Clean Diesel Campaign programs 
which have the goal to accelerate emission reductions from older 
diesel engines to provide air quality benefits and improve public 
health.

National Endowment for the Arts Recovery Act Grants:

The Recovery Act provides $50 million to be distributed in direct 
grants by the National Endowment for the Arts to fund arts projects 
and activities that preserve jobs in the nonprofit arts sector 
threatened by declines in philanthropic and other support during the 
current economic downturn.

Neighborhood Stabilization Program 2:

The Neighborhood Stabilization Program (NSP), administered by the 
Office of Community Planning and Development within the Department of 
Housing and Urban Development, provides assistance for the 
redevelopment of abandoned and foreclosed homes and residential 
properties in order that such properties may be returned to productive 
use or made available for redevelopment purposes. The $2 billion in 
NSP2 funds appropriated in the Recovery Act are competitively awarded 
to states, local governments, and nonprofit organizations.[Footnote 
228] NSP is considered to be a component of the Community Development 
Block Grant (CDBG) program and basic CDBG requirements govern NSP.

Port Security Grant Program:

The Port Security Grant Program (PSGP) provides grant funding to port 
areas for the protection of critical port infrastructure from 
terrorism. The Recovery Act provides $150 million in stimulus funding 
for the PSGP administered by the Federal Emergency Management Agency 
(FEMA), an agency of the Department of Homeland Security. PSGP funds 
are primarily intended to assist ports in enhancing maritime domain 
awareness, enhancing risk management capabilities to prevent, detect, 
respond to, and recover from attacks involving improvised explosive 
devices, weapons of mass destruction and other nonconventional 
weapons, as well as training and exercises and Transportation Worker 
Identification Credential implementation. Ports compete for funds and 
priority is given to cost-effective projects that can be executed 
expeditiously and have a significant and near-term impact on risk 
mitigation.

Public Housing Capital Fund:

The Public Housing Capital Fund provides formula-based grant funds 
directly to public housing agencies to improve the physical condition 
of their properties; to develop, finance, and modernize public housing 
developments; and to improve management. Under the Recovery Act, the 
Office of Public and Indian Housing within the Department of Housing 
and Urban Development (HUD) allocated nearly $3 billion through the 
Public Housing Capital Fund to public housing agencies using the same 
formula for amounts made available in fiscal year 2008 and obligated 
these funds to housing agencies in March 2009.

HUD was also required to award nearly $1 billion to public housing 
agencies based on competition for priority investments, including 
investments that leverage private sector funding or financing for 
renovations and energy conservation retrofitting. In September 2009, 
HUD awarded competitive grants for the creation of energy-efficient 
communities, gap financing for projects stalled due to financing 
issues, public housing transformation, and improvements addressing the 
needs of the elderly or persons with disabilities.

Public Transportation Program:

The Recovery Act appropriated $8.4 billion to fund public transit 
throughout the country through existing Federal Transit Administration 
(FTA) grant programs, including the Transit Capital Assistance 
Program, and the Fixed Guideway Infrastructure Investment Program. 
Under the Transit Capital Assistance Program's formula grant program, 
Recovery Act funds were apportioned to large and medium urbanized 
areas--which in some cases include a metropolitan area that spans 
multiple states--throughout the country according to existing program 
formulas. Recovery Act funds were also apportioned to states for small 
urbanized areas and nonurbanized areas under the Transit Capital 
Assistance Program's formula grant programs using the program's 
existing formula. Transit Capital Assistance Program funds may be used 
for such activities as vehicle replacements, facilities renovation or 
construction, preventive maintenance, and paratransit services. 
Recovery Act funds from the Fixed Guideway Infrastructure Investment 
Program[Footnote 229] were apportioned by formula directly to 
qualifying urbanized areas, and funds may be used for any capital 
projects to maintain, modernize, or improve fixed guideway systems. 
[Footnote 230] As they work through the state and regional 
transportation planning process, designated recipients of the 
apportioned funds--typically public transit agencies and metropolitan 
planning organizations--develop a list of transit projects that 
project sponsors (typically transit agencies) submit to FTA for 
approval.[Footnote 231]

Funds appropriated for the Transit Capital Assistance Program and the 
Fixed Guideway Infrastructure Investment Program must be used in 
accordance with Recovery Act requirements. States were given a 1-year 
deadline (March 5, 2010) to ensure that all apportioned Recovery Act 
funds were obligated.[Footnote 232] The Secretary of Transportation 
was to withdraw and redistribute to each state or urbanized area any 
amount that was not obligated within these time frames.[Footnote 233] 
Additionally, the governor of each state was required to certify that 
the state would maintain its level of spending for the types of 
transportation projects funded by the Recovery Act it planned to spend 
the day the Recovery Act was enacted. As part of this certification, 
the governor of each state was required to identify the amount of 
funds the state planned to expend from state sources from February 17, 
2009, through September 30, 2010.[Footnote 234]

The Transit Investments for Greenhouse Gas and Energy Reduction 
(TIGGER) Grant program, administered by FTA within the Department of 
Transportation, is a discretionary program to support transit capital 
projects that result in greenhouse gas reductions or reduced energy 
use. The Recovery Act provides $100 million for the TIGGER program, 
and each submitted proposal must request a minimum of $2 million.

Race to the Top Fund:

The Recovery Act includes up to $5 billion for the Race to the Top 
Fund, administered by the Office of Elementary and Secondary Education 
within the Department of Education (Education). According to 
Education, awards in Race to the Top will go to states that are 
leading the way with ambitious yet achievable plans for implementing 
coherent, compelling, and comprehensive educational reform. Through 
Race to the Top, Education asks states to advance reforms in four 
specific areas: adopting standards and assessments that prepare 
students to succeed in college and the workplace and to compete in the 
global economy; building data systems that measure student growth and 
success, and inform teachers and principals about how they can improve 
instruction; recruiting, developing, rewarding, and retaining 
effective teachers and principals, especially where they are needed 
most; and turning around our lowest-achieving schools.

Recovery Act Assistance to Firefighters Fire Station Construction 
Grants:

The Recovery Act Assistance to Firefighters Fire Station Construction 
Grants, also known as fire grants or the FIRE Act grant program, is 
administered by the Department of Homeland Security, Federal Emergency 
Management Agency, Assistance to Firefighters Program Office. The 
program provides federal grants directly to fire departments on a 
competitive basis to build or modify existing nonfederal fire stations 
in order for departments to enhance their response capability and 
protect the communities they serve from fire and fire-related hazards. 
The Recovery Act includes $210 million for this program and provides 
that no grant shall exceed $15 million.

Recovery Act Impact on Child Support Incentives:

The Child Support Enforcement (CSE) Program (Title IV-D of the Social 
Security Act) is a joint federal-state program administered by the 
Administration for Children and Families (ACF), within the Department 
of Health and Human Services. The program provides federal matching 
funds to states to carry out their child support enforcement programs, 
which enhance the well-being of children by, among other things, 
establishing paternity, establishing child support orders, and 
collecting child support. Furthermore, ACF makes additional incentive 
payments to states based in part on their child support enforcement 
programs meeting certain performance goals. States must reinvest their 
incentive fund payments into the CSE program or an activity to improve 
the CSE program; however, incentive funds reinvested in the CSE 
program are not eligible for federal matching funds. Funds for the 
federal matching payments and incentive payments are appropriated 
annually, and the Recovery Act does not appropriate funds for either 
of them. However, the Recovery Act temporarily provides for incentive 
payments expended by states for child support enforcement to count as 
state funds eligible for the federal match. This change is effective 
October 1, 2008, through September 30, 2010.

Recovery Zone Bonds:

Recovery Zone Bonds are administered by the Internal Revenue Service 
within the Department of the Treasury and come in two types: Recovery 
Zone Economic Development Bonds (RZEDB) and Recovery Zone Facility 
Bonds. RZEDB are a type of direct payment Build America Bond (BAB), 
created under the Recovery Act. Direct payment BABs allow issuers the 
option of receiving a federal payment instead of allowing a federal 
tax exemption on the interest payments. RZEDBs provide a 45 percent 
credit instead of a 35 percent credit like other types of BABs and 
must meet certain requirements. RZEDBs are targeted to economically 
distressed areas meeting certain criteria and are to be used for 
qualified forms of economic development. Recovery Zone Facility Bonds 
are exempt facility bonds which may be used to finance certain 
designated recovery zone property. The Recovery Act authorized up to 
$10 billion for RZEDBs and up to $15 billion for Recovery Zone 
Facility Bonds to be allocated to states, the District of Columbia, 
and territories, based to the their employment declines in 2008.

Renewable and Distributed Systems Integration:

The Renewable and Distributed Systems Integration (RDSI) program, 
administered by the Office of Electricity Delivery and Energy 
Reliability within the Department of Energy (DOE), focuses on 
integrating renewable and distributed energy technologies into the 
electric distribution and transmission system. In April 2008, DOE 
announced plans to invest up to $50 million over 5 years (fiscal years 
2008 to 2012) in nine projects aimed at demonstrating the use of RDSI 
technologies to reduce peak load electricity demand by at least 15 
percent at distribution feeders--the power lines delivering 
electricity to consumers. The program goal is to reduce peak load 
electricity demand by 20 percent at distribution feeders by 2015.

Retrofit Ramp-Up Program:

The Recovery Act's Retrofit Ramp-Up program will provide funding to 
projects to "ramp-up" energy efficiency building retrofits. The 
program will target community-scale retrofit projects that make 
significant, long-term impacts on energy use and can serve as national 
role models for energy-efficiency efforts. These programs should 
result in retrofits that lead to significant efficiency improvements 
to a large number of buildings in communities or neighborhoods. The 
retrofits must reduce the total monthly operating costs of the 
buildings including any repayments of loans. The Retrofit Ramp-Up 
projects are the competitive portion of DOE's Energy Efficiency and 
Conservation Block Grant Program and are part of the Recovery Act 
investment in clean energy and energy efficiency.

Senior Community Service Employment Program:

The Senior Community Service Employment Program (SCSEP), administered 
by the Employment and Training Administration within the Department of 
Labor, is a community service and work-based training program which 
serves low-income persons who are 55 years or older and have poor 
employment prospects by placing them in part-time community service 
positions and by assisting them to transition to unsubsidized 
employment. The Recovery Act provides $120 million for SCSEP.

Senior Nutrition Programs:

The Recovery Act provides $100 million to the Senior Nutrition 
Programs, administered by the Administration on Aging (AoA) within the 
Department of Health and Human Services. AoA distributed funds to 56 
States and Territories and 246 tribes and Native Hawaiian 
organizations to fund three programs at senior centers and other 
community sites. The Recovery act awarded $65 million for congregate 
nutrition services provided at senior centers and other community 
sites, $32 million for home-delivered nutrition services delivered to 
elders at home, and $3 million for Native American nutrition programs. 
The Congregate Nutrition Services and Home-delivered Nutrition 
Services programs specifically targets vulnerable seniors, such as low-
income minorities and those residing in rural areas, and aims to help 
elderly individuals avoid hospitalization and nursing home placement 
by maintaining their health through meals. The Nutrition Services for 
Native Americans provides congregate and home-delivered meals and 
related nutrition services to American Indian, Alaskan Native, and 
Native Hawaiian elders.

Services*Training*Officers*Prosecutors Violence Against Women Formula 
Grants Program:

Under the Services*Training*Officers*Prosecutors (STOP) Violence 
Against Women Formula Grants Program, the Office on Violence Against 
Women within the Department of Justice, has awarded over $139 million 
in Recovery Act funds to promote a coordinated, multidisciplinary 
approach to enhance services and advocacy to victims, improve the 
criminal justice system's response, and promote effective law 
enforcement, prosecution, and judicial strategies to address domestic 
violence, dating violence, sexual assault, and stalking.

Smart Grid Investment Grant Program:

Under the Recovery Act, states will receive $3.4 billion to deploy and 
integrate advanced digital technology to modernize the electric 
delivery network through the Smart Grid Investment Grant Program, 
administered by the Office of Electricity Delivery and Energy 
Reliability within the Department of Energy. The program funds a broad 
range of projects aimed at applying smart grid technologies to 
existing electric system equipment, consumer products and appliances, 
meters, electric distribution and transmission systems, and homes, 
offices, and industrial facilities.

Staffing for Adequate Fire and Emergency Response:

The Staffing for Adequate Fire and Emergency Response (SAFER) grants 
program, administered by the Federal Emergency Management Agency 
within the Department of Homeland Security, was created to provide 
funding directly to volunteer, combination, and career fire 
departments[Footnote 235] to help them increase staffing and enhance 
their emergency deployment capabilities. The goal of SAFER is to 
ensure departments have an adequate number of trained, frontline 
active firefighters capable of safely responding to and protecting 
their communities from fire and fire-related hazards. SAFER provides 2-
year grants to fire departments to pay the salaries of newly hired 
firefighters or to rehire recently laid-off firefighters. Fire 
departments using SAFER funding to hire new fire fighters commit to 
retaining the SAFER-funded firefighters for 1 full year after the 2- 
year grant has been expended. The retention commitment does not extend 
to previously laid-off firefighters who have been rehired. In 
addition, volunteer and combination firefighter departments are 
eligible to apply for SAFER funding to pay for activities related to 
the recruitment and retention of volunteer firefighters.:

State Broadband Data and Development Program:

The Recovery Act appropriated $7.2 billion to extend access to 
broadband throughout the United States. Of the $7.2 billion, $4.7 
billion was appropriated to the Department of Commerce's National 
Telecommunications and Information Administration (NTIA) and $2.5 
billion to the Department of Agriculture's Rural Utilities Service. Of 
the $4.7 billion, up to $350 million was available pursuant to the 
Broadband Data Improvement Act (BDIA) for the purpose of developing 
and maintaining a nationwide map featuring the availability of 
broadband service. BDIA directs the Secretary of Commerce to establish 
the State Broadband Data and Development Grant Program and to award 
grants to eligible entities to develop and implement statewide 
initiatives to identify and track the adoption and availability of 
broadband services within each state. To accomplish the joint purposes 
of the Recovery Act and BDIA, NTIA has developed the State Broadband 
Data and Development projects that collect comprehensive and accurate 
state-level broadband mapping data, develop state-level broadband 
maps, aid in the development and maintenance of a national broadband 
map, and fund statewide initiatives directed at broadband planning.

State Energy Program:

Under the Recovery Act, states will receive $3.1 billion for energy 
projects through the State Energy Program (SEP), administered by the 
Office of Energy Efficiency and Renewable Energy within the Department 
of Energy (DOE). States should prioritize the grants toward funding 
energy-efficiency and renewable energy programs, including expanding 
existing energy-efficiency programs, renewable energy projects, and 
joint activities between states. The SEP's 20 percent cost match is 
not required for grants made with Recovery Act funds. DOE estimates 
that SEP funding will have an annual costs savings of $256 million.

State Health Information Exchange Cooperative Agreement Program:

Under the Department of Health and Human Services' State Health 
Information Exchange (HIE) Cooperative Agreement Program, $564 million 
has been allocated to support states' efforts to develop the capacity 
among health care providers and hospitals in their jurisdiction to 
exchange health information across health care systems through the 
meaningful use of Electronic Health Records (EHR). The meaningful use 
of EHRs aims to improve the quality and efficiency of patient care. In 
order to ensure secure and effective use of HIE technology within and 
across state borders, grant recipients are expected to use their 
authority and resources to implement HIE privacy and security 
requirements, coordinate with Medicaid and state public health 
programs in using HIE technology, and enable interoperability through 
the creation of state-level directories and technical services and the 
removal of barriers. The state HIE program uses a cooperative 
agreement, or partnership between the grant recipient and the federal 
government, to administer the awards (when the federal government has 
a substantial stake in the outcomes or operation of the program). The 
state HIE cooperative agreements are 4-year agreements and recipients 
will be required to match grant awards beginning in the second year of 
the award, 2011.

Statewide Longitudinal Data Systems:

The Statewide Longitudinal Data Systems grant program, administered by 
the Department of Education's Institute of Education Sciences, awards 
competitive grants to state educational agencies for the design, 
development, and implementation of statewide longitudinal data 
systems. These systems are intended to enhance the ability of states 
to efficiently and accurately manage, analyze, and use education data, 
including individual student records, while protecting student 
privacy. The first grants were awarded to 14 states in November 2005; 
12 states and the District of Columbia were awarded grants in 2007, 
and 27 states were awarded grants in 2009. The Recovery Act 
appropriated $250 million for this program.

