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Need to Be Fully Addressed (Appendixes)' which was released on 
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Report to Congressional Committees: 

United States Government Accountability Office: 
GAO: 

September 2009: 

Recovery Act: 

Funds Continue to Provide Fiscal Relief to States and Localities, While 
Accountability and Reporting Challenges Need to Be Fully Addressed 
(Appendixes): 

GAO-09-1017SP: 

Contents: 

Appendix I: Arizona: 

Appendix II: California: 

Appendix III: Colorado: 

Appendix IV: District of Columbia: 

Appendix V: Florida: 

Appendix VI: Georgia: 

Appendix VII: Illinois: 

Appendix VIII: Iowa: 

Appendix IX: Massachusetts: 

Appendix X: Michigan: 

Appendix XI: Mississippi: 

Appendix XII: New Jersey: 

Appendix XIII: New York: 

Appendix XIV: North Carolina: 

Appendix XV: Ohio: 

Appendix XVI: Pennsylvania: 

Appendix XVII: Texas: 

[End of section] 

Appendix I Arizona: 

Overview: 

The following summarizes GAO's work on the third of its bimonthly 
reviews of American Recovery and Reinvestment Act (Recovery Act) 
[Footnote 1] spending in Arizona. The full report on all of our work, 
which covers 16 states and the District of Columbia, is available at 
[hyperlink, http://www.gao.gov/recovery/]. 

We reviewed two programs in Arizona funded under the Recovery Act-- 
Highway Infrastructure Investment and the Weatherization Assistance 
Program. We selected these for different reasons. Contracts for highway 
projects using Highway Infrastructure Investment funds have been under 
way in Arizona for several months, and provided an opportunity to 
review financial controls, including the oversight of contracts. The 
Weatherization Assistance Program funding provided a significant 
addition to the annual appropriations for the program assisting more 
low-income households to achieve energy efficiency while providing 
long- term financial relief. Furthermore, it provided an opportunity to 
determine the state and local procedures in place to ensure monitoring, 
tracking, and measurement of weatherization program success. We 
reviewed contracting procedures and examined four specific contracts 
under Recovery Act Highway Infrastructure Investment funds. In addition 
to these two programs, we also updated funding information on three 
Recovery Act education programs with significant funds being 
disbursed-- the U.S. Department of Education (Education) State Fiscal 
Stabilization Fund (SFSF) and Recovery Act funds under 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. Consistent with the purposes of the Recovery Act, funds from 
the programs we reviewed are being directed to help Arizona and local 
governments stabilize their budgets and to stimulate infrastructure 
development and expand existing programs--thereby providing needed 
services and potential jobs. The following provides highlights of our 
review of these funds: 

Highway Infrastructure Investment: 

* The U.S. Department of Transportation's (DOT) Federal Highway 
Administration (FHWA) apportioned $522 million in Recovery Act funds to 
Arizona. As of September 1, 2009, the federal government has obligated 
$293 million to Arizona and $18 million has been reimbursed by the 
federal government. 

* As of September 3, 2009, Arizona has awarded 47 contracts totaling 
$135.1 million for statewide highway projects. Arizona has provided for 
at least one construction contract for Recovery Act highway project in 
each of its 15 counties with all counties receiving at least $100,000 
in statewide Recovery Act Federal Highway funds and 13 of the 15 
counties each receiving at least $1.8 million. 

* Arizona has awarded only three construction contracts for local 
highway projects because of a lack of local shovel-ready projects. The 
lack of projects was due to some localities' not understanding the 
allocations that they would receive as well as their unfamiliarity with 
federal highway requirements. 

Weatherization Assistance Program: 

* The U.S. Department of Energy has allocated to Arizona about $57 
million in funding for the Recovery Act Weatherization Assistance 
Program for a 3-year period. As of September 1, 2009, approximately $49 
million has been allocated to local service providers to conduct 
weatherization training and make energy efficiency improvements with 
approximately $28.5 million eligible for reimbursement. 

* Arizona expects to expend the full Recovery Act funding allocation 
before the 3-year period and plans to weatherize approximately 6,400 
units statewide, which according to state officials, could result in as 
much as $1.8 million in overall energy savings annually. 

* As of September 11, 2009, Arizona had expended $771,485 of Recovery 
Act weatherization funds, or about 1.4 percent of the total allocation. 
While most local service providers were ready to begin weatherization 
work, they waited until they were provided final Davis-Bacon Act local 
wage requirements. 

Updated Funding Information on Education Programs: 

* Education has awarded Arizona approximately $557 million of the 
state's approximately $1 billion of SFSF available funds. Of that, 
Arizona had planned to provide approximately $250 million to elementary 
and secondary local education agencies and approximately $183 million 
to public institutions of higher education. As of September 8, 2009, 
Arizona had not disbursed any SFSF funds to local education agencies or 
community colleges, but has disbursed approximately $154 million to the 
state's three universities. 

* Additionally, Education has awarded Arizona about $195 million in 
Recovery Act ESEA Title I funds. Arizona has allocated about $185 
million, or 95 percent of these funds, to local education agencies 
(LEA). Based on information available as of September 8, 2009, Arizona 
has disbursed about $3 million to local education agencies. These funds 
are to be used to help educate disadvantaged youth. 

* Education has also awarded Arizona about $184 million in Recovery Act 
funds under IDEA, Part B. As of September 8, 2009, local education 
agencies have been allocated all $184 million and have received $2.2 
million of the funds. The IDEA funds are to be used to support special 
education and related services for children and youth with 
disabilities. 

Arizona Using Recovery Act Funds to Provide Short-Term Relief; 
Anticipates Fiscal Challenges to Continue after Recovery Act Funds 
Expire: 

In the face of declining revenues and economic activity, Arizona is 
using Recovery Act funding to help balance the state budget and 
minimize the large program reductions to the fiscal years 2009 and 2010 
budgets. According to state budget officials, Arizona's general fund 
full year collections for fiscal year 2009 were $7.69 billion, a 
decrease of 18.4 percent compared to fiscal year 2008, after various 
accounting adjustments, such as fund transfers. To address this revenue 
gap, the state reduced its overall general fund appropriations by 
approximately $1.4 billion in fiscal year 2009, or 14 percent compared 
to fiscal year 2008, and applied $750 million in Recovery Act funding 
to reduce expenditures, according to the Joint Legislative Budget 
Committee.[Footnote 2] However, despite these cuts and the Recovery Act 
federal assistance, Arizona had an estimated remaining budget shortfall 
of $479 million. While the state has a balanced budget requirement, 
according to the budget committee staff, the Arizona constitution 
permits the state to address any year-end shortfall in the next fiscal 
year. As a result, Arizona's fiscal year 2009 estimated shortfall of 
$479 million was carried over and addressed in the fiscal year 2010 
budget. 

For fiscal year 2010, which began in Arizona on July 1, 2009, Recovery 
Act funding will continue to temporarily stabilize the state budget. As 
of September 4, 2009, Governor Brewer has signed, vetoed or line item 
vetoed all fiscal year 2010 budget bills transmitted to her by the 
Arizona legislature. Arizona's anticipated shortfall for fiscal year 
2010 of $3.16 billion was largely resolved by the Governor's actions on 
the budget bills, according to the Joint Legislative Budget Committee. 
The budget includes Recovery Act funding of approximately $1.13 
billion.[Footnote 3] However, according to the Governor, the bills did 
not amount to a comprehensive state revenue strategy for fiscal year 
2010 and future fiscal years. In particular, the Governor exercised 
line item veto authority on the Department of Education and Department 
of Economic Security reductions, while acknowledging this level was 
higher than the state's current available revenues can sustain. In her 
transmittal letter, the Governor cited her intent to restore education 
funding and preserve spending levels to meet Recovery Act requirements. 
The Governor vetoed legislation which affected funding and the 
assessment of fees for a number of smaller state agencies and 
commissions and also allowed the 3-year-old temporary suspension of the 
State Equalization Assistance Property Tax, which supports K-12 
education, to expire, according to the Governor's budget office. 
[Footnote 4] As officials explained, because this tax is levied at the 
local level--increasing the proportional contribution of local monies 
to education funding--the return of this tax effectively means a 
decrease in the state's formula contribution to education funding. 
According to the Governor's budget officials, the legislature had made 
several additional cuts to state support for education funding which 
would have pushed Arizona below the education expenditure level that it 
must maintain to meet requirements for SFSF funds.[Footnote 5] However, 
the Governor exercised line item veto authority on certain Department 
of Education reductions in order to maintain education expenditures at 
the required levels. The Joint Legislative Budget Committee now 
estimates a remaining shortfall of approximately $350 million. The 
Governor is now planning to call the legislature back into session to 
address the outstanding budgetary challenges. In addition to the budget 
shortfall, reduced revenues have resulted in the state treasurer having 
to make short-term borrowings from other state and local government 
funds to cover cash deficits in order to continue state operations. In 
addition, the state is preparing to establish an external line of 
credit of $500 million, according to the Governor's office. 

The Governor has proposed that she and the legislature continue to work 
to address the state's revenue shortfall. As part of a five-part long- 
term solution to Arizona's fiscal condition, the Governor has asked the 
legislature to consider a temporary sales tax increase, particularly in 
light of the fact that the Recovery Act funding will expire. The staff 
of the Joint Legislative Budget Committee has estimated that a voter- 
approved temporary sales tax increase of 1 cent for the first 24 months 
and a half-cent for the following 12 months would generate revenue 
totaling approximately $2.5 billion for fiscal years 2010 through 2013. 
In addition, the Governor called for a state tax reform to promote 
investment in Arizona, revenue stability and job growth and 
sustainability. According to state officials, members of the 
legislature have proposed individual and corporate income tax 
reductions--estimated to reduce revenue by $400 million in fiscal years 
2012 and 2013--and to permanently repeal the State Equalization 
Assistance Property Tax--estimated to cost $250 million in fiscal year 
2010 and up to $281 million in fiscal year 2013. 

Arizona is currently looking for additional ways to address its 
projected fiscal challenges and is developing budgetary plans to avoid 
a sudden drop in revenues as the Recovery Act funding period ends, 
according to Governor's staff members. The $750 million spent in fiscal 
year 2009 and $1.13 billion obligated for fiscal year 2010 to address 
budget shortfalls leave Arizona with only a projected $417 million in 
Recovery Act funding remaining for fiscal year 2011. Current estimates 
project a deficit between $0.89 billion and $2.2 billion in the state's 
general fund for fiscal year 2011, depending on various budget 
solutions being considered. The Governor's staff continues to develop 
plans to work with state agencies on internal organizational changes 
that can help reduce expenditures. In addition, on August 17, 2009, the 
Arizona Senate President established the Arizona Budget Commission, 
which will assess how appropriations are allocated by state agencies; 
streamline the agencies' organization, operation and costs; and create 
a best-practices management model for state government. 

Arizona May Have Insufficient Funds to Cover Administration Costs of 
Recovery Act Oversight without Expeditious Review of State Proposals: 

Given Arizona's budgetary challenges, officials in the Governor's 
Office of Economic Recovery (OER) and the Arizona State Comptroller 
expressed their concern about having adequate funding to cover the 
additional administrative costs associated with compliance of the 
Recovery Act provisions. States have been given the option to recoup 
costs for central administrative services, such as providing oversight 
and meeting reporting requirements of the Recovery Act, as outlined in 
Office of Management and Budget (OMB) memorandum M-09-18.[Footnote 6] 
The OMB memo presented two alternative methods--using estimated costs 
or billing for services. Both alternatives are longstanding methods 
that have been allowed under the guidance in OMB Circular A-87. 
However, as understood by the state's Comptroller, the cost recovery 
processes that OMB currently allows will not cover all the additional 
administrative costs under the Recovery Act, and he expressed two major 
concerns over the OMB Circular A-87 cost allocation methodologies. 
First, according to the Comptroller, the state will not be able to 
fully recapture the cost of depreciable equipment that is dedicated 
specifically for Recovery Act purposes. For example, equipment such as 
a computer server that is purchased by the state to comply with 
Recovery Act reporting or monitoring would be depreciated over the life 
of the asset and not over the period of Recovery Act programs. The life 
of the asset would be longer than the period of Recovery Act programs, 
resulting in the state receiving an allowance for depreciation for a 
shorter period. Therefore, the state comptroller maintains that Arizona 
would not receive full cost recovery. Second, the traditional cost 
allocation methodologies require that the state charge administrative 
costs according to a formula based on the actual amount of money spent. 

To address Arizona's concerns about insufficient funds to cover the 
administrative costs, the Arizona State Comptroller, along with other 
state comptrollers, collaborated with their national association, the 
National Association of State Auditors, Comptrollers, and Treasurers 
(NASACT), to address these issues, and on August 7, 2009, requested on 
behalf of the states, a waiver of certain requirements of OMB Circular 
A-87. The request asked for a change (1) to increase the allowance for 
depreciation of assets that are dedicated to Recovery Act purposes; and 
(2) to allow states to apply a prorated allocation of central service 
agency costs based on the ratio of state agency Recovery Act funds 
received as compared to total Recovery Act funds received by the state. 

Additionally, Arizona submitted a proposal to the Department of Health 
and Human Services's (HHS) Division of Cost Allocation to simplify the 
calculation and accounting for central administrative costs related to 
Recovery Act programs.[Footnote 7] Arizona proposed that it be allowed 
to base the allocation of central service agency costs based on 
budgeted dollars that would not be adjusted to the actual amount of 
money spent. 

According to the state Comptroller, OMB reviewed the waiver request and 
advised that the request to increase the depreciation allowance was a 
policy issue and would not be treated as a waiver. Regarding the second 
waiver request, OMB advised that the Division of Cost Allocation would 
approve cost allocation methodologies on a state-by-state basis. 

As of September 15, 2009, Arizona is awaiting a decision from OMB on 
the policy issue for depreciation allowance and from HHS for approval 
of the cost allocation methodology. The state, pending a decision from 
HHS on the cost allocation methodology, plans to go forward using the 
second option--billing for services--allowed by OMB Memorandum M-09-18. 
However, the state comptroller is concerned that by the time OMB and 
HHS make a decision, recipients of Recovery Act funds in Arizona will 
have already spent significant portions of these funds leaving the 
state with a much smaller pool of remaining funds from which the state 
could collect the administrative costs. Therefore, the ability of the 
state to collect for all administrative costs could be jeopardized. 

Arizona's Strategy to Meet October Reporting Deadline Is Based on 
Implementing a System Intended to Centrally Collect and Report Data on 
State Agencies' Use of Recovery Act Funds: 

Recipients of Recovery Act funds are required to submit quarterly 
reports under section 1512 of the act to the federal agencies providing 
those Recovery Act funds. These reports are to include, among other 
requirements, (1) the total amount of Recovery Act funds received by 
each recipient from the federal agency, (2) a list of all projects and 
activities for which Recovery Act funds were expended or obligated, (3) 
an evaluation of the completion status of each project or activity, and 
(4) an estimate of the number jobs created and number of jobs retained 
by each project or activity. Recipients are to submit the first report 
by October 10, 2009, for the quarter ending September 30, 2009. The 
Recovery Act requires that the reporting be done by entities, other 
than individuals, that receive money directly from the federal 
government. These entities are to submit their data using [hyperlink, 
http://www.federalreporting.gov] which will then be made available to 
the public at [hyperlink, http://www.recovery.gov]. 

Arizona officials from the Governor's office explained that the 
Governor envisions her office as the responsible party for Recovery Act 
funds received by the state of Arizona. Therefore, OER plans to 
centrally collect data and to submit these quarterly 1512 reports for 
the state agencies. Some of the benefits envisioned by the Governor for 
single reporting are the ability to expedite the reporting process, 
provide a common system for reporting, and use built-in audit 
capabilities. Arizona will employ a centralized reporting solution 
that, according to OER officials, will comply with OMB reporting 
guidance. The centralized solution is based on a software application 
known as Stimulus 360 that is customized to meet the Recovery Act 
reporting requirements. State agencies that receive Recovery Act funds 
will send the required reporting data to the OER team. The Governor's 
OER team will compile this data into a single entry and report the 
information through [hyperlink, http://www.federalreporting.gov], the 
reporting portal, to [hyperlink, http://www.recovery.gov]. 

Using this centralized approach, the Governor's team will extract 
financial data already available from the state's accounting system on 
Recovery Act funds that state agencies are using, add in any other data 
from the agencies, and upload these combined data into the centralized 
reporting solution. (See figure 1.) According to OER officials, their 
team will provide reporting and auditor resources to review data 
quality and perform data validation and data cleanup. The state 
comptroller noted that the inherent risk of double reporting certain 
data elements, such as the number of jobs created, by both the state 
agency and other subrecipients, such as a vendor performing the work, 
would be reduced with centralized reporting. 

Figure 1: Arizona's Centralized Reporting System for October Reporting: 

[Refer to PDF for image: illustration] 

A pyramid-shaped diagram that illustrates the Recovery Act projects’ 
hierarchical reporting scheme in Arizona. It starts with individual 
projects at the bottom of the pyramid, then up to state agencies, up to 
the governor’s office, and finally up to [hyperlink, 
http://www.federalreporting.gov] and [hyperlink, 
http://www.recovery.gov] at the top of the pyramid. 

Source: GAO. 

[End of figure] 

As an additional check on data accuracy, each state agency will be 
responsible for validating its data prior to submitting it to the 
state. For example, as discussed later in this appendix, data for 
transportation projects are housed in the Arizona Department of 
Transportation's (ADOT) existing reporting system, LCPtracker, and will 
undergo numerous levels of review by ADOT prior to reporting these data 
to OER for inclusion in the centralized reporting system. 

To coordinate with and obtain cooperation from the state agencies on 
using the centralized solution, the Governor's team started meeting in 
July 2009 with the directors of state agencies. The Governor's team 
explained its preference for the centralized reporting method over each 
state agency reporting separately. The team also gathered information 
on reporting requirements and subsequently began planning for a test 
run of the centralized reporting method. According to OER officials, as 
of September 8, 2009, all state agencies plan to use the Governor's 
centralized reporting methodology. 

Early Identification of Key Long-Term Recovery Act Impacts on the State 
Could Help the State, Its Agencies, and Localities Ensure They Will 
Have the Necessary Data and Tools to Ensure Accountability: 

Recognizing that the state and agencies have focused their limited 
resources in the short term on putting the Recovery Act funds to work 
in Arizona and meeting the October reporting deadline, staff in OER are 
beginning to think about what unique economic impact of Recovery Act 
funds the state would want to track and measure over the long term, 
separately from the federal government data requirements. By doing so, 
the state will be positioned to identify any lessons learned from its 
implementation of the Recovery Act program and to provide 
accountability to the public on the act's effects. OER staff 
acknowledged, however, that they have limited resources to do longer 
term planning, but are moving forward as resources become available. 
Determining at the start of the Recovery Act program which long term 
effects to track would help the state to ensure it is collecting data 
from the outset that it will need, as well as has the systems and 
skilled staff in place to complete analysis. 

For agencies, localities, and other Recovery Act funding recipients 
outside of OER, considering ways to use collected data and measure 
long- term effects of Recovery Act funding is valuable, assuming 
resources for planning and analysis are available. Officials within the 
Arizona Department of Education stated that they hope to use data to 
identify correlations between uses of program funds and improvements in 
student performance. Consequently, they can continue successful efforts 
if alternative funding is available. Likewise, officials managing the 
ESEA Title I education program acknowledged the benefits of determining 
research questions on final Recovery Act impacts so that they can 
prepare as needed. In addition, officials within the state Department 
of Commerce managing the Recovery Act weatherization funds are 
positioning the department to estimate the amount of energy saved as a 
result of work completed with these funds. These are positive steps 
consistent with the state's long-term planning objectives. The state 
could also help to ensure that other agencies and localities, as 
appropriate, are taking such steps to make the best use of funds. 

SFSF Funds Help Address Education Cuts in Some Programs, but K-12 Funds 
Delayed: 

The Recovery Act created the State Fiscal Stabilization Fund (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 be used to alleviate shortfalls 
in state support for education to school districts and public 
institutions of higher education (IHE). The initial award of SFSF 
funding required each state to submit an application to Education that 
provided several assurances. These included assurances that the state 
will meet maintenance-of-effort requirements (or it will be able to 
comply with waiver provisions) and that it will implement strategies to 
meet certain educational requirements, including increasing teacher 
effectiveness, addressing inequities in the distribution of highly 
qualified teachers, and improving the quality of state academic 
standards and assessments. In addition, states were required to make 
assurances concerning accountability, transparency, reporting, and 
compliance with certain federal laws and regulations. States must 
allocate 81.8 percent of their SFSF 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). After maintaining state support for 
education at fiscal year 2006 levels, states must use education 
stabilization funds to restore state funding to the greater of fiscal 
years 2008 or 2009 levels for state support to school districts or 
public IHEs. When distributing these funds to school districts, states 
must use their primary education funding formula, but they can 
determine how to allocate funds to public IHEs. In general, school 
districts 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. 

In July 2009, we reported that the Governor had applied to the U.S. 
Department of Education for SFSF funds that would allow the state to 
offset budget cuts and that Education approved this application. 
According to the Governor's office, Arizona plans to use the government 
services funds for programs to support children's services, community 
health centers, and officer salaries in the state's Department of 
Corrections. As of August 28, 2009, Education had awarded to Arizona 
approximately $557 million of its nearly $1 billion in available SFSF 
funds. The state had planned to provide $433 million to school 
districts and charter schools (otherwise referred to as local education 
agencies) and public IHEs for fiscal year 2009 expenditures, with 
approximately $250 million available to local education agencies (LEA) 
and approximately $183 million to public IHEs. However, based on 
guidance from Education, the state now plans to provide some of these 
funds in fiscal year 2010 instead, as discussed in the following 
section. 

Arizona Plans to Make First Round of SFSF Funds Available to LEAs in 
Fiscal Year 2010 Rather than 2009 as Planned after Additional Guidance 
from U.S. Department of Education: 

The OER is creating an application process and deadlines for the LEAs 
and plans to distribute the first round of $250 million SFSF funds to 
LEAs in fiscal year 2010. In our July 2009 report, we reported that 
because Arizona was facing a nearly $3 billion budget deficit, the 
Governor and legislature had backfilled $250 million in general fund 
appropriation reduction for K-12 programs with SFSF funds. However, 
based on communications with Education after the issuance of our 
report, Arizona was not able to effect this budgetary change.[Footnote 
8] Education and OER have agreed to procedures that will allow SFSF 
funds to be utilized in Arizona consistent with the intent of the 
Recovery Act. OER revised its original approach and plans to make the 
SFSF funds available in September 2009, upon receipt of applications 
from LEAs. 

According to the Governor's office and Joint Legislative Budget 
Committee staff, the postponement in draw down of the funds has 
complicated the state's budget balancing efforts. In addition, the 
state had to borrow money in order to cover the first monthly state aid 
payment to LEAs in fiscal year 2010 because the SFSF funds were not 
available, according to the Office of the Arizona State Treasurer. 
[Footnote 9] Office of the Treasurer staff noted this has increased the 
total amount the state has borrowed to maintain cash flow for state 
operations, and has played a role in the state's bond rating being 
placed on negative watch by one rating agency. Furthermore, according 
to a Governor's office budget official, the state anticipated 
challenges to making a scheduled state aid payment to school districts 
for September 2009 due to the state's cash flow situation. Therefore, 
the state intends to provide up to $300 million in SFSF funds to 
schools in lieu of a September 15 state aid payment, according to a 
Governor's office budget official. 

SFSF Funds Help Institutions of Higher Education Avoid Steep Tuition 
Surcharges, and Cuts in Personnel and Student Services: 

Of the $182.8 million in SFSF funds originally planned for public IHEs 
in fiscal year 2009, the Governor allocated about $154 million to the 
three universities in the state and the remaining approximately $29 
million to the 11 eligible community college districts. In fiscal year 
2009, the level of state support for public IHEs was approximately 
$1.06 billion.[Footnote 10] As of August 3, 2009, the three public 
universities each had submitted applications for SFSF and received the 
full amount of allocated SFSF funds. The three universities requested 
the SFSF monies as a reimbursement for fiscal year 2009 employee 
benefits, personnel services--such as salaries for faculty and 
instructors--and supplies. As of September 8, 2009, the community 
colleges are in the process of completing inter-government agreements 
with the state with respect to their SFSF disbursements. 

According to the Arizona Board of Regents and the three university 
presidents in their SFSF applications, the SFSF funds helped the 
universities absorb budget reductions the state had implemented in 
order to address budget deficits. More specifically, the universities 
had their state support reduced by $29 million in fiscal year 2008 and 
$163 million in fiscal year 2009, amounting to approximately 17 percent 
of the overall state appropriations in fiscal year 2009 for the 
universities. Faced with these reductions, the universities took 
various actions such as operating reductions, academic restructuring, 
and layoffs and furloughs for faculty, staff, and administrators. In 
addition, the universities anticipated an average tuition surcharge for 
the 2009-2010 academic year of $2,051 before receiving Recovery Act 
funding, according to Regents' staff calculations. Table 1 shows the 
state appropriation reductions and the anticipated tuition surcharges 
for each university for fiscal year 2009. 

Table 1: State Fiscal Stabilization Funding for Arizona's Public 
Universities: 

Arizona State University; 
Student body: 67,082; 
General fund appropriation reduction, fiscal year 2009 (dollars in 
millions): $66.1; 
SFSF funding, fiscal year 2009 (dollars in millions): $69.82; 
Anticipated tuition surcharge before Recovery Act offset (2009-2010): 
$1,609; 
Actual tuition surcharge (2009-2010): $510. 

University of Arizona; Student body: 38,057; General fund appropriation 
reduction, fiscal year 2009 (dollars in millions): $69.0; 
SFSF funding, fiscal year 2009 (dollars in millions): $60.82; 
Anticipated tuition surcharge before Recovery Act offset (2009-2010): 
$2,568; 
Actual tuition surcharge (2009-2010): $766. 

Northern Arizona University; 
Student body: 22,307; General fund appropriation reduction, fiscal year 
2009 (dollars in millions): $19.2; 
SFSF funding, fiscal year 2009 (dollars in millions): $23.49; 
Anticipated tuition surcharge before Recovery Act offset (2009-2010): 
$1,975; 
Actual tuition surcharge (2009-2010): $422. 

Source: Arizona Board of Regents. 

[End of table] 

According to the three university presidents, the SFSF monies were 
necessary to avoid additional personnel reductions and furloughs and 
the resulting reduction of programs and student services. Furthermore, 
the availability of SFSF monies allowed the universities to 
significantly reduce the tuition surcharges for the 2009-2010 academic 
year to an average of $566, based on Regents' staff calculation. From 
this perspective, the state universities and Board of Regents executive 
staff deemed the Recovery Act a success. Nevertheless, the tuition 
calculations show surcharges escalating for the 2012-2013 academic 
year, by approximately $2,693 on average, once Recovery Act funding 
expires. Absent additional state or federal funding, the universities 
will need to develop budget plans to explicitly address their 
anticipated funding challenges. 

Funds Starting to Flow to LEAs As Arizona Has Approved Many 
Applications for ESEA Title I Funding: 

The Recovery Act provides $10 billion to help LEAs educate 
disadvantaged youth by making additional funds available beyond those 
regularly allocated through Title I, Part A of ESEA. The Recovery Act 
requires these additional funds to be 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 
current statutory and regulatory requirements and must obligate 85 
percent of the funds by September 30, 2010.[Footnote 11] 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. Education made the 
first half of states' Recovery Act Title I, Part A funding available on 
April 1, 2009, and announced on September 4, 2009, that it had made the 
second half available. 

The state educational agency (SEA) in Arizona has allocated $185 
million of the $195 million in ESEA Title I Recovery Act funds to LEAs. 
The SEA official said that the remaining $10 million has been set aside 
for administration and reallocation to LEAs. In the ESEA Title I 
Recovery Act funding process, each LEA submits an application that 
contains a detailed plan on how and when the funds will be used, and 
SEA officials review the application to ensure that LEAs' spending 
plans comply with applicable laws and regulations. When the SEA 
approves an LEA's application it also obligates ESEA Title I funds to 
the LEA. As seen in table 2 below, as of September 8, 2009, the SEA had 
approved 84 applications for about $46.3 million. SEA officials expect 
to approve all applications and obligate $185 million of ESEA Title I 
funds by September 30, 2009. 

Table 2: Number and Dollar Value of LEA Applications for Recovery Act 
ESEA Title I by Status, September 8, 2009: 

Applications approved by SEA; 
Number of applications: 84; 
Dollar value (in millions): $46.3; 
Amount of ESEA Title I Recovery Act funds disbursed to LEAs (in 
millions): $3.0. 

Applications submitted but not approved; Number of applications: 133; 
Dollar value (in millions): $38.9; 
Amount of ESEA Title I Recovery Act funds disbursed to LEAs (in 
millions): [Empty]. 

Applications to be submitted; 
Number of applications: 209; 
Dollar value (in millions): $99.4; 
Amount of ESEA Title I Recovery Act funds disbursed to LEAs (in 
millions): [Empty]. 

Total LEAs eligible for ESEA Title I Recovery Act funds; Number of 
applications: 426; 
Dollar value (in millions): $184.7. 

Source: SEA grants management system for Recovery Act funds for state 
fiscal years 2009 and 2010. 

Note: Totals may not add due to rounding. 

[End of table] 

LEAs with approved applications submit monthly cash management reports 
to SEA and the SEA provides funds to them with Recovery Act funds for 
their expected Recovery Act ESEA Title I program expenditures. As of 
September 8, 2009, LEAs had received $3.0 million in ESEA Title I 
Recovery Act funds. SEA officials stated that the grants approved are 
in accordance with ESEA Title I and related statutory and regulatory 
requirements to improve students' academic achievement, and include 
projects such as hiring specialists to provide strategic and intensive 
reading intervention to students who are not meeting Arizona's reading 
standards. 

SEA Applied for Authority to Approve LEAs' Requests to Waive Certain 
Requirements in the Use of ESEA Title I Recovery Act Funds: 

On August 26, 2009, the SEA applied to Education for the authority to 
grant LEAs' requests to waive various requirements for ESEA Title I 
Recovery Act funding.[Footnote 12] As we reported in our July 2009 
Recovery Act report, some LEAs will likely seek waivers from 
requirements to provide funds for public school choice-related 
transportation and supplemental educational services, such as tutoring, 
because they go unused, and this waiver will provide more funding for 
other ESEA Title I projects in those districts.[Footnote 13] As seen in 
table 3, as of September 8, 2009, a number of the 84 LEAs with approved 
applications are requesting waivers for various required activities. 

Table 3: Number of LEAs Requesting Waivers: 

Waiver to exclude the Recovery Act funds when calculating the 20 
percent requirement for transportation and supplemental educational 
services; 
Number of LEAs requesting waivers: 23. 

Waiver to exclude the Recovery Act funds when calculating the per pupil 
amount (PPA) of funds available for supplemental educational services; 
Number of LEAs requesting waivers: 20. 

Waiver to exclude the Recovery Act funds when calculating the 10 
percent set aside required for professional development when an LEA is 
identified for improvement; 
Number of LEAs requesting waivers: 16. 

Waiver that allows a school to factor out some or all of its LEA's 
Recovery Act funds when calculating the required 10 percent set aside 
for professional development when a school is identified for 
improvement; 
Number of LEAs requesting waivers: 18. 

Waiver to authorize LEAs to offer supplemental educational services in 
addition to public school choice to eligible students in schools in the 
first year of school improvement; 
Number of LEAs requesting waivers: Note[A]. 

Waiver to authorize LEAs and schools identified for improvement to 
apply to become supplemental educational services providers; Number of 
LEAs requesting waivers: Note[A]. 

Waiver to authorize the SEA to waive the carryover limitation for LEAs 
more than once every three years; 
Number of LEAs requesting waivers: Note[A]. 

Source: SEA grants management system for Recovery Act funds for state 
fiscal year 2010. 

[A] SEA has not asked LEAs if they need the waiver. 

[End of table] 

According to SEA officials, if the SEA's application to waive Title I 
requirements for LEAs is granted by Education, the SEA will be able to 
decide which LEAs' requests for waivers should be approved and thereby 
provide flexibility in the use of Title I funds. As of September 8, 
2009, Education had not granted the SEA authority to grant LEAs waivers 
but Education expects to consider Arizona's request soon. 

Arizona LEAs Have Submitted Applications for IDEA Part B Funding and 
Some Have Been Approved, Allowing Funds to Flow to the LEAs: 

The Recovery Act provided supplemental funding for programs authorized 
by Parts B of IDEA, the major federal statute that supports the 
provisions of special education and related services for children, and 
youth with disabilities. Part B funds programs that ensure preschool 
and school-aged 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-aged children) and Part B preschool 
grants (section 619). Education made the first half of states' Recovery 
Act IDEA funding available to state agencies on April 1, 2009, and 
announced on September 4, 2009, that it had made the second half 
available. 

The SEA has allocated all of the $184 million of the Recovery Act IDEA 
Part B funds to LEAs. Specifically, it allocated $178 million to LEAs 
for school-age children and $5.7 million to LEAs with preschool 
programs for preschool grants. To receive Recovery Act funds, each LEA 
must submit an application that outlines how it will use the funds. 
Subsequently, the SEA officials review the application to ensure that 
spending plans comply with applicable laws and regulations. When the 
SEA approves an application, this action also obligates the funds to 
the LEA. As seen in table 4, many LEAs have submitted applications and 
some have been approved. 

Table 4: Number and Dollar Value of LEA Applications for Recovery Act 
IDEA by Status, September 8, 2009: 

Applications approved; 
Grants for school-age children: Number of applications: 121; Grants for 
school-age children: Dollar value (in millions): $14.9; Grants for 
preschool programs: Number of applications: 45; Grants for preschool 
programs: Dollar value (in millions): $1.0. 

Applications submitted but not approved; Grants for school-age 
children: Number of applications: 149; Grants for school-age children: 
Dollar value (in millions): $36.0; Grants for preschool programs: 
Number of applications: 27; Grants for preschool programs: Dollar value 
(in millions): $0.8. 

Applications to be submitted; 
Grants for school-age children: Number of applications: 284; Grants for 
school-age children: Dollar value (in millions): $127.5; Grants for 
preschool programs: Number of applications: 114; Grants for preschool 
programs: Dollar value (in millions): $3.9. 

Total LEAs eligible for Recovery Act IDEA grants; Grants for school-age 
children: Number of applications: 554; Grants for school-age children: 
Dollar value (in millions): $178.4; Grants for preschool programs: 
Number of applications: 186; Grants for preschool programs: Dollar 
value (in millions): $5.7. 

Source: SEA grants management system for Recovery Act funds for state 
fiscal years 2009 and 2010. 

[End of table] 

Specifically, as of September 8, 2009, the SEA had approved 22 percent 
of the 554 applications for about $14.9 million of Part B grants to 
states and 24 percent of the 186 applications for about $1 million of 
Part B preschool grants. LEAs with approved applications submit monthly 
cash management reports to SEA and the SEA provides funds to them with 
Recovery Act funds for their expected Recovery Act IDEA program 
expenditures, and as of September 8, 2009, the LEAs had received $2.2 
million of Recovery Act funds. SEA officials stated that the IDEA 
grants approved are in accordance with statutory and regulatory 
requirements and include projects such as professional development and 
assistive technology that may help the student participate in classroom 
activities (such as special computer software or a device to assist 
students in holding a pencil). 

SEA Expects to Meet Recovery Act Reporting Requirements Primarily 
through Use of Existing Grants Management System for ESEA Title I and 
IDEA: 

The Arizona Governor's office is requesting that its state agencies use 
a centralized reporting methodology and report through the Governor's 
office. According to SEA officials, they plan to use this reporting 
methodology for Recovery Act funds for both ESEA Title I and IDEA 
funds. The SEA plans to obtain much of the reporting information for 
the LEAs from the existing grants management system that LEAs use for 
non-Recovery Act grants as LEAs use these same systems for non-Recovery 
Act funds as they do for Recovery Act fund. LEAs currently use this 
system to apply for grants and it already contains much of the 
information required for Recovery Act reporting, such as LEA name, LEA 
officials' names, award number, and amount disbursed. Any required 
additional information will be collected in a web application that is 
being developed by the Arizona Department of Education Information 
Technology unit. According to state education officials, they do not 
expect to have difficulties meeting Recovery Act reporting 
requirements. 

Arizona Education Audit Unit Has Processes to Monitor the SEA's and 
LEAs' Internal Controls and the Corrective Actions They Take to Address 
Problems Identified through Single Audits: 

Arizona's SEA has an audit unit (the Arizona Education Audit Unit) that 
performs two functions that help to safeguard Recovery Act funds. The 
audit unit monitors how the SEA and LEAs are correcting problems or 
issues identified during the Single Audits and it also reviews the 
internal controls the LEAs have in place in their financial systems. 
[Footnote 14] The audit unit has developed a system to monitor whether 
LEAs who receive yearly federal funding of $500,000 or more obtain 
Single Audits, and to monitor corrective actions taken by the SEA and 
LEAs for problems identified in their Single Audit reports. For fiscal 
year 2008, 164 or 29 percent of the 572 LEAs that were allocated 
Recovery Act funds had a single audit conducted. Audit officials noted 
that with the additional federal funds that LEAs will be receiving due 
to the Recovery Act, additional LEAs will likely exceed the $500,000 
threshold in federal funds for fiscal year 2010 and thus will be 
required to have Single Audits. The audit unit also conducts fiscal 
monitoring of a sample of LEAs' internal controls and in fiscal year 
2009, the audit unit also reviewed the internal controls of 21 LEAs' 
financial accounting systems. 

The Arizona Education Audit Unit is currently monitoring the SEA's and 
LEAs' responses to Single Audit findings that could affect the 
safeguarding of Recovery Act funds. According to the audit officials, 
they plan to continue their oversight during calendar year 2009 using 
fiscal year 2008 Single Audit reports and will also continue their 
fiscal monitoring reviews. The audit unit is monitoring six findings 
for the SEA that were particular to the ESEA Title I and IDEA programs 
in the fiscal year 2008 Single Audit Reports. Specifically, they 
included the following findings: 

* The SEA did not verify that LEAs complied with ESEA Title I 
requirements by consulting with private schools within their boundaries 
to provide services to eligible private school children, their 
teachers, and their families or to report that there are no eligible 
private schools within the LEA boundaries; 

* Some LEA annual financial reports were incomplete or contained 
accounting errors and inconsistent information that prevented the SEA 
from determining whether LEAs met the IDEA program requirement--that 
state and local funding cannot be lower than it was in the previous 2 
years; 

* The SEA needed to provide additional documentation to support that it 
verified the number of students with disabilities to validate the 
accuracy of the Report of Children with Disabilities Receiving Special 
Education, Part B (an IDEA program); 

* Some LEAs lacked adequate procedures to ensure compliance with 
Education's requirements to submit monthly cash management reports; 

* The Title I and IDEA grants management system did not have adequate 
controls because it did not require users to periodically change 
passwords, did not always maintain a history of user access, and 
permitted some internal users with access rights that were incompatible 
with their job responsibilities or that enabled them to change data 
without supervisory approval; and: 

* The SEA did not comply with the subrecipient monitoring requirements 
of ESEA Title I and IDEA, because it did not obtain Single Audit 
reports within 9 months of the subrecipient's fiscal year-end, did not 
retain documents to support that the SEA tried to ensure audit 
requirements were met, and did not issue management decisions within 6 
months after receipt of subrecipient Single Audit reports. 

According to the audit officials, the SEA has been taking corrective 
action on these findings that will strengthen the safeguards for 
Recovery Act funds. 

Arizona Continues to Move Forward with Statewide Highway Projects, but 
the Slow Pace of Local Projects and Impending Deadlines Are Cause for 
Concern: 

As we previously reported, $522 million was apportioned to Arizona in 
March 2009 for highway infrastructure and other eligible projects. As 
of September 1, 2009, $293 million had been obligated. As of September 
1, 2009, $18 million had been reimbursed by FHWA.[Footnote 15] 

Almost 72 percent of Recovery Act highway obligations for Arizona have 
been for pavement projects. Specifically, $210 million of the $293 
million obligated as of September 1, 2009, is being used for pavement 
projects, including $202 million for pavement preservation and roadway 
widening. State officials told us they selected this type of project 
specifically because they knew the projects could be completed within 3 
years. Figure 2 shows obligations by the types of road and bridge 
improvements being made. 

Figure 2: Highway Obligations for Arizona by Project Improvement Type 
as of September 1, 2009: 

[Refer to PDF for image: pie-chart] 

Pavement projects total (72 percent, $210 million): Pavement widening 
($121.4 million) 41%; Pavement improvement ($80.2 million) 27%; New 
road construction ($8.4 million) 3%. 

Bridge projects total (9 percent, $27.1 million): New bridge 
construction ($14.8 million) 5%; Bridge improvement ($10.5 million) 4%; 
Bridge replacement ($1.8 million) 1%. 

Other (19 percent, $55.8 million): 
Other ($55.8 million) 19%. 

Source: GAO analysis of FHWA data. 

Note: Totals may not add due to rounding. "Other" includes safety 
projects, such as improving safety at railroad grade crossings, and 
transportation enhancement projects, such as pedestrian and bicycle 
facilities, engineering, and right-of-way purchases. 

[End of figure] 

Arizona has Awarded Contracts on its Statewide Highway Projects and 
Started Construction on Many: 

As of September 1, 2009, FHWA has obligated 71 percent of the Recovery 
Act funds apportioned to Arizona for statewide highway projects. 
[Footnote 16] Of these Recovery Act funds, most, about $350 million, 
were to be spent on statewide projects, or those highway projects 
selected by Arizona Department of Transportation (ADOT) from Arizona's 
5-year transportation plan. The remainder of the highway funds is to be 
suballocated to localities across the state. These statewide projects 
were selected based on a number of factors, including the level of 
priority of the project, the ability of the state to award contracts 
and begin construction in a timely manner, and the location of these 
projects in economically distressed areas of the state. The Recovery 
Act mandates that 50 percent of apportioned Recovery Act funds be 
obligated within 120 days of apportionment (before June 30, 2009). The 
50 percent rule applied only to funds apportioned to the state and not 
to the 30 percent of funds required by the Recovery Act to be 
suballocated, primarily based on population, for metropolitan, 
regional, and local use. In addition, states are required to ensure 
that all apportioned funds--including suballocated funds--are obligated 
within 1 year. The Secretary of Transportation is to withdraw and 
redistribute to other states any amount that is not obligated within 
these time frames. As we previously reported, Arizona has met the 50 
percent obligation requirement. By September 1, 2009, approximately 71 
percent of Recovery Act funds had been obligated for statewide highway 
projects. 

Arizona provided for at least one construction contract for a Recovery 
Act highway project in each of its 15 counties (see table 5), with all 
counties getting at least $100,000 in statewide Recovery Act Federal 
Highway funds and 13 of the 15 counties each receiving at least $1.8 
million. 

Table 5: Number and Amount of Construction Contracts for Statewide 
Highway Projects in Arizona by County: 

County: Apache; 
Number of construction contracts: 3; 
Dollar value of construction contracts: $2,997,320. 

County: Cochise; 
Number of construction contracts: 5; 
Dollar value of construction contracts: $7,967,748. 

County: Coconino; 
Number of construction contracts: 5; 
Dollar value of construction contracts: $13,174,891. 

County: Gila; 
Number of construction contracts: 5; 
Dollar value of construction contracts: $11,537,077. 

County: Graham; 
Number of construction contracts: 1; 
Dollar value of construction contracts: $133,331. 

County: Greenlee; 
Number of construction contracts: 1; 
Dollar value of construction contracts: $567,178. 

County: La Paz; 
Number of construction contracts: 2; 
Dollar value of construction contracts: $7,969,226. 

County: Maricopa; 
Number of construction contracts: 5; 
Dollar value of construction contracts: $39,903,012. 

County: Mojave; 
Number of construction contracts: 3; 
Dollar value of construction contracts: $6,426,321. 

County: Navajo; 
Number of construction contracts: 4; 
Dollar value of construction contracts: $8,882,830. 

County: Pima; 
Number of construction contracts: 5; 
Dollar value of construction contracts: $7,336,759. 

County: Pinal; 
Number of construction contracts: 1; 
Dollar value of construction contracts: $13,133,079. 

County: Santa Cruz; 
Number of construction contracts: 1; 
Dollar value of construction contracts: $1,873,811. 

County: Yavapai; 
Number of construction contracts: 1; 
Dollar value of construction contracts: $1,899,987. 

County: Yuma; 
Number of construction contracts: 2; 
Dollar value of construction contracts: $9,360,932. 

County: Statewide[A]; 
Number of construction contracts: 3; 
Dollar value of construction contracts: $1,957,769. 

County: Total; 
Number of construction contracts: 47; 
Dollar value of construction contracts: $135,121,271. 

Source: GAO analysis of ADOT data. 

[A] Statewide projects are multiple projects in various parts of 
Arizona with a similar scope. 

[End of table] 

Arizona's original plan was to undertake 41 statewide highway projects 
under the Recovery Act, but due to significant underbidding by 
contractors, Arizona has, as of August 30, 2009, been able to add 2 
additional statewide highway projects, both roadway widening projects, 
in Maricopa County, Arizona's most populous. In addition, Arizona is 
hoping to add even more Recovery Act projects with the existing cost 
savings, which, as of August 30, 2009, were about $60 million. ADOT 
officials believe that this underbidding is caused by the current low 
levels of economic activity in the construction industry due to the 
state's economic downturn, as well as lower prices for commodities like 
asphalt and oil. 

Arizona officials told us that, for the most part, Arizona's statewide 
projects could be started quickly and completed within 3 years. All of 
the statewide highway projects undertaken by Arizona were already on 
the State Transportation Improvement Plan (STIP). ADOT officials told 
us that most of the projects that the state undertook with Recovery Act 
funds were relatively simple and able to be completed within 3 years, 
such as pavement preservation, roadway widening, and lighting and 
signage (see figure 3). 

Figure 3: Map Depicting Arizona's Initial Statewide Recovery Act 
Highway Projects: 

[Refer to PDF for image: map of Arizona] 

A map of the state of Arizona divided by county that identifies the 
geographic location and type of Recovery Act funded ADOT highway 
projects. Types of projects depicted are: 

Bridge; 
Pavement preservation; 
Reconstruct roadway; 
Roadway widening; 
Lighting and signage; 
Other. 

Source: Arizona Department of Transportation (data and map). 

[End of figure] 

Arizona Has Awarded Only Three Construction Contracts for Local Highway 
Projects Due to a Lack of Shovel-Ready Projects, Among Other Reasons, 
Which Could Pose Challenges in Meeting Recovery Act Time Lines: 

In contrast to the rapid awarding of contracts that the statewide 
Recovery Act highway projects have seen, three construction contracts 
for suballocated local projects have been awarded as of September 1, 
2009. ADOT and FHWA both indicated that local projects have lagged 
behind statewide projects because of a lack of local shovel-ready 
projects. The lack of projects was due to some localities' not having 
an understanding of the allocations that they would receive as well as 
the unfamiliarity of some local agencies with federal highway 
requirements. Under the Recovery Act in Arizona, about $157 million was 
suballocated to localities for federal highway construction. These 
funds were allocated to regional bodies known as Metropolitan Planning 
Organizations[Footnote 17] (MPO) members of which decide the highway 
projects they will undertake. Table 6 shows the distribution of funds 
across these regional bodies as well as the number of contracts awarded 
and total dollars obligated for these locality-led projects. 

Table 6: Localities' Total Recovery Act Allocations, Number of 
Construction Contracts Awarded, and Total Funds Obligated for 
Construction as of September 1, 2009: 

Region: Maricopa Region; 
Total allocation: $104,578,340; 
Number of construction contracts awarded: 0; Total funds obligated for 
construction: 0. 

Region: Pima Region; 
Total allocation: $34,876,167; 
Number of construction contracts awarded: 1; Total funds obligated for 
construction: $276,000. 

Region: Northern Arizona Counsel of Governments; Total allocation: 
$4,112,608; 
Number of construction contracts awarded: 0; Total funds obligated for 
construction: 0. 

Region: Central Yavapai Metropolitan Planning Organization; Total 
allocation: $1,283,485; 
Number of construction contracts awarded: 0; Total funds obligated for 
construction: 0. 

Region: Western Arizona Council of Governments; Total allocation: 
$2,464,687; 
Number of construction contracts awarded: 0; Total funds obligated for 
construction: 0. 

Region: Central Arizona Association of Governments; Total allocation: 
$3,258,973; 
Number of construction contracts awarded: 0; Total funds obligated for 
construction: 0. 

Region: South Eastern Arizona Governments Organization; Total 
allocation: $2,795,080; 
Number of construction contracts awarded: 0; Total funds obligated for 
construction: 0. 

Region: Yuma Metropolitan Planning Organization; Total allocation: 
$2,257,052; 
Number of construction contracts awarded: 2; Total funds obligated for 
construction: $2,075,000. 

Region: Flagstaff Metropolitan Planning Organization; Total allocation: 
$961,128; 
Number of construction contracts awarded: 0; Total funds obligated for 
construction: 0. 

Region: Total; Total allocation: $156,587,520; Number of construction 
contracts awarded: 3; Total funds obligated for construction: 
$2,351,000. 

Source: GAO analysis of ADOT and FHWA data. 

[End of table] 

When the Recovery Act was enacted, localities submitted a number of 
what they considered to be shovel-ready projects to ADOT for its 
approval and subsequent FHWA obligation of funds. An ADOT official told 
us that the department did not approve any projects and sent them back 
to the localities because either the scope of the project was too 
large; the project would exceed the localities' Recovery Act 
allocation; or the project was not designed to meet federal 
requirements. To explain, prior to the Recovery Act, Arizona had a 
program called the Highway Users Revenue Fund (HURF) exchange program. 
Through this program, local agencies sent their Federal Aid highway 
funds to ADOT in exchange for state funds. This allowed ADOT to design 
and administer highway projects to federal standards, including federal 
environmental standards, with which they have considerable experience, 
and allowed localities to use their own experience with the state 
standards to design and build highway projects to state standards. 
However, the HURF exchange program was suspended due to lack of funds 
in September 2008, so the Recovery Act represented the first time in 
years that many localities would have to design highway projects to 
federal specifications. To address the problems above, ADOT and FHWA 
held a number of training sessions to educate localities on their 
responsibilities under the Recovery Act. According to state and local 
officials we interviewed, nevertheless, some localities were still 
confused about the federal requirements they had to meet, particularly 
the environmental clearance requirements. 

Because of the suspension of the HURF exchange program, which meant 
that localities would have to design federal highway projects on their 
own, and recognizing that the Recovery Act would represent a large 
amount of work for the localities to redesign and prepare highway 
projects to meet federal standards, ADOT has required that many 
localities work with management consultants to help design and submit 
for obligation their highway projects undertaken through the act. 
According to agency officials, these consultants are costing localities 
from 5 percent to 15 percent of their allocations under the act. ADOT 
said that the management consultants provide localities the means and 
expertise to design highway projects to federal standards, and 
concluded that were it not for the consultants, these local agencies 
would not be able to meet the March 2010 obligation deadline.[Footnote 
18] 

Despite having the benefit of the management consultants to help them 
design their Recovery Act highway projects, ADOT and two of the local 
officials we spoke with are still concerned that meeting the March 2010 
obligation deadline could be a challenge. To address this concern, ADOT 
has instituted an internal deadline of December 2, 2009, by which they 
expect to receive submissions from all localities regarding the highway 
projects that they propose to undertake under the Recovery Act. Without 
this internal, statewide deadline, ADOT was concerned that there could 
be a glut of submissions to the agency and to FHWA requesting 
obligations just prior to the March 2010 deadline. According to an ADOT 
official, by moving the date forward to December, they can process all 
of the suballocated projects and send them on to FHWA for obligation 
and still meet the Recovery Act time frames. In addition, ADOT is 
considering actions that could be taken in the event localities are 
unable to submit shovel-ready projects by the March 2010 deadline. 
According to management consultants who are working with the 
localities, meeting the December time frame will be a major challenge, 
but they will submit as many of their highway proposals to ADOT as 
quickly as they can. 

Arizona's Department of Transportation Does Not Anticipate Problems in 
Meeting Recovery Act Reporting Requirements and Intends to Participate 
in Centralized Statewide Reporting: 

To meet Recovery Act reporting requirements, the state has mandated in 
all of its contracts relating to Recovery Act highway work that all 
contractors shall report monthly to ADOT on the number of jobs created 
and preserved. The state has implemented the use of a database, 
LCPtracker, that allows contractors to simply enter financial and 
employment information into this database and submit that information 
electronically to ADOT. The agency is then able to transfer that 
information to the FHWA, as mandated by the Recovery Act. According to 
an agency official, ADOT is able to sort all contractor information, 
determine any penalties that need to be applied for incomplete or 
incorrect reporting, and run reports on the numbers of jobs created and 
preserved, as well as the wages paid for this Recovery Act work. Figure 
4 shows an interface of the database with various reports that are able 
to be generated using contractor-supplied reporting information. 

Figure 4: ADOT Database Used to Receive Recovery Act Information from 
Contractors and Report to FHWA and Descriptions of Database Report 
Mechanisms: 

[Refer to PDF for image: illustration] 

A screenshot of the ADOT Web application used to collect and report 
Recovery Act requirements, such as the status of highway projects and 
employment information. Specifically depicted are the following: 

Run Report 1587: 
Monthly Recipient Project Status Report – Information on the status of 
all Recovery Act projects. These data will be used for meeting the 
reporting requirements of Sections 1201 and 1512 and are due to FHWA no 
later than the 20th day of each month for the preceding month’s data. 

Run Report 1589: 
Monthly Employment Report – Monthly employment information on each ARRA 
project is used by States for meeting the reporting requirements of 
Sections 1201 and 1512. In order for States to fulfill their reporting 
obligations, the States must collect and analyze certain employment 
data for each ARRA funded contract. 

Run Report Missing Recovery Act Non-prevailing Wage Data: Missing non-
prevailing wage data – A report showing each Recovery Act- funded 
project and associated non-prevailing wage data. 

Source: GAO analysis of Arizona Department of Transportation 
information. 

[End of figure] 

To gain perspective on this issue, we visited three statewide highway 
projects in various areas in Arizona. Among other topics, we asked 
contractors working on these projects about their experiences in 
reporting wage and employment information to ADOT and whether they had 
experienced any problems in working with ADOT's reporting system, 
LCPtracker. For all three projects, the contractors hired laborers from 
the areas where the projects were located, and reported having no 
problems in identifying and reporting the numbers of jobs created and 
preserved by their work on the Recovery Act projects. ADOT officials 
and contractors told us this is due, in large part, to training that 
ADOT conducted in the use of LCPtracker, which was used in a limited 
manner prior to Recovery Act projects, but made mandatory for all 
contractors working on Recovery Act projects. 

Both the state and the contractors conduct numerous levels of review in 
order to verify the number of jobs reported as well as the wages paid 
to workers on Recovery Act highway projects. For example, one 
contractor we spoke with said she conducts periodic interviews with 
laborers on a highway project to determine that what the contractor 
reported to ADOT in monthly employment reports through LCPtracker was 
in fact the work that the laborer was doing on that particular day, as 
well as that those laborers were paid accurately according to Davis- 
Bacon Act prevailing wage requirements. In addition, ADOT officials 
told us they are conducting periodic site visits to determine that the 
number of laborers working on a particular day match the number that 
the contractor submits to ADOT in those monthly reports. In addition, 
according to ADOT officials, they visit the site of Recovery Act 
highway projects and examine the records kept by the contractors to 
verify that the number and type of jobs being reported to ADOT 
accurately reflect the number and type of jobs on the individual 
projects. When contractors do not report this information properly, a 
number of financial penalties are triggered that ADOT can impose on the 
contractors. As of September 4, 2009, no contractors have been found to 
misreport this required information, so no financial penalties have 
been levied on contractors. 

FHWA's Arizona Division has also developed an inspection plan specific 
to Recovery Act highway projects. These inspections, conducted by FHWA 
staff, cover multiple levels of the project, including traffic control, 
changes to the contracts, material testing, and other construction 
activities. Inspections will be based on FHWA's assessment of the risk 
of each project, with new and reconstruction projects having the 
highest risk due to higher project costs, among other factors. FHWA 
considers pavement preservation projects with a cost of over $5 million 
as medium risk, and miscellaneous projects with a cost under $5 million 
as low risk. FHWA plans for approximately half of all Recovery Act 
highway projects in Arizona to have an initial inspection, which will 
be completed before 30 percent of the highway project is complete. FHWA 
plans intermediate inspections for a sample of the Recovery Act highway 
projects based on findings from initial inspections; the size, 
complexity, and scope of a project; and other factors. These 
inspections, when FHWA deems them necessary, will occur when the 
project is 30 percent to 95 percent complete. Some projects will 
receive a final inspection to determine that the project was completed 
in a manner that conformed to the plans, specifications, and authorized 
changes. If FHWA finds that a project is not in compliance, it will 
then take corrective actions. 

ADOT intends to send information on the number of jobs created and 
preserved as well as other financial and performance metrics required 
by OMB both to FHWA, as required by the Recovery Act, as well as to the 
Governor's office, to be part of Arizona's planned centralized 
reporting system. The data integrity manager at ADOT does not think 
that the Recovery Act poses any new challenges to ADOT in terms of 
either reporting to FHWA, which ADOT has done for years prior to the 
Recovery Act, or to the state for centralized reporting, which the 
agency has also done in the past. The issue of centralized reporting, 
however, is one that the Arizona State Comptroller's Office said might 
present a problem because ADOT uses different accounting codes than are 
used in the state's system, and reconciling those codes might become a 
challenge. But an ADOT official said that the issue of different 
accounting codes has existed for some time, and he does not foresee 
this becoming a major issue. 

Contracts We Reviewed Indicate That ADOT Contracts for Recovery Act 
Work Were Awarded Competitively: 

We selected a total of four contracts, worth a total of $40.7 million, 
to discuss with ADOT contracting officials to determine how the 
contracts were being awarded. ADOT awarded these contracts to conduct 
work in support of Recovery Act highway projects. We selected two 
contracts for work to be conducted in urban areas, and two contracts 
for work to be conducted in rural areas. According to an agency 
official, each of the contracts we reviewed was awarded competitively. 
For each of the contracts, the agency official stated that a project 
development process, an FHWA/ADOT operating partnership, ADOT standard 
specifications, and Recovery Act specifications were followed when the 
contracts were awarded. Further, the official said specific Recovery 
Act objectives were included in the solicitations that resulted in the 
contracts awarded pursuant to the act. Among other things, according to 
the ADOT standard specifications, prior to submitting a bid, ADOT will 
have to prequalify a bidder (unless waived by ADOT). The official 
indicated that all bidders for the contracts we reviewed were 
prequalified. Additionally, ADOT provided information to potential 
bidders on its Web site that explicitly stated that by submitting a bid 
for a Recovery Act funded project, the bidder agrees to be bound by 
conditions and reporting requirements in the contract, which identifies 
penalties for noncompliance. According to an ADOT official, the work on 
the contracts we reviewed was awarded using unit fixed price contracts. 

Determining Weatherization Wage Rates Has Delayed Contracts; Arizona 
Has Procedures in Place to Monitor and Report Program Results, but Is 
Still Uncertain about Counting Jobs Created: 

The Recovery Act appropriated $5 billion over a 3-year period for the 
Weatherization Assistance Program, which the U.S. Department of Energy 
(DOE) administers through each of the states, the District of Columbia, 
and seven territories and Indian tribes. The program 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, or air conditioning equipment. Over the past 32 
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. 

As of September 14, 2009, DOE had approved all but two of the 
weatherization plans of the states, the District of Columbia, and 
territories, and Indian tribes--including all 16 states and the 
District of Columbia in our review. DOE has provided to the states $2.3 
billion of the $5 billion in weatherization funding under the Recovery 
Act. Use of the Recovery Act weatherization funds is subject to Section 
1606 of the act, which requires all laborers and mechanics employed by 
contractors and subcontractors on Recovery Act projects to be paid at 
least the prevailing wage, including fringe benefits, as determined 
under the Davis-Bacon Act.[Footnote 19] Because the Davis-Bacon Act had 
not previously applied to weatherization, the Department of Labor 
(Labor) has not established prevailing wage rates for weatherization 
work. In July 2009, DOE and Labor issued a joint memorandum to 
Weatherization Assistance Program grantees authorizing them to begin 
weatherizing homes using Recovery Act funds, provided they pay 
construction workers at least Labor's wage rates for residential 
construction, or an appropriate alternative category, and compensate 
workers for any differences if Labor establishes a higher prevailing 
wage rate for weatherization activities. Labor then surveyed five types 
of "interested parties" about labor rates for weatherization work. 
[Footnote 20] The department completed establishing prevailing wage 
rates in all of the 50 states and the District of Columbia by September 
3, 2009. 

Arizona Department of Commerce Had Weatherization Contracts Ready to Go 
as Soon as Davis-Bacon Wage Requirements Were Established: 

DOE has allocated approximately $57 million to Arizona for the Recovery 
Act Weatherization Assistance Program over a 3-year period (2009-2012), 
with about $10 million of the total allocation to support initial ramp 
up activities, such as training center expansion, curricula 
development, staff training, and equipment purchases. On June 5, 2009, 
DOE approved Arizona's Recovery Act Weatherization Assistance Program 
plan and the Arizona Department of Commerce (ADOC) allocated about $49 
million of the approximate $57 million to local service providers to 
conduct ramp up and weatherization activities. Approximately $28.5 
million, or about half of the total allocation, is currently eligible 
for reimbursement. ADOC is the prime recipient as defined by OMB, while 
the subrecipients are the local service providers and the contractors 
that conduct the weatherization work. ADOC obligates funding to local 
service providers to weatherize low-income households by making long- 
term energy efficiency improvements, such as installing insulation or 
modernizing heating and cooling systems.[Footnote 21] After a local 
service provider determines that a home is eligible[Footnote 22] to 
receive weatherization work, the local service provider may employ in- 
house construction crews, hire contractors, or use a combination of 
both approaches to make the improvements. As the state does not have a 
centralized procurement system for purchasing weatherization materials, 
local service providers are delegated the responsibility of procuring 
their weatherization materials. ADOC officials expect to expend the 
full allocation before the 3-year period and plan to weatherize 6,409 
units statewide, which, according to ADOC officials, could result in as 
much as $1.8 million in overall energy savings annually. This is an 
almost threefold increase beyond the total number of units weatherized 
in the previous 3 years using regular program and other sources of 
funding.[Footnote 23] Table7 shows Arizona's local service providers, 
their obligated funding amounts, the number of units they expect to 
weatherize from 2009 through 2012, and the cities and counties they 
serve. 