Supplemental Nutrition Assistance Program (formerly the Food Stamp 
Program):

The Supplemental Nutrition Assistance Program (SNAP), administered by 
the Food and Nutrition Service within the Department of Agriculture, 
serves more than 35 million people nationwide each month. SNAP's goal, 
in part, is to help raise the level of nutrition and alleviate the 
hunger of low-income households. The Recovery Act provides for a 
monthly increase in benefits for the program's recipients. The 
increases in benefits under the Recovery Act are estimated to total 
$20 billion over the next 5 years.

Tax Credit Assistance Program (TCAP) and Section 1602 Program:

The Tax Credit Assistance Program administered by the Department of 
Housing and Urban Development (HUD) provides gap financing to be used 
by state Housing Finance Agencies (HFA) in the form of grants or loans 
for capital investment in low-income housing tax credits (LIHTC) 
projects through a formula-based allocation to HFAs.

HUD obligated $2.25 billion in TCAP funds to HFAs. The HFAs were to 
award the funds competitively according to their qualified allocation 
plans, which explain selection criteria and application requirements 
for housing tax credits (as determined by the states and in accordance 
with Section 42 of the Internal Revenue Code). Projects that were 
awarded low-income housing tax credits in fiscal years 2007, 2008, or 
2009 were eligible for TCAP funding, but HFAs had to give priority to 
projects that were "shovel-ready" and expected to be completed by 
February 2012. Also, TCAP projects had to include some low-income tax 
credits and equity investment. HFAs must commit 75 percent of their 
TCAP awards by February 2010 and disburse 75 percent by February 2011. 
Project owners must spend all of their TCAP funds by February 2012. 
HUD can recapture TCAP funds from any HFA whose projects do not comply 
with TCAP requirements. In these cases, HFAs are responsible for 
recapturing funds from project owners. Furthermore, because TCAP funds 
are federal financial assistance, they are subject to certain federal 
requirements, such as Davis-Bacon and the National Environmental 
Policy Act (NEPA). These acts, respectively, require that projects 
receiving federal funds pay prevailing wages and meet federal 
environmental requirements.

The Section 1602 Program allows HFAs to exchange returned and unused 
tax credits for a payment from Treasury at the rate of 85 cents for 
every tax credit dollar. HFAs can exchange up to 100 percent of unused 
2008 credits and 40 percent of their 2009 allocation. HFAs may award 
Section 1602 Program funds to finance the construction or acquisition 
and rehabilitation of qualified low-income buildings in accordance 
with the HFA's Qualified Allocation Plan, which establishes criteria 
for selecting LIHTC projects. Section 1602 Program funds may be 
committed to project owners that have not sold their LIHTC allocation 
to private investors, as long as the project owner has made good faith 
efforts to find an investor. However, some HFAs have required Section 
1602 Program projects to include some tax credit equity from private 
investors. Section 1602 Program funds are subject to the same 
requirements as the standard LIHTC program, and like TCAP funds, may 
be recaptured if a project does not comply with the requirements. HFAs 
may submit applications to Treasury for Section 1602 Program funds 
through 2010. The last day for HFAs to commit funds to project owners 
is December 31, 2010, but they can continue to disburse funds for 
committed projects through December 31, 2011, provided that the 
project owners paid or incurred at least 30 percent of eligible 
project costs by the end of 2010. Congress appropriated 'such sums as 
may be necessary' for the operation of the Section 1602 Program. The 
Joint Committee on Taxation originally estimated the budget impact of 
this program at $3 billion. As of the end of April 2010, however, 
Treasury had obligated more than $5 billion to HFAs in Section 1602 
Program funds. Section 1602 Program funds are not considered by 
Treasury to be federal financial assistance and, therefore, the 
Section 1602 Program is not subject to many of the requirements placed 
on TCAP.

Title IV-E Adoption Assistance and Foster Care Programs:

Administered by the Administration for Children and Families within 
the Department of Health and Human Services, the Foster Care Program 
helps states to provide safe and stable out-of-home care for children 
until the children are safely returned home, placed permanently with 
adoptive families, or placed in other planned arrangements for 
permanency. The Adoption Assistance Program provides funds to states 
to facilitate the timely placement of children, whose special needs or 
circumstances would otherwise make placement difficult, with adoptive 
families. Federal Title IV-E funds are paid to reimburse states for 
their maintenance payments using the states' respective Federal 
Medical Assistance Percentage (FMAP) rates. The Recovery Act 
temporarily increased the FMAP rate effective October 1, 2008, through 
December 31, 2010, resulting in an estimated additional $806 million 
that will be provided to states for the Adoption Assistance and Foster 
Care Programs.

Transportation Investment Generating Economic Recovery Discretionary 
Grants:

Administered by the Department of Transportation's Office of the 
Secretary, the Recovery Act provides $1.5 billion in competitive 
grants, generally between $20 million and $300 million, to state and 
local governments and transit agencies. These grants are for capital 
investments in surface transportation infrastructure projects that 
will have a significant impact on the nation, a metropolitan area, or 
a region. Projects eligible for funding provided under this program 
include, but are not limited to, highway or bridge projects, public 
transportation projects, passenger and freight rail transportation 
projects, and port infrastructure investments.

Water and Waste Disposal Loan and Grant Program:

The Water and Environmental Programs administered by the Department of 
Agriculture's Rural Development, provides loans, grants, and loan 
guarantees for drinking water, sanitary sewer, solid waste, and storm 
drainage facilities in rural areas and cities and towns of 10,000 or 
less. The Recovery Act provided nearly $3.3 billion in Rural Water and 
Waste Disposal funding for these programs.

Water Quality Management Planning Grants:

The Environmental Protection Agency (EPA) awarded $39.3 million in 
Recovery Act funding for Water Quality Management Planning Grants to 
assist states in water quality management planning. Funds are used to 
determine the nature and extent of point and nonpoint source water 
pollution and to develop water quality management plans. Funded 
activities also include green infrastructure planning and integrated 
water resources planning. The fund is administered by the Office of 
Water, EPA.

Weatherization Assistance Program:

The Recovery Act appropriated $5 billion for the Weatherization 
Assistance Program, which the Department of Energy (DOE) is 
distributing to each of the states, the District of Columbia, and 
seven territories and Indian tribes, to be spent by March 31, 2012. 
The program, administered by the Office of Energy Efficiency and 
Renewable Energy within DOE, enables low-income families to reduce 
their utility bills by making long-term energy-efficiency improvements 
to their homes by, for example, installing insulation; sealing leaks; 
and modernizing heating equipment, air circulation fans, and air 
conditioning equipment. Over the past 33 years, the Weatherization 
Assistance Program has assisted more than 6.2 million low-income 
families. By reducing the energy bills of low-income families, the 
program allows these households to spend their money on other needs, 
according to DOE. The Recovery Act appropriation represents a 
significant increase for a program that has received about $225 
million per year in recent years. DOE has approved the weatherization 
plans of the 16 states and the District of Columbia that are in our 
review and has provided at least half of the funds to those areas.

Wildland Fire Management Program:

The Department of Agriculture's Forest Service administers the 
Wildland Fire Management Program funding for projects on federal, 
state, and private land. The goals of these projects include ecosystem 
restoration, research, and rehabilitation; forest health and invasive 
species protection; and hazardous fuels reduction. The Recovery Act 
provided $500 million for the Wildland Fire Management program.

Workforce Investment Act of 1998 Title I-B Grants:

The Workforce Investment Act of 1998 (WIA) Youth, Adult, and 
Dislocated Worker Programs, administered by the Employment and 
Training Administration within the Department of Labor (Labor), 
provide job training and related services to unemployed and 
underemployed individuals. The Recovery Act provides an additional 
$2.95 billion in funding for Youth, Adult, and Dislocated Worker 
employment and training activities under Title I-B of WIA. These funds 
are allotted to states, which in turn allocate funds to local entities 
pursuant to formulas set out in WIA. The adult program provides 
training and related services to individuals ages 18 and older, the 
youth program provides training and related services to low-income 
youth ages 14 to 21, and dislocated worker funds provide training and 
related services to individuals who have been laid off or notified 
that they will be laid off.:

Recovery Act funds can be used for all activities allowed under WIA, 
including core services, such as job search and placement assistance; 
intensive services, such as skill assessment and career counseling; 
and training services, including occupational skills training, on-the-
job training, registered apprenticeship, and customized training. For 
the youth program, Labor encouraged states and local areas to use as 
much of these funds as possible to expand summer youth employment 
opportunities. In addition, Labor advised states that training for 
adults and dislocated workers should be a significant focus for 
Recovery Act funds, and encouraged states to establish policies to 
make supportive services and needs-related payments available for 
individuals who need these services to participate in job training. To 
facilitate increased training for high-demand occupations, the 
Recovery Act expanded the methods for providing training under WIA and 
allowed local workforce boards to directly enter into contracts with 
institutions of higher education and other training providers, if the 
local board determines that it would facilitate the training of 
multiple individuals and the contract does not limit customer choice.

[End of section]

Appendix IV: Entities Visited by GAO in Selected States and the 
District of Columbia:

Table 15: Education Entities Visited by GAO:

States and the District of Columbia: California; 

City/county: Elk Grove; 
Entity: Elk Grove Unified School District.

City/county: Mountain View; 
Entity: Mountain View-Whisman School District.

City/county: Moreno Valley; 
Entity: Moreno Valley Unified School District.

City/county: San Bernardino; 
Entity: San Bernardino City Unified School District.

City/county: Los Angeles; 
Entity: Los Angeles Unified School District.

City/county: Stockton; 
Entity: Stockton Unified School District.

City/county: Sacramento; 
Entity: Sacramento City Unified School District.

States and the District of Columbia: District of Columbia; 

City/county: Washington; 
Entity: District of Columbia Public Schools.

City/county: Washington; 
Entity: Center City Public Charter School.

City/county: Washington; 
Entity: Friendship Public Charter School.

States and the District of Columbia: Iowa; 

City/county: Des Moines; 
Entity: Des Moines Independent Community School District.

City/county: Marshalltown; 
Entity: Marshalltown Community School District.

States and the District of Columbia: Massachusetts; 

City/county: Boston; 
Entity: Boston Public Schools.

City/county: Boston; 
Entity: Massachusetts Dept. of Elementary and Secondary Education.

City/county: Revere; 
Entity: Revere Public Schools.

States and the District of Columbia: Michigan; 

City/county: Detroit; 
Entity: Detroit Public Schools.

City/county: Detroit; 
Entity: Plymouth Educational Center.

City/county: Kingston; 
Entity: Kingston Community School District.

States and the District of Columbia: New York; 

City/county: Syracuse; 
Entity: Syracuse City School District.

Source: GAO.

Note: Total education entities visited by GAO is 19. 

[End of table] 

Table 16: Head Start Entities Visited by GAO:

States and the District of Columbia: Georgia; 

City/county: Athens; 
Entity: Clarke County School District.

City/county: Columbus; 
Entity: Enrichment Services Program, Inc. 

States and the District of Columbia: Florida; 

City/county: Miami; 
Entity: Miami-Dade County Community Action Agency.

City/county: Sarasota; 
Entity: Children First, Inc. 

States and the District of Columbia: North Carolina; 

City/county: Greensboro; 
Entity: Guilford Child Development.

City/county: Smithfield; 
Entity: Johnston-Lee-Harnett Community Action Agency, Inc. 

States and the District of Columbia: Ohio; 

City/county: Columbus; 
Entity: Child Development Council of Franklin County.

City/county: Dayton; 
Entity: Miami Valley Child Development Centers.

City/county: Circleville/Pickaway County; 
Entity: Pickaway County Community Action Organization.

[End of table]

Note: Total head start entities visited by GAO is 9. 

Source: GAO. 

Table 17: Transit Entities Visited by GAO:

States and the District of Columbia: Massachusetts; 
City/county: Boston; 
Entity: Massachusetts Bay Transportation Authority.

States and the District of Columbia: Michigan; 
City/county: Lansing; 
Entity: Michigan Department of Transportation.

[End of table]

Note: Total transit entities visited by GAO is 2. 

Source: GAO. 

Table 18: State Energy Program Entities Visited by GAO:

States and the District of Columbia: Arizona; 

City/county: Phoenix; 
Entity: Energy Office, Arizona Department of Commerce.

States and the District of Columbia: California; 

City/county: Sacramento; 
Entity: California Energy Commission.

States and the District of Columbia: District of Columbia; 

City/county: Washington; 
Entity: District Department of the Environment.

States and the District of Columbia: Iowa; 

City/county: Des Moines; 
Entity: Iowa Office of Energy Independence.

City/county: West Des Moines; 
Entity: Sun Prairie/Vista Court Apartments.

City/county: Ankeny; 
Entity: Iowa Association of Municipal Utilities.

States and the District of Columbia: New York; 

City/county: Albany; 
Entity: New York State Energy Research and Development Authority 
(NYSERDA).

States and the District of Columbia: Pennsylvania; 

City/county: Carlisle; 
Entity: Carlisle Area School District.

City/county: Harrisburg; 
Entity: Department of Environmental Protection.

[End of table]

Note: Total State Energy Program entities visited by GAO is 9. 

Source: GAO. 

Table 19: Energy Efficiency Conservation Block Grant Entities Visited 
by GAO:

States and the District of Columbia: Arizona; 

City/county: Phoenix; 
Entity: City of Phoenix.

City/county: Phoenix; 
Entity: Energy Office, Arizona Department of Commerce.

City/county: Casa Grande; 
Entity: City of Casa Grande.

States and the District of Columbia: California; 

City/county: Sacramento County; 
Entity: Sacramento County.

City/county: Redding; 
Entity: City of Redding.

City/county: San Jose; 
Entity: City of San Jose.

States and the District of Columbia: Colorado; 

City/county: Colorado Springs; 
Entity: City of Colorado Springs.

City/county: Weld County; 
Entity: Weld County.

States and the District of Columbia: District of Columbia; 

City/county: Washington; 
Entity: District Department of the Environment.

States and the District of Columbia: Florida; 

City/county: Tampa; 
Entity: City of Tampa.

City/county: Jacksonville; 
Entity: City of Jacksonville.

City/county: Miami; 
Entity: City of Miami.

City/county: Miami-Dade County; 
Entity: Miami-Dade County.

States and the District of Columbia: Georgia; 

City/county: Columbus/Muscogee County; 
Entity: Columbus Consolidated Government.

City/county: Cobb County; 
Entity: Cobb County.

City/county: Warner Robins; 
Entity: City of Warner Robins.

States and the District of Columbia: Iowa; 

City/county: Des Moines; 
Entity: Iowa Office of Energy Independence.

City/county: Iowa city; 
Entity: City of Iowa City.

City/county: Warren County; 
Entity: County of Warren.

City/county: Ankeny; 
Entity: Des Moines Area Community College in Ankeny, Iowa.

States and the District of Columbia: Massachusetts; 

City/county: Boston; 
Entity: City of Boston.

City/county: Everett; 
Entity: City of Everett.

States and the District of Columbia: Michigan; 

City/county: City of Farmington Hills; 
Entity: Suburb.

City/county: Kent County; 
Entity: Kent County.

City/county: Lansing; 
Entity: Michigan Department of Energy, Labor & Economic Growth, Bureau 
of Energy Systems.

States and the District of Columbia: Mississippi; 

City/county: Tupelo; 
Entity: City of Tupelo.

States and the District of Columbia: New Jersey; 

City/county: Newark; 
Entity: State of New Jersey Board of Public Utilities.

City/county: Morris County; 
Entity: County of Morris.

City/county: Jersey City; 
Entity: City of Jersey city.

City/county: Woodbridge Township; 
Entity: Woodbridge Township.

States and the District of Columbia: New York; 

City/county: Albany; 
Entity: New York State Energy Research and Development.

City/county: Orange County; 
Entity: Orange County.

City/county: Town of Brookhaven; 
Entity: Town of Brookhaven.

States and the District of Columbia: Pennsylvania; 

City/county: Lancaster; 
Entity: Thaddeus Stevens College of Technology.

City/county: Philadelphia; 
Entity: City of Philadelphia.

City/county: Berks County; 
Entity: County of Berks.

City/county: Harrisburg; 
Entity: Department of Environmental Protection.

States and the District of Columbia: Texas; 

City/county: Austin; 
Entity: City of Austin.

City/county: Round Rock; 
Entity: Round Rock.

City/county: Bryan; 
Entity: City of Bryan.

City/county: Austin; 
Entity: State Energy Conservation Office (SECO).

Source: GAO.

Note: Total Energy Efficiency Conservation Block Grant entities 
visited by GAO is 41. 