Table 7: Arizona Local Service Provider Funding Obligations, Projected 
Number of Weatherized Units (2009-2012), and the Cities and Counties 
Served: 

Arizona local service provider: Maricopa County Human Services 
Department, Community Service Division; Funding obligation: 
$11,911,987; 
Projected number of units: 1,604; 
County/city served: Maricopa County coverage except cities of Phoenix 
and Mesa. 

Arizona local service provider: Northern Arizona Council of Governments 
(NACOG); 
Funding obligation: $7,500,359; 
Projected number of units: 997; 
County/city served: Apache, Navajo, Coconino, and Yavapai Counties. 

Arizona local service provider: City of Phoenix Neighborhood Services 
Department; 
Funding obligation: $7,222,865; 
Projected number of units: 960; 
County/city served: City of Phoenix. 

Arizona local service provider: Western Arizona Council of Governments 
(WACOG); 
Funding obligation: $5,911,442; 
Projected number of units: 778; 
County/city served: Yuma, La Paz, and Mohave Counties. 

Arizona local service provider: Tucson Urban League, Inc.; Funding 
obligation: $4,749,363; 
Projected number of units: 618; 
County/city served: Cities of Tucson and South Tucson. 

Arizona local service provider: Southeastern Arizona Community Action 
Program (SEACAP); 
Funding obligation: $4,654,446; 
Projected number of units: 603; 
County/city served: Graham, Greenlee, Cochise and Santa Cruz Counties. 

Arizona local service provider: Community Action Human Resource Agency 
(CAHRA); 
Funding obligation: $2,269,618; 
Projected number of units: 275; 
County/city served: Pinal County. 

Arizona local service provider: Gila County Community Action Program; 
Funding obligation: $1,744,457; 
Projected number of units: 204; 
County/city served: Gila County. 

Arizona local service provider: Pima County, Community Development and 
Neighborhood Conservation Department; 
Funding obligation: $1,705,544; 
Projected number of units: 199; 
County/city served: Pima County coverage except cities of Tucson and 
South Tucson. 

Arizona local service provider: Mesa Community Action Network (Mesa 
CAN); 
Funding obligation: $1,500,512; 
Projected number of units: 171; 
County/city served: City of Mesa. 

Arizona local service provider: Total; 
Funding obligation: $49,170,593; 
Projected number of units: 6,409. 

Source: GAO analysis of ADOC data. 

[End of table] 

As of September 11, 2009, Arizona had expended $771,485 of Recovery Act 
weatherization funds, or about 1.4 percent of the total allocation. 
According to ADOC, while most local service providers were ready to 
begin weatherization work, they had to wait until they were provided 
final Davis-Bacon local wage requirements before they could proceed 
because most providers did not have an existing in-house Davis-Bacon 
compliance officer providing them guidance on wage rates, and they 
preferred to avoid having to reconcile if wages in the awarded 
contracts differed from the required rates. Local service providers 
submitted their city's or county's weatherization wage surveys directly 
to Labor and received final wage determinations on August 30, 2009. 
State and local service providers we met with have incorporated the 
Davis-Bacon Act requirements in their contracts stipulating that all 
laborers and mechanics employed by contractors and subcontractors for 
Recovery Act-funded weatherization work be paid the prevailing wage for 
their skill set in their locality. For example, the average hourly wage 
rate for heating and cooling installation workers in Arizona was about 
$16.00, however, using the Davis-Bacon prevailing wage determination, 
the hourly wage for those same workers will be $24.38 in Maricopa 
County and $15.63 in Pima County. The final wage rates differ amongst 
the weatherization specialties and vary throughout the state of Arizona 
as determined by Labor. According to ADOC officials, the effect of the 
increased wages will not change the number of homes expected to be 
weatherized. 

The City of Phoenix decided not to wait on the Davis-Bacon wage 
determination and began weatherizing eligible homes because Phoenix 
officials conducted their own wage determination analysis, consulted 
with their long-established Davis-Bacon compliance officer on relevant 
DOE and Recovery Act guidance, and were prepared to reconcile any wage 
differences. ADOC officials stated that they did not have concerns 
about the City of Phoenix moving forward prior to a final prevailing 
wage determination as they believe Phoenix officials were capable of 
meeting requirements and reconciling any wage differences. According to 
Phoenix officials, in mid-August, a three-bedroom single-family home 
was the first Recovery Act-funded weatherization project completed in 
Phoenix. The home had shade screens installed, an evaporative cooler 
removed, and a gas stove replaced that was found to be emitting 
potentially dangerous levels of carbon monoxide. This weatherization 
work resulted in a safer and more energy efficient home, which is 
expected to decrease the family's energy bill by 30 to 40 percent. 
Phoenix officials added that the project employed 6 full-time and 12 
part-time workers over a 2-week period. 

Recovery Act Funding and Program Requirements Result in Increased State 
and Local Support and Training to Effectively Manage Weatherization 
Activities: 

States and localities have had to increase the number of support 
activities needed to manage the increased funding and program 
requirements under the Recovery Act. According to ADOC officials, their 
organization ramped up from 5 to a total of 12 full-time staff to 
support Recovery Act requirements. Three of the seven program 
administration staff were hired to ensure Davis-Bacon compliance, 
weatherization database management, and general administration. Four of 
the five energy monitors were hired to assist with the additional 
weatherization monitoring and inspections. ADOC has also provided 
funding to hire two additional weatherization training center 
consultants and one contractor to conduct public outreach activities. 
Also, the number of energy auditors qualified to support weatherization 
monitoring and inspections is expected to increase from 137 to about 
250 before the end of the 3-year Recovery Act period. In an effort to 
support more weatherization activities and effectively administer the 
program, Northern Arizona Council of Governments officials have 
proposed to establish two satellite field offices in rural communities 
to increase their capacity to conduct and monitor weatherization 
activities and provide local outreach while minimizing travel time and 
the associated costs. 

Furthermore, ADOC has partnered with a local training center that is 
recognized as one of twelve National Weatherization Training Centers in 
the nation to develop additional courses and expand existing facilities 
necessary to train the number of weatherization contractors and 
auditors required to meet the Recovery Act weatherization program goals 
for Arizona.[Footnote 24] ADOC has obligated $300,000 of the 
approximate total of $10 million, or 3 percent, in Recovery Act 
training and technical assistance funding to the training center. By 
late September 2009, the center plans to spend (1) $40,000 of this 
amount to expand the training classroom space to accommodate the 
increased contractors requiring basic and advanced weatherization 
training, (2) $10,000 to develop training curricula, and (3) $250,000 
to expand the training center's capabilities to include a larger 
laboratory for conducting hands-on diagnostic and heat performance 
testing and demonstrations. 

Specifically, the increase in the number of contractors needed requires 
that they be trained and certified to conduct weatherization work. 
[Footnote 25] Training center officials told us that a large number of 
contractors have expressed interest in becoming weatherization 
contractors. According to training officials, they have screened 
potential weatherization contractor viability by explaining the 
training and materials costs and type of activities involved in 
becoming a weatherization contractor as well as the training process, 
and provided hands-on experience to ensure they are highly motivated to 
remain in and succeed as a weatherization contractor. The 
weatherization training entails receiving hands-on training and testing 
in energy principles, heat performance, health and safety, diagnostics, 
and applied repair. Furthermore, if contractors are interested in 
becoming a certified energy auditor, they must complete one required 
course in building performance auditing. According to the training 
center officials, before the Recovery Act, they were training about 
four to six contractors per month, but now are training 20 to 40 
weatherization professionals per month, a tenfold increase since June 
2009. Since early January 2009, 52 people have completed weatherization 
training and more than 70 energy auditors have been certified at both 
the state and local levels. ADOC has also obligated $150,000 in 
Recovery Act training and technical assistance funding to establish a 
free statewide weatherization contractor mentorship program designed to 
ensure the field readiness of every new weatherization contractor in 
Arizona. Specifically, experienced weatherization contractors approved 
and managed by the training center will mentor new weatherization 
contractors on the program and technical requirements, work techniques, 
and other aspects of successfully completing weatherization jobs. 

State and Local Agencies Have Procedures for Monitoring Work Achieved 
and Uses of Recovery Act Weatherization Funds: 

Arizona has two key state and local procedures in place to ensure 
monitoring, tracking, and measurement of weatherization program 
success. These procedures involve multi-tiered monitoring and 
inspections and the statewide participation in an ADOC-developed 
weatherization Web-based reporting database. First, three levels of 
monitoring and inspections occur during the weatherization process: (1) 
by the contractor who made the improvements, (2) by the local service 
provider who employed the contractor or in-house crew, and (3) by the 
state who oversees the program and subrecipients. Contractors, local 
service providers, and ADOC officials conduct 100 percent mandatory 
file reviews on proposed weatherization projects to monitor whether 
contractors are making cost-effective improvements and that no 
opportunities are missed to further weatherize the eligible homes. 
Contractors and service providers also conduct 100 percent of the 
mandatory physical inspections for all completed weatherization jobs to 
ensure that the weatherization work meets safety and program 
requirements as well as results in energy savings. Also, according to 
ADOC, it regularly conducts physical inspections on about 20 percent of 
the weatherized homes, thereby exceeding the DOE requirement of 
conducting physical inspections on 5 percent of homes. 

Second, the state and local service providers utilize a state- 
developed, Web-based reporting database to centralize audit data, 
facilitate the inspection process, and reduce the risk of fraud by 
weatherization contractors. Data collected during weatherization audits 
are entered into the Web-based reporting database and are only 
accessible by the contractor entering the data, its respective local 
service provider, and ADOC until they are submitted for state review at 
which point, data manipulation cannot be made. According to state 
officials, these internal control features, linking field-based work 
with a Web-based database and limiting accessibility to audit data, 
ensure proper monitoring and data integrity, and are essential in 
tracking the quantity and quality of weatherization work throughout the 
state. 

According to ADOC officials, they conduct risk assessments of their 
local service providers and if any are determined to be at risk as a 
result of low weatherization production activities compared to funding 
received or noncompliance with health, safety, and program 
requirements, or if inspection files are incomplete, these 
weatherization contractors will receive additional oversight until they 
are in compliance and have reduced or eliminated their program risks. 
According to ADOC officials, one local service provider is currently 
undergoing increased monitoring to correct management and in-house crew 
deficiencies that resulted in inaccurate data collection and reporting 
and poor quality weatherization workmanship. The increased monitoring 
will continue for at least 2 months after the local service provider 
demonstrates better program administration and contract work 
compliance. The Arizona Office of the Auditor General has not audited 
the Weatherization Assistance Program as a major program in the Single 
Audit for the last 5 years and, therefore, cannot determine whether 
there are any internal control weaknesses in the state program. 
However, according to ADOC officials, the normal monitoring of their 
state weatherization program and independent program reviews of their 
local weatherization service providers have not identified internal 
control weaknesses for 9 of their 10 local service providers. Although 
state and training center officials consider the program's principal 
risk to be the fast-growing number of weatherization contractors 
requiring increased oversight, they believe these risks are mitigated 
by the following: 

1. Rigorous contractor vetting process conducted by the national 
training center. This process identifies viable and long-term 
weatherization professionals. 

2. Requirement to have contractor weatherization training and auditor 
certification to conduct and monitor state-funded weatherization 
activities. 

3. Limiting of new contractors to one weatherization job at a time 
until they prove reliable, when they can then eventually be given up to 
five jobs. 

4. State and local inspection framework and procedures conducted at 
multiple levels and performed at various phases of weatherization work. 

5. Requirement to use the state's weatherization Web-based reporting 
system capturing mandatory monitoring and reporting information. 

6. Proven abilities of state and local program management who have 
successfully accomplished weatherization activities, some for more than 
25 years. 

City of Phoenix officials described two additional mechanisms they use 
to minimize weatherization contractor-related risks and to ensure their 
program success. First, they subsidize half of the required training 
costs for individuals who have demonstrated that they can be long-term, 
viable weatherization contractors. Second, the Phoenix program 
officials require that all new weatherization contractors participate 
in a city-managed weatherization mentoring program designed to assess 
their ability to conduct the weatherization field work and meet 
reporting requirements. 

In addition to taking steps to monitor the use of funds, state 
officials are using performance measures to determine the effectiveness 
of Recovery Act weatherization funds that will meet and extend beyond 
the DOE required performance measurements. For example, ADOC officials 
have partnered with local utility companies to access 5 years of 
utility data to compare the pre and post energy consumption of 
weatherized homes to analyze whether improvements are achieving energy 
effectiveness over time. The tracking of post-weatherization energy 
savings will provide on-going feedback to weatherization staff, 
highlighting measures or processes that provide high returns. According 
to ADOC, local operational changes can be based on this information, 
thereby improving cost-effectiveness. 

ADOC Expects to Meet Federal Reporting Requirements and to Use the 
State's Centralized Reporting Process: 

ADOC is responsible for reporting on performance measures required 
under the Recovery Act to DOE, including the program expenditures, the 
number of homes weatherized, the number of jobs created and preserved, 
and the energy savings achieved. Currently, local service providers 
report to ADOC on regular Weatherization Assistance Program activity 
quarterly, but are now expected to report on Recovery Act-related 
activities monthly. In order to meet such requirements, ADOC plans to 
report performance measurement data collected in the ADOC Web-based 
reporting database described above to both DOE and to the Governor's 
centralized statewide reporting system quarterly. While ADOC officials 
expect all subrecipients to adjust as necessary to comply with Recovery 
Act Section 1512 reporting requirements,[Footnote 26] ADOC does not 
anticipate any issues with local service providers' ability to comply 
in a timely manner, because of their established Web-based reporting 
structure and monitoring procedures. ADOC plans to report actual 
figures on program expenditures, weatherization units completed, and 
the number of jobs created and preserved for the first report due in 
October 2009. 

Despite Guidance, Local Officials Remain Uncertain about How to 
Accurately Count Jobs Created and Need Further Clarification from ADOC: 

According to state and local officials, some local service providers 
remain uncertain about how to accurately count jobs created and need 
further clarification from ADOC. ADOC is developing an alternative 
methodology to assist local service providers in properly counting and 
tracking the number of jobs created as required by the Recovery Act 
reporting requirements. Currently, weatherization reports track the 
number of housing units completed, not hours worked. ADOC officials 
anticipate that local service providers would have difficulty gathering 
this information because contractors have tracked and reported housing 
units completed, use of funds, and the results of work completed, 
rather than the number of hours worked or number of jobs created. 
Furthermore, local service providers expressed concern that smaller 
contractors may not have the tracking mechanisms and administrative 
controls in place to manage the different reporting requirements and 
administrative tasks required of them to be in compliance. 

In an effort to have consistent and cost-effective reporting from 
subrecipients, ADOC officials are developing an alternative way to 
determine the number of weatherization jobs created in order to comply 
with Recovery Act requirements without increasing reporting burdens on 
the contractors conducting the work. Their alternative methodology for 
determining the number of jobs created will use a statewide average 
number of hours it takes to complete different weatherization job tasks 
(such as duct insulation, window replacements, and weather stripping of 
doors), then apply those averages to the contracted work completed to 
generate the total number of Recovery Act-related hours worked which 
can be translated into the number of full-time equivalent jobs created. 
ADOC officials are currently sending out surveys to local service 
providers to obtain average number of hours worked for different 
weatherization tasks. ADOC officials plan to discuss this alternative 
for measuring the number of jobs created with DOE officials before the 
end of September. ADOC officials believe that this alternative will be 
an easier and more cost-effective way to count the number of 
weatherization hours worked and number of weatherization jobs created 
in their state, however, it is too early to assess whether this 
alternative methodology can successfully assist state and local 
officials in meeting Recovery Act reporting requirements. 

State Comments on This Summary: 

We provided the Governor of Arizona with a draft of this appendix on 
September 8, 2009. The Director of the Office of Economic Recovery 
responded for the Governor on September 16, 2009. Also, on September 
10, 2009, we received technical comments from the State of Arizona's 
Office of the Auditor General. The state agreed with our draft and 
provided some clarifying information which we incorporated. 

GAO Contacts: 

Eileen Larence, (202) 512-6510 or larencee@gao.gov: 

Charles Jeszeck, (202) 512-7036 or jeszeckc@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Steven Calvo, Assistant 
Director; Lisa Brownson, auditor-in-charge; Rebecca Bolnick; Aisha 
Cabrer; Steven Rabinowitz; Jeff Schmerling; and Ann Walker made major 
contributions to this report. 

[End of section] 

Footnotes For Appendix I: 

[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[2] In our April 2009 report we noted that Arizona depleted its budget 
stabilization fund, or rainy-day fund. 

[3] Recovery Act funds used to stabilize the state's operating budget 
include approximately $816 million in state funds made available as a 
result of the increased Federal Medical Assistance Percentage for 
Medicaid (discussed in detail in [hyperlink, 
http://www.gao.gov/products/GAO-09-1016]) and $311 million in SFSF 
funding. These figures do not include $250 million in SFSF funds for 
elementary and secondary education that were anticipated in fiscal year 
2009, but which will now be made available in fiscal year 2010. 

[4] Arizona Senate Bill 1025: The General Revenue Act. In her 
transmittal letter, the Governor stated her willingness to support a 
permanent repeal, but as part of a comprehensive proposal that 
addresses the state's revenue shortfall. 

[5] Among other provisions, the Recovery Act requires states to assure 
that states' support for education will not fall below the levels 
provided in fiscal year 2006. Also, the return of this tax could affect 
the LEAs' budgets and LEAs may have to modify their applications for 
SFSF monies. 

[6] OMB Memorandum, M-09-18, Payments to State Grantees for 
Administrative Costs of Recovery Act Activities (May 11, 2009), 
provides that states may charge Recovery Act grants up to 0.5 percent 
of total Recovery Act funds received by the state under cost recovery 
processes under current guidance of OMB Circular A-87, Cost Principles 
for State, Local and Indian Tribal Governments. Under the provisions of 
OMB Circular A-87, states can recoup administrative costs through the 
Statewide Cost Allocation Plan (SWCAP), which is submitted to the 
Department of Health and Human Services annually for review and 
approval. There are two alternatives, use of estimated costs for 
centralized services, or billed services. 

[7] The Division of Cost Allocation within HHS administers state cost 
allocation plans, which provide a process whereby state central service 
costs can be identified and assigned to benefited activities. 

[8] Education advised the state that this action would be inconsistent 
with some of the Recovery Act requirements, as at the time of the 
state's initial drawdown request, LEAs had not been asked to submit 
applications for the SFSF funds. In addition the funds would have gone 
to the state's general fund and only indirectly to LEAs, although 
Education noted that, per the act, the funds must go directly to LEAs. 

[9] As part of the fiscal year 2009 budget plans adopted by the Arizona 
governor and state legislature in June 2008, Arizona shifted $602.6 
million for K-12 education, effectively delaying 2 months of fiscal 
year 2009 school payments to fiscal year 2010. According to the Office 
of the Treasurer, this was accomplished by rolling over half of the May 
2009 and all of the June 2009 payments to July 1, 2009. In addition, in 
May 2009, a further adjustment was made for fiscal year 2009, according 
to the Office of the Treasurer staff, such that the remainder of the 
May 2009 payment was deferred until October 2009. 

[10] Public Higher Education in Arizona is comprised of two systems; 
the state universities and the community colleges. The universities' 
governing body is the Arizona Board of Regents (ABOR), which provides 
policy guidance to Arizona State University, Northern Arizona 
University, and the University of Arizona in such areas as academic 
affairs, financial and human resource programs, tuition and financial 
aid, and strategic planning. The community colleges operate 
independently as districts, each governed by an elected board. 

[11] 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. 

[12] Under ESEA Title I, states are required to establish performance 
goals and hold their ESEA Title I schools accountable for students' 
performance by determining whether or not schools have made adequate 
yearly progress (AYP). Schools that have not made AYP goals for 3 or 
more consecutive years must offer students an opportunity to transfer 
to a higher-performing school (public school choice) or supplemental 
educational services (SES). Districts are required to provide an amount 
not less than 20 percent of their ESEA Title I, Part A allocation to 
cover public school choice-related transportation costs and SES. Unless 
a waiver is granted, this requirement would apply to ESEA Title I 
Recovery Act funds also. 

[13] GAO, Recovery Act: States' and Localities' Current and Planned 
Uses of Funds While Facing Fiscal Stresses, [hyperlink, 
http://www.gao.gov/products/GAO-09-830SP] (Washington, D.C.: July 8, 
2009). 

[14] The Single Audit Act of 1984, as amended (31 U.S.C ch. 75), 
established the concept of the single audit to replace multiple grant 
audits with one audit of a recipient as a whole. As such, a Single 
Audit is an organization wide audit that focuses on the recipient's 
internal controls and its compliance with laws and regulations 
governing federal awards. It requires that each state, local 
government, or nonprofit organization that expends $500,000 or more a 
year in federal awards must have a Single Audit conducted for that year 
subject to applicable requirements, which are generally set out in OMB 
Circular No. A-133, Audits of States, Local Governments and Non-Profit 
Organizations (June 27, 2003). If an entity expends federal awards 
under only one federal program, the entity may elect to have an audit 
of that program. 

[15] States request reimbursement from FHWA as the state makes payments 
to contractors working on approved projects. 

[16] For the Highway Infrastructure Investment Program, the U.S. 
Department of Transportation has interpreted the term "obligation of 
funds" to mean the federal government's contractual commitment to pay 
for the federal share of the project. This commitment occurs at the 
time the federal government signs a project agreement. 

[17] Metropolitan planning organizations, federally mandated regional 
organizations, representing local governments and working in 
coordination with state departments of transportation, 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. 

[18] The Recovery Act mandates that all apportioned funds, including 
suballocated funds, need to be obligated by, March 2010, 1 year from 
apportionment. 

[19] The Weatherization Assistance Program funded through annual 
appropriations is not subject to the Davis-Bacon Act. 

[20] The five types of interested parties are state weatherization 
agencies, local community action agencies, unions, contractors, and 
congressional offices. 

[21] Building rehabilitation projects that are in a state of disrepair 
where failure is imminent and the condition cannot be resolved cost- 
effectively are beyond the scope of the Weatherization Assistance 
Program. 

[22] A household is eligible for Recovery Act weatherization services 
if they are at or below 200 percent of the federal poverty level. 
Priority service is given to the elderly, people with disabilities, 
families with children, or high residential energy users, and 
households with a high energy burden. 

[23] Local service providers partner with and receive other sources of 
funding from local, state, and federal utility and energy programs to 
maximize the return on investment for energy conservation-related 
activities, such as the Weatherization Assistance Program. 

[24] The Southwest Building Science Training Center, in Phoenix, is one 
of twelve National Weatherization Training Centers, providing beginner 
and advanced classroom-style and hands-on weatherization training to 
contractors in California, Nevada, and Arizona. 

[25] In Arizona, Building Performance Institute (BPI) certification is 
recommended, but not required to be a weatherization technician, 
monitor, or inspector. BPI certified professionals diagnose, evaluate, 
and optimize the critical performance factors of a building that can 
impact health, safety, comfort, energy efficiency, and durability. 

[26] Office of Management and Budget (OMB) Memorandum M-09-21 
Implementing Guidance for the Reports on Use of Funds Pursuant to the 
American Reinvestment Act of 2009 (June 22, 2009) provides guidance for 
carrying out the federal reporting requirements included in Section 
1512 of the Recovery Act. However, this guidance does not impact other 
program-specific requirements in the Recovery Act and, as a result, 
agencies may issue additional and similar reporting requirements. 

[End of section] 

Appendix II: California: 

Overview: 

The following summarizes GAO’s work on the third of its bimonthly 
reviews of American Recovery and Reinvestment Act (Recovery Act)1 
spending in California. The full report covering all of GAO’s work in 
16 states and the District of Columbia, is available at [hyperlink, 
http://www.gao.gov/recovery/]. 

GAO’s work in California focused on specific programs funded under the 
Recovery Act, as well as general issues involving the effect of 
Recovery Act funds on the state’s budget and the state’s readiness to 
report on the use and effect of these funds by program. The programs we 
reviewed—Highway Infrastructure Investment funds, Transit Capital 
Assistance Program, Weatherization Assistance Program, and the 
Workforce Investment Act (WIA) Youth Program—were selected primarily 
because they recently have begun disbursing funds to states or include 
existing programs receiving significant amounts of Recovery Act funds. 
For example, the Transit Capital Assistance funds had a September 1, 
2009, deadline for obligating a portion of the funds. Additionally, the 
WIA Youth program had a summer employment component which was under way 
during our review. In addition to these programs, we also updated 
funding information on three Recovery Act education programs with 
significant funds being disbursed—the U.S. Department of Education 
(Education) State Fiscal Stabilization Fund (SFSF) and Recovery Act 
funds under 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. Consistent with the purposes of the 
Recovery Act, program funds are being directed to help California state 
and local governments stabilize their budgets and to stimulate 
infrastructure development and expand existing programs—thereby 
providing needed services and potential jobs. With the programs, GAO 
focused on how funds were being used; how safeguards were being 
implemented, including those related to procurement of goods and 
services; and how results were being assessed. Our review in California 
covered the following areas: 

State Budget Stabilization: 

* On July 24, the state enacted $24 billion in additional budget 
measures, including $16 billion in cuts to programs, to balance its 
fiscal year 2009-10 budget. 

* While its immediate fiscal crisis is resolved, the long-term fiscal 
outlook is still of concern. 

State Reporting under Section 1512: 

* The state intends to centrally report for all California agencies and 
their subrecipients of Recovery Act funds. 

* The state developed and is now testing a reporting tool to collect 
data from state agencies and then upload that information to the 
federal government. 

* While the state Recovery Act Task Force is confident that they will 
meet Recovery Act deadlines, the quality of the data, especially from 
subrecipients, is uncertain. 

Highway Infrastructure Investment: 

* The U.S. Department of Transportation's (DOT) Federal Highway 
Administration (FHWA) apportioned $2.570 billion in Recovery Act funds 
to California. 

* As of September 1, 2009, the federal government has obligated $1.978 
billion to California, and $22 million had been reimbursed by the 
federal government. 

* As of September 1, California had awarded contracts for 185 projects 
worth $1.245 billion and advertised an additional 180 projects for bid. 
The majority of these projects involve pavement widening and 
improvement projects, but the state is also using highway 
infrastructure funds for numerous safety and transportation enhancement 
projects. 

Transit Capital Assistance Program: 

* DOT's Federal Transit Administration (FTA) apportioned $1.002 billion 
in Recovery Act funds to California and urbanized areas in the state. 

* As of September 1, 2009, FTA has obligated $911 million to California 
and urbanized areas in the state. 

* As part of our current review, we visited four local transit 
agencies--the Los Angeles County Metropolitan Transit Authority; the 
Orange County Transportation Authority; the San Joaquin Regional Rail 
Commission; and the San Joaquin Regional Transit District. 

Selected Education Programs: 

* As of August 28, 2009, California has distributed about $3.7 billion 
in Recovery Act funding to local education agencies (LEA), special 
education learning plan areas[Footnote 2] (SELPA), and institutes of 
higher education through three education programs. This includes SFSF 
education stabilization funds ($2.5 billion to K-12 and about $268 
million to each of the state's university systems), ESEA Title I funds 
($450 million), and IDEA Part B funds ($269 million). 

* The state's cash management practices for education funds, 
particularly ESEA Title I Recovery Act funding, continue to be a 
concern and will require close monitoring. 

Weatherization Assistance Program: 

* California has received 50 percent--about $93 million--of its 
Recovery Act weatherization allocation, and it has obligated about $9.4 
million of these funds for various planning, procurement, and training 
purposes. As of August 31, 2009, the state had paid invoices totaling 
approximately $1.4 million. 

* California plans to weatherize 50,330 homes with Recovery Act funds. 
However, state officials decided not to spend these funds to weatherize 
homes until prevailing wage rate determinations under the Davis-Bacon 
Act were resolved by the Department of Labor, which occurred on 
September 3, 2009. State officials now hope to issue, by the end of 
September 2009, contract amendments allowing service providers to begin 
weatherizing homes with these funds. 

Workforce Investment Act Youth Program: 

* The U.S. Department of Labor (Labor) allotted about $187 million to 
California in WIA Youth Recovery Act funds. 

* The state has allocated about $159 million to the 49 local workforce 
investment areas in the state after reserving 15 percent for statewide 
activities. As of August 20, 2009, local agencies had drawn down $31 
million. California reported to Labor on August 15 that 14,078 youth 
participants were involved in the summer employment activities of the 
WIA Youth Program under the Recovery Act. 

* The two local workforce investment areas we visited in California, 
the City and County of San Francisco and the City of Los Angeles, 
differed in scope, size, and approach in providing their Recovery Act 
summer youth employment programs under WIA. 

California's Fiscal Year 2010 Budget Resolves the Immediate Fiscal 
Crisis, but Long-Term Fiscal Prospects Remain of Concern: 

As discussed in our last report, California was not able to revise its 
budget prior to the new fiscal year that began on July 1. As a result, 
the state was unable to avoid severe cash deficits, which forced the 
Controller's Office to start issuing registered warrants, called IOUs, 
beginning on July 2 to meet the state's payment obligations.[Footnote 
3] After extensive negotiations between the Governor and Legislature, 
on July 24, the Legislature passed amendments authorizing $16.1 billion 
in cuts to the 2009-10 fiscal year budget, bringing the total budget 
cuts enacted by the state since February to $31 billion. These cuts, 
combined with tax increases of $12.5 billion, over $8 billion in 
Recovery Act funds, and other budgetary actions shown in table 1, were 
made to balance California's budget this year. 

Table 1: Overview of Actions to Close California's Budget Gap During 
2009 (Dollars in millions): 

Budget cuts: 
February budget agreement: $14,893; 
July amendments: $16,125; 
Total: $31,018; 
Percent of total: 51.7. 

Fund shifts, deferring expenses, borrowing, and other actions: February 
budget agreement: $402; 
July amendments: $8,034; 
Total: $8,436; 
Percent of total: 14.1. 

Tax increases: 
February budget agreement: $12,513; 
July amendments: [Empty]; 
Total: $12,513; 
Percent of total: 20.9. 

Recovery Act funds: 
February budget agreement: $8,016; 
July amendments: [Empty]; 
Total: $8,016; 
Percent of total: 13.3. 

Total: 
February budget agreement: $35,824; 
July amendments: $24,159; 
Total: $59,983; 
Percent of total: 100. 

Source: California Department of Finance. 

[End of table] 

While the $16.1 billion in budget cuts enacted by the Legislature in 
July were widespread, some cuts are dependent upon future federal 
actions. For example, $1 billion of the cuts to Medi-Cal (the state's 
Medicaid program), shown in table 2, are based on the assumption that 
the state can obtain reimbursements of certain payments from federal 
programs[Footnote 4] and receipt of additional federal funds under 
existing initiatives. The remaining cuts are expected to be achieved 
through program savings during the year. Another budget solution relies 
on delaying state payroll payments by 1 day to push the expense into 
the 2010-11 fiscal year. In addition, some cuts could be overturned by 
lawsuits challenging their legitimacy. 

Table 2: Overview of California 2009-10 Budget Cuts Enacted in July 
(Dollars in millions): 

General fund program: K-12 and community colleges; Dollars: $6,519.1; 
Percent of total: 40.4. 

General fund program: Higher education; Dollars: $1,999.8; 
Percent of total: 12.4. 

General fund program: Shift in funds from local redevelopment agencies 
to education; 
Dollars: $1,700.0; 
Percent of total: 10.5. 

General fund program: Medi-Cal; 
Dollars: $1,381.8; 
Percent of total: 8.6. 

General fund program: Employee compensation; Dollars: $846.1; 
Percent of total: 6.8. 

General fund program: Corrections and rehabilitation; Dollars: $785.5; 
Percent of total: 4.9. 

General fund program: CalWorks; 
Dollars: $509.6; 
Percent of total: 3.2. 

General fund program: Supplemental Security Income/State Supplementary 
Payment Program; 
Dollars: $108.2; 
Percent of total: 0.6. 

General fund program: Developmental services; Dollars: $284.0; 
Percent of total: 1.8. 

General fund program: In-home supportive services; Dollars: $263.5; 
Percent of total: 1.6. 

General fund program: Healthy families; Dollars: $178.6; 
Percent of total: 1.1. 

General fund program: Mental health; 
Dollars: $163.9; 
Percent of total: 1.0. 

General fund program: Courts; 
Dollars: $168.6; 
Percent of total: 1.0. 

General fund program: Child welfare services and foster care; Dollars: 
$120.6; 
Percent of total: 0.7. 

General fund program: Other; 
Dollars: $1,095.3; 
Percent of total: 6.8. 

Total:
Dollars: $16,124.6; 
Percent of total: 100. 

Source: California Department of Finance. 

[End of table] 

Despite the state's budget challenges, the state does not anticipate 
having to request any maintenance-of-effort waivers in any programs 
having such requirements,[Footnote 5] according to state Recovery Act 
Task Force (Task Force) officials. However, some agencies, such as the 
California Department of Education (CDE), may request certain waivers 
for specific Recovery Act programs. For example, officials in several 
school districts we contacted are requesting that CDE submit a request 
for a blanket waiver allowing school districts to carry over more than 
15 percent of the ESEA Title I Recovery Act funds received this year 
into the next fiscal year. 

State officials believe that the newly revised budget will provide a 
solution to the state's cash shortage for the remainder of this fiscal 
year. On August 13, the California Controller announced that the 
Department of Finance's revised cash projections from the new budget, 
coupled with the state Treasurer's assurances that California can 
secure revenue anticipation loans, would provide sufficient cash for 
the state to stop issuing IOUs on September 4. 

California's budget situation is likely to remain challenging for some 
time to come. Preliminary projections by California's Department of 
Finance indicate an additional $7 billion budget shortfall during the 
next fiscal year and potentially larger shortfalls in future years. 
This outlook is shared by the state's Legislative Analyst's Office, 
whose officials told us that they expect the state to experience cash 
flow deficits over the next 3 to 5 years, which may require significant 
borrowings and delayed tax refunds and other payments. 

The severity of California's budget situation is compounded by a 
limited rainy-day fund.[Footnote 6] At the time of our last report, the 
state expected to end the 2008-09 fiscal year with $1.5 billion in 
budget reserve funds and the 2009-10 fiscal year with $4.5 billion. 
However, according to California's Department of Finance, the state 
actually ended the last fiscal year with a deficit of $4.5 billion. The 
Legislature's amendments to the 2009-10 budget eliminated the deficit 
but left the state with little cushion going forward. The Governor used 
his line item veto authority to cut an additional $489 million to give 
the state a small cushion to respond to unforeseen events. This 
cushion, however, could be eliminated if the Governor's line item 
vetoes or other budget cuts are overturned in the courts as a result of 
ongoing or anticipated future lawsuits. 

The lack of rainy-day funds makes planning for the end of the Recovery 
Act funds even more challenging. Further exacerbating the challenge is 
that, according to State officials, temporary State tax increases 
enacted as part of the February 2009 budget agreement, unless amended, 
will end in 2011, around the same time that Recovery Act funds have 
been depleted. Nevertheless, Department of Finance officials cited 
several initiatives that could be considered as a way to assist the 
state with the decline of Recovery Act funds. These initiatives 
include: 

* pursuing reforms in a variety of programs and processes to generate 
additional budget savings;[Footnote 7] 

* transitioning seniors and persons with disabilities served by Medi- 
Cal from a "fee-for-service" model to a "managed care" model to help 
achieve greater savings; 

* pursuing various options to stimulate the state's economy, including 
expanding private-public partnership on redevelopment projects, 
changing some rules to lower corporate taxes, and expediting 
infrastructure project initiation; and: 

* looking for ways to change the state's tax and revenue structure to 
produce a less volatile revenue stream.[Footnote 8] 

Oversight Activities Continue Despite State Officials' Concerns over 
Cost Reimbursements: 

Oversight of and reporting for Recovery Act funds requires considerable 
investment by numerous state entities. For example, the State Auditor's 
Office estimated its cost for audit and oversight activities of 
Recovery Act funds at over $6.5 million through fiscal year 2010-11. As 
we have previously reported, the state has implemented both internal 
and external audit and control activities to help oversee Recovery Act 
funds. In addition to the State Auditor's efforts, the Department of 
Finance is conducting readiness reviews, and the state's Recovery Act 
Inspector General, whose office has been charged with helping to 
prevent and detect fraud, waste, and abuse involving Recovery Act 
funds, is attempting to monitor all Recovery Act funds flowing into the 
state either through state agencies or directly as local grants. The 
Controller, Treasurer, Office of the State Chief Information Officer 
(CIO), and individual state agencies' internal control functions are 
all also involved in oversight activities. In addition, the state is 
incurring considerable expense in developing its Section 1512 reporting 
tool for quarterly reports to OMB, as discussed in the next section. 

State officials expressed frustration in their attempt to obtain 
reimbursement for their costs of oversight over Recovery Act funds, 
made more critical by the state's difficult budget environment. Under 
OMB's Recovery Act guidance, states are allowed to recover central 
administration costs, such as those discussed above, subject to a limit 
of 0.5 percent of the Recovery Act funds received by the state. OMB 
guidance[Footnote 9] issued on May 11 detailed a process which involves 
modifying the Statewide Cost Allocation Plans (SWCAP) approved by the 
Department of Health and Human Services' (HHS) Division of Cost 
Allocation (DCA), to recoup Recovery Act related administrative costs, 
including expediting SWCAP's typical reimbursement procedures. However, 
Task Force officials told us that the new SWCAP process will not allow 
them to claim many of their oversight costs or obtain funding in 
advance. Specifically, based on the Task Force's interpretation of OMB 
guidance, they raised the following concerns about using a modified 
SWCAP process for Recovery Act reimbursement: 

* Only a limited number of activities will qualify for the supplemental 
Recovery Act administrative funding. For example, according to Task 
Force officials, if the state did not perform any specific 
administrative activities related to the increased Medicaid Federal 
Medical Assistance Percentage (FMAP) Recovery Act funds, then it could 
not claim the 0.5 percent administrative fee for the Medicaid Recovery 
Act funds flowing into the state, even if some Recovery Act activities, 
such as those performed by the state's Recovery Act Inspector General, 
help deter fraud, waste, and abuse in Medicaid, as well as in other 
programs. As a result, preliminary calculations by the Department of 
Finance estimate that the state will recover, at best, 25 percent of 
their administrative costs associated with the Recovery Act. 

* Under SWCAP, states are reimbursed after administrative costs have 
been incurred, which in the case of California, could exacerbate its 
already strained cash flow situation. Task Force members said that 
although the state's operations are not currently impacted by the 
inability to obtain administrative funding, in a few months, operations 
could be impacted by cash flow issues. 

* SWCAP is based on years of operating history, which provides a basis 
for estimating costs and obtaining reimbursement. That history, 
however, may not be applicable to Recovery Act administration. 

Task Force members said that these concerns are shared by budget 
officials in other states, and accordingly, the Task Force is working 
through the National Association of State Budget Officers and the 
National Association of State Auditors, Controllers, and Treasurers to 
obtain approval from OMB and HHS to use a further modified SWCAP 
process. California has proposed modifications that would allow states 
to draw administrative funds immediately using either the Governor's 
discretionary portion of SFSF funds or, if such funds are not 
available, through an advance payment from the federal 
government.[Footnote 10] The Task Force members told us that authority 
to use an alternative process has not yet been granted, although 
significant time has been spent working with OMB and DCA officials on 
this issue, and even if granted, it would not allow the state to claim 
the full amount of its oversight costs. 

California Is Developing a Tool to Centrally Submit Section 1512 
Information, but Ability to Capture Subrecipient Data Is Unknown: 

As the Recovery Act's first quarterly recipient reporting date 
approaches on October 10, the state is working to develop a centralized 
statewide reporting mechanism in time to meet this deadline.[Footnote 
11] The state plans to centrally report for all state agencies 
receiving Recovery Act funds, including the total amount of funds 
received and amounts spent on projects and activities, the status of 
specific projects and activities, estimates of jobs created or 
retained, and details on sub-awards and other payments.[Footnote 12] 
The first quarterly report will summarize Recovery Act activity from 
the date of enactment through September 30, 2009, and each successive 
quarterly report will present cumulative information through that 
quarter. 

As discussed in our last report, California was attempting to procure a 
reporting system from an outside vendor because the state does not have 
a centralized data management and accounting system that is capable of 
tracking Recovery Act activities across state agencies. However, the 
state's attempts to procure an off-the-shelf system have not been 
successful because none of the 18 vendors bidding on the project had a 
system that would meet the state's requirements without extensive 
modifications. Consequently, the state's CIO, as a member of the Task 
Force, is leading an in-house effort to develop a custom software 
system that can be used to upload the state's data to the central 
nationwide data collection system at the FederalReporting.gov Web site 
until a final solution is found. 

The state's interim centralized reporting tool will be fed data from 
each state agency and then uploaded to the national 
FederalReporting.gov Web site. According to CIO officials, the state 
agencies and grantees are responsible for the quality of their data 
submissions to the centralized reporting tool. However, some state 
agency officials told us they are facing challenges in developing their 
own reporting systems, especially with regard to the quality and 
completeness of information received from subrecipients. These concerns 
are discussed in more detail in the program-specific sections of this 
report. 

CIO and other Task Force officials are conducting several dry runs in 
August and September to identify and resolve issues prior to the final 
reporting in October. For example, in mid-August the CIO conducted a 
dry run with three state agencies that, according to CIO officials, 
went very well overall and resulted in the development team identifying 
some minor issues. According to CIO officials, this dry run was 
particularly useful because the development team was able to test all 
three methods that state agencies have available to submit data to the 
centralized reporting tool, including through Excel spreadsheets, an 
online Web form, or directly as an XML spreadsheet.[Footnote 13] 
Similarly, CIO would like to conduct a dry run with the 
FederalReporting.gov site prior to October to test whether it can 
accept the state's data. 

CIO and Task Force officials intend to perform some high-level quality 
checks of the information that will be submitted to the centralized 
reporting tool by state agencies. For example, CIO plans to review 
agency submissions to identify missing data and also cross-check the 
activity reported with Recovery Act receipt data reported by the state 
Controller's Office to identify potential gaps. Further, depending on 
the results of future dry runs, CIO may expand the use of data 
integrity checks on agency data submissions before the final 
submission. 

California Continues to Award Highway Contracts Using Existing 
Contracting Procedures and Internal Controls to Ensure Appropriate Use 
of Funds: 

The Recovery Act provides funding to the states for restoration, 
repair, and construction of highways and other activities allowed under 
the 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, which 
include ensuring the project meets all environmental requirements 
associated with the National Environmental Policy Act (NEPA), paying a 
prevailing wage in accordance with federal Davis-Bacon Act 
requirements, complying with goals to ensure disadvantaged businesses 
are not discriminated against in the awarding of construction 
contracts, and using American-made iron and steel in accordance with 
Buy America program requirements. While the maximum federal fund share 
of highway infrastructure investment projects under the existing 
federal-aid highways program is generally 80 percent, under the 
Recovery Act, it is 100 percent. 

As we reported in April 2009, $2.570 billion was apportioned to 
California in March 2009 for highway infrastructure and other eligible 
projects. As of September 1, 2009, $1.978 billion had been obligated 
[Footnote 14] and $22 million had been reimbursed by Federal Highway 
Administration (FHWA).[Footnote 15] 

Funds Obligated for Highway Projects in California Continue to Grow: 

The majority of Recovery Act highway obligations for California have 
been for pavement widening and improvement projects. Specifically, 67 
percent ($1.316 billion) of the $1.978 billion obligated to California 
as of September 1, 2009, is being used for pavement widening and 
improvement projects, while 31 percent ($614 million) is being used for 
safety and transportation enhancement projects and 2 percent ($48 
million) is being used for bridge replacement and improvement projects. 
As we reported in July 2009, state officials told us they prioritized 
projects that could be started quickly in selecting projects to receive 
Recovery Act funds. Figure 1 shows obligations in California by the 
types of road and bridge improvements being made. 

Figure 1: Highway Obligations for California by Project Improvement 
Type as of September 1, 2009: 

[Refer to PDF for image: pie-chart] 

Pavement projects total (62%, $1,316.2 million): Pavement improvement 
($1,036.7 million): 52%; Pavement widening ($274.3 million): 14%; New 
road construction ($5.3 million): 0%. 

Bridge projects total (2 percent, $48.3 million): Bridge replacement 
($24.3 million): 1%; Bridge improvement ($24 million): 1%. 

Other (31 percent, $613.9 million): 
Other ($613.9 million): 31%. 

Source: GAO analysis of FHWA data. 

Note: Totals may not add due to rounding. "Other" includes safety 
projects, such as improving safety at railroad grade crossings, and 
transportation enhancement projects, such as pedestrian and bicycle 
facilities, engineering, and right-of-way purchases. 

[End of figure] 

As of September 1, 2009, California's Department of Transportation 
(Caltrans), had awarded 185 contracts for state and local highway 
projects, 96 of which had begun construction and 13 of which had 
completed construction. The total value of the contracts awarded is 
$1.245 billion.[Footnote 16] An additional 180 projects for state and 
local highway projects were advertised or in the bid review process. 
Caltrans expects to place an additional 429 planned projects out to bid 
over the next 2 fiscal years. 

California Has Contracting Procedures in Place Intended to Ensure 
Appropriate Use of Funds: 

According to state officials, the state has well-defined contract 
requirements for all highway projects, and Caltrans awards all highway 
contracts competitively to the lowest responsive and responsible 
bidder. Caltrans reviews all low bids to ascertain that the potential 
contractor's estimated costs are balanced across the length of the 
contract and match historical prices for similar work. Caltrans 
officials stated that, in order to be awarded a contract, potential 
contractors must possess the appropriate licenses and bonds; pass 
safety and record checks; and demonstrate their experience completing 
similar work. Contractors are required to report during the 
solicitation process whether they have been found "not responsible" 
under evaluations in any previous solicitation. Caltrans officials 
stated that contracts are normally awarded as fixed unit price, wherein 
the price for certain items may be adjustable. For example, if the 
price of oil increases or decreases more than a prespecified 
percentage, Caltrans can make adjustments to an existing contract. 
State officials told us that Caltrans oversees construction contracts 
administrated by local agencies on the state highway system to ensure 
compliance with applicable state and federal regulations and Caltrans 
standards and practices. Officials stated that Caltrans also provides 
procedural and policy guidance on contract administration to local 
agencies completing projects that are not located on the state highway 
system. In addition, Caltrans officials stated that they added 
requirements specific to the Recovery Act, such as reporting 
requirements, to the Recovery Act contracts. Caltrans officials stated 
that for contracts drafted prior to enactment of the Recovery Act, but 
funded in part by Recovery Act appropriations, reporting requirements 
were appended to the contracts. 

We selected two contracts to review and discussed them with the 
relevant contracting officials in greater depth.[Footnote 17] At the 
state level, Caltrans awarded a contract to resurface, restore, and 
rehabilitate a segment of Interstate 80 in Solano County, California. 
This contract was awarded on April 21, 2009, at a total value of $13.4 
million, with a start date of May 19, 2009. At the local level, the 
City of Seaside awarded a contract to rehabilitate a section of Del 
Monte Boulevard. This contract was awarded on July 16, 2009, at a total 
value of $168,000. (See table 3.) 

Table 3: Summary of Contract Information for Two Highway Projects 
Visited: 

Interstate 80 Project--Road Resurfacing, Restoration and Rehabilitation 
in Solano County, California: 
* Estimated contract value: $13.4 million; 
* Fixed unit price contract awarded competitively; 13 bidders; 
* Estimated project duration: May to November 2009. 

Del Monte Boulevard Project--Pavement Rehabilitation in Seaside, 
California: 
* Estimated contract value: $168,000; 
* Fixed unit price contract awarded competitively; 5 bidders; 
* Estimated project duration: September to October 2009. 

Source: GAO analysis. 

[End of table] 

The Caltrans official in charge of contract oversight for the 
Interstate 80 project stated that Caltrans follows the standard 
procedures set forth in the Caltrans Construction Manual, which 
Caltrans uses to monitor all of its state highway contracts.[Footnote 
18] For example, to ensure the work performed matches contract 
specifications and meets quality standards established in the contract, 
Caltrans reviews materials testing reports submitted monthly by the 
contractor and independently conducts inspections and materials 
testing. The Caltrans resident engineer for each project also verifies 
that work performed by the contractor matches contract specifications. 
According to the project manager for the Del Monte Boulevard pavement 
rehabilitation project, the City of Seaside relies on Caltrans district 
office engineers to provide guidance regarding project oversight. The 
project manager monitors 100 percent of the invoices that contractors 
submit to ensure invoice requests for reimbursement match work 
performed and that work performed matches contract specifications. City 
officials stated that the city inspects and manages ongoing work and 
relies on consultants for materials testing and engineering support. 
Caltrans officials stated that these oversight procedures are standard 
for local road projects. 

Caltrans Is Preparing for Reporting Required by Recovery Act Section 
1512, but Has Concerns about Subcontractor Data Quality: 

Caltrans has been collecting employment data and information on project 
implementation and expenditures and is preparing to provide compiled 
data for Section 1512 reporting to the CIO and the rest of the Task 
Force. According to Caltrans officials, Caltrans is modifying its data 
collection system to comply with OMB guidance on Section 1512 
reporting. As we reported in July 2009, Caltrans requires contractors 
to collect and report information, including number of workers and 
payroll amounts, on a monthly basis. In addition to reporting this 
information for their own employees, contractors are also required to 
gather and report subcontractor data to Caltrans. Caltrans officials 
stated that they may have difficulty obtaining consistent data at the 
subcontractor level because Caltrans does not have direct visibility 
over data collection at the subcontractor level. Officials stated that 
Caltrans may assess the reliability and accuracy of contractor data in 
the future. 

Transit Agencies in California Are Beginning to Use Transit Capital 
Assistance Recovery Act Funding, but Some Have Concerns about Section 
1512 Reporting Requirements: 

The Recovery Act appropriated $8.4 billion to fund public transit 
throughout the country through three existing Federal Transit 
Administration (FTA) grant programs, including the Transit Capital 
Assistance Program.[Footnote 19] The majority of the public transit 
funds, $6.9 billion (82 percent), were apportioned for the Transit 
Capital Assistance Program, with $6.0 billion designated for the 
urbanized area formula grant program and $766 million designated for 
the nonurbanized area formula grant program.[Footnote 20] Under the 
urbanized area formula grant program, Recovery Act funds were 
apportioned to 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 the states under the nonurbanized area formula grant 
program 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. Up to 10 percent of apportioned 
Recovery Act funds may also be used for operating expenses.[Footnote 
21] Under the Recovery Act, the maximum federal fund share for projects 
under the Transit Capital Assistance Program is 100 percent.[Footnote 
22] 

Funds appropriated through the Transit Capital Assistance Program must 
be used in accordance with Recovery Act requirements, including the 
following: 

* Fifty percent of Recovery Act funds apportioned to urbanized areas or 
states are to be obligated within 180 days of apportionment (before 
September 1, 2009) and the remaining apportioned funds are to be 
obligated within 1 year. The Secretary of Transportation is to withdraw 
and redistribute to other urbanized areas or states any amount that is 
not obligated within these time frames.[Footnote 23] 

* Project sponsors must submit periodic reports, as required under the 
maintenance-of-effort for transportation projects section (1201(c) of 
the Recovery Act) on the amount of federal funds appropriated, 
allocated, obligated, and outlayed; the number of projects put out to 
bid, awarded, or work has begun or completed; project status; and the 
number of jobs created or sustained. In addition, grantees must report 
detailed information on any subcontractors or subgrants awarded by the 
grantee. 

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 (MPO)-- 
develop a list of transit projects that project sponsors (typically 
transit agencies) submit to FTA for Recovery Act funding.[Footnote 24] 
FTA reviews the project sponsor's grant applications to ensure that 
projects meet the eligibility requirements and then obligates the 
Recovery Act funds by approving the grant application. Project sponsors 
must follow the requirements of the existing programs, which include 
ensuring the projects funded meet all regulations and guidance 
pertaining to the Americans with Disabilities Act (ADA), pay a 
prevailing wage in accordance with federal Davis-Bacon Act 
requirements, and comply with goals to ensure disadvantaged businesses 
are not discriminated against in the awarding of contracts. 

In March 2009, $1.002 billion in Transit Capital Assistance Recovery 
Act funds were apportioned to California and urbanized areas in the 
state for transit projects. As of September 1, 2009, $911 million had 
been obligated. California's six largest urbanized areas were 
apportioned approximately $764.7 million in Transit Capital Assistance 
funding, or 78 percent of California's total apportionment. The largest 
urbanized area in California (Los Angeles-Long Beach-Santa Ana) was 
apportioned about 50 percent of these funds, or $388.5 million. In 
addition to apportionments to urbanized areas, approximately $34 
million was apportioned to nonurbanized areas in California and will be 
administered by Caltrans. 

FTA Found That Recovery Act Obligation Deadline Was Met: 

All of the urbanized areas in California and Caltrans, on behalf of the 
state's nonurbanized areas, submitted grant applications in time for 
FTA to obligate at least 50 percent of the amount apportioned to each 
by the September 1 deadline.[Footnote 25] As of September 1, 2009, FTA 
concluded that the 50 percent obligation requirement had been met for 
California and urbanized areas located in the state. For ten urbanized 
areas--Bakersfield, Indio-Cathedral City-Palm Springs, Lancaster- 
Palmdale, Mission Viejo, San Jose, San Diego, Santa Rosa, Stockton, 
Temecula-Murrieta, and Victorville-Hesperia-Apple Valley--FTA obligated 
100 percent of their respective apportionments. FTA was also able to 
obligate 100 percent of funds apportioned under the nonurbanized area 
formula grant program to Caltrans. 

Selected Transit Agencies in California Are Using Transit Capital 
Assistance Recovery Act Funds for Preventive Maintenance, Capital 
Costs, and Access Enhancements: 

Caltrans and four transit agencies we visited--Los Angeles County 
Metropolitan Transportation Authority (Metro), Orange County 
Transportation Authority (OCTA), San Joaquin Regional Rail Commission, 
and San Joaquin Regional Transit District (San Joaquin RTD)--are using 
their Transit Capital Assistance Recovery Act funds for a variety of 
capital projects. For example, Metro distributed its Transit Capital 
Assistance Recovery Act funds, approximately $226 million, among eight 
projects, including an overhaul of its aging bus fleet, the purchase of 
140 compressed natural gas buses, improvements to electrical support 
systems for its rail line, and enhancements to a rail station entrance. 
(See table 4.) While Metro chose to fund multiple projects, the San 
Joaquin Regional Rail Commission dedicated its funds, approximately $3 
million, to a single project to construct new track and upgrade the 
railbed for San Joaquin's regional commuter trains. FTA Region IX, 
which includes California, provided guidance to local transit agencies 
on selecting projects, which emphasized selection of projects that 
could be started quickly. Officials at the four transit agencies we 
visited stated that they used this guidance in their project selection 
process. 

Table 4: Overview of Los Angles County Metropolitan Transportation 
Authority Transit Capital Assistance Projects: 

Project name: Metro Blue Line traction power station; Project 
description: Replacement of up to 20 aging traction power substations. 
New substations are expected to consume approximately 5 percent less 
energy than existing stations; Cost: $62,785,048. 

Project name: Bus replacement; 
Project description: Procurement of 90 45-foot compressed natural gas 
composite buses; 
Cost: $60,000,000. 

Project name: Bus Midlife Program (preventive maintenance); Project 
description: Approximately 376 buses with an average age of 8 years in 
service have accumulated at least 40 percent of their useful life and 
will be overhauled, including repower of engine packages, suspension 
replacement/repair work, and operator control panel refurbishment; 
Cost: $47,000,000. 

Project name: Electrify CNG compression; Project description: 
Electrification of all system compressors to comply with regional air 
quality regulations; Cost: $28,000,000. 

Project name: Bus replacement; 
Project description: Procurement of 50 (30-to 32-foot) compressed 
natural gas buses; 
Cost: $24,000,000. 

Project name: Replacement of fiber optics; Project description: 
Purchase of fiber optic transmission equipment to replace the existing 
communications system equipment for the Metro Rail system; 
Cost: $2,500,000. 

Project name: Metro transit enhancement project; Project description: 
Improvements along the El Monte and Harbor Busway Stations; 
Cost: $1,030,644. 

Project name: Red Line station egress project; Project description: 
Design and construction of stairway entrances to the 7th Street and 
Metro Center Station to meet fire and safety requirements; 
Cost: $800,000. 

Total: 
Cost: $226,155,692. 

Source: Los Angeles County Metropolitan Transportation Authority. 

Note: Metro used its Recovery Act Transit Capital Assistance Program 
apportionment to fund eight capital projects. Of these projects, one, 
the Bus Midlife Program, is being completed by Metro employees, while 
the remaining seven projects will be contracted. Metro reported that 
seven of the eight projects are under way, on schedule, and on budget. 
As of August 2009, Metro was still preparing to issue the request for 
proposals for the Metro Transit Enhancement project. 

[End of table] 

Transit agencies we visited are also using Transit Capital Assistance 
funds for preventive maintenance, as the Recovery Act funds could be 
spent quickly and the work could be performed primarily by agency 
employees rather than contractors.[Footnote 26] For example, OCTA is 
using approximately 60 percent of its Transit Capital Assistance 
Recovery Act funds, about $45.5 million, for preventive maintenance, 
which includes vehicle fleet and bus facility maintenance, as well as 
the salaries and benefits of employees performing such tasks. (See fig. 
2.) According to OCTA officials, funding projects to expand service was 
not desirable because it would create long-term operating costs that 
could not be sustained. 

Figure 2: Examples of Projects Selected by the Orange County 
Transportation Authority: 

[Refer to PDF for image: two photographs] 

Two photos showing transit projects in California funded through 
Recovery Act Transit Capital Assistance funds. The photo on the left 
shows an Orange County Transportation Authority employee performing 
maintenance and repair on a bus from the authority’s bus fleet. The 
photo on the right shows a contractor applying joint sealant to 
concrete slabs at an Orange County Transportation Authority bus base. 

Source: Orange County Transportation Authority. 

[End of figure] 

Officials from all four agencies we met with reported that Recovery Act 
funds allowed them to fund projects that otherwise would have not been 
funded this fiscal year because state and local funding sources were 
suspended or fell short. For instance, officials at the San Joaquin RTD 
told us that Transit Capital Assistance Recovery Act funds are being 
used largely to fill the funding gap for capital expenses that were 
previously funded by State Transit Assistance funds and local tax 
revenue.[Footnote 27] San Joaquin RTD and OCTA also plan to use Transit 
Capital Assistance Recovery Act funds to compensate funding shortfalls 
for operating expenses. While OCTA plans to use some of the allowed 10 
percent of the Los Angeles-Long Beach-Santa Ana urbanized area 
apportionment for operating expenses and the San Joaquin RTD is 
considering using some of the 10 percent allowance for the Stockton 
urbanized area, Metro officials stated that time constraints imposed by 
the Recovery Act requirement to obligate at least 50 percent of the 
urbanized area's apportionment by September 1, 2009, made it difficult 
to include the 10 percent allowance in their grant applications to FTA. 
Metro developed its grant application before the announcement that 
operating expenses were eligible, and according to Metro officials, it 
could have taken up to 3 months to amend their state and regional 
transportation planning documents to include use of funding for 
operations, which could have resulted in missing the September 1 
deadline. According to transit agency officials, their budgetary 
challenges may continue, in part, due to the elimination of the State 
Transit Assistance fund for fiscal years 2010 through 2013. In 
addition, transit agencies may receive less revenue from local funding 
sources such as sales taxes. 

Some transit agencies also received funds for projects through the 
transfer of Recovery Act highway funding.[Footnote 28] FHWA transferred 
$27.2 million in highway funds to FTA for use on transit projects in 
California, nearly 10 percent of the total funds transferred from FHWA 
to FTA nationwide. Caltrans and regional transit agencies worked with 
MPOs to identify transit projects to complete with transferred funds. 
For example, in Stockton, the San Joaquin Regional Rail Commission 
worked with its MPO to identify an eligible project, and both entities 
coordinated with Caltrans to execute the transfer of approximately $1.7 
million. Under the nonurbanized area program, Caltrans funded two 
transit projects with approximately $2 million in transferred highway 
funds. 

Selected Regional Transit Agencies and Caltrans Are Using Existing 
Policies and Procedures to Monitor Transit Capital Assistance Funds: 

The transit agencies we visited and Caltrans are using existing 
processes and controls to monitor Recovery Act funds under the Transit 
Capital Assistance Program. For instance, Metro, OCTA, the San Joaquin 
Regional Rail Commission, the San Joaquin RTD, and Caltrans are all 
using existing processes to manage Recovery Act contracts, including 
following FTA contract management procedures. These procedures include: 

* inspections to verify that work performed on projects adheres to 
contract specifications; 

* supervisory reviews of purchase orders and invoices to ensure items 
are properly billed and authorized; and: 

* reconciliations of receipts and payments to accounting records to 
ensure the completeness and accuracy of the records for each project. 

* While control policies were similar across transit agencies we 
visited and at Caltrans, the level of internal assessment of the 
management of Recovery Act funds varied. (See table 5.) While all four 
transit agencies we visited and Caltrans were subject to various 
external audits--such as Single Audits, financial statement audits, and 
FTA's triennial review[Footnote 29]--the two largest transit agencies 
we visited, Metro and OCTA, and Caltrans had internal audit departments 
and conducted risk assessments on an annual or biennial basis to 
develop their annual audit plans. Transit agency officials at the two 
agencies told us that the management of Recovery Act funds has been 
classified as "high risk" or "moderate to high risk" in their fiscal 
year 2009 risk assessments. 

Table 5: Examples of Internal Control Policies at Selected California 
Transit Agencies: 

Transit agency: Caltrans; 
Internal controls: External audits: [Check]; Internal controls: 
Internal audits: [Check]; Internal controls: Risk assessments: [Check]; 
Internal controls: Inspections: [Check]; Internal controls: Supervisory 
reviews: [Check]; Internal controls: Reconciliations: [Check]. 

Transit agency: Los Angeles County Metropolitan Transportation 
Authority (Metro); 
Internal controls: External audits: [Check]; Internal controls: 
Internal audits: [Check]; Internal controls: Risk assessments: [Check]; 
Internal controls: Inspections: [Check]; Internal controls: Supervisory 
reviews: [Check]; Internal controls: Reconciliations: [Check]. 

Transit agency: Orange County Transportation Authority (OCTA); Internal 
controls: External audits: [Check]; Internal controls: Internal audits: 
[Check]; Internal controls: Risk assessments: [Check]; Internal 
controls: Inspections: [Check]; Internal controls: Supervisory reviews: 
[Check]; Internal controls: Reconciliations: [Check]. 

Transit agency: San Joaquin Regional Transit District; Internal 
controls: External audits: [Check]; Internal controls: Internal audits: 
[Empty]; Internal controls: Risk assessments: [Empty]; Internal 
controls: Inspections: [Check]; Internal controls: Supervisory reviews: 
[Check]; Internal controls: Reconciliations: [Check]. 