[End of table] 

Table 20: Weatherization Entities Visited by GAO:

States and the District of Columbia: Arizona; 

City/county: Phoenix; 
Entity: Arizona Department of Commerce.

City/county: Apache, Coconino, Navajo, and Yavapai Counties; 
Entity: Northern Arizona Council of Governments.

City/county: Tucson and South Tucson; 
Entity: Tucson Urban League.

States and the District of Columbia: California; 

City/county: Roseville; 
Entity: Project GO, Inc. 

City/county: Santa Fe Springs; 
Entity: Maravilla Foundation.

City/county: Fountain Valley; 
Entity: Community Action Partnership of Orange County.

City/county: Redding; 
Entity: Self Help Home Improvement Project.

City/county: Sacramento; 
Entity: California Department of Community Services and Development.

States and the District of Columbia: District of Columbia; 

City/county: Washington; 
Entity: District Department of the Environment.

City/county: Washington; 
Entity: United Planning Organization.

City/county: Washington; 
Entity: African Heritage Dancers and Drummers.

City/county: Washington; 
Entity: Prosperity Media Enterprise.

States and the District of Columbia: Florida; 

City/county: Miami-Dade; 
Entity: Miami-Dade County Community Action Agency.

City/county: Tampa/Hillsborough; 
Entity: Tampa-Hillsborough Action Plan.

States and the District of Columbia: Iowa; 

City/county: Des Moines; 
Entity: Division of Community Action Agencies, Iowa Department of 
Human Rights.

City/county: Des Moines; 
Entity: Polk County Public Works Department.

City/county: Ottumwa; 
Entity: Southern Iowa Economic Development Association.

States and the District of Columbia: Pennsylvania; 

City/county: York County; 
Entity: York County Planning Commission.

Source: GAO.

Note: Total weatherization entities visited by GAO is 18. 

[End of table] 

Table 21: Housing Entities Visited by GAO:

States and the District of Columbia: Arizona; 

City/county: Flagstaff; 
Entity: Housing Authority of the City of Flagstaff.

City/county: Phoenix; 
Entity: City of Phoenix Housing Department.

City/county: South Tucson; 
Entity: South Tucson Housing Authority.

City/county: Phoenix; 
Entity: Department of Housing and Urban Development Phoenix Field 
Office.

States and the District of Columbia: California; 

City/county: San Francisco; 
Entity: San Francisco Housing Authority.

City/county: San Francisco; 
Entity: U.S. Department of Housing and Urban Development, San 
Francisco Regional Office.

States and the District of Columbia: Georgia; 

City/county: Athens; 
Entity: Housing Authority of the City of Athens.

City/county: Macon; 
Entity: Housing Authority of the City of Macon.

City/county: Atlanta; 
Entity: Housing Authority of the City of Atlanta.

States and the District of Columbia: Illinois; 

City/county: Chicago; 
Entity: Chicago Housing Authority.

City/county: Chicago; 
Entity: U.S. Department of Housing and Urban Development, Chicago 
Regional Office.

States and the District of Columbia: Iowa; 

City/county: Des Moines; 
Entity: City of Des Moines Municipal Housing Agency.

States and the District of Columbia: Massachusetts; 

City/county: Boston; 
Entity: Boston Housing Authority; 
U.S. Department of Housing and Urban Development, Boston Regional 
Office.

States and the District of Columbia: Mississippi; 

City/county: Picayune; 
Entity: Picayune Housing Authority.

City/county: Gulfport; 
Entity: Mississippi Regional Housing Authority No. VIII.

City/county: Meridian; 
Entity: Meridian Housing Authority.

City/county: Jackson; 
Entity: U.S. Department of Housing and Urban Development, Jackson 
Field Office.

States and the District of Columbia: New Jersey; 

City/county: Newark; 
Entity: Newark Housing Authority.

States and the District of Columbia: Pennsylvania; 

City/county: Philadelphia; 
Entity: Philadelphia Housing Authority.

City/county: Harrisburg; 
Entity: Harrisburg Housing Authority.

City/county: Philadelphia; 
Entity: Department of Housing and Urban Development Philadelphia Office.

States and the District of Columbia: Texas; 

City/county: San Antonio; 
Entity: San Antonio Housing Authority.

City/county: San Antonio; 
Entity: U.S. Department of Housing and Urban Development, San Antonio 
Field Office, Region VI, Office of Public Housing.

City/county: Fort Worth; 
Entity: U.S. Department of Housing and Urban Development, Fort Worth 
Regional Office, Region VI, Office of Public Housing.

Source: GAO.

Note: Total housing entities visited by GAO is 24. 

[End of table] 

Table 22: Tax Credit Assistance Program and Section 1602 Program 
Entities Visited by GAO:

States and the District of Columbia: Florida; 

City/county: Winter Haven; 
Entity: Cypress Cove.

City/county: Lakeland; 
Entity: Bonnett Shores.

States and the District of Columbia: Georgia; 

City/county: Dublin; 
Entity: Riverview Heights.

City/county: Sandersville; 
Entity: Camellia Lane L.P. 

States and the District of Columbia: Mississippi; 

City/county: Jackson; 
Entity: Mississippi Home Corporation.

City/county: Pickens; 
Entity: Caffey Apartments.

City/county: Pascagoula; 
Entity: Bayside Village.

States and the District of Columbia: Ohio; 

City/county: Coshocton; 
Entity: Kno-Ho-Co Ashland Community Action Commission.

City/county: Dayton; 
Entity: Oberer Residential Construction.

City/county: Columbus; 
Entity: Buckeye Community Hope Foundation.

City/county: Columbus; 
Entity: Ohio Capital Corporation for Housing (OCCH).

City/county: Columbus; 
Entity: Ohio Housing Finance Agency.

City/county: Knox County; 
Entity: Heart of Ohio Homes.

City/county: Knox County; 
Entity: Mount Vernon Senior Village.

City/county: Montgomery County; 
Entity: East End Twin Towers Crossing.

States and the District of Columbia: Pennsylvania; 

City/county: Stewartstown; 
Entity: Hopewell Courtyard.

City/county: City of Allentown; 
Entity: Greystone Apartments.

City/county: Northumberland; 
Entity: Cannery Point.

City/county: Philadelphia; 
Entity: Presser Senior Apartments.

City/county: Philadelphia; 
Entity: Mantua Square.

City/county: Harrisburg; 
Entity: Pennsylvania Housing Finance Agency.

Source: GAO.

Note: Total Tax Credit Assistance Program and Section 1602 Program 
entities visited by GAO is 21. 

[End of table] 

Table 23: Local Government Entities Visited by GAO:

States: Arizona; 
Local government: Phoenix; 
Type of local government: City; 
Population: 1,601,587; 
Unemployment Rate: 10.3.

States: California; 
Local government: Redding; 
Type of local government: City; 
Population: 90,521; 
Unemployment Rate: 13.4.

States: California; 
Local government: San Jose; 
Type of local government: City; 
Population: 964,695; 
Unemployment Rate: 12.5.

States: Colorado; 
Local government: Colorado Springs; 
Type of local government: City; 
Population: 399,827; 
Unemployment Rate: 8.9.

States: Colorado; 
Local government: Weld; 
Type of local government: County; 
Population: 254,759; 
Unemployment Rate: 9.6.

States: Florida; 
Local government: Miami-Dade; 
Type of local government: County; 
Population: 2,500,625; 
Unemployment Rate: 12.8.

States: Georgia; 
Local government: Columbus Consolidated Government; 
Type of local government: Consolidated city/county; 
Population: 190,414; 
Unemployment Rate: 9.7.

States: Georgia; 
Local government: The Unified Government of Athens-Clarke County; 
Type of local government: Consolidated city/county; 
Population: 116,342; 
Unemployment Rate: 8.3.

States: Illinois; 
Local government: Chrisman; 
Type of local government: City; 
Population: 1,219; 
Unemployment Rate: 10.5.

States: Illinois; 
Local government: Steward; 
Type of local government: Village; 
Population: 258; 
Unemployment Rate: 11.1.

States: Iowa; 
Local government: Des Moines; 
Type of local government: City; 
Population: 198,460; 
Unemployment Rate: 7.4.

States: Iowa; 
Local government: Marshalltown; 
Type of local government: City; 
Population: 25,645; 
Unemployment Rate: 7.5.

States: Massachusetts; 
Local government: Boston; 
Type of local government: City; 
Population: 645,169; 
Unemployment Rate: 9.0.

States: Michigan; 
Local government: Farmington Hills; 
Type of local government: City; 
Population: 78,675; 
Unemployment Rate: 11.0.

States: Mississippi; 
Local government: Tupelo; 
Type of local government: City; 
Population: 36,336; 
Unemployment Rate: 12.3.

States: New Jersey; 
Local government: Jersey City; 
Type of local government: City; 
Population: 242,503; 
Unemployment Rate: 11.5.

States: New York; 
Local government: Brookhaven; 
Type of local government: Town; 
Population: 490,416; 
Unemployment Rate: 6.9.

States: New York; 
Local government: Steuben; 
Type of local government: County; 
Population: 96,552; 
Unemployment Rate: 9.0.

States: North Carolina; 
Local government: Wilmington; 
Type of local government: City; 
Population: 101,350; 
Unemployment Rate: 8.6.

States: Ohio; 
Local government: Cincinnati; 
Type of local government: City; 
Population: 333,013; 
Unemployment Rate: 10.6.

States: Pennsylvania; 
Local government: Berks; 
Type of local government: County; 
Population: 407,125; 
Unemployment Rate: 9.8.

States: Pennsylvania; 
Local government: Philadelphia; 
Type of local government: City; 
Population: 1,547,297; 
Unemployment Rate: 11.9.

States: Texas; 
Local government: Austin; 
Type of local government: City; 
Population: 786,382; 
Unemployment Rate: 6.9.

States: Texas; 
Local government: Round Rock; 
Type of local government: City; 
Population: 105,412; 
Unemployment Rate: 6.7.

Source: U.S. Census Bureau and U.S. Department of Labor, Bureau of 
Labor Statistics (BLS), Local Area Unemployment Statistics (LAUS) data.

Notes: Population data are from the latest available estimate, July 1, 
2009. Unemployment rates are preliminary estimates for June 2010 and 
have not been seasonally adjusted. Rates are a percentage of the labor 
force. Estimates are subject to revisions.

Total local government entities visited by GAO is 24.

Total entities visited is 167. 

[End of table] 

[End of section]

Appendix V: 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: Barbara D. 
Bovbjerg, Managing Director of Education, Workforce, and Income 
Security, (202) 512-7215 or bovbjergb@gao.gov:

For issues related to Medicaid programs: Dr. Marjorie Kanof, Managing 
Director of Health Care, (202) 512-7114 or kanofm@gao.gov:

For issues related to highways, transit, and other transportation 
programs: Katherine A. Siggerud, Managing Director of Physical 
Infrastructure, (202) 512-2834 or siggerudk@gao.gov:

For issues related to State Energy Program (SEP), Energy Efficiency 
and Conservation Block Grant (EECBG), and weatherization: Patricia 
Dalton, Managing Director of Natural Resources and Environment, (202) 
512-3841 or daltonp@gao.gov:

For issues related to public housing, Tax Credit Assistance Program 
(TCAP), and Section 1602 Program: Richard J. Hillman, Managing 
Director of Financial Markets and Community Investment, (202) 512-9073 
or hillmanr@gao.gov:

For issues related to internal controls and Single Audits: Jeanette 
Franzel, Managing Director of Financial Management and Assurance, 
(202) 512-2600 or franzelj@gao.gov:

For issues related to contracting and procurement: Paul Francis, 
Managing Director of Acquisition and Sourcing Management, (202) 512- 
4841 or francisp@gao.gov:

For issues related to fraud, waste, and abuse: Gregory D. Kutz, 
Managing Director of Forensic Audits and Special Investigations, (202) 
512-6722 or kutzg@gao.gov:

Staff Acknowledgments:

The following staff contributed to this report: Stanley Czerwinski, 
Denise Fantone, Susan Irving, and Yvonne Jones, (Directors); Thomas 
James, and Michelle Sager, (Assistant Directors); Sandra Beattie 
(Analyst-in-Charge); and Marie Ahearn, David Alexander, Judith 
Ambrose, Peter Anderson, Thomas Beall, Noah Bleicher, Jessica 
Botsford, Anthony Bova, Richard Cambosos, Ralph Campbell Jr., Virginia 
Chanley, Tina Cheng, Andrew Ching, Marcus Corbin, Robert Cramer, Fran 
Davison, Michael Derr, Helen Desaulniers, Ruth "Eli" DeVan, Alexandra 
Dew, David Dornisch, Kevin Dooley, Abe Dymond, Holly Dye, Janet 
Eackloff, Lorraine Ettaro, James Fuquay, Alice Feldesman, Alexander 
Galuten, Ellen Grady, Anita Hamilton, Geoffrey Hamilton, Tracy Harris, 
Kristine Hassinger, Lauren Heft, David Hooper, Bert Japikse, Mitchell 
Karpman, Karen Keegan, John Krump, Jon Kucskar, Hannah Laufe, Jean K. 
Lee, Natalie Maddox, Stephanie May, Sarah M. McGrath, John Mc Grail, 
Jean McSween, Donna Miller, Kevin Milne, Marc Molino, Mimi Nguyen, Ken 
Patton, Anthony Pordes, Brenda Rabinowitz, Carl Ramirez, James Rebbe, 
Beverly Ross, Sylvia Schatz, Sidney Schwartz, Don Springman, Andrew J. 
Stephens, Esther Toledo, Alyssa Weir, Crystal Wesco, Craig Winslow, 
Elizabeth Wood, William T. Woods, and Kimberly Young.

Program Contributors:

Federal Medical Assistance Percentage (FMAP): 
Susan Anthony, Laura Brogan, Ted Burik, Julianne Flowers, Martha 
Kelly, Zachary Levinson, and Carolyn Yocom.

Education--SFSF, ESEA Title I, and IDEA: 
Jaime Allentuck, James Ashley, Cornelia M. Ashby, Edward Bodine, 
Jessica Botsford, Amy Buck, Karen Febey, Alex Galuten, Mark Glickman, 
Bryon Gordon, Sonya Harmeyer, Ying Long, Jean McSween, Elizabeth 
Morrison, Luann Moy, Karen O'Conor, Mimi Nguyen, Kathy Peyman, James 
M. Rebbe, Crystal Robinson, Scott Spicer, Michelle Verbrugge, Charles 
Willson, and Sarah Wood.

Federal-Aid Highway Surface Transportation and Transit Capital 
Assistance Programs: 
Aisha Cabrer, Steve Cohen, Philip Herr, Joah Iannotta, Les Locke, Lisa 
Shibata, Raymond Sendejas, and David Wise.

State Energy Program (SEP) and Energy Efficiency Conservation Block 
Grant (EECBG): 
Nicholas Weeks, Kristen Massey, Jessica Bryant-Bertail, Mark Gaffigan, 
Kim Gianopoulos, and Stuart Ryba.

Public Housing Capital Fund: 
Rebecca Rose, Aimee Elivert, May Lee, John McGrail, Marc Molino, Deena 
Richart, Paul Schmidt, Barb Roesmann, and Mathew Scire.

Tax Credit Assistance Program (TCAP) and Section 1602 Program: 
Jennifer Alpha, Heather Chartier, Swetha Doraiswamy, Andrew Finkel, 
John McGrail, Marc Molino, Roberto Piñero, Carl Ramirez, Barbara 
Roesmann, and Mathew Scire. 

Weatherization: 
Jessica Bryant-Bertail, Mark Gaffigan, Kim Gianopoulos, Stuart Ryba, 
and Jason Trentacoste, and Stephanie Gaines.

Recipient reporting: 
Yvonne Jones, Judith Kordahl, Carol Patey, Patricia Norris, Steve 
Punto, and Jon Stehle.

Safeguarding/Single Audit: 
Phyllis Anderson, Marcia Buchanan, Eric Holbrook, Jason Kelly, Maria 
Morton, Laura Pacheco, Susan Ragland, Sandra Silzer, and Glenn Slocum.

State and local budget: 
Sandra Beattie, Anthony Bova, Stanley J. Czerwinski, Michelle Sager, 
and Esther Toledo.

Contributors to the Selected States and the District:

The names of GAO staff contributing to the selected states and the 
District are as follows:

Arizona: 
Karyn Angulo, Rebecca Bolnick, Tom Brew, Lisa Brownson, Steven Calvo, 
Eileen Larence, Roy Judy, Radha Seshagiri, and Jeff Schmerling.

California: 
Linda Calbom, Emily Eischen, Guillermo Gonzalez, Richard Griswold, 
Susan Lawless, Gail Luna, Heather MacLeod, Emmy Rhine, Eddie Uyekawa, 
and Lacy Vong.

Colorado: 
Paul Begnaud, Kathy Hale, Kay Harnish-Ladd, Susan Iott, Jennifer 
Leone, Brian Lepore, Robin Nazzaro, Tony Padilla, Leslie Pollock, 
Kathleen Richardson, and Dawn Shorey.

District of Columbia: 
Laurel Beedon, Labony Chakraborty, Sunny Chang, Nagla'a El-Hodiri, 
Mattias Fenton, Nicole Harris, Adam Hoffman, William O. Jenkins, Jr., 
and Leyla Kazaz.

Florida: 
Michael Armes, Susan Aschoff, Patrick di Battista, Sabur Ibrahim, 
Kevin Kumanga, Frank Minore, Maria Morton, Daniel Ramsey, Brenda Ross, 
Andy Sherrill, Bernard Ungar, Margaret Weber, and James Whitcomb.

Georgia: 
Alicia Puente Cackley, Waylon Catrett, Chase Cook, Marc Molino, Daniel 
Newman, John H. Pendleton, Nadine Garrick Raidbard, Barbara Roesmann, 
Paige Smith, and David Shoemaker.

Illinois: 
Silvia Arbelaez-Ellis, Josh Bartzen, Dean Campbell, James Cosgrove, 
Cory Marzullo, Paul Schmidt, Roberta Rickey, and Rosemary Torres Lerma.

Iowa: 
Richard Cheston, Thomas Cook, Daniel Egan, Christine Kehr, Ronald 
Maxon, Mark Ryan, Raymond Smith, Jr., Lisa Shames, and Carol 
Herrnstadt Shulman.

Massachusetts: 
Stanley J. Czerwinski, Laurie Ekstrand, Anthony Bova, Nancy J. 
Donovan, Kathleen M. Drennan, Anna M. Kelley, David Lin, Keith C. 
O'Brien, Kathryn O'Dea, Carol Patey, and Robert Yetvin.

Michigan: 
Ranya Elias, Patrick Frey, Henry Malone, Giao N. Nguyen, Robert Owens, 
Laura Pacheco, Susan Ragland, Tejdev Sandhu, Regina Santucci, and Amy 
Sweet.

Mississippi: 
James Elgas, Barbara Haynes, John K. Needham, Norman J. Rabkin, 
William C. Allbritton, James Kim, Gary Shepard, and Erin Stockdale.

New Jersey: 
Gene Aloise, Kisha Clark, Anne Doré, Diana Glod, Alexander Lawrence 
Jr., Nancy Lueke, Tarunkant Mithani, and David Wise.

New York: 
Christopher Farrell, Susan Fleming, Kendall Helm, Dave Maurer, Tiffany 
Mostert, Summer Pachman, Frank Putallaz, and Ronald Stouffer.

North Carolina: 
Laura G. Acosta, Cornelia M. Ashby, Sandra Baxter, Sarah Jane Brady, 
Bonnie Derby, Bryon Gordon, Sara S. Kelly, Tahra Nichols, Anthony 
Patterson, Paula Rascona, and Connie W. Sawyer.

Ohio: 
Debra Cottrell, Matthew Drerup, Bill J. Keller, Jeffrey G. Miller, 
Tranchau Nguyen, George A. Scott, Brian Smith, David C. Trimble, and 
Myra Watts-Butler.

Pennsylvania: 
Eleanor Cambridge, Mark Gaffigan, John Healey, Phillip Herr, Richard 
Mayfield, Jodi M. Prosser, Matthew Rosenberg, MaryLynn Sergent, and 
Stephen Ulrich.

Texas: 
Fredrick D. Berry, Danny Burton, K. Eric Essig, Erinn Flanagan, 
Michael O'Neill, Gloria Proa, Bob Robinson, and Lorelei St. James.

[End of table] 

[End of section] 

Related GAO Products:

Recovery Act: Further Opportunities Exist to Strengthen Oversight of 
Broadband Stimulus Programs. [hyperlink, 
http://www.gao.gov/products/GAO-10-823]. Washington, D.C.: August 4, 
2010.

Recovery Act: States Could Provide More Information on Education 
Programs to Enhance the Public's Understanding of Fund Use. 
[hyperlink, http://www.gao.gov/products/GAO-10-807]. Washington, D.C.: 
July 30, 2010.

Recovery Act: Most DOE Cleanup Projects Appear to Be Meeting Cost and 
Schedule Targets, but Assessing Impact of Spending Remains a 
Challenge. [hyperlink, http://www.gao.gov/products/GAO-10-784]. 
Washington, D.C.: July 29, 2010.

Recovery Act: Contracting Approaches and Oversight Used by Selected 
Federal Agencies and States. [hyperlink, 
http://www.gao.gov/products/GAO-10-809]. Washington, D.C.: July 15, 
2010.

GAO Review of LEA Controls over and Uses of Recovery Act Education 
Funds (Avery County Schools). [hyperlink, 
http://www.gao.gov/products/GAO-10-746R]. Washington, D.C.: July 9, 
2010.

GAO Review of LEA Controls over and Uses of Recovery Act Education 
Funds (Winston-Salem/Forsyth County Schools). [hyperlink, 
http://www.gao.gov/products/GAO-10-747R]. Washington, D.C.: July 9, 
2010.

Independent Oversight of Recovery Act Funding for Mississippi's 
Weatherization Assistance Program. [hyperlink, 
http://www.gao.gov/products/GAO-10-796R]. Washington, D.C.: June 30, 
2010.

High Speed Rail: Learning From Service Start-ups, Prospects for 
Increased Industry Investment, and Federal Oversight Plans. 
[hyperlink, http://www.gao.gov/products/GAO-10-625]. Washington, D.C.: 
June 17, 2010.

Federal Energy Management: GSA's Recovery Act Program Is on Track, but 
Opportunities Exist to Improve Transparency, Performance Criteria, and 
Risk Management. [hyperlink, http://www.gao.gov/products/GAO-10-630]. 
Washington, D.C.: June 16, 2010.

GAO Proactive Testing of ARRA Tax Credits for COBRA Premium Payments. 
[hyperlink, http://www.gao.gov/products/GAO-10-804R]. Washington, 
D.C.: June 14, 2010.

Temporary Assistance for Needy Families: Implications of Recent 
Legislative and Economic Changes for State Programs and Work 
Participation Rates. [hyperlink, 
http://www.gao.gov/products/GAO-10-525]. Washington, D.C.: May 28, 2010.

Recovery Act: Increasing the Public's Understanding of What Funds Are 
Being Spent on and What Outcomes Are Expected. [hyperlink, 
http://www.gao.gov/products/GAO-10-581]. Washington, D.C.: May 27, 2010.

Recovery Act: Clean Water Projects Are Underway, but Procedures May 
Not Be in Place to Ensure Adequate Oversight. [hyperlink, 
http://www.gao.gov/products/GAO-10-761T]. Washington, D.C.: May 26, 
2010.

Recovery Act: States' and Localities' Uses of Funds and Actions Needed 
to Address Implementation Challenges and Bolster Accountability. 
[hyperlink, http://www.gao.gov/products/GAO-10-604]. Washington, D.C.: 
May 26, 2010.

Recovery Act: States' and Localities' Uses of Funds and Actions Needed 
to Address Implementation Challenges and Bolster Accountability 
(Appendixes). [hyperlink, http://www.gao.gov/products/GAO-10-605SP]. 
Washington, D.C.: May, 26, 2010.

Head Start: Undercover Testing Finds Fraud and Abuse at Selected Head 
Start Centers. [hyperlink, http://www.gao.gov/products/GAO-10-733T]. 
Washington, D.C.: May 18, 2010.

Health Coverage Tax Credit: Participation and Administrative Costs. 
[hyperlink, http://www.gao.gov/products/GAO-10-521R]. Washington, 
D.C.: April 30, 2010.

2010 Census: Plans for Census Coverage Measurement Are on Track, but 
Additional Steps Will Improve Its Usefulness. [hyperlink, 
http://www.gao.gov/products/GAO-10-324]. Washington, D.C.: April 23, 
2010.

Energy Star Program: Covert Testing Shows the Energy Star Program 
Certification Process Is Vulnerable to Fraud and Abuse. [hyperlink, 
http://www.gao.gov/products/GAO-10-470]. Washington, D.C.: March 5, 
2010.

Recovery Act: California's Use of Funds and Efforts to Ensure 
Accountability. [hyperlink, http://www.gao.gov/products/GAO-10-467T]. 
Washington, D.C.: March 5, 2010.

Recovery Act: Factors Affecting the Department of Energy's Program 
Implementation. [hyperlink, http://www.gao.gov/products/GAO-10-497T]. 
Washington, D.C.: March 4, 2010.

Recovery Act: One Year Later, States' and Localities' Uses of Funds 
and Opportunities to Strengthen Accountability. [hyperlink, 
http://www.gao.gov/products/GAO-10-437]. Washington, D.C.: March 3, 
2010.

State and Local Governments' Fiscal Outlook March 2010 Update. 
[hyperlink, http://www.gao.gov/products/GAO-10-358]. Washington, D.C.: 
March 2, 2010.

Recovery Act: Officials' Views Vary on Impacts of Davis-Bacon Act 
Prevailing Wage Provision. [hyperlink, 
http://www.gao.gov/products/GAO-10-421]. Washington, D.C.: February 
24, 2010.

Electronic Personal Health Information Exchange: Health Care Entities' 
Reported Disclosure Practices and Effects on Quality of Care. 
[hyperlink, http://www.gao.gov/products/GAO-10-361]. Washington, D.C.: 
February 17, 2010.

Recovery Act: Project Selection and Starts Are Influenced by Certain 
Federal Requirements and Other Factors. [hyperlink, 
http://www.gao.gov/products/GAO-10-383]. Washington, D.C.: February 
10, 2010:

Recovery Act: IRS Quickly Implemented Tax Provisions, but Reporting 
and Enforcement Improvements Are Needed. [hyperlink, 
http://www.gao.gov/products/GAO-10-349]. Washington, D.C.: February 
10, 2010.

Status of the Small Business Administration's Implementation of 
Administrative Provisions in the American Recovery and Reinvestment 
Act of 2009. [hyperlink, http://www.gao.gov/products/GAO-10-298R]. 
Washington, D.C.: January 19, 2010.

Recovery Act: States' Use of Highway and Transit Funds and Efforts to 
Meet the Act's Requirements. [hyperlink, 
http://www.gao.gov/products/GAO-10-312T]. Washington, D.C.: December 
10, 2009.

Recovery Act: Status of States' and Localities' Use of Funds and 
Efforts to Ensure Accountability. [hyperlink, 
http://www.gao.gov/products/GAO-10-231]. Washington, D.C.: December 
10, 2009.

Recovery Act: Status of States' and Localities' Use of Funds and 
Efforts to Ensure Accountability (Appendixes). [hyperlink, 
http://www.gao.gov/products/GAO-10-232SP]. Washington, D.C.: December 
10, 2009.

Recovery Act: Planned Efforts and Challenges in Evaluating Compliance 
with Maintenance of Effort and Similar Provisions. [hyperlink, 
http://www.gao.gov/products/GAO-10-247]. Washington, D.C.: November 
30, 2009.

Recovery Act: Contract Oversight Activities of the Recovery 
Accountability and Transparency Board and Observations on Contract 
Spending in Selected States. [hyperlink, 
http://www.gao.gov/products/GAO-10-216R]. Washington, D.C.: November 
30, 2009.

Recovery Act: Recipient Reported Jobs Data Provide Some Insight into 
Use of Recovery Act Funding, but Data Quality and Reporting Issues 
Need Attention. [hyperlink, http://www.gao.gov/products/GAO-10-223]. 
Washington, D.C.: November 19, 2009.

Recovery Act: Recipient Reported Jobs Data Provide Some Insight into 
Use of Recovery Act Funding, but Data Quality and Reporting Issues 
Need Attention. [hyperlink, http://www.gao.gov/products/GAO-10-224T]. 
Washington, D.C.: November 19, 2009.

Recovery Act: Agencies Are Addressing Broadband Program Challenges, 
but Actions Are Needed to Improve Implementation. [hyperlink, 
http://www.gao.gov/products/GAO-10-80]. Washington, D.C.: November 16, 
2009.

Recovery Act: Preliminary Observations on the Implementation of 
Broadband Programs. [hyperlink, 
http://www.gao.gov/products/GAO-10-192T]. Washington, D.C.: October 
27, 2009.

First-Time Homebuyer Tax Credit: Taxpayers' Use of the Credit and 
Implementation and Compliance Challenges. [hyperlink, 
http://www.gao.gov/products/GAO-10-166T]. Washington, D.C.: October 
22, 2009.

Federal Energy Management: Agencies Are Taking Steps to Meet High- 
Performance Federal Building Requirements, but Face Challenges. 
[hyperlink, http://www.gao.gov/products/GAO-10-22]. Washington, D.C.: 
October 30, 2009.

High Speed Passenger Rail: Developing Viable High Speed Rail Projects 
under the Recovery Act and Beyond. [hyperlink, 
http://www.gao.gov/products/GAO-10-162T]. Washington, D.C.: October 
14, 2009.

Tax Administration: Opportunities Exist for IRS to Enhance Taxpayer 
Service and Enforcement for the 2010 Filing Season. [hyperlink, 
http://www.gao.gov/products/GAO-09-1026]. Washington, D.C.: September 
23, 2009.

Recovery Act: Funds Continue to Provide Fiscal Relief to States and 
Localities, While Accountability and Reporting Challenges Need to Be 
Fully Addressed. [hyperlink, http://www.gao.gov/products/GAO-09-1016]. 
Washington, D.C.: September 23, 2009.

Recovery Act: Funds Continue to Provide Fiscal Relief to States and 
Localities, While Accountability and Reporting Challenges Need to Be 
Fully Addressed (Appendixes). [hyperlink, 
http://www.gao.gov/products/GAO-09-1017SP]. Washington, D.C.: 
September 23, 2009.

Recovery Act: States' and Localities' Current and Planned Uses of 
Funds While Facing Fiscal Stresses. [hyperlink, 
http://www.gao.gov/products/GAO-09-908T]. Washington, D.C.: September 
10, 2009.

Recovery Act: States' Use of Highway Infrastructure Funds and 
Compliance with the Act's Requirements. [hyperlink, 
http://www.gao.gov/products/GAO-09-926T]. Washington, D.C.: July 31, 
2009.

Unemployment Insurance Measures Included in the American Recovery and 
Reinvestment Act of 2009, as of July 2009. [hyperlink, 
http://www.gao.gov/products/GAO-09-942R]. Washington, D.C.: July 27, 
2009.

Grants Management: Grants.gov Has Systematic Weaknesses That Require 
Attention. [hyperlink, http://www.gao.gov/products/GAO-09-589]. 
Washington, D.C.: July 15, 2009.

Recovery Act: States' and Localities' Current and Planned Uses of 
Funds While Facing Fiscal Stresses. [hyperlink, 
http://www.gao.gov/products/GAO-09-829]. Washington, D.C.: July 8, 2009.

Recovery Act: States' and Localities' Current and Planned Uses of 
Funds While Facing Fiscal Stresses. [hyperlink, 
http://www.gao.gov/products/GAO-09-831T]. Washington, D.C.: July 8, 
2009.

Recovery Act: States' and Localities' Current and Planned Uses of 
Funds While Facing Fiscal Stresses (Appendixes). [hyperlink, 
http://www.gao.gov/products/GAO-09-830SP]. Washington, D.C.: July 8, 
2009.

Recovery Act: The Department of Transportation Followed Key Federal 
Requirements in Developing Selection Criteria for Its Supplemental 
Discretionary Grants Program. [hyperlink, 
http://www.gao.gov/products/GAO-09-785R]. Washington, D.C.: June 30, 
2009.

High Speed Passenger Rail: Effectively Using Recovery Act Funds for 
High Speed Rail Projects. [hyperlink, 
http://www.gao.gov/products/GAO-09-786T]. Washington, D.C.: June 23, 
2009.

Recovery Act: GAO's Efforts to Work with the Accountability Community 
to Help Ensure Effective and Efficient Oversight. [hyperlink, 
http://www.gao.gov/products/GAO-09-672T]. Washington, D.C.: May 5, 2009.

Recovery Act: Consistent Policies Needed to Ensure Equal Consideration 
of Grant Applications. [hyperlink, 
http://www.gao.gov/products/GAO-09-590R]. Washington, D.C.: April 29, 
2009.