Transit agency: San Joaquin Regional Rail Commission; Internal 
controls: External audits: [Check]; Internal controls: Internal audits: 
[Empty]; Internal controls: Risk assessments: [Empty]; Internal 
controls: Inspections: [Check]; Internal controls: Supervisory reviews: 
[Check]; Internal controls: Reconciliations: [Check]. 

Source: GAO analysis of interviews with transit agency and Caltrans 
officials. 

[End of table] 

Selected Transit Agencies Face Challenges Interpreting and Implementing 
Latest Section 1512 Reporting Guidance, Including Reporting Information 
about Jobs Created: 

Caltrans and regional transit officials charged with implementing 
Section 1512 reporting guidance expressed confusion about aspects of 
reporting requirements and stated that they would like additional 
guidance from FTA on how to interpret OMB's guidance on Section 1512. 
For example, officials at transit agencies we visited were not sure 
whether to classify contractors performing work on Recovery Act-funded 
projects as vendors or subrecipients--a distinction that may impact the 
information included in recipient reports and the amount of information 
transit agencies are required to collect from contractors performing 
Recovery Act-funded work.[Footnote 30] While some transit agencies had 
sought clarification or additional guidance on reporting from FTA or 
other transit agencies, all were still developing plans to implement 
Section 1512 reporting requirements. Caltrans, which is responsible for 
gathering Section 1512 reporting data from nonurbanized area grant 
recipients, provided guidance to entities that will report information 
to Caltrans. Caltrans officials stated that they have also sought 
clarification and received guidance on Section 1512 reporting 
requirements from the Task Force. 

All four transit agencies we visited were still determining how to 
apply Section 1512 reporting guidance to calculate direct jobs created 
from Recovery Act-funded contracts. Methodologies for estimating direct 
job data to report to OMB differed across transit agencies. For 
instance, officials at OCTA plan to calculate direct jobs by dividing 
the average payroll of an OCTA employee into the total dollars spent on 
each Recovery Act-funded project. Additionally, OCTA officials stated 
that they only plan to include direct hours worked by contractors in 
their jobs estimates. By contrast, officials at the San Joaquin RTD 
plan to base job estimates primarily on specific hour and pay data 
pulled from internal payroll systems and certified payroll documents 
completed by contractors and subcontractors. The San Joaquin RTD plans 
to include all hours of contractors working on Recovery Act-funded 
projects in their direct job estimates. 

In addition to reporting job and spending data to OMB, transit agencies 
are also required under Recovery Act section 1201(c) to submit periodic 
reports to FTA on the status of Recovery Act funds. The four transit 
agencies we visited reported to FTA for the first time on August 16, 
2009. Agency officials told us they did not experience problems 
collecting the data to report to FTA for the reporting deadline. 
Transit agencies for which FTA obligated Recovery Act funds by July 31, 
2009, were required to report in August on the status of these funds, 
including the amount obligated and expended, the number of contracts 
and their implementation status, and number of hours associated with 
direct jobs created or maintained by all projects and activities funded 
by the grant. 

Most Education Funds Awarded to California Have Been Drawn Down; 
Concerns Remain about Cash Management and Section 1512 Reporting: 

The Recovery Act created a State Fiscal Stabilization Fund (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 be used to alleviate shortfalls 
in state support for education to school districts and public 
institutions of higher education (IHEs).[Footnote 31] After maintaining 
state support for education at fiscal year 2006 levels, states must use 
education stabilization funds to restore state funding to the greater 
of fiscal year 2008 or 2009 levels for state support to school 
districts or public IHEs. When distributing these funds to school 
districts, states must use their primary education funding formula, but 
they can determine how to allocate funds to public IHEs. In general, 
school districts maintain broad discretion in how they can use 
stabilization funds, but states have some ability to direct IHEs in how 
to use these funds. 

The Recovery Act provides $10 billion to help local educational 
agencies (LEAs) educate disadvantaged youth by making additional funds 
available beyond those regularly allocated through Title I, Part A of 
the Elementary and Secondary Education Act (ESEA) of 1965. The Recovery 
Act requires these additional funds to be 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 
current statutory and regulatory requirements and must obligate 85 
percent of these funds by September 30, 2010.[Footnote 32] The U.S. 
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 U.S. Department of Education made the first half of states' 
Recovery Act ESEA Title I, Part A funding available on April 1, 2009 
and announced on September 4, 2009 that it had made the second half 
available. 

The Recovery Act provided supplemental funding for programs authorized 
by Parts B and C of the Individuals with Disabilities Education Act 
(IDEA), the major federal statute that supports the provisions of early 
intervention and special education and related services for infants, 
toddlers, children, and youth with disabilities. Part B funds programs 
that ensure preschool and school-aged children with disabilities have 
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 (section 619). 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. The U.S. Department of Education made the first half of 
states' Recovery Act IDEA funding available to state agencies on April 
1, 2009 and announced on September 4, 2009 that it had made the second 
half available. 

As of August 28, 2009, California has distributed about $3.7 billion in 
Recovery Act funding to LEAs, special education learning plan areas 
(SELPA)[Footnote 33], and IHEs through three education programs. This 
includes SFSF education stabilization funds (about $2.5 billion to K-12 
schools and about $268 million to each of the state's two university 
systems), Recovery Act ESEA Title I funds ($450 million), and IDEA Part 
B funds ($269 million). 

Funds Have Been Distributed to K-12 Schools and Universities, but Not 
Yet to Community Colleges: 

The California Department of Education (CDE) released the first phase 
of Recovery Act education funds to LEAs and SELPAs beginning in late 
May 2009, with the second phase, depending on the program, expected to 
be distributed to LEAs and SELPAs later in 2009 through early 2010. 
According to CDE officials, they will not know how much of the funding 
has been obligated or spent until LEAs and SELPAs submit the data to 
CDE as part of the required Recovery Act Section 1512 report to be 
released on October 10, 2009. (See table 6.) 

Table 6: Recovery Act SFSF, ESEA Title I, and IDEA Funding for 
Education, as of August 28, 2009 (Dollars in millions): 

Program: ESEA Title I; 
Made available by Education: $562.5; 
Drawn down by California: $450.3; 
Distributed to LEAs or IHEs: $450.3. 

Program: IDEA, Part B; 
Made available by Education: $633.9; 
Drawn down by California: $268.9; 
Distributed to LEAs or IHEs: $268.9. 

Program: SFSF Education Stabilization; 
Made available by Education: $3,266.6; 
Drawn down by California: $3,020.2; 
Distributed to LEAs or IHEs: $3,020.2. 

Program: Total; 
Made available by Education: $4,463.0; 
Drawn down by California: $3,739.4; 
Distributed to LEAs or IHEs: $3,739.4. 

Source: GAO analysis of CDE and Education data. 

[End of table] 

As we previously reported in July 2009, California's two university 
systems received a total of $537 million in SFSF funds in May 2009. The 
funding was spent primarily on personnel costs, in part to avert 
layoffs resulting from state budget cuts. Officials from both systems 
said they are not certain how much they will receive in SFSF funding 
for state fiscal year 2009-10. Officials from both systems said they 
again plan to use the Recovery Act funding for personnel costs, in part 
to avert layoffs in light of continuing state funding reductions. 

California's initial SFSF funding to IHEs did not include funding for 
the state's community college system, as mentioned in our prior report. 
However, in response to increased budget cuts, the state submitted an 
amended SFSF application that revised the higher education allocation 
going forward to include community colleges. According to a community 
college system official, they originally expected the amount to be 
about $130 million but, because of state budget revisions, now expect 
it to be considerably less. The official said the SFSF funding they 
receive will be spent to restore state budget cuts to student services, 
such as counseling and orientation, and to instructional services such 
as tutoring. 

ESEA Title I Recovery Act Cash Management Continues to Be a Concern: 

As we previously reported, concerns exist regarding CDE and LEA ESEA 
Title I cash management practices. Specifically, both the U.S. 
Department of Education (Education) Office of the Inspector General and 
the California State Auditor have raised issues about early drawdowns 
and the calculation and remittance of interest on the cash balances. 
[Footnote 34] These concerns extend to CDE's drawdown of ESEA Title I 
Recovery Act funding and the release of $450 million of the funds to 
LEAs on May 28, 2009. According to CDE officials, the drawdown of ESEA 
Title I Recovery Act funds was in advance of its normally scheduled 
drawdown of school year 2008-09 regular Title I funds. As a result, CDE 
anticipated that the LEAs would be ready to use these funds quickly 
under approved Title I plans for the current school year. However, in 
August, when we contacted the 10 LEAs that received the largest amounts 
of ESEA Title I Recovery Act funding, we found that all reported 
maintaining large Title I Recovery Act cash balances. Each of these 
LEAs had received between $4.5 million and $140.5 million in ESEA Title 
I funds in early June, with a total of more than $200 million received 
by all 10. As of August 7, only three reported spending a small 
fraction of the funds received. Seven LEAs reported not spending any of 
the funds received. Further, officials in two of the LEAs we contacted 
pointed out that part of the ESEA Title I Recovery Act funding will pay 
salaries--which typically extend over several months or longer--and 
officials in all 10 LEAs said they planned to spend the funds over the 
course of this and next fiscal year, thus continuing to maintain 
considerable unspent Recovery Act cash balances. Any such cash balances 
will require the calculation and remittance of interest to the federal 
government. 

In responding to our concerns about the drawdown and distribution of 
ESEA Title I Recovery Act funds to LEAs and the appropriate calculation 
of interest on the cash balances, CDE officials told us that they had 
conducted an informal survey of 180 LEAs in July 2009 to determine 
whether LEAs were maintaining ESEA Title I cash balances. According to 
CDE officials, nearly all of the 64 LEAs responding reported having 
spent more regular ESEA Title I funds than they received--thus having 
unreimbursed expenses rather than cash balances. Further, CDE told us 
that they determined that the unreimbursed expenses would largely 
offset the ESEA Title I Recovery Act fund cash balances for the 
majority of these LEAs and they believe that the calculation of 
interest on the Recovery Act balances would incorporate this offset. We 
discussed this issue with Education officials, but they have yet to 
make a final determination of whether such unreimbursed expenses can be 
offset against ESEA Title I Recovery Act balances for the purpose of 
calculating interest due to the federal government. 

CDE has taken several actions in an effort to address its overall cash 
management issues and help ensure that LEAs properly calculate interest 
on cash balances. In a December 2008 letter, CDE notified LEAs of 
federal cash management requirements and advised them to coordinate 
with their county Office of Education and call CDE with any questions, 
which, according to CDE officials, numerous LEAs did. Additionally, as 
we previously reported, CDE implemented a pilot program to help them 
monitor LEA compliance with federal cash management requirements which 
uses a Web-based quarterly reporting process to track LEA cash 
balances. The pilot program is scheduled to commence in October 2009. 
However, it does not include monitoring of ESEA Title I funds, which 
will be phased in after the cash management system and processes are 
better understood and operating as intended. 

Nine of the LEAs we contacted told us they have processes in place to 
calculate and remit interest on unused ESEA Title I funds. However, we 
found that the processes for calculating interest and remitting payment 
varied from location to location at the 10 LEAs we contacted. For 
example, some LEAs calculate interest using a daily cash balance, while 
some calculate it using a monthly cash balance. Additionally, one LEA 
we contacted sends a single interest check to CDE covering all 
programs, but includes back up documentation for each program, while 
another sends separate checks for each program. 

CDE officials told us they are attempting to respond to LEA cash 
management concerns by: 

* selectively monitoring LEA compliance with cash management 
requirements by reviewing LEAs' reported federal cash balances, 
calculating interest, and posting interest remittances in CDE's 
accounting records, and: 

* conducting periodic open teleconference forums to answer LEA 
questions about Recovery Act funding, including cash management 
requirements. 

Although CDE has taken several steps to notify and inform LEAs of their 
cash management responsibilities, LEA officials reported receiving 
varying degrees of guidance.[Footnote 35] Officials from five LEAs 
reported receiving guidance ranging from a single notice from CDE to 
multiple letters, emails and bulletins from CDE, Education and their 
local County Office of Education. Officials in three LEAs reported they 
had been part of the Education Inspector General's audit discussed 
earlier, and had received guidance during that process. Officials from 
one LEA we contacted said they had not received any guidance. In light 
of the inconsistent guidance reported by LEAs, CDE should consider 
formalizing its cash management guidance to ensure that all LEAs are 
fully informed. This guidance should incorporate, once available, 
Education's final determination of the earlier described offset issue. 

CDE Is Preparing for Reporting Required by Recovery Act Section 1512 
but Is Concerned about Reporting Deadlines: 

CDE officials said they are currently working on a Recovery Act 
reporting system in response to state and OMB guidance on Recovery Act 
Section 1512 requirements. According to CDE officials, two CDE working 
groups have been formed to develop the reporting system. The groups 
meet every 2 weeks and coordinate with and submit data to the Task 
Force. Officials said the reporting system will be ready for internal 
testing in early September 2009, and the LEAs will begin submitting 
data to CIO in mid-September. However, CDE officials said they are 
still working on the specifications of internal control measures to 
ensure accurate and complete information, and are still developing 
their policies and procedures for documenting data quality reviews. 

Officials also expressed general concern about getting the LEAs to 
report Recovery Act information, as well as CDE's ability--given the 
limited time available--to validate the information received to ensure 
its reliability. They said they are aware that data can be verified 
until October 21, 2009, after it is entered into the 
FederalReporting.gov Web site. However, the state deadline for 
submitting data is September 28, 2009, and there will be limited 
opportunity to review the data after that. Additionally, they said that 
while they were aware that data can be updated and corrected in 
subsequent reporting cycles, they would prefer to enter the correct 
data the first time around and believe they are mandated to do so. 
Finally, CDE officials said that although they have received helpful 
advice from CIO, they remain concerned about the reporting deadlines. 

The Majority of California's Weatherization Funds Have Not Been 
Obligated or Spent: 

The Recovery Act appropriated $5 billion over a 3-year period for the 
Weatherization Assistance Program, which the U.S. Department of Energy 
(DOE) administers through each of the states, the District of Columbia, 
and seven territories and Indian tribes. The program 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, or air conditioning equipment. Over the past 32 
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. 

As of September 14, 2009, DOE had approved the weatherization plans of 
all but two of the states, the District of Columbia, the territories, 
and Indian tribes--including all 16 states and the District of Columbia 
in our review. DOE has provided to the states $2.3 billion of the $5 
billion in weatherization funding under the Recovery Act. Use of the 
Recovery Act weatherization funds is subject to Section 1606 of the 
act, which requires all laborers and mechanics employed by contractors 
and subcontractors on Recovery Act projects to be paid at least the 
prevailing wage, including fringe benefits, as determined under the 
Davis-Bacon Act.[Footnote 36] Because the Davis-Bacon Act had not 
previously applied to weatherization, the Department of Labor (Labor) 
had not established a prevailing wage rate for weatherization work. In 
July 2009, DOE and Labor issued a joint memorandum to Weatherization 
Assistance Program grantees authorizing them to begin weatherizing 
homes using Recovery Act funds, provided they pay construction workers 
at least Labor's wage rates for residential construction, or an 
appropriate alternative category, and compensate workers for any 
differences if Labor establishes a higher local prevailing wage rate 
for weatherization activities. Labor then surveyed five types of 
"interested parties" about labor rates for weatherization work. 
[Footnote 37] The department completed establishing prevailing wage 
rates in all of the 50 states and the District of Columbia by September 
3, 2009. 

California has received 50 percent--about $93 million--of its Recovery 
Act weatherization allocation. As of August 31, 2009, the California 
Department of Community Services and Development (CSD),[Footnote 38] 
the state agency responsible for administering the program in 
California, had obligated about $9.4 million of these funds for 
purposes such as state and local planning, training and technical 
assistance, and procurement,[Footnote 39] and it had spent about $1.4 
million.[Footnote 40] California plans to spend its entire Recovery Act 
weatherization allocation--about $186 million--6 months prior to its 
federal deadline of March 2012 for spending these funds. California 
plans to weatherize 50,330 homes with its allocation. 

CSD is currently using Recovery Act funds to train weatherization 
workers, including making enhancements to the state training program. 
According to CSD officials, California's local service providers are 
also developing marketing and outreach strategies and negotiating with 
potential contractors and suppliers, including educating them about 
opportunities to participate in the weatherization program. These 
officials told us that some service providers are also hiring and 
training administrative staff and weatherization workers.[Footnote 41] 
CSD also plans to add staff, including fiscal and program auditors and 
information technology consultants, to help administer the increased 
funds. 

California's Use of Weatherization Funds Has Been Limited by Davis- 
Bacon Act Prevailing Wage Requirements and Other Factors: 

CSD officials decided not to spend Recovery Act funds to weatherize 
homes until Labor had established a prevailing wage rate, as determined 
under the Davis-Bacon Act for weatherization work. On September 3, 
2009, Labor provided CSD with prevailing wage rates for weatherization 
work in California. CSD officials explained that they waited to spend 
these funds because the prevailing wage determinations could pose 
staffing challenges for the state's service providers and their 
contractors, who typically use the same workers for a variety of 
weatherization programs, which, other than the Recovery Act program, 
are not subject to prevailing wage requirements. According to CSD, 
depending on the wage rate determinations, these organizations might be 
forced to alter their service delivery strategies, such as by paying 
the same workers different rates from project to project or by 
dedicating their highest-paid workers to Recovery Act projects. CSD 
officials also stated concerns that weatherizing homes prior to the 
wage rate determinations could increase the liability risks of service 
providers and CSD for non-compliance with the Davis-Bacon Act. In 
addition, they noted that weatherizing homes prior to the wage rate 
determinations could create an administrative burden associated with 
making retroactive payments to workers receiving less than the wage 
rates. As a result, service providers have not yet certified any 
contractors to perform weatherization activities, including contractors 
they have used in the past. CSD officials told us that, now that Labor 
has established prevailing wage rates for weatherization work, they 
hope to issue, by the end of September 2009, contract amendments to 
their service providers that would allow them to begin weatherizing 
homes with Recovery Act funds. They said that they continue to receive 
many questions about the Davis-Bacon Act from their service providers 
and that concerns are still emerging in response to evolving directives 
and guidance from Labor and DOE. 

On July 29, 2009, CSD sent a letter to DOE detailing many of its 
general concerns about the Recovery Act weatherization program, as well 
as issues regarding compliance with the Davis-Bacon Act. The concerns 
are in the areas of payroll certification, workforce development, 
monitoring frequency, energy-efficiency measures, reporting 
requirements, dwelling assessments, leasing and purchasing vehicles, 
and program and fiscal benchmarks. Regarding these concerns, CSD 
officials told us that, as of September 8, 2009, DOE had only fully 
addressed the concern about payroll certification. Some of these 
concerns are discussed in further detail below. 

* Payroll certification. The letter requested that DOE confirm whether 
CSD would be required to directly perform weekly payroll certification 
of all service providers and contractors to ensure compliance with the 
Davis-Bacon Act, as opposed to CSD's plan to require service providers 
to obtain independent, third-party payroll certification. CSD requested 
that DOE provide any requirement in writing so that it could justify 
additional staff to conduct certification activities. 

* Workforce development. The letter requested that DOE confirm whether 
CSD could request an exemption from the Davis-Bacon Act requirements 
for weatherization workers hired through its federal, state, and local 
workforce development partnerships aimed at creating training and 
employment opportunities for youth and dislocated workers. It stated 
that the Davis-Bacon Act threatens to weaken or eliminate workforce 
development as a significant component of California's weatherization 
program. CSD officials told us that this is because paying high, 
prevailing wages to the inexperienced, entry-level workers typically 
hired through these programs could have a negative financial impact on 
service providers and their contractors and also threaten their more 
experienced, full-service workers, who could be paid the same rates. 

* Monitoring frequency. The letter requested that DOE confirm whether 
CSD would be required to perform on-site monitoring of service 
providers on a quarterly basis, as suggested by DOE officials during a 
recent site visit to CSD. The letter stated that quarterly reporting 
would require CSD to increase its staffing significantly and requested 
that DOE provide any such requirement in writing so that it could 
justify additional staff to conduct reporting activities. CSD officials 
told us that they are concerned that they may not have enough staff to 
conduct quarterly reviews, since they currently conduct such reviews 
annually. On the other hand, they noted that they already collect data 
for such reviews and already have a standardized method for analyzing 
these data. 

* Program and fiscal benchmarks. The letter requested that DOE provide 
the program and fiscal benchmarks and timeline required for California 
to receive the final 50 percent of its allocation so that CSD can 
include the benchmarks in the contracts with service providers that it 
plans to issue in September 2009. 

* The estimates for jobs created and homes weatherized that are 
currently in the state weatherization plan could change based on 
revisions to the local weatherization plans prepared by service 
providers. Any revisions were due to CSD by August 31, 2009. However, 
in mid-August, CSD advised its service providers that future revisions, 
including the estimates for jobs created and homes weatherized, would 
be allowed in response to the prevailing wage rate determination and 
other requirements impacting planning. CSD officials stated that, if 
revisions are submitted, they would either be due to the impact of the 
Davis-Bacon Act or the overall costs of required performance measures. 

California Has a Variety of Accountability Approaches to Monitor the 
Use of Weatherization Funds: 

CSD has processes aimed at ensuring that weatherization funds are used 
for their intended purposes and in accordance with the Recovery Act. 
For example, prior to receiving Recovery Act funding, CSD formed a 
team--chaired by the Chief Deputy Director and including key managers 
and staff--to design and implement work plans to help ensure compliance 
with OMB, DOE, and related state requirements and Recovery Act goals. 
CSD also has an internal auditing group that conducts an ongoing 
internal risk assessment specific to Recovery Act funds. In response to 
a Recovery Act readiness review conducted by the California Department 
of Finance, CSD audit and program staff have conducted internal and 
external risk assessments, resulting in a corrective action plan that 
the team evaluates weekly. These risk assessments include a review of 
all service providers to identify those that may warrant more intensive 
monitoring or other special conditions; as of September 8, 2009, CSD 
had identified four service providers whose Recovery Act funding could 
be subject to special conditions and/or distributed to another agency. 
CSD has provided service providers with contract requirements, 
provisions, and related guidance specific to the Recovery Act. In 
addition, CSD has required fraud training for its entire staff and is 
providing training and technical assistance for service providers, 
including mandatory training regarding Recovery Act accountability and 
transparency requirements, OMB principles, contract procurement 
standards, internal controls, direct and indirect cost principals, and 
audit requirements. 

CSD's oversight of its existing weatherization program includes a 
combination of monthly, quarterly, and annual desk reviews; routine on- 
site program monitoring; and an annual review of independent auditors' 
reports. CSD currently conducts annual on-site monitoring of service 
providers and requires them to ensure that all contractors' post- 
installation work meets standards; CSD plans to increase the frequency 
of the post-installation inspections to a quarterly basis. CSD also 
plans to review service providers for program compliance, track 
expenditures, document support time spent on projects, and conduct 
field inspections of 5 to 20 percent of weatherized homes once the 
Recovery Act funds are provided to service providers. The state's most 
recent Single Audit report did not include the weatherization program 
because it was too small to warrant coverage. However, CSD officials 
told us that they review Single Audit reports for service providers and 
that they follow up with them regarding findings. 

CSD Officials Expect to Be Able to Meet Section 1512 Reporting 
Requirements, but Have Concerns about DOE Performance Reporting 
Requirements: 

CSD officials told us that they anticipate no problems tracking the 
number of jobs created or retained on either a monthly or quarterly 
basis because their service providers have many years of experience 
administering the program and CSD has already provided guidance to 
weatherization contractors on how to measure employee full-time 
equivalents. For all reporting purposes, CSD requires the service 
providers to provide information directly to CSD, which then reviews it 
for accuracy and completeness. For example, CSD conducts monthly data 
quality reviews on expenditures. CSD then reports information on behalf 
of the program to state officials, OMB, and DOE. Regarding the Section 
1512 reporting requirements, CSD is California's prime recipient, and 
the service providers are the subrecipients. CSD plans to report all 
Section 1512 information to the state's Task Force, which will then 
report all state data to OMB. CSD officials believe they will meet the 
Section 1512 reporting requirements in a timely manner. 

As of September 8, 2009, California had not begun measuring the impact 
of its weatherization program because no homes in California had been 
weatherized with Recovery Act funds. However, CSD officials told us 
that if DOE requires additional performance measures, then costs could 
increase if the measures require changes to procurement practices, 
extra equipment and training for weatherization crews, quality 
assurance changes, or increased monitoring of contractors. CSD 
officials are waiting for final federal guidance on additional 
performance measures, especially regarding energy savings. For example, 
these officials anticipate that DOE will propose a new methodology for 
measuring energy savings and, as a result, they have not issued any 
state guidance to assist service providers in understanding reporting 
requirements for this performance measure. They recommended that, in 
order to obtain credible information on energy savings, DOE should 
negotiate agreements to obtain energy usage data directly from 
utilities. They also recommended that DOE provide guidance that allows 
for standardized reporting and, therefore, the comparison of 
information across all states. 

California Used Recovery Act Funds to Expand Summer Youth Services, but 
Faced Some Challenges: 

The Recovery Act provides an additional $1.2 billion in funds for the 
Workforce Investment Act (WIA) Youth Program, including summer 
employment. Administered by the Department of Labor (Labor), the WIA 
Youth program is designed to provide low-income in-school and out-of- 
school youth 14 to 21 years old, who have additional barriers to 
success, with services that lead to educational achievement and 
successful employment, among other goals. Funds for the program are 
distributed to states based on a statutory formula; states, in turn, 
distribute at least 85 percent of the funds to local areas, reserving 
as much as 15 percent for statewide activities. The local areas, 
through their local workforce investment boards, have the flexibility 
to decide how they will use the funds to provide required services. 

While the Recovery Act does not require all funds to be used for summer 
employment, in the conference report accompanying the bill that became 
the Recovery Act,[Footnote 42] the conferees stated they were 
particularly interested in states using these funds to create summer 
employment opportunities for youth. While the WIA Youth program 
requires a summer employment component to be included in its year-round 
program, Labor has issued guidance indicating that local areas have the 
flexibility to implement stand-alone summer youth employment activities 
with Recovery Act funds.[Footnote 43] Local areas may design summer 
employment opportunities to include any set of allowable WIA Youth 
activities--such as tutoring and study skills training, occupational 
skills training, and supportive services--as long as it also includes a 
work experience component. A key goal of a summer employment program, 
according to Labor's guidance, is to provide participants with the 
opportunity to (1) experience the rigors, demands, rewards, and 
sanctions associated with holding a job; (2) learn work readiness 
skills on the job; and (3) acquire measurable communication, 
interpersonal, decision-making, and learning skills. Labor has also 
encouraged states and local areas to develop work experiences that 
introduce youth to opportunities in "green" educational and career 
pathways. Work experience may be provided at public sector, private 
sector, or nonprofit work sites. The work sites must meet safety 
guidelines, as well as federal and state wage laws.[Footnote 44] 
Labor's guidance requires that each state and local area conduct 
regular oversight and monitoring of the program to determine compliance 
with programmatic, accountability, and transparency provisions of the 
Recovery Act and Labor's guidance. Each state's plan must discuss 
specific provisions for conducting its monitoring and oversight 
requirements. 

The Recovery Act made several changes to the WIA Youth program when 
youth are served using these funds. It extended eligibility through age 
24 for youth receiving services funded by the act, and it made changes 
to the performance measures, requiring that only the measurement of 
work readiness gains will be required to assess the effectiveness of 
summer-only employment for youth served with Recovery Act funds. 
Labor's guidance allows states and local areas to determine the 
methodology for measuring work readiness gains within certain 
parameters. States are required to report to Labor monthly on the 
number of youth participating and on the services provided, including 
the work readiness attainment rate and the summer employment completion 
rate. States must also meet quarterly performance and financial 
reporting requirements. 

Labor allotted about $187 million to California in WIA Youth Recovery 
Act funds. The WIA Youth program is administered by the state 
Employment Development Department (EDD) in California. After reserving 
15 percent of the $187 million for statewide activities, the state 
allocated the remainder, about $159 million, to the 49 local workforce 
investment areas in the state. EDD officials said that they have not 
set targets for either enrollment in summer youth employment activities 
or the amount of money to be spent by a certain date, although the 
Governor issued a letter encouraging the local agencies to expend the 
majority of funds on summer activities. California officials reported 
to Labor on August 15 that the 49 local areas had used Recovery Act 
funds to enroll 33,789 youth in the WIA Youth program, of which 14,078 
were placed in summer employment activities. However, local area 
officials we visited in Los Angeles and San Francisco said that they 
will not have complete results on their summer youth employment 
activities until October. Recovery Act funds must be expended by June 
30, 2011, and, based on past experience, EDD thinks it is very likely 
that the state will spend all of these funds by that date. Each of 
California's 49 local areas are free to determine how much of their 
Recovery Act WIA Youth funding will be spent on summer activities. 

Recovery Act Summer Youth Work Activities in Two Local Areas in 
California Differed in Scope, Size, and Approach: 

Two local areas we visited, the City and County of San Francisco and 
the City of Los Angeles, had different levels of experience in 
providing summer youth employment programs prior to the Recovery Act 
and used different approaches to provide the programs, as described in 
table 7. For example, Los Angeles implemented its summer youth 
employment activities in two phases, while San Francisco used one 
period for summer employment activities. 

Table 7: Description of WIA Youth Programs Reviewed by GAO: 

City: Administering agencies; 
Los Angeles: Los Angeles Community Development Department (LACDD); San 
Francisco: San Francisco Office of Economic and Workforce Development. 

City: Recovery Act WIA Youth Program funding allocation; Los Angeles: 
$20.3 million; 
San Francisco: $2.3 million. 

City: Locally planned allocation for WIA Youth summer employment 
activities; 
Los Angeles: $11.1 million; 
San Francisco: $1.1 million. 

City: Locally targeted number of WIA summer youth participants; Los 
Angeles: 5,550; San Francisco: 455. 

City: Prior Experience with a stand-alone summer youth employment 
program; 
Los Angeles: Yes; 
San Francisco: No, but previous experience with youth employment 
programs. 

City: Program duration; 
Los Angeles: Two phases from May 1, 2009, to September 30, 2009; San 
Francisco: June 29 to August 29, 2009. 

City: Service providers; 
Los Angeles: A "mixed model" using city agencies and 15 community-based 
organizations; 
San Francisco: Nine community-based organizations. 

City: Eligibility determination; 
Los Angeles: Determined by the service providers and reviewed by the 
Los Angeles Community Development Department (LACDD); San Francisco: 
Determined by the service providers and reviewed by the San Francisco 
Human Services Agency. 

City: Monitored by the state; 
Los Angeles: Yes; 
San Francisco: Yes. 

City: Youth hours and payment; 
Los Angeles: Up to 140 hours at $8 an hour (Youth ages 20 to 25 could 
work more hours); 
San Francisco: In-school youth up to 130 hours and out-of-school youth 
up to 170 a hours at $9.79 an hour. 

City: Type of employment; 
Los Angeles: Mostly public and nonprofit sector with private-for-profit 
providing less than 2 percent of the jobs; included healthcare, 
construction, and green jobs; 
San Francisco: Mostly public and nonprofit sector with private-for- 
profit providing about 10 percent of the jobs; included clerical, 
teacher's aid, and maintenance jobs. 

City: Summer youth participants in green jobs; Los Angeles: 422 youth 
participants hired through one service provider with emphasis on green-
collar jobs; 
San Francisco: Seven youth participants in green 
technology/construction jobs, with a total of 47 green jobs officials 
identified in various industries; officials encountered difficulties 
defining and developing green jobs. 

Source: GAO analysis based on information provided by the California 
Employment Development Department, Los Angeles Community Development 
Department, and San Francisco Office of Economic and Workforce 
Development. 

[End of table] 

At the local agencies in San Francisco and Los Angeles, we visited two 
selected service providers in each city and spoke with 24 youth 
participants at six work sites in San Francisco and Los Angeles. We 
also spoke with six youth participants who had completed the program in 
Los Angeles. In San Francisco, we visited Larkin Street Youth Services, 
a nonprofit agency that is an established WIA service provider, and the 
Vietnamese Youth Development Council, a nonprofit agency that is a 
service provider new to the WIA program. We spoke to youth participants 
assigned to work sites through Larkin Street Youth Services, the 
Bayview Opera House/Urban YMCA, the African American Art & Culture 
Complex, and a retail store. In Los Angeles, we visited two experienced 
service providers: the Boyle Heights Technology Center, a city-managed 
service provider, which completed its Recovery Act funded summer youth 
employment program on June 30, and the Los Angeles Conservation Corps, 
a nonprofit agency specializing in green jobs. We spoke to youth 
participants who had finished their employment at the Boyle Heights 
Technology Center, White Memorial Hospital, and East Los Angeles 
College and to youth participants assigned to work sites through Clean 
and Green and Million Trees LA. In San Francisco and Los Angeles, we 
also spoke with work site supervisors or employers, depending on 
availability. 

As previously noted, the WIA Youth program is designed to provide low- 
income, in-school and out-of-school youth, who have additional barriers 
to success, with services that lead to educational achievement and 
successful employment, among other goals. Local areas may design summer 
employment opportunities funded by the Recovery Act to include any set 
of allowable WIA Youth activities--such as tutoring and study skills 
training, occupational skills training, and supportive services--as 
long as it also includes a work experience component. We asked youth 
participants about the types of work experiences they had during their 
summer employment, which included a variety of positions such as 
teachers' aids, clerical positions, and green jobs, and received 
positive feedback. 

Figure 3: Examples of Youth Participants at Summer Youth Employment 
Activities in Los Angeles: 

[See PDF for image: photographs] 

Two photos showing youth participants in the summer employment 
activities of the WIA Youth Program funded by the Recovery Act in the 
City of Los Angeles. The photo on the left shows a WIA Youth Program 
participant providing child care at a local hospital. The photo on the 
right shows a WIA Youth Program participant performing work for the 
L.A. Conservation Corps. 

Source: Photographs provided by the Boyle Heights Technology Youth 
Center, Youth Opportunity Movement, Los Angeles Community Development 
Department. 

[End of figure] 

In addition to the work experience component, both San Francisco and 
Los Angeles programs also provided training in work readiness, 
financial literacy, and workplace safety. The two programs, however, 
differed in the other types of allowable WIA Youth activities they 
provided. San Francisco officials estimated that, given the short 
duration of the program, only about 15 percent of the youth received 
structured academic training as part of their program. Los Angeles 
officials said that none of the youth received academic training 
through the summer youth employment programs funded by the Recovery 
Act. Instead, Los Angeles directed youth with academic training needs 
to two locally funded "Work and Learn" summer youth employment 
programs, which included structured academic training and had a target 
enrollment of 2,000 youth participants. Los Angeles officials said the 
infusion of Recovery Act funds allowed the city of Los Angeles to 
expand these programs, which operate at local expense. With respect to 
optional occupational training, San Francisco officials said that 
approximately 20 percent of their youth received training in areas of 
construction project management, youth work, philanthropy, and grant 
management and small business operations. Los Angeles officials said 
that, although none of their youth received formal WIA-defined 
occupational skills training,[Footnote 45] youth were introduced to the 
fields of health care, green jobs, and construction and trades. 

Figure 4: Examples of Youth Participants at Summer Youth Employment 
Activities in Los Angeles: 

[See PDF for image: photographs] 

Two photos showing youth participants in the summer employment 
activities of the WIA Youth Program funded by the Recovery Act in the 
City of Los Angeles. The photo on the left shows a WIA Youth Program 
participant working in a clerical position at an engineering 
association. The photo on the right shows WIA Youth Program 
participants helping to prepare packets for the Aids Walk. 

Source: Photographs provided by the Boyle Heights Technology Youth 
Center, Youth Opportunity Movement, Los Angeles Community Development 
Department. 

[End of figure] 

Mixed Results in Developing Green Jobs: 

The selected summer youth employment programs we reviewed had mixed 
results in developing, as Labor encouraged, work experiences that 
introduced youth to opportunities in "green" educational and career 
pathways. San Francisco officials said they had difficulties in 
defining and developing green jobs, although they had hoped to define 
them as recycling, landscaping, solar panel installation, 
weatherization, and green construction. San Francisco officials said 
they identified seven youth participants as working in green technology 
and construction jobs. Officials also identified 47 green jobs that 
included not only organic farming and landscaping, but also clerical, 
customer service, and sales positions at green industries, as well as 
janitorial and landscaping positions at government agencies. Los 
Angeles, however, contracted with one service provider, the Los Angeles 
Conservation Corps, with an emphasis on providing green jobs. This 
service provider had 422 youth participants during Phase II of the 
summer youth employment program, most of whom engaged in green jobs, 
which, as defined by the service provider, included planting trees, 
cleaning streets and alleys, and other green activities. Sponsors of 
the Los Angeles Conservation Corps include federal agencies, such as 
the Environmental Protection Agency and the U.S. Forest Service, and 
private entities, such as Shell Oil and the Sierra Club. One of the 
employers under the Los Angeles Conservation Corps was the Million 
Trees LA project, a city of Los Angeles project that works with the 
U.S. Forest Service on its Urban Forest Project. 

Challenges in Meeting Enrollment: 

While the state did not provide enrollment or spending targets for 
summer youth employment activities, San Francisco and Los Angeles 
officials developed their own enrollment targets for their summer youth 
employment programs. Los Angeles officials also said they planned to 
spend all their WIA Recovery Act Youth funds by June 30, 2010. At the 
time of our site visits in August 2009, neither San Francisco nor Los 
Angeles had met their own summer enrollment targets. 

San Francisco officials told us that they had enrolled about 392 youth 
(86 percent of the target), and although the program was ongoing at the 
time of our visit, they expect to fall short of their goal of enrolling 
455 youth. San Francisco officials stated that they were able to 
identify enough youth participants, but not enough work sites. They 
cited the short time frames to develop their programs as a challenge, 
which officials identified at the outset. San Francisco contracted with 
two organizations for work site development, both of which conducted 
on- site orientation and monitored visits with each work site prior to 
youth being placed there. The visits were designed to provide program 
orientation, assess work sites for safety regulations, and explain and 
verify work site requirements. 

At the time of our visit, Los Angeles had met about 90 percent of their 
targeted enrollments in the first two phases of its summer youth 
employment activities,[Footnote 46] and officials believed they would 
meet their overall goal to have all funds obligated or expended by June 
30, 2010. For Phase I (May to June 30, 2009), Los Angeles had a target 
enrollment of 1,250 youth participants; approximately 1,100 youth 
completed the employment activities (88 percent of their goal), 
although Los Angeles officials said they are still collecting and 
collating the data from this phase. For Phase II (July 1 to September 
30), Los Angeles officials had a target enrollment of 4,300 youth 
participants. Enrollment as of August 7, 2009, was 3,910, or 91 percent 
of the goal. Despite not being at their enrollment goal in August, Los 
Angeles officials anticipate reaching their overall enrollment goal by 
September 30. Beyond the Labor-defined summer period of May 1 to 
September 30,[Footnote 47] Phase III, called the Reconnections Academy, 
is planned to run from October 1 through December 31 and has a goal of 
providing 1,000 positions to 21 to 24 year olds. In addition, a Phase 
IV is planned for the year-round program. Los Angeles said that their 
plan is to spend all of their Recovery Act WIA Youth funds by June 30, 
2010, and the current plan is to spend 80 percent of the funds by 
September 30, 2009, at the end of Phase II. Subsequent to our visit, 
Los Angeles officials reported that, as of August 31, 2009, 5,300 youth 
were enrolled in summer youth employment activities, or about 95 
percent of their goal. 

Los Angeles officials said they did not face any major issues in 
developing summer youth work sites. The city has previously provided 
locally funded summer youth employment activities under an umbrella 
program known as Hire LA's Youth, which complemented the year-round WIA 
program. The request for proposal for this city-funded 2009 summer 
youth employment program was released in October 2008 and closed in 
December 2008. Thus, according to Los Angeles Community Development 
Department (LACDD) officials, when the Recovery Act provided WIA funds 
for youth summer employment in 2009, Los Angeles was already fully 
engaged in developing work sites and service providers for summer youth 
employment programs. 

Successes with Out-of-School Youth and Youth Ages 22 to 24: 

San Francisco and Los Angeles officials believe that they had 
successfully targeted out-of-school youth and reached out to youth ages 
22 to 24. Of the youth currently enrolled in the San Francisco program, 
178 out of the 392 youth (about 45 percent) were out-of-school youth. 
Additionally, 67 out of the 392 youth (about 17 percent) were between 
the ages of 22 and 24.[Footnote 48] According to a San Francisco 
official, younger participants are directed to the Mayor's youth 
employment program, which serves high school youth. One of the service 
providers we interviewed, Larkin Street Youth Services, focused on the 
homeless youth population of San Francisco. Larkin Street Youth 
Services officials said that their population is largely an out-of- 
school youth population. Only 4 of the 50 youth participating with this 
service provider were under the age of 18. 

Los Angeles officials told us that they are still collecting 
demographics on their participants to determine whether they met their 
goal of out-of school youth constituting at least 30 percent of the 
program participants.[Footnote 49] Officials at the city-based service 
provider we visited said that they focused entirely on out-of-school 
youth for the WIA summer youth employment activities. Los Angeles 
officials told us that they are also still gathering data on the number 
of summer youth program participants ages 21 to 24. Phase III of the 
youth employment activities, however, will focus on this age group, 
with a goal of targeting 1,000 participants. 

State and Selected Local Agencies Have Procedures for Monitoring 
Recovery Act WIA Youth Summer Funds and Contracts: 

The state and local workforce investment agencies that we visited have 
monitoring procedures over the use of Recovery Act WIA Youth funds in 
place. While the state and local agencies have similar monitoring 
procedures (see table 8), the performance of these monitoring efforts 
differ in important ways. For example, EDD plans to conduct visits to 
work sites established by each of the 49 local areas in the state. EDD 
officials told us that, during these site visits, they review a 
nonstatistical sample of participant case files and interview 
participants and work site supervisors to confirm proper documentation 
for participant work permits, verify participant eligibility, and 
ensure that participants are provided meaningful employment 
opportunities. EDD also reviews program administration and operations 
and examines contract procurements, expenditure reports, expense 
payments, and small purchases. EDD officials stated that they typically 
select for review work sites that have a high level of risk. They base 
risk on factors such as geographic location, the type of work being 
conducted, and the age of the participants. EDD issues a written report 
of its findings to the local agencies, which then must respond with 
corrective action plans addressing any compliance or deficiency issues 
raised in the report. 

Table 8: Examples of Oversight Activities at California State and 
Select Local Workforce Agencies: 

External audits (e.g., Single Audits) conducted; State agency: 
Employment Development Department (EDD): [Check]; Local agencies: Los 
Angeles Community Development Department (LACDD): [Check]; 
Local agencies: San Francisco Office of Economic and Workforce 
Development: [Check]. 

Risk assessments on work sites performed; State agency: Employment 
Development Department (EDD): [Check]; Local agencies: Los Angeles 
Community Development Department (LACDD): [Empty]; 
Local agencies: San Francisco Office of Economic and Workforce 
Development: [Empty]. 

Recovery Act-specific training provided; State agency: Employment 
Development Department (EDD): [Check]; Local agencies: Los Angeles 
Community Development Department (LACDD): [Check]; 
Local agencies: San Francisco Office of Economic and Workforce 
Development: [Check]. 

Youth participant eligibility verified; State agency: Employment 
Development Department (EDD): [Check]; Local agencies: Los Angeles 
Community Development Department (LACDD): [Check]; 
Local agencies: San Francisco Office of Economic and Workforce 
Development: [Check]. 

Work site checked for safety; 
State agency: Employment Development Department (EDD): [Check]; Local 
agencies: Los Angeles Community Development Department (LACDD): 
[Check]; 
Local agencies: San Francisco Office of Economic and Workforce 
Development: [Check]. 

Participant payroll verified; 
State agency: Employment Development Department (EDD): [Check]; Local 
agencies: Los Angeles Community Development Department (LACDD): 
[Check]; 
Local agencies: San Francisco Office of Economic and Workforce 
Development: [Check]. 

Meaningful work and adequacy of supervision assessed; State agency: 
Employment Development Department (EDD): [Check]; Local agencies: Los 
Angeles Community Development Department (LACDD): [Check]; 
Local agencies: San Francisco Office of Economic and Workforce 
Development: [Check]. 

Source: GAO analysis of information provided by the California 
Employment Development Department, Los Angeles Community Development 
Department, and San Francisco Office of Economic and Workforce 
Development. 

Note: All monitoring activities are conducted on a sample basis. 

[End of table] 

The local agencies we visited have adopted many of the state's 
monitoring tools for their own monitoring purposes, including many of 
the interview questionnaires for participants and supervisors, and 
supplement these tools with their own procedures. San Francisco 
officials told us that their compliance specialists visit service 
providers to inspect work sites for safety and suitability. They also 
review a sample of case files, interview participants, and provide 
guidance on reporting requirements. San Francisco contracted its 
payroll and work site certification functions to the Japanese Community 
Youth Center, a nonprofit agency. San Francisco officials also hold 
weekly meetings with all service providers to review participant 
timesheets and address any concerns raised by the providers. 

Los Angeles officials told us that they visit a sample of their work 
sites to ensure that they comply with workplace safety requirements. 
These officials stated that, in addition, their service providers' many 
years of experience with the city's summer program and its work sites 
provides another level of control. Los Angeles has already conducted 
one programmatic monitoring visit of its service providers, including 
case file reviews, monitoring work sites, and interviewing participants 
and work site supervisors. LACDD also plans to review 10 percent of all 
the case files for its summer program to check that participants meet 
eligibility requirements, and it plans to visit 10 percent of its work 
sites. Service providers have 30 days to respond to and implement 
corrective actions for any findings. The city negotiates a time frame 
with contractors for correcting any unresolved findings, based on the 
amount of work required to resolve them. 

We reviewed monitoring approaches at each of the four service providers 
that we visited. Since the Boyle Heights Technology Center in Los 
Angeles is a city-run service provider, it is responsible for 
implementing LACDD's internal control procedures, as described above. 
Alternatively, the Los Angeles Conservation Corps has two internal 
auditors and an audit committee that leads its internal monitoring 
efforts, including eligibility and payroll documentation of 
participants. In San Francisco, officials with Larkin Street Youth 
Services told us that they conduct a risk assessment of their internal 
controls for accounts payable, payroll, information technology, and 
revenue procedures. Officials at the Vietnamese Youth Development 
Center in San Francisco explained that, although the WIA Youth program 
is their first federally funded program, they have extensive experience 
offering summer youth employment programs, in general, and therefore, 
they already have safeguards in place to ensure that youth are provided 
meaningful employment opportunities. For example, in connection with 
their earlier programs, the Vietnamese Youth Development Center 
required all program supervisors to attend an orientation that included 
guidance on safety issues and job responsibilities. 

We reviewed two of the contracts awarded by the city of Los Angeles to 
service providers for its summer program and discussed the contracts 
with local officials. According to local officials, one contract is 
with the Los Angeles Unified School District for a maximum of $225,000, 
and the other is with the Los Angeles Conservation Corps for an amount 
not to exceed an estimated price of $845,000--both involve providing 
workplace training for youth participants. (See table 9 for information 
on LACDD's preaward and contracting procedures for these two 
contracts.) According to LACDD, Los Angeles added a requirement to an 
existing contract with the Los Angeles Unified School District. This 
modification enabled the district to quickly begin the first phase of 
its summer youth program on May 1, 2009. Labor granted a waiver to 
California on the competitive requirement. This waiver allowed LACDD to 
select an existing youth service provider and modify its current 
contract amount by up to 150 percent of the original contract price. 
Other contracts were also modified in this manner during the first 
phase. The official also said that the services to be performed under 
the program were awarded pursuant to a cost-reimbursement contract with 
a line item price of $2,000 per participant, with an estimated price of 
$225,000 to serve approximately 113 youth participants. LACDD decided 
to use a cost reimbursement contract, rather than a fixed-price 
contract, to account for possible changes in the number of participants 
enrolled in the program. According to LACDD officials, this program met 
its target of 113 enrollees. The other contract we reviewed and 
discussed with local officials was with the Los Angeles Conservation 
Corps, which was competitively awarded during the second phase of the 
Los Angeles summer youth program. Los Angeles workforce officials 
selected a total of 15 service providers out of the 22 that had 
submitted offers. The Los Angeles Conservation Corps contract was also 
a cost reimbursement contract with a not-to-exceed estimated price of 
$845,000, serving a total of 422 youth participants. 

Table 9: Preaward and Contracting Procedures Used by the Los Angeles 
Community Development Department (LACDD) in Contracts Reviewed by Local 
Officials and GAO: 

LACDD stated it took the following steps before awarding the contracts: 

* Verified that the bidder or offeror was in good standing by reviewing 
the debarred bidders list of federal and state agencies, checking with 
the special investigation section of the California Bureau of Contract 
Administration, and ensuring that the bidder did not have outstanding 
claims with the city's financial management division; 

*Confirmed that the bidder or offeror submitted a completed bid or 
proposal, including all necessary attachments and a signature from an 
authorized representative; 

* Scored the bid or proposal using evaluation factors that considered 
demonstrated ability, such as prior experience providing youth programs 
and positive performance in recent years, as well as service design and 
approach. 

Once the contract was awarded, LACDD monitored contract performance by: 

* Internal monitoring of files and fiscal transactions; 

* Conducting bimonthly compliance monitoring, made recommendations, 
tracked open findings from prior year fiscal review, and followed up on 
status of single audit reports; 

* Tracked compliance with contract terms and conditions and provided 
technical assistance to assist contractors to improve their operations 
and performance; 

* Verified that appropriate funding allocations are used, adequate and 
auditable financial records are maintained, costs are allowable, and 
contract provisions and regulations are complied with; 

* Validated a closeout report to general ledger and sampled 
expenditures reported; 

* Compared amounts of expenditures claimed on the expenditure reports 
to the general ledger, and selected a sample of expenditures from the 
general ledger and examined their supporting documentation; 

* Evaluated internal controls based on fiscal review checklist 
completed by contractors. 

Source: GAO analysis of information provided by Los Angeles Community 
Development Department. 

[End of table] 

California Does Not Anticipate Problems with Recovery Act Reporting 
Requirements for the WIA Summer Youth Program, but Work Readiness 
Measures Differ: 

California officials said that they do not anticipate any problems 
reporting Recovery Act WIA Youth program results as required by Section 
1512 of the act. As defined by OMB guidance on Section 1512 reporting 
requirements, California is the prime recipient of WIA Youth Recovery 
Act funds, and the 49 local areas are the subrecipients. California has 
not delegated reporting responsibilities under Section 1512 to the 
subrecipients. EDD officials stated they will rely on guidance provided 
by Labor and the state to comply with Section 1512 reporting 
requirements, and do not anticipate any challenges in collecting data 
from subrecipients or in reporting this data to the Task Force. 
[Footnote 50] 

The Recovery Act provided that, of the WIA Youth program measures, only 
the work readiness measure,[Footnote 51] is required to assess the 
outcomes of the summer-only employment for youth served with Recovery 
Act funds. Within the parameters set forth in federal agency guidance, 
local areas may determine their methodology to measure work readiness 
gains. San Francisco and Los Angeles will use different methodologies 
for measuring work readiness, including assessing different factors in 
different ways. 

San Francisco will assess all of its participants using its Work 
Readiness Assessment, which includes participant self-identified goals, 
self evaluation, a basic math and reading skills assessment, and a pre- 
and post-Secretary's Commission on Achieving Necessary Skills[Footnote 
52] (SCANS) evaluation. A participant's final assessment will be 
completed by the work site supervisor and will include a five-point 
rating system on 15 factors, such as attendance, punctuality, team 
member participation, understanding workplace expectations, problem 
solving, responsibility, listening, and speaking. Work site supervisors 
assess youth participants on the frequency the measure is demonstrated, 
such as never, hardly ever, sometimes, usually, or always. The 
assessment also includes five additional skills the work site 
supervisors identify as specific to the participant's job. For these 
five skills, the youth participants are rated on level of performance 
such as unsatisfactory, marginal, average, above average, and 
outstanding. 

In Los Angeles, all participants will be assessed on work readiness 
skills and at least 50 percent will be assessed for basic skills using 
the Comprehensive Adult Student Assessment Systems (CASAS).[Footnote 
53] Los Angeles will use two sets of tools based on SCANS skills to 
measure work readiness. Preassessment will be completed using the 
Individual Service Strategy, which requires the youth participant to 
answer questions about career aspirations, educational goals, and hopes 
for the summer work experience, among other questions. There is also a 
pre-and postassessment based on the work site supervisor's evaluation 
of progress completed on the work site evaluation form. This pre-and 
postassessment is a four-point rating system--with ratings for needs 
development, competent, proficient, or advanced--which evaluates the 
level at which the participants perform at least four of six factors, 
such as interacting with co-workers, accepting direction and criticism, 
attendance and appearance, speaking, listening, and self-management. 
Los Angeles also provides a Job Keeping Skills Checklist designed for 
older youth who have been in the workforce previously, as well as 
administers an exit survey of youth participants. 

State Comments on This Summary: 

We provided the Governor of California with a draft of this appendix on 
September 8, 2009. 

California state officials generally agreed with our draft and provided 
some clarifying information, which we incorporated, as appropriate. 

GAO Contacts: 

Linda Calbom, (206) 287-4809 or calboml@gao.gov: 

Randy Williamson, (206) 287-4860 or williamsonr@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Paul Aussendorf, Assistant 
Director; Joonho Choi; Michelle Everett; Chad Gorman; Richard Griswold; 
Don Hunts; Delwen Jones; Al Larpenteur; Susan Lawless; Brooke Leary; 
Heather MacLeod; Eddie Uyekawa; and Lacy Vong made major contributions 
to this report. 

[End of section] 

Footnotes for Appendix II: 

[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[2] SELPAs are made up of LEAs and county offices of education within 
particular geographic areas. Small LEAs join together so they can 
receive IDEA funding to provide a full range of services to students 
with special needs. 

[3] According to the California Controller's Web site, a total of $1.95 
billion in registered warrants have been issued since July 2. A 
registered warrant is a "promise to pay," with interest, that is issued 
by the state when there is not enough cash to meet all of its payment 
obligations. Based on the recommendation of the Pooled Money Investment 
Board (PMIB), the State started redeeming IOUs on September 4, 2009. 
The interest rate is 3.75 percent per year. 

[4] Examples provided by officials from the California Department of 
Finance include Social Security Disability Insurance payments that they 
believe should have been paid by Medicare, duplicate Part B Medicare 
premium payments caused by systemic errors, and adjustments to payments 
in connection with Medicare prescription drug coverage. 

[5] Some Recovery Act programs require that states agree to 
maintenance- of-effort requirements in the level of state spending for 
programs to which the requirement applies, unless the maintenance-of-
effort requirements are waived. 

[6] According to Department of Finance officials, California has not 
had funds in the separate rainy-day reserve account for several years. 
California's budget reserve consists of a line item in the General Fund 
budget officially called the Special Fund for Economic Uncertainties. 

[7] Specific examples cited are the Temporary Assistance for Needy 
Families (TANF) program, In-home Health Supportive Services program, 
Department of Corrections and Rehabilitation, and state contracting 
processes. 

[8] The state has a bipartisan Tax Commission studying options that 
could report out its findings soon. Then, the Governor could convene a 
special session of the Legislature to take up Tax Commission 
recommendations. 

[9] OMB Memorandum M-09-18 titled Payments to State Grantees for 
Administrative Costs of Recovery Act Activities states that "central 
administrative costs incurred by State recipients in the management and 
administration of Recovery Act programs are allowable costs under the 
current guidance of OMB Circular A-87.… Generally, these costs are 
recovered as indirect costs to the programs. The methodology used to 
reimburse State recipients for central administrative costs is captured 
in the indirect cost rates provided for in OMB Circular A-87…. Under 
the provisions of OMB Circular A-87, States can recoup Recovery Act 
administrative costs through the State-wide Cost Allocation Plan 
(SWCAP), which is submitted to the Department of Health and Human 
Services (HHS) annually for review and approval. The costs can either 
be included as 'centralized services' costs (commonly known as 'Section 
I costs') or as 'billed services' costs (commonly known as 'Section II 
costs'). These costs can be included in the SWCAP as an addendum plan 
pertaining only to Recovery Act programs and activities, thus providing 
transparency to the total amount of Recovery Act administrative costs 
and its allocation to the programs." 

[10] California decided to commit its entire $1.1 billion allocation of 
SFSF government services funds (the discretionary portion of SFSF 
funds) to paying for California's Department of Corrections and 
Rehabilitation (CDCR) payroll costs and not for oversight costs. As 
discussed in our last report, CDCR spent its first drawdown of $727 
million in the 2008-09 fiscal year on payroll. According to California 
Department of Finance officials, CDCR is slated to receive another $358 
million in September which, similarly, will be used for payroll. 

[11] Section 1512 of the Recovery Act requires recipients to report on 
the use of Recovery Act funding and provide detailed information on 
projects and activities funded by the Recovery Act. Pub. L. No. 111-5. 
Sec. 1512. 123 Stat. 115.287 (Feb. 17, 2009). Recipients are required 
to report no later than the 10th day after the end of each calendar 
quarter, beginning the quarter ending on September 30, 2009. Under OMB 
guidance, prime recipients, such as state agencies, have the 11th 
through the 21st day to review and correct data. The federal government 
will report out to the public 30 days after the quarter ends. Further 
implementation guidance on Section 1512 reporting is contained in OMB 
Memorandum M-09-21, which was released on June 22, 2009. 

[12] Recipient reports will include payments to subrecipients and 
vendors. A vendor is defined as a dealer, distributor, merchant, or 
other seller providing goods or services required for the conduct of a 
federal program. Additional data elements were identified for vendor 
payments when reporting expenditures of more than $25,000. These 
include the vendor's Dun and Bradstreet Universal Numbering System 
(DUNS) number, payment amount, and purchase description. A requirement 
was also added for subrecipients to report the DUNS number or name and 
ZIP code of the vendor's headquarters for payments to vendors in excess 
of $25,000. 

[13] XML (Extensible Markup Language) is a set of rules for encoding 
documents electronically. 

[14] For the Highway Infrastructure Investment Program, the U.S. 
Department of Transportation has interpreted the term obligation of 
funds to mean the federal government's contractual commitment to pay 
for the federal share of the project. This commitment occurs at the 
time the federal government signs a project agreement. This amount does 
not include obligations associated with the $27 million of apportioned 
funds that were transferred from FHWA to the Federal Transit 
Administration (FTA) for transit projects. Generally, FHWA has 
authority pursuant to 23 U.S.C. § 104(k)(1) to transfer funds made 
available for transit projects to FTA. 

[15] States request reimbursement from FHWA as they make payments to 
contractors working on approved projects. 

[16] The total amount of Recovery Act funds obligated for these 
projects is $1.104 billion. The total value of the contracts awarded 
exceeds the obligation total due to the contribution of local agency, 
state, and other federal funds to the overall financing of these 
projects. 

[17] We reported on the projects associated with these two contracts in 
our July 2009 report. 

[18] The Caltrans Construction Manual establishes policies and 
processes for the construction phase of Caltrans projects. The manual 
includes information on contract administration, sampling and testing, 
environmental requirements, and employment practices. The manual also 
includes information on contract administration for projects 
administered by local agencies for roads on the state highway system. 
Caltrans officials stated that the construction manual includes FHWA 
contract oversight provisions and has FHWA approval. 

[19] The other two public transit programs receiving Recovery Act funds 
are the Fixed Guideway Infrastructure Investment program and the 
Capital Investment Grant program, each of which was apportioned $750 
million. The Transit Capital Assistance Program and the Fixed Guideway 
Infrastructure Investment program are formula grant programs, which 
allocate funds to states or their subdivisions by law. Grant recipients 
may then be reimbursed for expenditures for specific projects based on 
program eligibility guidelines. The Capital Investment Grant program is 
a discretionary grant program, which provides funds to recipients for 
projects based on eligibility and selection criteria. 

[20] Urbanized areas are areas encompassing a population of not less 
than 50,000 people that have been defined and designated in the most 
recent decennial census as an "urbanized area" by the Secretary of 
Commerce. Nonurbanized areas are areas encompassing a population of 
fewer then 50,000 people. 

[21] The 2009 Supplemental Appropriations Act authorizes the use of up 
to 10 percent of each apportionment for operating expenses. Pub. L. No. 
111-32, §1202, 123 Stat. 1859, 1908 (June 24, 2009). In contrast, under 
the existing program, operating assistance is generally not an eligible 
expense for transit agencies within urbanized areas with populations of 
200,000 or more. 

[22] The federal share under the existing formula grant program is 
generally 80 percent. 

[23] Pub. L. No. 111-5, 123 Stat. 115, 209 (Feb. 17, 2009). 

[24] Designated recipients are entities designated by the chief 
executive officer of a state, responsible local officials, and publicly 
owned operators of public transportation to receive and apportion 
amounts that are attributable to transportation management areas. 
Transportation management areas are areas designated by the Secretary 
of Transportation as having an urbanized area population of more than 
200,000, or upon request from the governor and metropolitan planning 
organizations designated for the area. Metropolitan planning 
organizations 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 Program and the approved State 
Transportation Improvement Program (STIP). 

[25] For the Transit Capital Assistance Program, the U.S. 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. 

[26] Under FTA circular 9030.1c, preventive maintenance is an eligible 
grant activity and is classified under capital project activities. 
Preventive maintenance costs are defined as all maintenance costs. 

[27] Some state funding for transit purposes is supported through two 
funding sources: (1) the State Transit Assistance fund, which is 
derived from a statewide sales tax on gasoline and diesel fuel, and (2) 
the Local Transportation Fund, which is derived from one-quarter of a 
cent of the general sales tax collected statewide. 

[28] Generally, FHWA has authority pursuant to 23 U.S.C. § 104(k)(1) to 
transfer funds made available for transit projects to FTA. 

[29] FTA's triennial review evaluates urbanized area formula grantees' 
performance at least once every 3 years in carrying out transit 
programs, including adherence to statutory and administrative 
requirements. 

[30] OMB guidance on Section 1512 of the Recovery Act states that prime 
grant recipients are required to report different data elements for 
vendors and subrecipients. According to transit agency officials, 
contractors do not have the required registrations needed for 
subrecipient reporting and it may be difficult for some contractors to 
obtain this information in time for the October 10, 2009, Recovery Act 
Section 1512 reporting deadline. 