Recovery Act: Initial Results on States' Use of and Accountability for 
Transportation Funds. [hyperlink, 
http://www.gao.gov/products/GAO-09-597T]. Washington, D.C.: April 29, 
2009.

Recovery Act: As Initial Implementation Unfolds in States and 
Localities, Continued Attention to Accountability Issues Is Essential. 
[hyperlink, http://www.gao.gov/products/GAO-09-580]. Washington, D.C.: 
April 23, 2009.

Recovery Act: As Initial Implementation Unfolds in States and 
Localities, Continued Attention to Accountability Issues Is Essential. 
[hyperlink, http://www.gao.gov/products/GAO-09-631T]. Washington, 
D.C.: April 23, 2009.

Small Business Administration's Implementation of Administrative 
Provisions in the American Recovery and Reinvestment Act. [hyperlink, 
http://www.gao.gov/products/GAO-09-507R]. Washington, D.C.: April 16, 
2009.

American Recovery and Reinvestment Act: GAO's Role in Helping to 
Ensure Accountability and Transparency for Science Funding. 
[hyperlink, http://www.gao.gov/products/GAO-09-515T]. Washington, 
D.C.: March 19, 2009.

American Recovery and Reinvestment Act: GAO's Role in Helping to 
Ensure Accountability and Transparency. [hyperlink, 
http://www.gao.gov/products/GAO-09-453T]. Washington, D.C.: March 5, 
2009.

Estimated Adjusted Medicaid Funding Allocations Related to the 
Proposed American Recovery and Reinvestment Act. [hyperlink, 
http://www.gao.gov/products/GAO-09-371R]. Washington, D.C.: February 
5, 2009.

Estimated Temporary Medicaid Funding Allocations Related to Section 
5001 of the American Recovery and Reinvestment Act. [hyperlink, 
http://www.gao.gov/products/GAO-09-364R]. Washington, D.C.: February 
4, 2009.

[End of section] 

Footnotes: 

[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[2] Approximate amount paid out as of September 3, 2010. 

[3] Recovery Act, div. A, title IX, § 901, 123 Stat. 191.

[4] GAO, Recovery Act: States' and Localities' Uses of Funds and 
Actions Needed to Address Implementation Challenges and Bolster 
Accountability, [hyperlink, http://www.gao.gov/products/GAO-10-604] 
(Washington, D.C.: May 26, 2010); Recovery Act: One Year Later, 
States' and Localities' Uses of Funds and Opportunities to Strengthen 
Accountability, [hyperlink, http://www.gao.gov/products/GAO-10-437] 
(Washington, D.C. Mar. 3, 2010); Recovery Act: Status of States' and 
Localities' Use of Funds and Efforts to Ensure Accountability, 
[hyperlink, http://www.gao.gov/products/GAO-10-231] (Washington, D.C.: 
Dec. 10, 2009); Recovery Act: Funds Continue to Provide Fiscal Relief 
to States and Localities, While Accountability and Reporting 
Challenges Need to Be Fully Addressed, [hyperlink, 
http://www.gao.gov/products/GAO-09-1016] (Washington, D.C.: Sept. 23, 
2009); Recovery Act: States' and Localities' Current and Planned Uses 
of Funds While Facing Fiscal Stresses, [hyperlink, 
http://www.gao.gov/products/GAO-09-829] (Washington, D.C.: July 8, 
2009); and Recovery Act: As Initial Implementation Unfolds in States 
and Localities, Continued Attention to Accountability Issues Is 
Essential, [hyperlink, http://www.gao.gov/products/GAO-09-580] 
(Washington, D.C.: Apr. 23, 2009). 

[5] The selected states are Arizona, California, Colorado, Florida, 
Georgia, Illinois, Iowa, Massachusetts, Michigan, Mississippi, New 
Jersey, New York, North Carolina, Ohio, Pennsylvania, and Texas. We 
also visited the District of Columbia.

[6] Recovery Act, div. A, § 1512(e), 123 Stat. 288. We will refer to 
the quarterly reports required by section 1512 as recipient reports.

[7] The Recovery Act established the Board to coordinate and conduct 
oversight of covered funds to prevent fraud, waste, and abuse. The 
Board is composed of a chairperson and 12 inspectors general. In 
addition, the Board established three committees drawn from the 12 
inspectors general on the board. Recovery Act, div. A, §§ 1521-1525, 
123 Stat. 289-293. 

[8] The federal fiscal year runs from October 1 through September 30 
of the next calendar year.

[9] Recovery Act, div. B, title V, § 5001, Pub. L. No. 111-5, 123 
Stat. at 496. CMS made increased FMAP funds available to states on 
February 25, 2009, and states could retroactively claim reimbursement 
for expenditures that occurred as of October 1, 2008. 

[10] See Pub. L. No. 111-226, § 201, 124 Stat. 2389 (Aug. 10, 2010).

[11] For purposes of this report, the term "regular FMAP" refers to 
the FMAP as defined in section 1905(b) of the Social Security Act. The 
term "increased FMAP" refers to the temporary FMAP calculated based on 
provisions of § 5001 of the Recovery Act, as amended.

[12] Under the amendment to the Recovery Act, states will receive a 
general across-the-board increase of 3.2 percentage points in their 
regular FMAPs for the second quarter of federal fiscal year 2011 and a 
1.2 percentage point increase in their regular FMAP rates for the 
third quarter of federal fiscal year 2011. See Pub. L. No. 111-226, § 
201, 124 Stat. 2389 (2010). States will continue to be eligible for an 
unemployment adjustment to their FMAP rates.

[13] See Recovery Act, div. B, title V, §5001(f)(1)(A). 

[14] Under the Recovery Act, states are not eligible to receive the 
increased FMAP for certain claims for days during any period in which 
that state has failed to meet the prompt payment requirement under the 
Medicaid statute as applied to those claims. See Recovery Act, div. B, 
title V, §5001(f)(2). Prompt payment requires states to pay 90 percent 
of clean claims from health care practitioners and certain other 
providers 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). A clean 
claim is a claim that has no defect or impropriety (including any lack 
of any required substantiating documentation) or particular 
circumstance requiring special treatment that prevents timely payment 
from being made on the claim. See Social Security Act section 1816.

[15] States may obtain a waiver from the act's prompt payment 
requirements if the Secretary of HHS determines that there are exigent 
circumstances, including natural disasters, which would prevent a 
state from the timely processing of claims or compliance with 
reporting requirements A CMS official told us that Maine, Maryland, 
Massachusetts, North Dakota, and Pennsylvania had received approval 
for a waiver from the act's prompt payment requirement, and that three 
states--Idaho, Michigan, and Wisconsin--have requested waivers that 
are under review. 

[16] A state is not eligible for certain elements of increased FMAP if 
any amounts attributable directly or indirectly to them are deposited 
in or credited to a state reserve or rainy-day fund. Recovery Act, 
div. B, title V, §5001(f)(3). 

[17] In some states, political subdivisions--such as cities and 
counties--may be required to help finance the state's share of 
Medicaid spending. Under the Recovery Act, a state that has such 
financing arrangements is not eligible for certain elements of the 
increased FMAP if it requires subdivisions to pay during a quarter of 
the recession adjustment period a greater percentage of the nonfederal 
share than the percentage that would have otherwise been required 
under the state plan on September 30, 2008. See Recovery Act, div. B, 
title V, § 5001(g)(2). The recession adjustment period is the period 
beginning October 1, 2008, and ending June 30, 2011. 

[18] For example, CMS's Web site includes State Medicaid Director 
letters related to the availability or use of increased FMAP funds. 
See [hyperlink 
http://www.cms.hhs.gov/SMDL/SMD/list.asp?sortByDID=1a&submit=Go&filterTy
pe=none&filterByDID=-99&sortOrder=ascending&intNumPerPage=10].

[19] Immediately following the enactment of the Recovery Act, FMAP 
rates for the 16 states and the District increased, on average, 9.23 
percentage points over their regular 2009 rates. Increased FMAP rates 
continued to increase through fourth quarter fiscal year 2010--except 
for California and Florida, whose FMAPs did not increase above their 
initial first quarter 2009 rates.

[20] Prior to the fourth quarter of fiscal year 2010, the District and 
all states but Iowa had received the maximum unemployment increase 
possible. Under the Recovery Act, once a state qualifies for an 
unemployment increase, the increase is maintained through December 31, 
2010. Beginning January 1, 2011, states that experience a sufficient 
decrease in their unemployment rates could have their increased FMAP 
rates reduced and HHS is required to provide such states with a 60-day 
notice of a pending reduction. 

[21] See GAO, Estimated Temporary Medicaid Funding Allocations Related 
to Section 5001 of the American Recovery and Reinvestment Act, GAO-09-
364R (Washington, D.C.: Feb. 4, 2009). The Recovery Act provided 
states and the District with an estimated $87 billion in increased 
FMAP funds for Medicaid from February 2009 through December 2010. Our 
estimate was based on funds drawn down by states as of June 30, 2010.

[22] Since October 2007, enrollment growth varied considerably across 
the 16 states and the District, ranging from 6 percent in Texas to 35 
percent in Colorado. Much of Texas's reported enrollment growth 
occurred between March and June 2010. Prior to March, the state 
reported flat enrollment from October 2007 through February 2010. Note 
that the percentages are based on state-reported monthly enrollment 
data, some of which are preliminary and subject to change. 

[23] For example, the Kaiser Family Foundation estimated that national 
Medicaid enrollment increased by about 1 percent from December 2004 
through June 2007. See The Kaiser Commission on Medicaid and the 
Uninsured, The Henry J. Kaiser Family Foundation, Medicaid Enrollment 
in the 50 States June 2008 Data Update (Washington, D.C., September 
2009).

[24] One state reported it did not know if there had been a change in 
its application processing time since October 2007. We defined 
application processing time as the number of days between the date a 
new application is received and a final eligibility determination is 
made. States reporting a decrease in processing time most frequently 
attributed the decrease to streamlined processing procedures, such as 
use of electronic applications or the automation of citizenship 
documentation. 

[25] CMS generally requires states to process new applications within 
45 days from the date of application, or 90 days for individuals 
applying on the basis of disability. 

[26] Mississippi previously reported concerns about the sustainability 
of its program once increased FMAP funds were no longer available; 
however, a Medicaid official said that more recently, the state 
decided to use state sources to fully fund the program through 2011. 
The official added that how the state will fund the Medicaid program 
in 2012 is not yet known. 

[27] The Kaiser Family Foundation recently reported that several 
Medicaid Directors have expressed concern over the impact that 
multiple payment cuts to providers may have had on access to services. 
See The Henry J. Kaiser Family Foundation, State Medicaid Agencies 
Prepare for Health Care Reform While Continuing to Face Challenges 
from the Recession (Washington, D.C., August 2010). 

[28] States reported imposing 15 new provider taxes and increasing 13 
existing provider taxes. 

[29] States may receive federal matching funds for provider taxes only 
if such taxes are broad-based, uniformly imposed, and do not result in 
any taxpayers being held harmless (i.e., receiving state funds to 
reduce the net payment to the state to below the amount of the tax). 

[30] Pub. L. No. 111-148, § 2001(b)(2), 124 Stat. 118, 275. This 
requirement will continue to apply to children until October 1, 2019. 
Beginning on January 1, 2011, this provision may have limited 
applicability if a state certifies to the Secretary that it has a 
budget deficit or projects to have a budget deficit in the following 
fiscal year. Pub. L. No. 111-148, § 2001(b)(2). According to CMS, the 
agency is currently developing guidance on various PPACA provisions.

[31] Connecticut has also obtained approval from CMS to expand 
eligibility to shift eligible low-income adults from an existing state 
health care program into Medicaid. Six sample states and the District 
reported that they currently provide coverage to some adults above 133 
percent of the federal poverty level through their Medicaid, State 
Children's Health Insurance Plan, or other state program. 

[32] We conducted our survey between March and April 2010, with a 78 
percent final weighted response rate at the national level. The 
results of our sample have a 95 percent confidence interval, with a 
margin of error of plus or minus 7 percentage points or less, unless 
otherwise noted. Our survey was conducted prior to the enactment of 
Pub.L. No. 111-226, which provides $10 billion for the new Education 
Jobs Fund. As a result, some of the information contained in this 
report, specifically information related to LEAs' projections for the 
2010-2011 school year, does not reflect this additional federal funding.

[33] The five states were Colorado, Massachusetts, Michigan, New 
Jersey, and New York.

[34] The five states were Colorado, Massachusetts, Michigan, New 
Jersey, and New York.

[35] The four states were California, Massachusetts, Michigan, and New 
York.

[36] Zhou, L. (2010). Revenues and Expenditures for Public Elementary 
and Secondary Education: School Year 2007-08 (Fiscal Year 2008) (NCES 
2010-326), report for the National Center for Education Statistics, 
U.S. Department of Education (Washington D.C., 2010), [hyperlink, 
http://nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2010326] (accessed 
November 16, 2009). 

[37] These states are Arizona, California, Georgia, Iowa, Illinois, 
Massachusetts, Mississippi, New Jersey, New York, North Carolina, 
Pennsylvania, and Texas. The fiscal survey of states does not present 
these data on the District of Columbia.

[38] The number of states reporting K-12 state-level funding cuts to 
education funding in fiscal year 2010 is based on self-reported data 
collected by the National Association of State Budget Officers in the 
spring of 2010. The Fiscal Survey of States, "Table 1-A. Fiscal 2010 
Program Area Cuts" (page 4), published by the National Governors 
Association and the National Association of State Budget Officers 
(June 2010).

[39] These states are Arizona, California, Colorado, Georgia, 
Illinois, Michigan, Mississippi, New Jersey, New York, and North 
Carolina.

[40] The Fiscal Survey of States, June 2010, "Table 1-B.Proposed 
Fiscal 2011 Program Area Cuts" (page 6).

[41] Our survey was conducted from March to April 2010, prior to the 
new $10 billion Education Jobs Fund established in August 2010.

[42] Pub. L. No. 111-226, § 101.

[43] For our survey, we included a separate strata of the 100 largest 
LEAs as defined by the number of students. We received a final 
weighted response rate of 84 percent for this strata. 

[44] This difference from the national average is statistically 
significant.

[45] U.S. Department of Education, The Condition of Education 2010 
(June 2010), page 278.

[46] The national estimate of 6.2 million education staff is based on 
2007-08 school year data and is taken from Education's 2009 Digest of 
Education Statistics, (p.56). The 4 percent of the workforce estimate 
is GAO's calculation based on Education's 6.2 million staff estimate 
and employment projections by the U.S. Bureau of Labor Statistics.

[47] For Recovery Act SFSF funds, a slightly higher percentage of LEAs 
reported using the funds to provide transportation (1.8 percent) and 
school construction/renovation (3.7 percent) than professional 
development.

[48] Our survey asked superintendents' opinions of how Recovery Act 
SFSF funding affected their LEA's ability to maintain, raise, or 
decrease their level of service in the 2009-2010 school year. 
Superintendents and other LEA officials we spoke with explained that 
"level of service" includes the instructional program provided to 
students through teaching staff, curriculum, and instructional 
materials; the noninstructional services provided in school districts 
such as administrative and janitorial services; and the safety and 
security of schools.

[49] In April 2009, Education released guidance that asked LEA 
officials to consider whether their proposed use of Recovery Act funds 
would (1) improve results for students, including students in poverty, 
students with disabilities, and English language learners; (2) 
increase educators' long-term capacity to improve results for 
students; (3) advance state, district, or school improvement plans and 
the reform goals encompassed in the Recovery Act; (4) avoid recurring 
costs that states, school systems, and schools are unprepared to 
assume when this funding ends; and (5) include approaches to measure 
and track implementation and results. See American Recovery and 
Reinvestment Act of 2009: Using ARRA Funds to Drive School Reform and 
Improvement: U.S. Department of Education: Washington D.C.: April 24, 
2009.

[50] Hereafter in this section, "local" will refer to "local, or state 
and local" funds. 

[51] To be eligible to exercise this flexibility, the LEA must meet 
the requirements of IDEA, Part B, including meeting targets in its 
state's performance plan. In 2009, almost all of the states in our 
sample had an increase in the number of LEAs that met requirements--
and were therefore eligible--compared to the prior year. For more 
information, see GAO, Recovery Act: Status of States' and Localities' 
Use of Funds and Efforts to Ensure Accountability, [hyperlink, 
http://www.gao.gov/products/GAO-10-231] (Washington, D.C.: Dec. 10, 
2009).

[52] SCSD's application to the state for IDEA funds actually reported 
an increase in funding for the 2009-2010 school year of $125,793. 
However, this increase was reported in error.