[31] The initial award of SFSF funding required each state to submit an 
application to the U.S. Department of Education that provides several 
assurances, including that the state will meet maintenance-of-effort 
requirements (or it will be able to comply with waiver provisions) and 
that it will implement strategies to meet certain educational 
requirements, such as increasing teacher effectiveness, addressing 
inequities in the distribution of highly qualified teachers, and 
improving the quality of state academic standards and assessments. In 
addition, states were required to make assurances concerning 
accountability, transparency, reporting, and compliance with certain 
federal laws and regulations. States must allocate 81.8 percent of 
their SFSF 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). 

[32] 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. 

[33] SELPAs are made up of LEAs and county offices of education within 
particular geographic areas. Small LEAs join together so they can 
receive IDEA funding to provide a full range of services to students 
with special needs. 

[34] Both the California State Auditor and the Education Inspector 
General have recently cited deficiencies in CDE and LEA ESEA Title I 
cash management. The Single Audit issued by the State Auditor in May 
2009 found that CDE had disbursed over $1.6 billion to LEAs during the 
fiscal year ending June 30, 2008, with no assurances that the LEAs 
minimized the time between the receipt and disbursement of federal 
funds, as required by federal regulations. The report also noted that 
CDE did not ensure that interest earned on federal program advances is 
returned on at least a quarterly basis. (See State of California 
Internal Control and State Federal Compliance Audit Report for the 
Fiscal Year Ended June 30, 2008, May 2009, Report 2008-002.) 
Additionally, the Education Inspector General reported in March 2009 
that CDE needed to strengthen controls to ensure that LEAs correctly 
calculate and promptly remit interest earned on federal cash advances. 
(See ED-IG/A09H0020, March 2009.) 

[35] The Task Force has also taken steps to provide guidance on cash 
management and two Recovery Act bulletins were issued to state agencies 
in August related to cash management rules and training opportunities. 

[36] The Weatherization Assistance Program funded through annual 
appropriations is not subject to the Davis-Bacon Act. 

[37] The five types of "interested parties" are state weatherization 
agencies, local community action agencies, unions, contractors, and 
congressional offices. 

[38] CSD delivers weatherization services through a network of local 
service providers, including community action agencies, nonprofit 
organizations, and local governments. 

[39] California does not have centralized procurement of weatherization 
materials with established prices and suppliers; instead, procurement 
is delegated to local service providers. 

[40] CSD officials clarified that, in reporting the amount of 
weatherization funds spent in California, they can only report the 
amount drawn through the Controller's Office as of a particular date, 
which is generally not the amount actually spent by service providers 
and contractors as of that date. They explained that this is because 
the weatherization program typically reimburses claims for expenses 
already incurred by service providers and contractors. Therefore, funds 
are only drawn from the Controller's Office whenever a service provider 
submits an invoice to the state for reimbursement, and this occurs 
monthly. Meanwhile, service providers and contractors continue to spend 
funds on weatherization-related activities. 

[41] Some service providers in California outsource 100 percent of 
their weatherization activities, but most are hybrids, conducting 
traditional weatherization services in-house and outsourcing specialty 
services. 

[42] H.R. Rep. No. 111-16, at 448 (2009). 

[43] Department of Labor, Training and Employment Guidance Letter No. 
14-08 (Mar. 18, 2009). 

[44] Current federal wage law specifies a minimum wage of $7.25 per 
hour. Where federal and state laws have different minimum wage rates, 
the higher rate applies. 

[45] According to Labor's Training and Employment Guidance Letter 17-05 
(Feb. 17, 2006) Attachment B, occupational skills training should be 
(1) outcome-oriented and focused on a long-term goal as specified in 
the Individual Service Strategy, (2) be long-term in nature and 
commence upon program exit rather than being short-term training that 
is part of services received while enrolled in Employment and Training 
Act-funded youth programs, and (3) result in attainment of a 
certificate awarded in recognition of an individual's attainment of 
measurable technical or occupation skills necessary to gain employment 
or advance within an occupation. 

[46] Los Angeles also provided summer employment for 2,000 youth 
participants through two locally funded programs, Learn and Earn and LA 
Scholars, which offered work experience with academic components. 

[47] Labor's Training and Employment Guidance Letter 14-08 (Mar. 18, 
2009): 23. 

[48] As noted above, the Recovery Act extended eligibility through age 
24 for youth receiving services funded by the act. 

[49] The 30 percent goal was included in the service provider 
contracts. 

[50] EDD uses their Job Training Automation (JTA) system to track 
subrecipient data by reviewing accrued reports, cash disbursements, and 
contracts. EDD's Workforce Services Branch and Fiscal Programs 
Division, as well as the local workforce investment boards, other state 
agencies, and community based organizations enter data into and 
retrieve data from the JTA system. Over 200 program partners rely on 
information from the JTA system to meet local, state, and Federal 
Management Information System requirements. The JTA system tracks 
program client participation in the relevant programs, reports program 
expenditures and obligations, and administers the WIA required Eligible 
Training Provider List. 

[51] A work readiness skills goal, according to Labor's Training and 
Employment Guidance Letter 17-05 (Feb. 17, 2006) Attachment B, is a 
"measurable increase in work readiness skills including world-of-work 
awareness, labor market knowledge, occupational information, values 
clarification and personal understanding, career planning and decision 
making, and job search techniques (resumes, interviews, applications, 
and follow-up letters). Work readiness skills also encompass survival/ 
daily living skills such as using the phone, telling time, shopping, 
renting an apartment, opening a bank account, and using public 
transportation. They also include positive work habits, attitudes, and 
behaviors such as punctuality, regular attendance, presenting a neat 
appearance, getting along and working well with others, exhibiting good 
conduct, following instructions and completing tasks, accepting 
constructive criticism from supervisors and co-workers, showing 
initiative and reliability, and assuming the responsibilities involved 
in maintaining a job. This category also entails developing motivation 
and adaptability, obtaining effective coping and problem-solving 
skills, and acquiring an improved self image." 

[52] In 1990, the Secretary of Labor appointed a commission to 
determine the skills our young people need to succeed in the world of 
work. The commission's fundamental purpose was to encourage a high- 
performance economy characterized by high-skill, high-wage employment. 
Although the commission completed its work in 1992, according to Labor, 
its findings and recommendations continue to be a valuable source of 
information for individuals and organizations involved in education and 
workforce development. 

[53] According to Labor's Training and Employment Guidance Letter 17-05 
(Feb. 17, 2006), CASAS scores can be used to estimate basic adult 
educational levels. 

[End of section] 

Appendix III: Colorado: 

Overview: 

The following summarizes GAO's work on its third bimonthly review of 
American Recovery and Reinvestment Act (Recovery Act)[Footnote 1] 
spending in Colorado. The full report on all of our work, which covers 
16 states and the District of Columbia, is available at [hyperlink, 
http://www.gao.gov/recovery/]. 

Colorado is targeting Recovery Act funds to help restore the state's 
budget and to meet key program needs during the current budget crisis. 
Our work in Colorado focused on specific Recovery Act programs, 
including a detailed review of three programs--State Fiscal 
Stabilization Fund (SFSF), Transit Capital Assistance, and 
Weatherization Assistance. We reviewed these programs in detail for 
different reasons. The state has allocated major portions of SFSF funds 
to institutions of higher education (IHE), and we therefore reviewed 
this program. We included transit funds because of a Recovery Act 
deadline for obligating a portion of funds by September 1, 2009, in 
addition to the fact that the state received a significant amount of 
transit funds. Finally, we included the weatherization program in our 
review because of the large influx of funds the state received and the 
increased risks associated with managing those funds. In addition to 
the detailed review of these three programs, we updated funding 
information for three other programs--Highway Infrastructure 
Investment; Individuals with Disabilities Education Act (IDEA), Part B; 
and Title I, Part A, of the Elementary and Secondary Education Act 
(ESEA) of 1965. For all programs, we identified the use of Recovery Act 
funds; examined safeguards over these funds, including those related to 
procurement of goods and services; and considered how the effects of 
Recovery Act spending would be reported by the state of Colorado. 

Budget stabilization: As we reported in July 2009, Colorado estimated 
it will receive a total of $3.5 billion in Recovery Act funds.[Footnote 
2] While Recovery Act funds helped Colorado balance its budget for 
fiscal year 2009 and will provide additional support for the state's 
budgets in fiscal years 2010 and 2011, the state still faces 
significant revenue shortfalls in those 2 years. As a result, the state 
has made $318 million in budget cuts in the fiscal year 2010 budget and 
anticipates making more drastic cuts in fiscal year 2011. 

In summary, for the Recovery Act programs we reviewed, we found the 
following: 

* U.S. Department of Education (Education) State Fiscal Stabilization 
Fund (SFSF). Education has allocated $760 million in SFSF funding to 
Colorado and Colorado plans to spend the majority of the funds on 
higher education. As of September 2, 2009, state IHEs had been 
reimbursed $155 million from SFSF funds. The two state institutions we 
reviewed used the funds to restore teaching positions and programs and 
to limit tuition increases. Recent budget cuts at the state level have 
caused the state to plan to reallocate $81 million in SFSF funds from 
K- 12 to higher education in fiscal year 2010. The budget cuts 
decreased the state's spending on higher education below levels 
required to meet Recovery Act requirements. As a result, on September 
9, 2009, the state submitted a request to Education to waive the 
requirement to maintain state education spending at certain levels in 
fiscal year 2010. 

* Transit Capital Assistance. The U.S. Department of Transportation's 
(DOT) Federal Transit Administration (FTA) apportioned $103 million in 
Recovery Act Transit Capital Assistance funds to Colorado and urbanized 
areas in the state. Of that total, $90.2 million was apportioned to 
urbanized areas and the remaining $12.5 million was apportioned to the 
state for spending in nonurbanized or rural areas. As of September 1, 
2009, FTA had obligated $96.3 million for the state and urbanized areas 
in Colorado. Officials from Colorado transit agencies told us they 
directed Recovery Act funds toward high-priority projects that were 
facing a funding shortfall, including capital maintenance, safety 
improvements, and light rail projects. 

* Weatherization Assistance Program. The U.S. Department of Energy 
(DOE) allocated about $79.5 million in Recovery Act weatherization 
funding to Colorado, as we reported in July 2009. As of September 15, 
2009, DOE had provided almost $39.8 million to the state and Colorado 
had obligated $17.3 million of these funds, of which about $4.1 million 
had been spent. Colorado's weatherization plan was approved by DOE on 
August 13, 2009. Officials from some weatherization agencies in 
Colorado were concerned that Davis-Bacon Act wage requirements have 
increased the wages that they will pay for weatherization work, 
potentially limiting the amount of weatherization activities that can 
be completed in Colorado. 

* Highway Infrastructure Investment funds. DOT's Federal Highway 
Administration (FHWA) initially apportioned almost $404 million in 
Recovery Act funds to Colorado. Of these funds, $18.6 million was 
transferred to FTA for transit projects, leaving $385 million for 
highway projects in the state. As of September 1, 2009, FHWA had 
obligated almost $290 million for Colorado projects and about $16.5 
million had been reimbursed by the federal government. 

* Individuals with Disabilities Education Act (IDEA) Part B. As of 
August 31, 2009, Education had allocated $154 million to Colorado for 
IDEA Part B. As of the same date, Colorado had reimbursed almost $4.1 
million in Part B funds to local education agencies (LEA). 

* Title I, Part A, Elementary and Secondary Education Act (ESEA) of 
1965. As of August 31, 2009, Education had awarded Colorado $111 
million for ESEA Title I, Part A and Colorado had reimbursed almost 
$280,000 in ESEA Title I, Part A funds to LEAs. 

* General administrative costs. The Office of Management and Budget 
(OMB) released guidance on May 11, 2009, allowing states to recover 
costs related to central administrative activities to manage Recovery 
Act programs and funds.[Footnote 3] Such activities include oversight 
of the state's reporting and auditing of Recovery Act programs. 
Colorado submitted a cost allocation plan to the Department of Health 
and Human Services Division of Cost Allocation (DCA), the agency 
charged with approving such plans, on August 13, 2009. State officials 
expect DCA to review the plan within 60 days; as of September 14, 2009, 
the plan had not been approved. The State Controller is concerned that 
timing and methodology difficulties will delay its approval, thereby 
delaying the state's ability to recover these costs and hindering the 
state's ability to oversee Recovery Act programs and funds. 

Contracting: Colorado has taken several steps to facilitate the timely 
and efficient management of Recovery Act contracts. First, legislation 
was enacted permitting a waiver of its procurement code requirements 
under certain circumstances, although the state has not yet used the 
waiver.[Footnote 4] Second, the State Purchasing Office developed and 
provided procurement guidance regarding the use of Recovery Act funds. 
Third, Colorado identified the need to hire 16 staff in the Department 
of Personnel and Administration and several state agencies in the areas 
of purchasing, accounting, contracts, and risk management; the state 
plans to use general administrative funds to pay for some of these 
staff and program administrative funds for others. Finally, Colorado 
implemented a new Contract Management System on July 1, 2009, to 
facilitate centralized data collection and reporting on all state 
contracts. Various Colorado agencies have begun awarding Recovery Act 
contracts, including the Colorado Department of Transportation (CDOT) 
and the Governor's Energy Office. 

Reporting: Colorado is planning to use a centralized process to report 
Recovery Act data to OMB rather than having state agencies report 
individually. However, a number of unresolved issues may affect 
Colorado's ability to report to OMB in a complete and timely manner. 
For example, Colorado's centralized reporting process is new and 
testing is ongoing, which may lead to problems when the state tries to 
upload data to OMB's online portal, [hyperlink, 
http://www.federalreporting.gov], by the October 10, 2009, deadline. 
The Office of the State Controller has issued guidance on Recovery Act 
reporting, and the state is conducting meetings with state agencies to 
train them in the new policies and systems for reporting. 

While Recovery Act Funds Have Helped Colorado's Budgets, Revenue 
Shortfalls Will Continue and Need to Be Addressed: 

As Colorado faces continued declining revenues compared to forecasts, 
Recovery Act funding helped the state balance its fiscal year 2009 
budget, which ended June 30, 2009, and has also been a major factor in 
closing the gap for the current year's (fiscal year 2010) $19 billion 
budget. However, on August 25, 2009, the Governor made cuts to balance 
the fiscal year 2010 budget, and state officials anticipate that 
continuing revenue shortfalls and increasing program caseloads will 
likely require even deeper cuts for fiscal year 2011. During the same 
year, the state will have to manage the fact that Recovery Act funds 
will be reduced or eliminated and these funding sources will no longer 
be available to support the state's budget. 

Although Recovery Act funds are helping stabilize the state's budgets, 
they are not expected to make up entirely for the state's lost revenue 
over the next 2 fiscal years and the state has begun to make budget 
cuts.[Footnote 5] As we reported in July, in May 2009, Colorado adopted 
a balanced budget for fiscal year 2010 based on the state's March 2009 
economic forecast. To help balance the budget, state officials included 
more than $500 million in Recovery Act funds, including SFSF funding 
for education (over $150 million) and funds made available as a result 
of the increased Federal Medical Assistance Percentage (FMAP, over $340 
million).[Footnote 6] The state's June 2009 economic forecast, however, 
indicated that revenues would decline further than expected and would 
be insufficient to cover the fiscal year 2010 budget. As a result, in 
August 2009, the Governor presented a budget-balancing plan totaling 
$318 million in cuts and adjustments, which included $258 million in 
general fund reductions, $40.6 million in cash fund transfers, and $19 
million in other adjustments. As a result of these changes, state 
officials expect 300 full-time equivalent jobs to be eliminated. 
[Footnote 7] 

For fiscal year 2011, state officials are very concerned that state 
revenues will continue to decline and demand for services will continue 
to increase at the same time that the elimination or reduction of 
Recovery Act funding occurs. State projections show that lower revenues 
will contribute to a budget shortfall in fiscal year 2011 of several 
hundred million dollars. Revenues will not return to fiscal year 2008 
levels until fiscal year 2012.[Footnote 8] During that time, state 
officials expect caseload increases in Medicaid and Corrections, as 
well as increases in higher education and K-12 enrollments. At the same 
time these fiscal challenges exist, major Recovery Act funds will be 
ending. In particular, the additional Recovery Act funding for Medicaid 
FMAP is scheduled to end December 31, 2010, and Colorado has allocated 
its SFSF funds over 3 years, ending in fiscal year 2011. As a result, 
Colorado officials expect that they will need to find additional 
revenue sources and/or make further budget cuts. State officials 
anticipate that even if economic recovery is underway, budgetary 
shortfalls will be "brutal" and "painful" through fiscal year 2011 and 
the fiscal situation will not improve until fiscal year 2012. 

As a result of the state's current budget challenges, the Colorado 
General Assembly created an interim commission to study long term 
fiscal stability.[Footnote 9] The joint resolution creating the 
commission directs it to study the fiscal stability of the state, 
including solutions for education and transportation funding, 
affordable access to health care, state-owned assets, and the creation 
of a rainy day fund. The resolution also calls for the commission to 
develop a strategic plan for state fiscal stability and to present any 
written findings and recommended legislation by November 6, 2009. 
According to Legislative Council staff, the commission plans to discuss 
state constitutional provisions that constrain legislative options by 
limiting tax increases or mandating increased funding levels for 
programs such as K-12 education. 

SFSF Funds Continue to Support Higher Education but Budget Cuts Have 
Caused the State to Seek a Waiver from State Spending Requirements: 

The Recovery Act created 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 be used to alleviate shortfalls in state support for 
education to school districts and public IHEs. The initial award of 
SFSF funding required each state to submit an application to the U.S. 
Department of Education (Education) that provides several assurances, 
including that the state will meet maintenance-of-effort requirements 
(or it will be able to comply with waiver provisions) and that it will 
implement strategies to meet certain educational requirements, such as 
increasing teacher effectiveness, addressing inequities in the 
distribution of highly qualified teachers, and improving the quality of 
state academic standards and assessments. In addition, states were 
required to make assurances concerning accountability, transparency, 
reporting, and compliance with certain federal laws and regulations. 
States must allocate 81.8 percent of their SFSF 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). After maintaining state 
support for education at fiscal year 2006 levels, states must use 
education stabilization funds to restore state funding to the greater 
of fiscal year 2008 or 2009 levels for state support to school 
districts or public IHEs. When distributing these funds to school 
districts, states must use their primary education funding formula, but 
they can determine how to allocate funds to public IHEs. In general, 
school districts maintain broad discretion in how they can use 
stabilization funds, but states have some ability to direct IHEs in how 
to use these funds. 

Colorado Plans to Spend a Majority of Stabilization Funds on Higher 
Education and Is Seeking a Waiver from the Maintenance-of-Effort 
Requirement: 

As we reported in July 2009, Colorado has been allocated more than $760 
million in SFSF funds, $622 million of which will be education 
stabilization funds and $138 million of which will be government 
services funds. Initially, the state planned to allocate the majority 
of its SFSF education stabilization funds to higher education ($452 
million over a 3-year period) and the remaining $170 million over a 2- 
year period to the state's K-12 system. Given the state's emphasis on 
using SFSF to fund higher education, we focused our work for our third 
bimonthly review on IHEs. We met with officials from the University of 
Colorado System, the largest 4-year college system in Colorado, and the 
Colorado Community College System, a system of 13 2-year community 
colleges, to discuss their use of SFSF funds. As both college systems 
allocate funds to their individual campuses, we also met with officials 
from the University of Colorado at Boulder, one of the universities 
under the University of Colorado System, and from Red Rocks Community 
College, one of the community colleges under the Colorado Community 
College System. 

Because of a recent $81 million budget cut in the state's general fund 
contribution to higher education for fiscal year 2010, Colorado plans 
to allocate more SFSF funds to higher education than it had originally 
planned. Colorado had allocated about $302 million of the education 
stabilization funds in fiscal year 2010, with $150.7 million going to 
higher education and $152 million going to K-12 education programs. 
However, on August 25, 2009, the Governor, in the fiscal year 2010 
budget-balancing plan submitted to the Colorado General Assembly, cut 
$81 million from the state's $660 million general fund contribution to 
higher education, causing the state's share of funding to fall below 
the SFSF maintenance-of-effort level (2006 funding level) required 
under the Recovery Act.[Footnote 10] As a result, the state has 
requested a waiver from Education of the SFSF state maintenance-of- 
effort funding requirement for fiscal year 2010. The state plans to 
offset the budget cuts by targeting additional SFSF funds to higher 
education and decreasing the SFSF funds for K-12 by $80.8 
million.[Footnote 11] Assuming that the waiver is granted, Colorado 
expects to allocate a total of $320.5 million in fiscal year 2010, with 
$231.5 million going to higher education and $89 million to K-12. This 
will leave $150.7 million in SFSF funds for higher education in fiscal 
year 2011. 

SFSF funds have had a significant effect on higher education programs 
and staffing in Colorado. As of September 2, 2009, IHEs had spent (been 
reimbursed) $155 million in fiscal years 2009 and 2010.[Footnote 12] 
Colorado officials told us that the use of SFSF funds in fiscal years 
2009 and 2010 has prevented layoffs, protected academic programs, and 
avoided increased class size. For example, University of Colorado 
System officials said that its share of SFSF funding, $50 million in 
fiscal year 2009, prevented layoffs and reductions in some programs. 
According to officials, budget cuts would have been "horrible" without 
SFSF funding. Similarly, Red Rocks Community College officials said 
that in fiscal year 2009, without its share of the $25.3 million of 
SFSF funds allocated to the Colorado Community College System, the 
college would have had difficulty meeting certification requirements 
for some of its programs due to increasing enrollment and associated 
costs. Officials said that enrollment at the college increased almost 
18 percent over the last two-year period as a result of poor employment 
opportunities and the need for retraining in the current economy. At 
the same time, many of the college's classes are relatively expensive 
career and technical education courses that have costly instructional 
materials and require small class size to meet the accreditation 
requirements of certain career-focused professions. Further, in fiscal 
year 2010, officials said they would have had to make significant cuts 
in positions beginning in the fall of 2009 if they had not received 
SFSF funds. 

The use of SFSF funds also enabled Colorado to significantly limit 
potential tuition increases in fiscal year 2010. Tuition increases 
could have been greater in fiscal year 2010, but Colorado's Governor, 
citing the Recovery Act section that discusses mitigating tuition 
increases for public IHEs, vetoed a portion of the state's fiscal year 
2010 appropriations bill that would have allowed tuition increases 
greater than 9 percent. Colorado also required IHEs to sign letters of 
assurance that included limitations on tuition increases. For example, 
the University of Colorado System limited tuition increases at its 
institutions to an 8.5 percent average. Officials said, drawing a 
comparison to tuition increases of 25 percent that resulted from 
similarly severe budget cuts to higher education in the mid-2000s, that 
the increase could have been significantly larger without SFSF funds 
and the Governor's guidance. Officials at Red Rocks Community College 
said SFSF funds have had a similar impact on tuition at their school. 
They said the college's tuition increase of 9 percent, or $7 per credit 
hour, could have been 15 percent without SFSF funds. 

Officials from both college systems expressed concern about future 
funding levels for fiscal year 2012, the year after the state's final 
planned distribution of SFSF funds to IHEs. University of Colorado 
System officials said they were planning for the cliff effect that will 
happen when Recovery Act funds end by trying to develop revenue- 
enhancing programs in the interim. Colorado Community College System 
officials also expressed concerns about the exhaustion of SFSF funds, 
but said they are hoping to get additional revenues from new gaming tax 
revenues earmarked for community colleges that they say may be 
commensurate with SFSF funding. 

University of Colorado System and Red Rocks Community College Plan to 
Use Existing and Additional Controls for Recovery Act Funds: 

Officials representing the University of Colorado System and Red Rocks 
Community College said that they have added specific internal controls 
to manage Recovery Act funds, augmenting the institutions' established 
control environments and procedures. Officials with the University of 
Colorado System told us that the institution has extensive control 
procedures, as well as fiscal and purchasing policies approved by the 
President of the University of Colorado at Boulder. Red Rocks Community 
College officials said their established controls include monthly 
budgetary and transactional reviews at all levels, direct control and 
oversight of all fiscal activities by the Vice President of 
Administrative Services and the Controller, and anonymous tip and 
online reporting. Both the University of Colorado System and Red Rocks 
Community College officials said they have staff with extensive 
financial experience to manage Recovery Act funds, as well as personnel 
with certified public accountant licenses and auditing backgrounds. 
According to these officials, no material weaknesses in internal 
controls have been reported by internal or external auditors. 
Additional controls over Recovery Act funds installed at University of 
Colorado System institutions include new accounting codes to track 
Recovery Act funds, a designated point person to coordinate all 
Recovery Act-funded activities, and new written guidance on Recovery 
Act funds. Red Rocks Community College officials said that the college 
added an additional review of all expenses to be charged to Recovery 
Act grant funds. In addition, the financial status of Recovery Act 
funds will be monitored through unique organization and account codes 
in the college system. 

State Transit Authorities Are Using Recovery Act Funds for High- 
Priority Projects: 

The Recovery Act appropriated $8.4 billion to fund public transit 
throughout the country through three existing Federal Transit 
Administration (FTA) grant programs, including the Transit Capital 
Assistance Program.[Footnote 13] The majority of the public transit 
funds--$6.9 billion (82 percent)--was apportioned for the Transit 
Capital Assistance Program, with $6.0 billion designated for the 
urbanized area formula grant program and $766 million designated for 
the nonurbanized area formula grant program.[Footnote 14] Under the 
urbanized area formula grant program, Recovery Act funds were 
apportioned to 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 under the nonurbanized area formula grant program 
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. Up to 10 percent of apportioned Recovery Act 
funds may also be used for operating expenses.[Footnote 15] Under the 
Recovery Act, the maximum federal fund share for projects under the 
Transit Capital Assistance Program is 100 percent.[Footnote 16] 

The State and Urbanized Areas Have Met Recovery Act Obligation Dates 
for Transit Capital Assistance Funds and Transit Agencies Are Directing 
Funds to High-Priority Projects: 

In March 2009, FTA apportioned $103 million in Transit Capital 
Assistance Recovery Act funds to the state and urbanized areas in 
Colorado for transit projects. Of that amount, $90.2 million was 
apportioned to urbanized areas and the remaining $12.5 million was 
apportioned to the state to use in nonurbanized or rural areas. 
[Footnote 17] The Recovery Act requires that 50 percent of funds 
apportioned to urbanized areas or states must be obligated within 180 
days (before September 1, 2009) and that the remaining apportioned 
funds are to be obligated within 1 year. The Secretary of 
Transportation is to withdraw and redistribute to other urbanized areas 
or states any amount that is not obligated within these time frames. As 
of September 1, 2009, FTA concluded that the 50 percent obligation 
requirement had been met for the state and urbanized areas located in 
the state. Specifically, $96.3 million of the total funds, or almost 94 
percent, had been obligated.[Footnote 18] Seventy percent of Recovery 
Act Transit Capital Assistance Program obligations in Colorado have 
been made in the greater Denver metropolitan area for capital 
improvements or projects to extend light rail service. 

We reviewed one urban and one rural transit agency in Colorado that are 
receiving a large portion of Transit Capital Assistance funds. The 
urban transit agency we reviewed is the Regional Transportation 
District (RTD), which covers the Denver metropolitan area and is the 
state's largest transit agency. RTD received $72.1 million in Transit 
Capital Assistance Recovery Act funds.[Footnote 19] The rural transit 
agency we reviewed is Summit County, which received $10.3 million in 
Transit Capital Assistance Recovery Act funds through CDOT. 

Officials from RTD and CDOT told us they directed Recovery Act funds 
toward high-priority projects that were facing a funding shortfall. 
Among other things, these projects involve capital maintenance, safety 
improvements, infrastructure to support operating improvements, and 
light rail projects. For example, RTD is using $17.1 million in 
Recovery Act funds to replace aging farebox equipment on its buses, 
$10.2 million to conduct preventive maintenance on its bus and rail 
fleet, and $7.6 million to create queue jumps (infrastructure that 
helps buses bypass traffic at certain intersections) along U.S. Highway 
36. RTD officials stated that the projects they are planning to fund 
with Recovery Act dollars are needed projects that, because of 
financial constraints, would likely have been deferred. Moreover, RTD 
officials told us that they had implemented a service reduction 
totaling over $4.5 million before receiving Recovery Act funds, so 
these funds have enabled them to preserve jobs and avoid even larger 
service reductions. CDOT is using $10.3 million in Recovery Act funds 
to construct a bus maintenance facility in rural Summit County, a 
mountainous area west of Denver, and is also planning a $2.2 million 
project that will provide new buses and related equipment to rural 
transit authorities throughout the state.[Footnote 20] CDOT and Summit 
County officials stated that the planned bus maintenance facility is 
very important to the ongoing maintenance of the transit fleet in 
Summit County and will help the county improve and expand maintenance 
services. These officials told us that without Recovery Act funding, 
the new facility may never have been built--Summit County would have 
done the minimum repairs needed for safety to keep using it but would 
probably have had to contract out some of its maintenance. 

In selecting projects to fund with Recovery Act dollars, RTD and CDOT 
screened projects according to whether they were critical projects that 
could be undertaken quickly and would offset funding shortfalls. RTD 
also followed an existing formula they use for allocating funds among 
various transit projects, directing 60 percent of available funds to 
capital improvements, including preventive maintenance and projects to 
improve safety, and 40 percent to projects extending light rail 
service. CDOT selected eligible projects based, among other things, on 
the extent to which they would (1) increase transportation options and 
transit ridership, (2) increase mobility on congested portions of the 
state highway system, and (3) leverage funding from other sources. For 
example, CDOT selected the $10.3 million bus maintenance construction 
project because this project was identified as one of the state's 
highest rural transit priorities in 2008 and as a high priority in the 
state's long-range transit plan. The project also leverages local funds 
as Summit County has agreed to pay 31 percent of the total project cost 
since the facility will be used to service nontransit vehicles in 
addition to transit buses. As of August 31, 2009, two RTD Capital 
Assistance project contracts and one CDOT grant had been awarded; no 
projects had been completed. 

Both RTD and CDOT reported that they expect to realize bid savings on 
some of the Recovery Act project contracts and grants and that they 
will redirect any savings to other Transit Capital Assistance projects. 
For example, on July 31, 2009, CDOT awarded a contract to Summit County 
to competitively bid the bus maintenance facility project, according to 
CDOT officials. The county has awarded the contract to a company that 
bid $8.4 million, about $1.9 million less than the estimated cost of 
$10.3 million, potentially freeing up funds for other projects. 

RTD is not considering using Recovery Act funds to cover operating 
expenses, although CDOT is considering using some funds to cover 
operating shortfalls in rural parts of the state. On June 24, 2009, 
Congress enacted the Supplemental Appropriations Act, which provided 
that up to 10 percent of apportioned Recovery Act Transit Capital 
Assistance funds could be used for operating expenses.[Footnote 21] 
Despite the provision allowing Recovery Act funds for operating 
expenses, RTD officials told us that they do not plan to use any of the 
Recovery Act funds for operating expenses because they want every 
available dollar to go to specific planned projects. CDOT stated that 
they are studying whether any of their transit contractors in rural 
parts of the state need funding to cover operating shortfalls because 
such shortfalls may lead to layoffs or service reductions. CDOT 
recently proposed to its Transportation Commission that a process be 
established to offer operating funds to its grantees in rural areas 
according to need. The commission approved CDOT's proposal and, as of 
September 1, 2009, CDOT continued to gather data to assess grantee 
needs. 