[53] This amount includes both Phase I and Phase II SFSF education 
stabilization funds.

[54] These states are Colorado, Massachusetts, Michigan, New Jersey, 
and New York.

[55] These states are Arizona, California, Colorado, Florida, 
Illinois, Massachusetts, Michigan, North Carolina, New Jersey, New 
York, and Texas.

[56] Mississippi and Pennsylvania are scheduled to be monitored in the 
2010-2011 monitoring cycle.

[57] OSEP officials indicated that the desk review's content would 
include questions based on the Department of Education Inspector 
General's recent findings. See U.S. Department of Education, Office of 
Inspector General, Final Management Information Report, ED-OIG/ 
X05J0019 (Washington, D.C., June 4, 2010).

[58] According to guidance issued by Education, in general, to be able 
to use IDEA funds to purchase equipment, LEAs need to obtain the prior 
approval of the state. For purposes of this prior approval 
requirement, "equipment" is defined to mean an article of 
nonexpendable, tangible personal property having a useful life of more 
than a year and an acquisition cost which equals or exceeds the lesser 
of the capitalization level established by the governmental unit for 
financial statement purposes, or $5,000. See, U.S. Department of 
Education, Office of Special Education and Rehabilitative Services, 
Guidance on Funds for Part B of the Individuals with Disabilities 
Education Act Made Available Under The American Recovery and 
Reinvestment Act of 2009 (Washington, D.C., April 2009).

[59] West Virginia's waiver application was also approved. In 
addition, Kansas received a partial approval. The state requested to 
decrease spending on special education by $60 million, but Education 
approved a decrease of $44 million. There is no official appeals 
process, according to OSEP officials, although Kansas has reapplied, 
asking for a decrease of $58 million. In addition, Education is 
currently considering a waiver application for South Carolina.

[60] U.S. Department Of Education, Office Of Special Education And 
Rehabilitation Services, Process And Criteria Used To Evaluate A 
Request By States To Waive Maintenance Of Effort (MOE) Requirements 
Under Part B Of The Individuals With Disabilities Education Act (IDEA) 
(Washington, D.C., June 2010).

[61] Education has also conducted site visits in three states not 
included in our review--Maryland, South Carolina and Tennessee.

[62] Education has also conducted desk reviews of three states not 
included in our review--Alaska, Delaware, and North Dakota.

[63] Rhode Island was also granted a waiver for 2009 MOE requirements 
but was not included in our review. 

[64] See Pub.L. No. 111-5, § 14012 (2009).

[65] Rhode Island and South Carolina have also requested a waiver from 
Education to decrease their 2009 state-level spending on education.

[66] Education officials reported that as of August 20, 2010, 
Tennessee and Delaware have received their Race to the Top grants. 
Hawaii, Maryland and Rhode Island are the other states that will also 
receive these grants.

[67] According to Education officials, $4 billion will be provided for 
statewide reform efforts and $350 million for state consortia to 
develop common academic assessments. From the time grantees receive 
their awards, they will have 4 years to spend the grant funds.

[68] Oklahoma's and Puerto Rico's Phase II applications have yet to be 
approved. Education officials reported they are working with these 
states and the outlying areas to ensure their plans for using Phase II 
SFSF funds adhere to applicable requirements.

[69] Pub. L. No. 111-117 (2009).

[70] U.S. Department of Education, Office of Elementary and Secondary 
Education, Final Requirements for School Improvement Grants, As 
Amended (Washington, D.C., Jan. 28, 2010); and Guidance on School 
Improvement Grants Under Section 103 (g) of the Elementary and 
Secondary Education Act of 1965 (Washington, D.C., June 29, 2010).

[71] These states are Massachusetts and New York.

[72] Funds are obligated when DOT issues project or grant agreements. 
Apportioned funds are obligated when DOT issues project or grant 
agreements to recipients, a process that is typically followed by 
contractor selection, contract award, and performance. As expenses are 
incurred, recipients may request and be reimbursed for their expenses 
following program eligibility guidelines. 

[73] GAO, Recovery Act: States' and Localities' Uses of Funds and 
Actions Needed to Address Implementation Challenges and Bolster 
Accountability, [hyperlink, http://www.gao.gov/products/GAO-10-604] 
(Washington, D.C.: May 26, 2010).

[74] GAO, Physical Infrastructure: Challenges and Investment Options 
for the Nation's Infrastructure, [hyperlink, 
http://www.gao.gov/products/GAO-08-763T] (Washington, D.C.: May 8, 
2008). 

[75] Recovery Act, div. A, title XII, § 1201(c).

[76] We reviewed data in RADS as of June 18, 2010, for all 50 states 
and the District.

[77] DOT Secretary of Transportation, Section 1201(c) One-Year Report, 
(Washington, D.C.: May 7, 2010).

[78] Generally, FHWA has authority pursuant to 23 U.S.C. § 104(k)(1) 
to transfer funds made available for transit projects to FTA. 

[79] Located in Urbanized Areas; these areas may cross state lines. 

[80] Supplemental Appropriations Act, 2009, Pub. L. No. 111-32, § 1202 
(June 24, 2009).

[81] Caltrans' paratransit program is a curb-to-curb shared ride 
service for the disabled who are unable to use fixed bus or rail routes.

[82] GAO, Recovery Act: States' and Localities' Uses of Funds and 
Actions Needed to Address Implementation Challenges and Bolster 
Accountability, [hyperlink, http://www.gao.gov/products/GAO-10-604] 
(Washington, D.C.: May 26, 2010), 35.

[83] As DOT pointed out, section 104(k) requires that funds 
transferred under that authority are to be administered in accordance 
with the provisions of chapter 53 of title 49, United States Code, 
which does not include a withdrawal and redistribution procedure. 23 
U.S.C. § 104(k)(1); 49 U.S.C. § 5334(i)(1). When specific and general 
statutes appear to conflict and a general provision is "broad enough 
to include the subject to which the specific provision relates, the 
specific provision should be regarded as an exception to the general 
provision so that both may be given effect, the general applying only 
where the specific provision is inapplicable." B-255979, Oct. 30, 
1995, quoting B-163375, Sept. 2, 1971. Section 104(k) specifically 
prescribes the disposition of funds transferred under authority of the 
section--namely, that funds transferred under section 104(k) are to be 
administered under chapter 53 of title 49. As such, the Recovery Act's 
1-year obligation deadline for FHWA's Highway Infrastructure 
Investment appropriation does not apply.

Furthermore, because the transferred funds were not originally 
appropriated to FTA's Transit Capital Assistance or Fixed Guideway 
Infrastructure Investment Programs, and they were not merged with 
those funds upon transfer to FTA, they are not subject to FTA's 
distribution formula for transit capital assistance and fixed guideway 
infrastructure and, therefore, are not subject to the 1-year 
obligation deadline applicable to FTA's Recovery Act appropriations. 
Instead, the funds were transferred after identification of specific 
ready-to-work projects.

[84] The average of funds remaining to be obligated on June 30 for 
federal fiscal years 2007, 2008, and 2009 was $12.1 billion.

[85] For this report, GAO interviewed officials in California, 
Florida, Illinois, Massachusetts, Mississippi, North Carolina, and 
Texas regarding expenditures of their regular federal-aid highway 
program funds. 

[86] The Highway Infrastructure Investment, Transit Capital Assistance 
and the Fixed Guideway Infrastructure Investment Programs are formula 
grant programs, which apportion funds to states or their subdivisions 
by law. Apportioned funds are obligated when DOT issues project or 
grant agreements to recipients, a process that is typically followed 
by contractor selection, contract award, and performance. As expenses 
are incurred, recipients may request and be reimbursed for their 
expenses following program eligibility guidelines. 

[87] GAO, Executive Guide: Effectively Implementing the Government 
Performance and Results Act, [hyperlink, 
http://www.gao.gov/products/GAO/GGD-96-118] (Washington, D.C.: June 
1996).

[88] Recovery Act, div. A, title XII, § 1201(a). A state that does not 
meet its level of effort will be prohibited from participating in the 
redistribution of federal-aid highway obligation authority, scheduled 
to occur in August 2011.

[89] DOT officials indicated that Massachusetts and Minnesota agreed 
to correct errors in the amount identified for the states' transit 
programs, and the states agreed to provide this information to DOT by 
early September 2010. DOT was in discussion with Connecticut to 
determine whether there were errors to correct in the certification, 
and officials said this issue would also be resolved by early September.

[90] GAO, Recovery Act: One Year Later, States' and Localities' Uses 
of Funds and Opportunities to Strengthen Accountability, [hyperlink, 
http://www.gao.gov/products/GAO-10-437] (Washington, D.C.: Mar. 3, 
2010).

[91] Specifically, the Recovery Act requires states to give priority 
to projects that can be completed within 3 years and to projects 
located in economically distressed areas. Economically distressed 
areas are defined by the Public Works and Economic Development Act of 
1965, as amended. To qualify as an economically distressed area, an 
area must (1) have a per capita income of 80 percent or less of the 
national average; (2) have an unemployment rate that is, for the most 
recent 24-month period for which data are available, at least 1 
percent greater than the national average unemployment rate; or (3) be 
an area that the Secretary of Commerce determines has experienced or 
is about to experience a "special need" arising from actual or 
threatened severe unemployment or economic adjustment problems 
resulting from severe short-or long-term changes in economic 
conditions. 

[92] Each state used FHWA's special-need criterion that relates to 
severe job dislocation resulting from actual or threatened business 
closure or restructuring. These states were advised that in order to 
be consistent with the FHWA guidance, the states must have data that 
show a connection between demonstrated severe job losses and actual, 
identified firm closures and restructurings.

[93] The Energy Independence and Security Act (EISA) of 2007 was 
signed into law on December 19, 2007. Pub.L. No. 110-140, 121 Stat. 
1667.

[94] While about 2,350 recipients were authorized to receive EECBG 
formula funding, only about 2,150 EECBG formula grants were awarded to 
recipients. This is because about 100 Native American tribes 
consolidated their funds and were awarded EECBG funds as one group and 
because, as of July 1, 2010, 64 potential recipients (amounting to 
about $6.4 million) returned funds or didn't apply for grant funds. 
The remaining 36 recipients have not yet been allocated grant funds by 
DOE.

[95] Approximately 2 percent of the formula funding is for competitive 
grants to cities, counties, and tribes not eligible for direct formula 
funding.

[96] DOE, Special Report: Review of the Department of Energy's Plan 
for Obligating Remaining Recovery Act Contract and Grant Funding, OAS-
RA-10-15 (Aug. 4, 2010).

[97] GAO defines larger grant amounts as amounts greater than $2 
million. 

[98] To retrofit is to install new or modified parts or equipment not 
available or considered necessary at the time of manufacture in 
something previously manufactured or constructed or to adapt to a new 
purpose or need.

[99] In addition, local recipients may use up to 20 percent of their 
funds, or $250,000, whichever is greater, to establish a Revolving 
Loan Fund. 

[100] DOE, Funding Opportunity Announcement DE-FOA-0000013 for the 
Energy Efficiency and Conservation Block Grant Program - Formula 
Grants (Mar. 26, 2009). Also in DOE, Energy Efficiency and 
Conservation Block Grant Program Notice 10-011 (Apr. 21, 2010).

[101] DOE defines the effective date of the award as the date that the 
DOE contracting officer signed the award document.

[102] Drawing down is the process in which recipients request and 
receive authorized federal funds for projects under the terms of the 
grant.

[103] In a June 25, 2010 notice, DOE indicated that it expected to get 
a list from the National Electrical Manufacturers Association of 
domestic producers that can meet the Buy American criteria; however, 
as of August 16, 2010, this information was not yet available. 

[104] Grant recipients may include states, cities, counties, and 
Native American tribes.

[105] Subrecipients: For states, this term defines nonentitled (to 
direct federal funding) cities and counties, and for cities and 
counties, the term typically defines subcontractors and vendors. 

[106] In addition, DOE officials told us that DOE is developing 
guidance that includes best practices on how states should monitor 
their subrecipients. 

[107] GAO, Recovery Act: States' and Localities' Uses of Funds and 
Actions Needed to Address Implementation Challenges and Bolster 
Accountability, [hyperlink, http://www.gao.gov/products/GAO-10-604] 
(Washington, D.C.: May 26, 2010).

[108] Standard programmatic metrics are categorized by EECBG activity. 
For example, a recipient undertaking a building retrofit must report 
on five metrics--outlay of Recovery Act funding, outlay of non-
Recovery Act funding, obligations, number of buildings retrofitted (by 
sector), and square footage of buildings retrofitted (by sector).

[109] Along with the states, and the District, the U.S. territories 
American Samoa, Guam, Northern Marianas, Puerto Rico, and the Virgin 
Islands also received funds. 

[110] Totals do not sum to 100 percent due to rounding. 

[111] [hyperlink, http://www.gao.gov/products/GAO-10-604]. 

[112] Categorical exclusions are provided to types (or classes) of 
actions that normally do not have the potential to cause significant 
environmental impacts and, thus, are categorically excluded from the 
need to prepare an environmental assessment or environmental impact 
statement.

[113] See [hyperlink, 
http://www1.eere.energy.gov/recovery/buy_american_provision.html]. 

[114] California State Auditor, Bureau of State Audits, California 
Energy Resources Conservation and Development Commission: It Is Not 
Fully Prepared to Award and Monitor Millions in Recovery Act Funds and 
Lacks Controls to Prevent Their Misuse, Letter Report 2009-119.1 
(Sacramento, Calif., Dec. 1, 2009). 

[115] U.S. Department of Energy, Office of Inspector General, 
Management Controls over the Development and Implementation of the 
Office of Energy Efficiency and Renewable Energy's Performance and 
Accountability for Grants in Energy System, OAS-RA-10-14 (July 22, 
2010). 

[116] During an energy audit, auditors visually inspect the building 
shell and mechanical systems; conduct diagnostic, health, and safety 
tests; and record the location, condition, and dimensions of walls, 
ceilings, floors, windows, doors, and mechanical systems. According to 
DOE, before work is conducted, auditors should use this information to 
select cost-effective measures that would make the unit more energy- 
efficient and prepare work orders to ensure that appropriate measures 
are installed. After weatherization work is completed, another energy 
audit and final inspection should be conducted.

[117] June 30, 2010, is the most recent quarter for which the states 
are required to report data under the Recovery Act. The 58 recipients 
include all of the states, the District, all five territories, and two 
Indian tribes.

[118] Based on June production totals, DOE released the remaining 50 
percent of funds to 19 states: Arizona, Colorado, Idaho, Illinois, 
Indiana, Iowa, Maine, Minnesota, Mississippi, Montana, New Hampshire, 
New Mexico, Nevada, Ohio, Oregon, Tennessee, Vermont, Washington, and 
Wisconsin. Based on July production totals, DOE released the remaining 
50 percent of funds to the following three states: Kentucky, North 
Dakota, and Wyoming.

[119] Our discussion on weatherization is limited to the following 7 
states and the District of Columbia that are the focus of this report: 
Arizona, California, Florida, Georgia, Iowa, New York, and 
Pennsylvania. 

[120] As of June 30, 2010, the agency responsible for administering 
the Recovery Act weatherization program had not yet approved 
weatherization of multifamily residences, but it reported having 
received proposals. 

[121] See [hyperlink, http://www.gao.gov/products/GAO-10-604].

[122] See [hyperlink, http://www.gao.gov/products/GAO-10-604].

[123] See [hyperlink, http://www.gao.gov/products/GAO-10-604].

[124] See [hyperlink, http://www.gao.gov/products/GAO-10-604].

[125] See [hyperlink, http://www.gao.gov/products/GAO-10-604].

[126] HUD awarded the competitive grants to housing agencies at 
varying dates in the month of September 2009. As a result, the 1-year 
deadlines for obligating these funds vary by category of competitive 
grant. The deadlines include September 8, 2010, September 22, 2010, 
September 23, 2010, and September 27, 2010.

[127] Gap financing is the process of providing funding to housing 
agencies for projects that are ready to proceed but are stalled due to 
the inability of the housing agency to obtain anticipated private 
funding for the projects.

[128] According to HUD officials, funds that are recaptured from 
housing agencies after passage of the Dodd-Frank Act will have to be 
returned to the Department of the Treasury (because of congressional 
concerns about debt reduction, the Dodd-Frank Act required unobligated 
Recovery Act funds to be returned to the Treasury). However, because 
the initial $17.16 million in returned formula and competitive grant 
funds was returned to HUD before passage of the act, HUD is still able 
to redistribute them to other housing agencies.

[129] According to HUD officials, 21 housing agencies refused to 
accept or returned to HUD approximately $3.26 million in Recovery Act 
formula grant funds.

[130] HUD was concerned that housing agencies may not have followed 
proper procedures or may have directed funds to ineligible uses in the 
rush to meet the March 17, 2010, formula grant obligation deadline. 
HUD officials decided to review the obligation documents of those 
housing agencies that obligated the majority of their funds just prior 
to the deadline. These quick-look reviews were conducted by HUD field 
staff using a checklist that included questions such as whether 
necessary approvals were in place for work items and whether 
obligations correspond to work items in the housing agency's approved 
annual plan.

[131] GAO, Recovery Act: One Year Later, States' and Localities' Uses 
of Funds and Opportunities to Strengthen Accountability, [hyperlink, 
http://www.gao.gov/products/GAO-10-437] (Washington, D.C.: Mar. 3, 
2010).

[132] Asset management reviews examine how the asset is being managed 
in areas including whether the housing agencies are renting to the 
types of tenants specified by the terms of HUD funding, or whether the 
asset is being maintained in accordance with HUD safety standards.

[133] State housing finance agencies award LIHTCs to owners of 
qualified rental properties who reserve all or a portion of their 
units for occupancy for low-income tenants. Once awarded LIHTCs, 
project owners typically attempt to obtain funding for their projects 
by attracting third-party investors that contribute equity to the 
projects. These investors can then claim the tax credits for 10 years 
if the property continues to comply with program requirements. This 
arrangement of providing LIHTCs in return for an equity investment is 
generally referred to as "selling" the tax credits. Some project 
owners sell the LIHTCs to an investor that will invest directly in the 
LIHTC project while others use a syndicator, which assembles a group 
of investors and pools funds that are then invested in the LIHTC 
project. For purposes of this report we refer to direct investors and 
syndicators generally as "third-party investors"or "investors."

[134] Because many of the affordable housing tax credit projects 
generate small amounts of cash flow from rental income, they rely on 
LIHTC together with other forms of subsidies like the HOME Investment 
Partnerships Program, Community Development Block Grants, and state 
funds to develop, rehabilitate, and adequately maintain projects.

[135] HUD obligated funds to the 50 states, the District of Columbia, 
and Puerto Rico. The Recovery Act directed HUD to distribute TCAP 
funds in accordance with the fiscal year 2008 HOME Investment 
Partnerships Program (HOME) formula allocations to state participating 
jurisdictions, thereby limiting the funds to states as defined by the 
HOME requirements (HOME formula). Guam and the U.S. Virgin Islands are 
defined as "insular areas" under HOME, rather than as "states," and 
therefore, did not receive TCAP funds. 

[136] This report uses the terms obligation and outlays when 
discussing funds that HUD and Treasury provide to HFAs. By obligation, 
we mean that the respective federal agencies have entered into 
agreements with HFAs for a specified amount of funds. By outlays, we 
mean that the federal agencies have released funds to an HFA. We use 
the terms commitments and disbursements to discuss funds provided by 
HFAs to projects. By commitments, we mean the HFA has entered into an 
agreement to provide funds to a project owner. By disbursement, we 
mean that the HFAs have released funds to project owners.

[137] Project owners must have, by the close of 2010, spent at least 
30 percent of their total adjusted basis on land and depreciable 
property that is reasonably expected to be part of the low-income 
housing project.

[138] Unlike TCAP, the Section 1602 Program permits rolling 
applications through December 31, 2010.

[139] We interviewed a cross-section of HFAs and conducted site visits 
to selected projects that had received either TCAP or Section 1602 
Program funds, and interviewed project owners and third-party 
investors involved with these selected projects. The Georgia, Ohio, 
Pennsylvania, Florida, and Mississippi appendixes in the e-supplement 
of this report provide information on our site visits (GAO-10-1000SP). 
We also conducted telephone interviews with the HFAs in Colorado, 
Iowa, Michigan, and Montana. 

[140] The Community Reinvestment Act (CRA) is intended to encourage 
institutions that accept deposits, such as banks, to help meet the 
credit needs of the communities in which they operate. CRA requires 
regulators to evaluate periodically each insured depository 
institution's record in helping meet the credit needs of its entire 
community. That record is taken into account in considering an 
institution's application for deposit facilities, including mergers 
and acquisitions. Investing in LIHTC projects allows banks to earn 
positive consideration toward their regulatory ratings under CRA.

[141] According to the Florida Housing Finance Corporation, the 
litigation involves three projects for which the owners disagreed with 
the HFA's decision to rescind provisional awards based on an 
unfavorable credit underwriting review.

[142] MHC's board delayed its request for Section 1602 Program funds 
to Treasury until February 2010 while it assessed program risks 
related to Treasury's requirements for recapture of funds. MHC is 
responsible for returning Section 1602 Program funds to Treasury if a 
project owner fails to complete the project or meet LIHTC 
requirements. GAO reported previously on the risks and 
responsibilities of recapture for HFAs under TCAP and the Section 1602 
Program. See GAO, States' and Localities' Uses of Funds and Actions 
Needed to Address Implementation Challenges and Bolster 
Accountability, [hyperlink, http://www.gao.gov/products/GAO-10-604] 
(Washington, D.C.: May 26, 2010).

[143] Asset management includes many activities that relate to 
monitoring and planning for the long-term financial and physical 
health and viability of a project. Some examples of asset management 
are discussed in this section. 

[144] In contrast, under the conventional LIHTC program, HFAs are not 
liable for recapturing funds if a project owner fails to comply with 
LIHTC requirements. Rather, their obligation is to report any 
noncompliance to the IRS, and the IRS takes any further actions with 
respect to recapture. GAO reported previously on the risks and 
responsibilities of recapture for HFAs under TCAP and the Section 1602 
Program. See [hyperlink, http://www.gao.gov/products/GAO-10-604].

[145] We conducted a Web-based survey in November 2009 of all 54 HFAs 
that received TCAP and Section 1602 Program funds as of that date. All 
HFAs responded. For a copy of the survey and the compiled HFA 
responses, see [hyperlink, http://www.gao.gov/products/GAO-10-1023SP]. 

[146] The Recovery Act expressly applies section 288 of the HOME 
statute, which requires the state to assume responsibility for 
environmental review under NEPA and related federal environmental 
authorities and regulations at 24 C.F.R. Part 58 "Environmental Review 
Procedures for Entities Assuming HUD Environmental Responsibilities." 
In addition, under section 1606 of Division A of the Recovery Act, 
contractors and subcontractors hired with Recovery Act funds are 
required to pay prevailing wages to laborers and mechanics in 
compliance with the Davis-Bacon Act. 

[147] HOME, administered by HUD, provides formula grants to states and 
localities that communities use--often in partnership with local 
nonprofit groups--to fund a wide range of activities that build, buy, 
or rehabilitate affordable housing for rent or homeownership or 
provide direct rental assistance to low-income people.

[148] These data do not include projects financed with a combination 
of Section 1602 Program funds and TCAP funds.

[149] This HFA told us that it did not have asset management 
experience and chose to outsource asset management on projects that 
did not have investor participation (6 projects) and coordinate with 
investors on projects that have investor participation (74 projects). 
The other HFA we interviewed that has hired an outside asset manager 
has a large volume of projects (89 projects) and will use the outside 
services to supplement its own financial monitoring of projects. Two 
HFAs we interviewed have required investor participation in all 
transactions, and they said they will coordinate with investors to 
ensure asset management is performed on all projects. 

[150] Some HFAs are coordinating with and relying on reviews and 
audits that investors and private construction lenders perform in 
order to satisfy the HFAs' asset management obligations under the 
Section 1602 Program as well.

[151] FHFC officials said they set $650 as the required equity 
investment for these projects by using the average market price for 
LIHTCs in Florida at the time of the TCAP award, which was 65 cents 
per dollar of tax credits. Because LIHTCs are claimed over a ten-year 
period, the total equity investment for $100 of tax credits priced at 
65 cents is $650. 

[152] See the Florida appendix in the e-supplement of this report for 
a description of FHFC's activities [hyperlink, 
http://www.gao.gov/products/GAO-10-1000SP]. 

[153] See [hyperlink, http://www.gao.gov/products/GAO-10-604].

[154] Under the continuous corrections period, recipients were able to 
modify this round of submissions from August 3, 2010, through 
September 20, 2010. The final update of this round of recipient 
reported data should occur on September 22, 2010.

[155] Under the Recovery Act, recipients are to file reports for any 
quarter in which they receive Recovery Act funds directly from the 
federal government. Reporting requirements apply to nonfederal 
recipients of funding, including entities such as state and local 
governments, educational institutions, nonprofits, and other private 
organizations. These requirements apply to recipients who receive 
funding through the Recovery Act's discretionary appropriations, not 
recipients receiving funds through entitlement programs, such as 
Medicaid, or tax provisions. Certain other exceptions apply, such as 
for individuals. Recovery Act, div. A, § 1512, 123 Stat. at 287-288. 

[156] Under the Recovery Act, recipients are required to submit 
reports no later than 10 days after the end of each calendar quarter. 
The Board extended the reporting deadline by several days for all four 
rounds of reporting.

[157] An award key is a derived field that identifies an award. This 
field is derived using a distinct combination of the following 
component fields: Award_type, Prime_DUNS, Award_id and Order_number.

[158] This function was provided to recipients at FederalReporting.gov 
in order to achieve more accurate tracking and analyses of reports 
across quarters. The function, however, did not allow users to link 
current reports submitted in round four to ones submitted in round one 
or round two. Since there is no information on the downloadable 
recipient reports about the use of this function by recipients, we are 
unable to assess the extent to which this function was applied.

[159] Both TAS and CFDA values are linked to specific agencies and 
their programs. The TAS codes identify the Recovery Act funding 
program source. The two leftmost characters of each TAS code form a 
data element, which is identical with the two-digit numerical code 
used in the federal budgetary process to identify major federal 
organizations. The CFDA is a governmentwide compendium of federal 
programs, projects, services, and activities that provide assistance 
or benefits. It contains assistance programs administered by 
departments. Each program is assigned a unique number where the first 
two digits represent the funding agency. 

[160] Prime recipients are nonfederal entities that receive Recovery 
Act funding as federal awards in the form of grants, loans, or 
cooperative agreements directly from the federal government. 
Subrecipients are nonfederal entities that are awarded Recovery Act 
funding through a legal instrument from the prime recipient.

[161] [hyperlink, http://www.gao.gov/products/GAO-10-604], pp. 195-211.

[162] U.S. Department of Energy, Office of Inspector General, Office 
of Audit Services, Accounting and Reporting for the American Recovery 
and Reinvestment Act by the Department of Energy's Funding Recipients, 
OAS-RA-10-06 (Washington, D.C., Apr. 1, 2010). 

[163] U.S. Department of Agriculture, Office of Inspector General, 
American Recovery and Reinvestment Act--Review of the Effectiveness of 
Department/Agency Data Quality Review Processes (Washington, D.C., 
June 25, 2010).

[164] National Association of State Budget Officers, Intergovernmental 
Communication and the Recovery Act (Washington, D.C., July 28, 2010). 

[165] Congress passed the Single Audit Act, as amended, 31 U.S.C. ch. 
75, to promote, among other things, sound financial management, 
including effective internal controls, with respect to federal awards 
administered by nonfederal entities. The Single Audit Act requires 
states, local governments, and nonprofit organizations expending 
$500,000 or more in federal awards in a year to obtain an audit in 
accordance with the requirements set forth in the act. 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; (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); and (3) an audit and an opinion on compliance with 
applicable program requirements for certain federal programs. The 
Single Audit Act requires that recipients submit their financial 
reporting packages, including the Single Audit report, to the federal 
government's audit clearinghouse no later than 9 months after the end 
of the period being audited. As a result, an audited entity may not 
receive feedback needed to correct an identified internal control 
deficiency over compliance until the latter part of the subsequent 
fiscal year.

[166] This circular is issued pursuant to the Single Audit Act and 
sets forth standards for obtaining consistency and uniformity among 
federal agencies for the audit of states, local governments, and 
nonprofit organizations expending federal awards.

[167] See Recovery Act: States' and Localities' Uses of Funds and 
Actions Needed to Address Implementation Challenges and Bolster 
Accountability, [hyperlink, http://www.gao.gov/products/GAO-10-604] 
(Washington, D.C.: May 26, 2010) for a status of OMB's implementation 
of GAO's recommendations.

[168] Internal control deficiencies refer to significant deficiencies 
and material weaknesses as defined by generally accepted auditing 
standards issued by the American Institute of Certified Public 
Accountants and Government Auditing Standards, issued by the 
Government Accountability Office. A material weakness is a significant 
deficiency or combination of significant deficiencies that result in 
more than a remote likelihood that a material misstatement of the 
subject matter will not be prevented. Auditors report internal control 
deficiencies over compliance requirements applicable to the major 
programs in accordance with OMB Circular No. A-133.

[169] One of the states that participated in the project has a fiscal 
year that ends on August 31 rather than on June 30. Therefore, OMB 
gave this state until March 1, 2010, to report on its fiscal year 2009 
internal control deficiencies. OMB made this change so that the 
state's auditors would have the same amount of time to complete their 
test work as the other project participants did. All of the other 
states that participated fiscal year ended on June 30, 2009, and OMB 
required them to report by December 31, 2009.

[170] The project's second milestone required that auditee management 
provide the interim communication report and a corrective action plan 
to the cognizant federal agency by January 31, 2010. For 10 of the 13 
states that submitted the required internal control report, the 
corrective action plans were included in the interim communication 
report. In three instances, the plans were provided in a separate 
report.

[171] HHS, the cognizant agency for audit, has designated the HHS 
Office of the Inspector General to perform certain responsibilities 
relating to Single Audits. 

[172] According to OMB Circular No. A-133, Audits of States, Local 
Governments, and Non-Profit Organizations, (June 27, 2003 and June 26, 
2007) section .400 (c) (5) and section .405 (a) - (e), the federal 
agency is responsible for issuing a management decision on audit 
findings within 6 months after receipt of the audit report. Additional 
OMB guidance to federal agencies focused specifically on audit follow 
up is found in OMB Circular No. A-50, Audit Follow-up (September 29, 
1982).

[173] The five states are Arizona, Illinois, New Jersey, Ohio, and 
Pennsylvania. Although the FAC received initial Single Audit reporting 
packages from Colorado, Georgia, and Massachusetts by the March 31 due 
date, the FAC received subsequent information, which completed the 
reporting requirements from these states, after the March 31 due date.

[174] According to OMB data, as of August 5, 2010, five of the 16 
states that participated in the OMB Single Audit Internal Control 
Project (Colorado, Georgia, Ohio, South Dakota, and Tennessee) did not 
file their completed Single Audit reporting package by the March 31, 
2010, due date. Although FAC received the initial Single Audit 
reporting packages from Colorado and Georgia by the March 31 due date, 
FAC received subsequent information which completed the reporting 
requirements from these states after the March 31 due date. As of 
August 24, 2010, the FAC had not yet received Tennessee's reporting 
package for the fiscal year 2009 Single Audit. 

[175] Recovery Accountability and Transparency Board, American 
Recovery and Reinvestment Act--Review of the Effectiveness of 
Department/Agency Data Quality Review Processes (Washington, D.C., 
June 25, 2010).

[176] The six inspectors general participating in the review were the 
Department of Housing and Urban Development, the Department of 
Defense, the General Services Administration, the Environmental 
Protection Agency, the National Science Foundation, and the Department 
of Agriculture.

[177] According to the Board staff, the majority of the complaints 
received via the fraud hotline did not contain any actionable 
information; for example, some complaints contained a generalized 
comment on the Recovery Act rather than any specific allegation of 
wrongdoing. The Board refers those that are actionable to the 
appropriate inspector general when there is a specific allegation of 
wrongdoing or multiple factors indicate a possible area of risk.

[178] According to a Board official, 63 of the 534 inspectors general 
products published on Recovery.gov are interim reports published to 
raise important issues with agency management in an expedited manner.

[179] The DUNS--Data Universal Numbering System--number is a unique 9- 
digit identification number provided by Dun and Bradstreet, Inc., for 
each physical location of a business or organization. The DUNS number 
is a unique identifier for an organization and is used to identify 
which business or organization is submitting reporting information to 
the government for federal contracts.

[180] Recovery Act, div. A §§ 1541-1546, 123 Stat. at 295-296.

[181] The State Accounting Office also provided the training to 
several universities and technical colleges.

[182] The states and the District of Columbia have varying definitions 
and procedures relating to competition and contract types. Therefore, 
we relied on state and local officials to verify whether a particular 
contract was awarded competitively and considered to be fixed-price 
under state or local contracting definitions and procedures. 

[183] In some instances, state officials further identified these 
contracts as having fixed-unit pricing arrangements, where, according 
to state officials, unit prices for contract items are fixed, but 
total quantities of items may vary, if needed. Some officials 
characterized this type of arrangement as fixed-price, while others 
reported that it was other-than-fixed-price. As such, contracts with 
fixed-unit pricing arrangements are included in both the fixed-price 
and other-than-fixed-price totals identified in this section of the 
report.

[184] See GAO, Recovery Act: Contracting Approaches and Oversight Used 
by Selected Federal Agencies and States, [hyperlink, 
http://www.gao.gov/products/GAO-10-809] (Washington, D.C.: July 15, 
2010).

[185] For the purposes of the report, we considered state-level 
oversight as centralized state government offices with purview over 
more than one state agency or department. This included each 
governor's office and state controller offices.

[186] We were unable to determine whether overall costs had increased, 
decreased, or remained the same for four contracts. In addition, we 
were unable to determine whether the schedule had increased, 
decreased, or remained the same for three contracts.

[187] For three contracts, officials did not provide any response 
regarding contractor performance issues, and for two contracts 
officials responded that they "don't know."

[188] GAO, Recovery Act: States' and Localities' Uses of Funds and 
Actions Needed to Address Implementation Challenges and Bolster 
Accountability, [hyperlink, http://www.gao.gov/products/GAO-10-604] 
(Washington, D.C.: May 26, 2010).

[189] See appendix IV for a complete list of population and 
unemployment rates for the selected local governments. 

[190] Not all jurisdictions have the same fiscal year. Most of the 
states we visited have fiscal years beginning July 1, with the 
following exceptions: New York's fiscal year begins on April 1; the 
fiscal year for Texas begins on September 1; and the fiscal year for 
the District of Columbia and Michigan begins on October 1. 

[191] National Governors Association and the National Association of 
State Budget Officers, The Fiscal Survey of States (Washington, D.C., 
June 2010). The survey is based on survey responses from all 50 
states' governors' budget offices collected from March through May 2010.

[192] GAO, Recovery Act: As Initial Implementation Unfolds in States 
and Localities, Continued Attention to Accountability Issues Is 
Essential, [hyperlink, http://www.gao.gov/products/GAO-09-580] 
(Washington, D.C.: Apr. 23, 2009); Recovery Act: States' and 
Localities' Current and Planned Uses of Funds While Facing Fiscal 
Stresses, [hyperlink, http://www.gao.gov/products/GAO-09-829] 
(Washington, D.C.: July 8, 2009); Recovery Act: Funds Continue to 
Provide Fiscal Relief to States and Localities, While Accountability 
and Reporting Challenges Need to Be Fully Addressed, [hyperlink, 
http://www.gao.gov/products/GAO-09-1016] (Washington, D.C.: Sept. 23, 
2009); Recovery Act: Recipient Reported Jobs Data Provide Some Insight 
into Use of Recovery Act Funding, but Data Quality and Reporting 
Issues Need Attention, [hyperlink, 
http://www.gao.gov/products/GAO-10-223] (Washington, D.C.: Nov. 19, 
2009); Recovery Act: Status of States' and Localities' Use of Funds 
and Efforts to Ensure Accountability, [hyperlink, 
http://www.gao.gov/products/GAO-10-231] (Washington, D.C.: Dec. 10, 
2009); Recovery Act: One Year Later, States' and Localities' Uses of 
Funds and Opportunities to Strengthen Accountability, [hyperlink, 
http://www.gao.gov/products/GAO-10-437] (Washington, D.C. Mar. 3, 
2010); and Recovery Act: States' and Localities' Uses of Funds and 
Actions Needed to Address Implementation Challenges and Bolster 
Accountability, [hyperlink, http://www.gao.gov/products/GAO-10-604] 
(Washington, D.C.: May 26, 2010). 

[193] The Compliance Supplement is issued annually to guide auditors 
on what program requirements should be tested for programs audited as 
part of the Single Audit.

[194] GAO, Recovery Act: As Initial Implementation Unfolds in States 
and Localities, Continued Attention to Accountability Issues Is 
Essential, [hyperlink, http://www.gao.gov/products/GAO-09-580] 
(Washington, D.C.: Apr. 23, 2009).

[195] Recovery Act, div. A, §1512, 123. We will refer to the quarterly 
reports required by Section 1512 as recipient reports. 

[196] GAO, Recovery Act: Recipient Reported Jobs Data Provide Insights 
into Use of Recovery Act Funding, but Data Quality and Reporting 
Issues Need Attention, [hyperlink, 
http://www.gao.gov/products/GAO-10-223] (Washington, D.C.: Nov. 19, 
2009). 

[197] The Recovery Act requires recipients of funding from federal 
agencies to report quarterly on jobs created or retained with Recovery 
Act funding. The first recipient reports filed in October 2009 cover 
activity from February through September 30, 2009. This bimonthly 
report incorporates recipient reports covering activity through June 
30, 2010.

[198] We stratified the population into strata based on size and urban 
status. Regarding size, we identified the 100 largest LEAs in the 
country. The 33 geographic districts comprising the New York City 
Public Schools were treated as one school district and that one 
district was placed in the 100 largest LEAs stratum.

[199] For SEP, the six states we collected information from are: 
Arizona, California, Colorado, Iowa, New York, and Pennsylvania. For 
EECBG, the 12 states we collected information from are: Arizona, 
California, Colorado, Florida, Georgia, Iowa, Massachusetts, Michigan, 
New Jersey, New York, Pennsylvania, and Texas.

[200] The nine states we collected information from are: Arizona, 
California, Florida, Georgia, Iowa, New York, Ohio, Pennsylvania, and 
Texas.

[201] The states we visited are Arizona, California, Georgia, 
Illinois, Massachusetts, Mississippi, New Jersey, Pennsylvania, and 
Texas. 

[202] The 2010 OMB Circular No. A-133 Audits of States, Local 
Governments, and Non-Profit Organizations Compliance Supplement was 
issued on July 29, 2010. 

[203] For additional information about our survey and our analysis of 
responses, see Recovery Act: States' and Localities' Uses of Funds and 
Actions Needed to Address Implementation Challenges and Bolster 
Accountability, [hyperlink, http://www.gao.gov/products/GAO-10-604] 
(Washington, D.C.: May 26, 2010).

[204] See appendix IV, for a complete list of population and 
unemployment rates for the selected local governments. 

[205] GAO, Recovery Act: As Initial Implementation Unfolds in States 
and Localities, Continued Attention to Accountability Issues Is 
Essential, [hyperlink, http://www.gao.gov/products/GAO-09-580] 
(Washington, D.C.: Apr. 23, 2009); Recovery Act: States' and 
Localities' Current and Planned Uses of Funds While Facing Fiscal 
Stresses, [hyperlink, http://www.gao.gov/products/GAO-09-829] 
(Washington, D.C.: July 8, 2009); Recovery Act: Funds Continue to 
Provide Fiscal Relief to States and Localities, While Accountability 
and Reporting Challenges Need to Be Fully Addressed, [hyperlink, 
http://www.gao.gov/products/GAO-09-1016] (Washington, D.C.: Sept. 23, 
2009); Recovery Act: Recipient Reported Jobs Data Provide Some Insight 
into Use of Recovery Act Funding, but Data Quality and Reporting 
Issues Need Attention, [hyperlink, 
http://www.gao.gov/products/GAO-10-223] (Washington, D.C.: Nov. 19, 
2009); Recovery Act: Status of States' and Localities' Use of Funds 
and Efforts to Ensure Accountability, [hyperlink, 
http://www.gao.gov/products/GAO-10-231] (Washington, D.C.: Dec. 10, 
2009); and Recovery Act: One Year Later, States' and Localities' Uses 
of Funds and Opportunities to Strengthen Accountability, [hyperlink, 
http://www.gao.gov/products/GAO-10-437] (Washington, D.C. Mar. 3, 
2010); Recovery Act: States' and Localities' Uses of Funds and Actions 
Needed to Address Implementation Challenges and Bolster 
Accountability, [hyperlink, http://www.gao.gov/products/GAO-10-604] 
(Washington, D.C. May 26, 2010). 

[206] For more details on the maintenance-of-effort requirements, see 
GAO, Recovery Act: Planned Efforts and Challenges in Evaluating 
Compliance with Maintenance of Effort and Similar Provisions, 
[hyperlink, http://www.gao.gov/products/GAO-10-247] (Washington, D.C.: 
Nov. 30, 2009).

[207] OMB, Payments to State Grantees for Administrative Costs of 
Recovery Act Activities, M-09-18 (Washington, D.C., May 11, 2009), and 
OMB, Payments to State Grantees for their Administrative Costs for 
Recovery Act Funding - Alternative Allocation Methodologies, M-10-03 
(Washington, D.C., Oct. 13, 2009). 

[208] The following 16 states elected to participate: Alaska, 
California, Colorado, Florida, Georgia, Louisiana, Maine, Missouri, 
Nevada, North Carolina, Ohio, Oklahoma, South Dakota, Tennessee, 
Texas, and Virginia.

[209] [hyperlink, http://www.gao.gov/products/GAO-10-223].

[210] EPA allocated Recovery Act Clean Water SRF capitalization grants 
to states based on a statutory formula. The agency allocated Recovery 
Act Drinking Water SRF capitalization grants to states based on the 
2003 Drinking Water Infrastructure Needs Survey. EPA allocates Clean 
Water and Drinking Water SRF funds to the District of Columbia and 
U.S. territories as direct grants for the same purposes. 

[211] In this report we use the word "project" to mean an assistance 
agreement, i.e. a loan or grant agreement made by the state SRF 
program to a subrecipient for the purpose of a Recovery Act project. 

[212] The Recovery Act requires states to have all funds awarded to 
projects "under contract or construction" by the 1-year deadline. EPA 
interprets this as requiring states to have all projects under 
contract in an amount equal to the full value of the Recovery Act 
assistance agreement by the deadline, regardless of whether 
construction has begun, according to a September 2009 memorandum. 
Thus, in this report, we use "under contract" when referring to this 
requirement. Further, according to EPA's March 2, 2009, memorandum, 
the agency will deobligate any Recovery Act SRF funds that a state 
does not have awarded to projects under contract by the 1-year 
deadline and reallocate them to other states.

[213] Under the base Drinking Water SRF, Congress has authorized 
states to use an amount equal to up to 30 percent of their 
capitalization grant to provide additional subsidies to communities 
that meet state-defined criteria for being "disadvantaged." There is 
no such statutory authorization for the Clean Water SRF program.

[214] For the purposes of this report, "Title I" refers to Title I, 
Part A of the Elementary and Secondary Education Act of 1965 (ESEA), 
as amended.

[215] LEAs must obligate at least 85 percent of their Recovery Act 
ESEA Title I, Part A funds by September 30, 2010, unless granted a 
waiver, and must obligate all of their funds by September 30, 2011. 
This will be referred to as a carryover limitation.

[216] Under ESEA, schools in improvement have failed to meet adequate 
yearly progress for at least 2 consecutive years. 

[217] School Improvement Grants are authorized under Section 1003(g) 
of ESEA.

[218] Final requirements for SIG were published in Dec. 2009 (74 Fed. 
Reg. 65618 (Dec. 10, 2009)), and were amended by interim final 
requirements published in Jan. 2010 (75 Fed. Reg. 3375 (Jan. 21, 
2010)). 

[219] To identify the persistently lowest-achieving schools in the 
state, a state educational agency must take into account both the 
performance of all students in a school on the state's assessments in 
reading/language arts and mathematics combined and the lack of 
progress by all students on those assessments over a number of years. 

[220] The four core areas of education reform, as described by 
Education, are: (1) increase teacher effectiveness and address 
inequities in the distribution of highly qualified teachers; (2) 
establish a pre-K-through-college data system to track student 
progress and foster improvement; (3) make progress toward rigorous 
college-and career-ready standards and high-quality assessments that 
are valid and reliable for all students, including students with 
limited English proficiency and students with disabilities; and (4) 
provide targeted, intensive support and effective interventions to 
turn around schools identified for corrective action or restructuring. 

[221] Pub. L. No. 100-77, 101 Stat. 482 (July 22, 1987). 

[222] Under the Act, the members of the EFSP National Board are to be 
the Director of the Federal Emergency Management Agency (Chair) and 
six members appointed by the Director from individuals nominated by 
the following organizations: American Red Cross, Catholic Charities 
USA, National Council of Churches of Christ in the USA, The Salvation 
Army, The Council of Jewish Federations, Inc. (now known as The Jewish 
Federations of North America), and the United Way of America (now 
known as United Way Worldwide).

[223] For the Highway Infrastructure Investment program, DOT has 
interpreted the term "obligation of funds" to mean the federal 
government's commitment to pay for the federal share of the project. 
This commitment occurs at the time the federal government signs a 
project agreement. 

[224] Recovery Act, div. A, title XII, 123 Stat. 206. 

[225] Recovery Act, div. A, title XII, § 1201(a). 

[226] The full list of qualifying Transportation Enhancement 
activities is defined in 23 U.S.C. § 101(a)(35). 

[227] The Recovery Act provided $2 billion to HRSA for grants to 
health centers. Of this total, $1.5 billion is for the construction 
and renovation of health centers and the acquisition of Health 
Information Technology systems, and the remaining $500 million is for 
operating grants to health centers. Of the $500 million for health 
center operations, HRSA has allocated $157 million for New Access 
Point grants to support health centers' new service delivery sites, 
and $343 million for IDS grants. 

[228] NSP, a term that references the NSP funds authorized under 
Division B, Title III of the Housing and Economic Recovery Act of 
2008, provides grants to all states and selected local governments on 
a formula basis. Under NSP, the Department of Housing and Urban 
Development allocated $3.92 billion on a formula basis to states, 
territories, and selected local governments. The term "NSP2" 
references the NSP funds authorized under the Recovery Act on a 
competitive basis. 

[229] Fixed guideway systems use and occupy a separate right-of-way 
for the exclusive use of public transportation services. They include 
fixed rail, exclusive lanes for buses and other high-occupancy 
vehicles, and other systems. 

[230] Generally, to qualify for funding under the applicable formula 
grant program, an urbanized area must have a fixed guideway system 
that has been in operation for at least 7 years and is more than 1 
mile in length. 

[231] Metropolitan planning organizations (MPO) are federally mandated 
regional organizations, representing local governments and working in 
coordination with state departments of transportation, that are 
responsible for comprehensive transportation planning and programming 
in urbanized areas. MPOs facilitate decision making on regional 
transportation issues, including major capital investment projects and 
priorities. To be eligible for Recovery Act funding, projects must be 
included in the region's Transportation Improvement and State 
Transportation Improvement Programs. 

[232] For the Transit Capital Assistance Program and Fixed Guideway 
Infrastructure Investment Program, the Department of Transportation 
has interpreted the term obligation of funds to mean the federal 
government's commitment to pay for the federal share of the project. 
This commitment occurs at the time the federal government signs a 
grant agreement. 

[233] Recovery Act, div. A, title XII,123 Stat. 210. 

[234] Recovery Act, div. A, title XII, § 1201(a). 

[235] Per FEMA's definition, a "volunteer fire department is composed 
entirely of members who do not receive compensation other than a 
length of service retirement program (LSOP) and insurance. A career 
department is one in which all members are compensated for their 
services. A combination department has at least one volunteer, with 
the balance being career members, or one career member with the 
balance being volunteers. Also, if a volunteer fire department 
provides stipends to their members or provides pay-on-call for their 
members, the department is considered to be combination."

[236] Volunteer fire departments are eligible to apply for both Hiring 
and Recruitment and Retention grants. Combination fire departments are 
eligible to apply for both Hiring/Rehiring of Firefighters and 
Recruitment and Retention of volunteer firefighters SAFER grants. 
Career fire departments are only eligible to apply for SAFER Hiring/ 
Rehiring of firefighters grants.

[237] See the Medicaid Federal Medical Assistance Percentage (FMAP) 
description in this appendix.

[238] In general, a dislocated worker is an individual who has been 
terminated or laid off, or who has received a notice of termination or 
layoff, from employment; was self-employed but is unemployed as a 
result of general economic conditions in the community in which the 
individual resides or because of natural disasters; or is a displaced 
homemaker who is no longer supported by another family member. In 
addition, the Recovery Act provides that youth up to age 24 may be 
served with Recovery Act funds.

[End of section] 

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