RTD and CDOT Plan to Use Existing Internal Controls to Manage Recovery 
Act Funds: 

RTD and CDOT plan to use their existing internal controls and processes 
to manage and expend Recovery Act funds. For example, RTD is using its 
standard accounting system with established procedures and controls to 
manage Recovery Act funds, as it has done with federal grants received 
in the past. According to officials, RTD's Board of Directors reviews 
and approves all projects, which provides an additional level of 
control over projects selected for Recovery Act funds. To meet Single 
Audit Act requirements,[Footnote 22] RTD is reviewed annually by 
external auditors. We reviewed RTD's audit reports for the last 3 
calendar years and found no material weaknesses or significant 
deficiencies identified for financial statements or for federal awards. 
In 2008, FTA reviewed RTD's compliance with statutory and 
administrative requirements, as is required every 3 years, a process 
known as a triennial review.[Footnote 23] The 2008 review identified 
deficiencies in four areas, which RTD has taken action to correct. CDOT 
is also using existing processes to manage Recovery Act funds and 
projects. CDOT was recently reviewed by an external consultant to 
assess compliance with federal requirements for several federally 
funded programs, including Transit Capital Assistance. The July 2009 
report identified deficiencies in nine areas, including program 
management, grant administration, financial management, and Buy 
American requirements. CDOT and FTA officials told us that CDOT is 
working to correct the deficiencies. 

Colorado Is Going Forward with Weatherization Activities but Davis- 
Bacon Act Requirements May Limit Amount of Weatherization Work: 

The Recovery Act appropriated $5 billion over a 3-year period for the 
Weatherization Assistance Program, which DOE administers through each 
of the states, the District of Columbia, and seven territories and 
Indian tribes. The program 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, or air 
conditioning equipment. Over the past 32 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. 

As of September 14, 2009, DOE had approved all but two of the 
weatherization plans of the states, the District of Columbia, the 
territories, and Indian tribes--including all 16 states and the 
District of Columbia in our review. DOE has provided to the states $2.3 
billion of the $5 billion in weatherization funding under the Recovery 
Act. Use of the Recovery Act weatherization funds is subject to Section 
1606 of the act, which requires all laborers and mechanics employed by 
contractors and subcontractors on Recovery Act projects to be paid at 
least the prevailing wage, including fringe benefits, as determined 
under the Davis-Bacon Act.[Footnote 24] Because the Davis-Bacon Act had 
not previously applied to weatherization, the Department of Labor 
(Labor) had not established a prevailing wage rate for weatherization 
work. In July 2009, DOE and Labor issued a joint memorandum to 
Weatherization Assistance Program grantees authorizing them to begin 
weatherizing homes using Recovery Act funds, provided they pay 
construction workers at least Labor's wage rates for residential 
construction, or an appropriate alternative category, and compensate 
workers for any differences if Labor establishes a higher local 
prevailing wage rate for weatherization activities. Labor then surveyed 
five types of "interested parties" about labor rates for weatherization 
work.[Footnote 25] The department completed establishing prevailing 
wage rates in all of the 50 states and the District of Columbia by 
September 3, 2009. 

Colorado's Plan for Recovery Act Weatherization Funds Has Been Approved 
by DOE and Colorado Is Going Forward with Weatherization Activities: 

DOE approved Colorado's weatherization plan for Recovery Act funds on 
August 13, 2009,[Footnote 26] and as of September 15, 2009, DOE had 
provided almost $39.8 million in weatherization funds to Colorado, 50 
percent of the total $79.5 million in Recovery Act weatherization 
funding that Colorado will receive over a 3-year period. In Colorado, 
the Governor's Energy Office is responsible for administering the 
weatherization program and the office contracts with local 
administering agencies to implement weatherization activities in 
various regions across the state[Footnote 27]. These agencies, in turn, 
either conduct weatherization work in-house or contract for 
weatherization activities with local contractors. From June through 
September 2009, Colorado awarded 10 contracts to local administering 
agencies to conduct weatherization activities throughout the state. In 
addition, the Governor's Energy Office plans to award one statewide 
contract to a local administering agency to conduct weatherization 
activities at multi-family units. As of September 15, 2009, the 
Governor's Energy Office had obligated $17.3 million or 22 percent of 
its total weatherization funds, of which about $4.1 million had been 
spent. We visited two local administering agencies: Arapahoe County, a 
local government agency that conducts weatherization activities in 
Arapahoe and Adams Counties in the Denver metropolitan area; and 
Housing Resources of Western Colorado, a nonprofit agency that conducts 
weatherization activities in the western part of the state. We selected 
these two agencies to visit because they received varying amounts of 
Recovery Act funds, one covers an urban area and one covers a rural 
area, and they have varying performance records. 

In Colorado, the Governor's Energy Office and the local administering 
agencies together are using Recovery Act weatherization funds for a 
variety of activities, including training weatherization workers, 
conducting energy audits of homes eligible for weatherization funds, 
purchasing equipment and materials, and weatherizing qualified homes. 
For example, officials from Arapahoe County told us that they are using 
Recovery Act funds for basic weatherization activities, such as 
installing insulation, as shown in figure 1. The picture on the left 
shows a technician blowing insulation into the walls of a home in 
Aurora, Colorado, while the picture on the right shows the holes that 
the insulation is blown into; once insulation is installed, the holes 
are filled and sealed. Arapahoe County conducts most weatherization 
activities in-house but officials said they plan to award contracts to 
about six contractors in the next few years to help with the expanded 
weatherization program.[Footnote 28] Similarly, officials from Housing 
Resources of Western Colorado are using Recovery Act funds to install 
energy-efficient appliances and insulation, among other weatherization 
activities. They conduct all weatherization activities in-house and do 
not plan to award any contracts for weatherization work.[Footnote 29] 

Figure 1: Arapahoe County Weatherization Worker Installing Insulation 
at a Home in Aurora, Colorado: 

[Refer to PDF for image: photographs] 

In this figure, the picture on the left shows a weatherization 
technician blowing insulation into the walls of a home in Aurora, 
Colorado, while the picture on the right shows the holes that the 
insulation is blown into. 

Source: GAO. 

[End of figure] 

Of the 10 local administering agencies that the Governor's Energy 
Office is contracting with, 8 are legacy agencies that the office has 
contracted with in the past and 2 are new agencies.[Footnote 30] One of 
the legacy local administering agencies, which provides weatherization 
services in Denver and Jefferson Counties, was only awarded a 6-month 
interim contract because officials from the Governor's Energy Office 
had concerns about the agency's performance. The Governor's Energy 
Office discovered, through a partial audit in 2009, that the agency had 
reported units as completed despite ongoing work, demonstrated cost 
allocation problems, and overextended its budget and thus had to 
furlough staff for the month of June 2009. Officials in the Governor's 
Energy Office plan to competitively award the contract this fall with a 
new contract to begin in January 2010, shortly before the 6-month 
contract ends. The legacy agency will be able to compete for the new 
contract but will not be given preferred status, which would have 
provided the agency with additional points when the Governor's Energy 
Office scores the grant applications.[Footnote 31] In the meantime, 
officials from the Governor's Energy Office have increased their 
monitoring of the agency and are conducting a full financial audit. 
According to officials, they can terminate the interim contract if any 
significant issues are discovered. 

Davis-Bacon Act Wage Requirements May Limit Amount of Weatherization 
Activities in Colorado: 

Some weatherization officials in Colorado are concerned about Davis- 
Bacon Act wage requirements, noting that paying prevailing wages may 
increase the cost of weatherizing homes, thereby limiting the amount of 
weatherization activities that can be completed. Officials from the 
Governor's Energy Office told us that they did not wait for Labor to 
establish Colorado's weatherization wage rates before awarding 
contracts to local administering agencies. They said that the local 
agencies selected the "best-available" wage rate to pay weatherization 
workers in the interim as well as taking additional steps to comply 
with the Davis-Bacon Act, such as implementing weekly payroll. They 
said that any difference in wages would be paid retroactively once 
weatherization wage rates were issued; Labor issued the weatherization 
wage rates for Colorado on September 1, 2009.[Footnote 32] In some 
cases, the new weatherization wage rates are higher than the rates the 
local administering agencies were paying weatherization workers in the 
past. 

Because of the increased weatherization wages, the Governor's Energy 
Office may adjust one of its weatherization performance measures so as 
not to limit the amount of weatherization activities the local 
administering agencies can complete in Colorado. The office uses two 
performance measures to track Recovery Act weatherization funds: (1) 
the amount of funds spent per home; and (2) a savings to investment 
ratio for each weatherization measure. DOE and the Governor's Energy 
Office require weatherization measures to be cost-effective or they 
cannot be installed. While DOE requires a cost-benefit ratio of 1:1 for 
all weatherization work (i.e., for every $1 that is spent on 
weatherization measures, at least $1 must be saved over the life of the 
measure) the Governor's Energy Office requires a cost-benefit ratio of 
1:1.7 for insulation measures and a ratio of 1:1.2 for furnaces and 
energy-efficient appliances. However, because the increased 
weatherization wages required for Recovery Act funds make some 
weatherization measures less cost-effective, the Governor's Energy 
Office requested approval from DOE on September 9, 2009, to move to a 
1:1 cost-benefit ratio in Colorado so as not to limit the amount of 
weatherization activities. Officials from the Governor's Energy Office 
told us that they have to get approval from DOE to make any changes to 
their savings to investment ratios even though their proposed ratio 
meets DOE's minimum requirement because their plan is approved with the 
higher ratios. 

Officials at the two local administering agencies we visited told us 
that they had concerns about Davis-Bacon Act wage rates and one agency, 
Arapahoe County, decided to conduct all Recovery Act weatherization 
work in-house rather than awarding contracts because of the 
requirements. Because Arapahoe County is a local government entity, its 
staff will not be affected by Davis-Bacon Act but any contractors would 
be subject to the requirements, which could have increased the cost of 
the weatherization contracts.[Footnote 33] However, Arapahoe County is 
receiving non-Recovery Act weatherization funding that is not subject 
to Davis-Bacon Act wage requirements, so they plan to use contractors 
for a portion of that work instead of for Recovery Act work, as 
initially planned, to avoid the wage requirements. Officials from 
Housing Resources of Western Colorado were concerned that, because 
Colorado's weatherization wages are higher than what they were 
previously paying, weatherization work will not be as cost-effective, 
resulting in fewer weatherization measures being installed in each 
home.[Footnote 34] 

Colorado Is Using Existing Controls to Manage the Use of Recovery Act 
Weatherization Funds and Plans to Increase Monitoring: 

The Governor's Energy Office is using its existing internal controls to 
manage Recovery Act weatherization funds but is planning to increase 
its site visits to local administering agencies to monitor the programs 
and funds. Officials in the Governor's Energy Office told us that they 
plan to conduct monthly visits to all agencies, in contrast to the 
semiannual or annual visits they made in the past, and that they plan 
to do more comprehensive monitoring of each agency twice per year. When 
the Governor's Energy Office visits local administering agencies, it 
sends staff from multiple disciplines, which allows for cross- 
functional monitoring of different aspects of the weatherization 
program. Officials plan to inspect at least 5 percent of all 
weatherized units, as has been done in the past, and will inspect 
additional units if any issues are discovered. Officials at the two 
local administering agencies we visited said that following completion 
of weatherization work on every unit, a final inspection is done by a 
person who was not involved with the initial energy audit of the unit. 
In addition, as we discussed in our previous report, the Governor's 
Energy Office is implementing a new Web-based tracking system that 
officials hope will help them track weatherization activities in real- 
time and assist in identifying problems at their inception. However, 
officials at one of the local agencies we visited had some concerns 
about using the new system, which were mainly related to new required 
data elements that they did not previously track. 

Colorado Continues to Spend Highway and Education Funds: 

As we previously reported, Colorado is receiving a large amount of 
Highway Infrastructure Investment and education funds, which the state 
continues to spend. Colorado is receiving about $385 million in Highway 
Infrastructure Investment Recovery Act funds, of which $289,604,854 had 
been obligated as of September 1, 2009. In addition, the U.S. 
Department of Education (Education) provided, as of August 31, 2009, 
the state's $154 million allocation for IDEA Part B, of which 
$4,091,882 had been reimbursed to local education agencies (LEA). 
Colorado was awarded about $111 million in funding for Title I, Part A, 
of the ESEA, of which $278,962 had been reimbursed to LEAs as of August 
31, 2009. 

CDOT Projects Are Under Way with 41 Contracts Awarded and 36 of 92 
Planned Projects Located in Economically Distressed Areas: 

The Recovery Act apportions funding to the states for restoration, 
repair, and construction of highways and other activities allowed under 
the 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 the states through existing Federal-Aid Highway 
Program mechanisms and states must follow the requirements of the 
existing program including planning, environmental review, contracting, 
and other requirements. However, the federal fund share of highway 
infrastructure investment projects under the Recovery Act is as much as 
100 percent, while the federal share under the existing Federal-Aid 
Highway Program is usually 80 percent. 

As we previously reported, DOT apportioned $403,924,130 to Colorado in 
March 2009 for highway or other eligible projects.[Footnote 35] As of 
September 1, 2009, $289,604,854 had been obligated and $16,455,759 had 
been reimbursed by FHWA.[Footnote 36] Fifty-six percent of Recovery Act 
highway obligations for Colorado have been for pavement improvement 
projects. Specifically, over $161 million of the funds obligated for 
Colorado projects as of September 1, 2009, is being used for projects 
such as reconstructing or rehabilitating deteriorated roads. State 
officials told us they selected a large percentage of resurfacing and 
other pavement improvement projects because they did not require 
extensive environmental clearances, were quick to design, could be 
quickly obligated and advertised for bid, could employ people quickly, 
and could be completed within 3 years. In addition, about $71.4 
million, about 25 percent of Colorado Recovery Act highway obligations, 
has been for pavement widening. As of August 31, 2009, CDOT reported 
that contracts for 41 of the 92 planned Recovery Act projects had been 
awarded, 37 of these were under construction, and construction was 
completed on 3 projects.[Footnote 37] 

Figure 2: Highway Obligations for Colorado by Project Improvement Type 
as of September 1, 2009: 

[Refer to PDF for image: pie-chart] 

Pavement projects total (86 percent, $248.3 million): Pavement 
improvement ($161.3 million): 56%; Pavement widening ($71.4 million): 
25%; New road construction ($15.7 million): 5%. 

Bridge projects total (7 percent, $19.3 million): Bridge replacement 
($19.3 million): 7%. 

Other (8 percent, $21.9 million): 
Other ($21.9 million): 8%. 

Source: GAO analysis of FHWA data. 

Note: Totals may not add due to rounding. "Other" includes safety 
projects, such as improving safety at railroad grade crossings, and 
transportation enhancement projects, such as pedestrian and bicycle 
facilities, engineering, and right-of-way purchases. 

[End of figure] 

The Recovery Act directs states to prioritize projects in economically 
distressed areas and CDOT is planning to complete a total of about 36 
Recovery Act projects in such areas.[Footnote 38] However, as we 
reported in July 2009, selecting projects in economically distressed 
areas was not initially one of CDOT's top priorities when CDOT and its 
local partners began planning in anticipation of the Recovery Act in 
December 2008, before the Recovery Act was passed. Figure 3 shows 
planned projects by county and by economically distressed county. 

Figure 3: Planned Recovery Act Highway Projects in Colorado by County: 

[Refer to PDF for image: map] 

This map of the state of Colorado shows the location, by county, of 
each planned Recovery Act Highway Infrastructure project. Economically 
distressed counties are shaded in gray. 

Additionally, the following are depicted on the map: CDOT project; 
Transportation Management Area project; CDOT/Transportation Management 
Area project. 

Source: GAO analysis of CDOT data. 

Note: Data points exceed total planned projects because two planned 
projects have more than one location. 

[End of figure] 

As of August 31, 2009, Colorado had awarded contracts at a total value 
of $39,360,281 less than the engineers' estimates, according to CDOT 
officials. CDOT officials reported that bids for 32 of the 41 awarded 
Recovery Act projects had come in lower than the engineers' estimates. 
CDOT officials told us that the low bids are due to the economic 
recession--since many contractors are in need of work, they are 
submitting lower bids. FHWA has been deobligating funds as a result of 
contracts being awarded for less than originally estimated. CDOT plans 
to use these savings for additional projects, including projects in 
economically distressed areas of the state. In September 2009, CDOT 
will present a list of potential additional projects to the 
Transportation Commission, including potential projects in economically 
distressed areas. 

Colorado Continues to Spend Recovery Act Funding for IDEA Part B: 

The Recovery Act provided supplemental funding for programs authorized 
by Part B of IDEA, the major federal statute that supports the 
provisions of 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 (section 619). Education 
provided the first half of Colorado's $154 million IDEA Recovery Act 
allocation for Part B grants on April 1, 2009, under Colorado's 
existing application.[Footnote 39] Education released the second half 
of these funds to Colorado on August 31, 2009. As of August 31, 2009, 
Colorado had reimbursed $4,091,882 in Part B funds for school-age 
children to LEAs. 

Colorado Continues to Spend Elementary and Secondary Education Act 
Funds Allocated for ESEA Title I, Part A and Received Waivers from Some 
Spending Requirements: 

The Recovery Act provides $10 billion to help LEAs educate 
disadvantaged youth by making additional funds available beyond those 
regularly allocated through ESEA Title I, Part A. The Recovery Act 
requires these additional funds to be 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 
current statutory and regulatory requirements and must obligate 85 
percent of the funds by September 30, 2010.[Footnote 40] 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. In addition, there are 
requirements related to the amount of ESEA Title I, Part A funds that 
LEAs must spend on various services, such as public school choice- 
related transportation and supplemental educational services.[Footnote 
41] Education made the first half of Colorado's $111 million ESEA Title 
I, Part A Recovery Act allocation available on April 1, 2009, under the 
state's ESEA consolidated application and the second half on August 31, 
2009. Each LEA submits individual applications to the Colorado 
Department of Education to access its Title I, Part A funds. As of 
August 31, 2009, Colorado had reimbursed $278,962 in ESEA Title I, Part 
A funds to LEAs. 

Colorado has received four waivers from Education from some of the 
spending requirements associated with ESEA Title I, Part A Recovery Act 
funds. In July 2009, the Colorado Department of Education requested 
waivers from some of these spending requirements to provide LEAs with 
more flexibility in spending Recovery Act funds. 

On August 11, 2009, the Colorado Department of Education received 
approval from Education for the following waivers for which LEAs can 
apply to the state: 

* Waiver of the requirement for LEAs to spend an amount equal to 20 
percent of their fiscal year 2009 ESEA Title I, Part A, Subpart 2 funds 
for public school choice-related transportation and supplemental 
educational services;[Footnote 42] 

* Waiver of the requirement for LEAs identified for improvement 
[Footnote 43] to spend 10 percent of their fiscal year 2009 ESEA Title 
I, Part A, Subpart 2 funds on professional development;[Footnote 44] 

* Waiver of professional development spending requirements for schools 
that are identified for improvement. Like LEAs, schools in improvement 
are also required to spend 10 percent of their fiscal year 2009 ESEA 
Title I, Part A funds on professional development;[Footnote 45] and: 

* Waiver of inclusion of some or all of ESEA Title I, Part A Recovery 
Act funds in calculating the per-pupil amount for supplemental 
educational services.[Footnote 46] An agency's allocation would be 
doubled with ESEA Title I, Part A Recovery Act funds, which would 
therefore increase the amount the state would have to spend for 
supplemental educational services on each student. This waiver allows 
Recovery Act funds to be excluded from the per-pupil calculations for 1 
year. 

While Education approved these waivers for Colorado, each LEA must 
individually apply for the waivers to the Colorado Department of 
Education, which plans to review each LEA's request to ensure that the 
LEA provides all the information required by Education. There are 
several different assurances that LEAs must agree to, such as assuring 
that they will comply with statutory and regulatory obligations for the 
funds; use the funds freed up by the waiver to address needs identified 
based on data, such as statewide or formative assessment results; and 
comply with all of their other ESEA Title I, Part A funds or amend 
their existing applications to reflect the strategies they intend to 
use to address those needs. As of August 31, 2009, the Colorado 
Department of Education had received 39 applications for waivers, as 
follows: 

* Twelve requests to waive the requirement that LEAs spend an amount 
equal to 20 percent for school choice-transportation and supplemental 
educational services; 

* Nine requests to waive the requirement that LEAs identified for 
improvement spend 10 percent for professional development; 

* Eight requests to waive the requirement that schools identified for 
improvement spend 10 percent for professional development; and: 

* Ten requests to waive the requirement that LEAs include some or all 
of the ESEA Title I, Part A Recovery Act funds in calculating the per- 
pupil amount for supplemental educational services. 

According to Education guidance, the Colorado Department of Education 
may not deny a request from an LEA to implement the waiver if the LEA's 
request includes all of the required information and meets all 
conditions on the Colorado Department of Education's waiver. 

Colorado Is Concerned about Funding Availability to Meet the 
Accountability and Transparency Functions of the Recovery Act: 

State officials have identified the need to pay for central 
administrative activities, such as reporting on and auditing Recovery 
Act programs, to help ensure that Recovery Act funds are spent in an 
accountable and transparent way. States do not generally recover 
central administrative costs upfront, but instead are reimbursed for 
such expenses after they are incurred. OMB's May 11, 2009, guidance 
allows each state to recover central administrative costs associated 
with Recovery Act activities. As a follow up to this guidance, the 
federal Division of Cost Allocation (DCA) within the Department of 
Health and Human Services issued a set of frequently asked questions on 
how states should prepare an addendum to their cost allocation plans to 
recover these central administrative costs. Colorado's Controller has 
developed such an addendum, but has, in conjunction with several other 
controllers and the National Association of State Auditors, 
Comptrollers, and Treasurers (NASACT), identified what they consider 
several difficulties in implementing the OMB and DCA guidance. On 
August 7, 2009, NASACT sent a letter to OMB requesting that OMB waive 
certain depreciation and cost allocation methods for Recovery Act 
funds. According to Colorado officials, however, OMB has recently 
stated that each state will have to submit its individual waiver 
request. 

Colorado officials are concerned that the state does not have the 
necessary resources to oversee the state's use of Recovery Act funds in 
addition to its normal government activities. In particular, officials 
believe budget and staffing cuts facing the government will affect the 
state's ability to fill vacant positions needed to conduct functions 
related to the oversight of Recovery Act funds. Colorado officials have 
identified two primary functions related to Recovery Act funds that are 
conducted by central state offices that do not receive direct Recovery 
Act funding to pay for those functions. These two functions include 
oversight of the state's Recovery Act activities, including developing 
a centralized reporting process to meet Recovery Act reporting 
requirements, and auditing Recovery Act spending. According to state 
officials, several state offices are involved in overseeing the state's 
management and use of Recovery Act funds and for ensuring the overall 
accountability and transparency of the state's processes through 
reporting on its Recovery Act activities. These offices include the 
Governor's Recovery Office; Office of Information Technology; the 
Office of State Planning and Budgeting; the Department of Personnel and 
Administration (DPA), which houses the Office of the State Controller 
and the State Purchasing Office; the Office of the Treasurer; and 
others. State officials have estimated that they will need an 
additional $1.8 million in fiscal year 2010 to pay for this oversight. 
In addition, the State Auditor is responsible for conducting 
independent financial and performance audits of state funds, including 
Recovery Act funds, spent by the state's agencies, colleges, and 
universities, and is also responsible for performing the state's Single 
Audit, which reviews programs that spend federal funds in excess of a 
certain amount. As we reported in July 2009, the State Auditor believes 
the audit workload related to the Recovery Act for fiscal year 2009 is 
manageable. However, the State Auditor is concerned that her office 
will require advance funding in fiscal year 2010 to award contracts for 
the additional audit work related to the Recovery Act. The bulk of 
Recovery Act funds will be spent in fiscal years 2010 and 2011, and the 
State Auditor has estimated that it will cost an additional $446,000 in 
fiscal year 2010 to cover the increased audit costs related to the 
Recovery Act. 

OMB released guidance on May 11, 2009, allowing states to use existing 
processes under OMB Circular A-87 to recover costs related to central 
administrative services and limiting the amount recovered to 0.5 
percent of the total Recovery Act funds received by the state.[Footnote 
47] OMB Circular A-87 requires states to submit a statewide cost 
allocation plan that identifies and assigns central administrative 
costs to activities or programs that receive the benefits of the 
central activities, using a consistent cost allocation basis.[Footnote 
48] On July 2, 2009, DCA issued a set of frequently asked questions to 
provide guidance to states on how to prepare an addendum to state cost 
allocation plans under the OMB memo. The addendum to the cost 
allocation plan must be approved by DCA. 

Colorado submitted an addendum to its cost allocation plan to DCA on 
August 13, 2009, but the State Controller is concerned that certain 
difficulties will delay the approval of the plan and therefore delay 
the state's recovery of the funds needed to pay for activities 
conducted by central state offices, including oversight of the state's 
reporting to meet Recovery Act requirements and auditing of Recovery 
Act programs. The Controller has identified three areas in which 
Colorado may have difficulties getting its cost allocation plan 
approved in a timely manner, as follows: 

* Cost allocation method. Colorado officials believe that the 
activities conducted by central state offices related to Recovery Act 
requirements benefit all Recovery Act programs. Therefore, the state's 
cost allocation plan allocates central oversight and related 
administrative costs based on the ratio of state agency Recovery Act 
funds received to the total Recovery Act funds received by the state, 
rather than varying the allocation depending on how much a program 
benefits from the central service. According to the Controller, this 
allocation method meets the requirements of OMB Circular A-87 to 
allocate costs to benefiting activities, but he is unsure whether DCA 
agrees and believes it may delay the approval of Colorado's plan. 

* Time to approve the state's plan. According to Colorado's Controller, 
DCA has informed states that it will try to review individual cost 
allocation plans on a case-by-case basis within 60 days of their 
submission rather than approve a model cost allocation plan upfront 
that would allow states to start recovering central administrative 
costs now. The Controller is concerned that this case-by-case review 
could cause delays in approving Colorado's cost allocation plan. 
According to the Controller, states cannot start recovering funds until 
their statewide cost allocation plans and subsequent state agency plans 
are approved. Once Recovery Act funds are spent, states cannot recoup 
central administrative costs; therefore, any delay hinders the state's 
ability to recoup costs. 

* Cash flow. The Controller said that the state needs a pool of funding 
from which to pay for central administrative costs prior to recouping 
costs. However, the state does not have such a pool of cash available 
[Footnote 49] and it is the Controller's understanding that the 
existing processes outlined in OMB's May 11, 2009, guidance will not 
allow the state to recover central administrative costs before the 
costs are incurred. The Controller has proposed "borrowing" funds from 
the government services portion of the SFSF funds to pay for these 
central administrative costs, but the state has not heard from 
Education whether this is an allowable use of those funds. The borrowed 
funds would be repaid when the oversight costs are recovered from the 
Recovery Act grants. According to state officials, the state has set 
aside these SFSF funds in case they are needed for borrowing to cover 
central administrative costs. 

On August 7, 2009, NASACT sent a letter to OMB requesting a waiver for 
two A-87 requirements regarding (1) certain depreciation methods and 
(2) requirements for cost allocation in accordance with relative 
benefits received. According to NASACT, the waiver is necessary to 
implement the cost recovery guidance in a timely manner. However, 
according to Colorado officials, OMB has recently stated that each 
state should submit a letter requesting a waiver. The state has not yet 
submitted this letter; the State Controller said that he is awaiting an 
OMB response on the concepts included in the NASACT letter before he 
sends the request. 

Colorado Has Developed Guidance for Recovery Act Procurement and Will 
Use a New Contract Management System to Track Recovery Act Contracts: 

The Colorado state government has begun awarding numerous contracts 
funded with Recovery Act dollars in various program areas such as 
Highway Infrastructure Investment and the Weatherization Assistance 
Program. To facilitate the timely and efficient management of Recovery 
Act contracts, various Colorado government officials have taken several 
steps since passage of the Recovery Act. First, state officials 
informed us that legislation was enacted permitting a waiver of 
procurement code requirements to the extent the waiver is necessary to 
expedite the use of Recovery Act funds in a transparent and accountable 
way or to the extent strict adherence to the code would substantially 
impede Colorado's ability to spend the money in a manner or within the 
time required by the Recovery Act.[Footnote 50] Second, the Director of 
the State Purchasing Office provided procurement guidance to state 
agencies regarding the use of funds received under the Recovery Act. 
The State Purchasing Office has delegated different levels of authority 
for contracting to state agencies, such as the Colorado Department of 
Labor and Employment, Governor's Energy Office, and IHEs, depending on 
their management capacity to handle contracting responsibilities. 
Third, the Executive Director of DPA analyzed state agency personnel 
needs to facilitate Recovery Act implementation in the areas of 
purchasing, accounting, contracts, and risk mitigation. Finally, the 
State Controller is using a new Contract Management System designed to 
facilitate centralized data collection and reporting on all state 
contracts to separately track and report on contracts funded with 
Recovery Act dollars. 

To begin assessing Colorado's management of Recovery Act funds carried 
out by contractors, we selected five contracts for initial review. They 
consist of two Highway Infrastructure contracts awarded by CDOT, two 
Weatherization Assistance Program contracts awarded by the Governor's 
Energy Office, and one contract awarded by the Governor. We reviewed 
contract documentation, interviewed selected contract awarding and 
oversight officials, and visited one transportation site and two 
weatherization sites where project work was ongoing. We examined 
guidance developed by the Director of the State Purchasing Office that 
was provided to state agencies regarding their use of funds received 
under the Recovery Act. We also interviewed state officials involved in 
developing (1) 2009 legislation allowing waivers of established 
procurement requirements, (2) the state's new Contract Management 
System, and (3) the state's analysis of projected staffing shortfalls. 

Colorado Recovery Act Procurement Waiver Has Not Yet Been Used: 

State officials informed us that on May 20, 2009, the state enacted 
legislation establishing a process for waiving state procurement 
requirements if funding for a procurement action includes money 
received under the Recovery Act. According to state officials, the 
procurement waiver had not yet been used as of September 14, 2009, nor 
had any agencies requested use of the waiver. According to a state 
legal official familiar with development of the legislation, there was 
no specific aspect of the procurement code that the legislature 
believed needed revision, but the legislature wanted to provide a 
"safety valve" in case the state encountered any procurement 
impediments to spending Recovery Act funds. They did not want Colorado 
to lose Recovery funds because procurement or contracting provisions 
prevented their expenditure within Recovery Act required time frames. 

In order to ensure that any procurement waiver did not compromise 
transparency or accountability, state officials said that they built 
controls into the waiver. Waiver requests must be in response to a 
clear need; made in writing by the agency's executive director; made 
public on the state's Web site; and reviewed and approved by the 
Executive Director of DPA and the Colorado Attorney General. 
Furthermore, officials told us that such requests cannot be used to 
waive an entire process; rather, the written request for a waiver must 
describe the new process that will be followed and the way in which 
strict compliance with the procurement code is unworkable. According to 
state officials, the basis for requesting a procurement waiver could be 
very broad (e.g., to shorten procurement time frames by a couple of 
days) but the methods by which to apply for a waiver and have it 
approved are tight. 

Colorado Developed Additional Procurement Guidance for State Agencies: 

In June 2009, the Director of DPA's State Purchasing Office developed 
and provided to state agencies procurement guidance regarding the use 
of Recovery Act funds. Updated in August 2009, this guidance reiterates 
the goals of the Recovery Act, lists planning principles that agencies 
should follow to award Recovery Act contracts and grants, specifies 
requirements for evaluating and awarding contracts and grants, and 
identifies supplemental contract clauses specific to the Recovery Act 
that are now required in Recovery Act contracts. The Colorado guidance 
restates a number of the goals of the Recovery Act including the 
preservation and creation of jobs and promotion of economic recovery, 
and the investment in transportation, environmental protection, and 
other infrastructure that will provide long-term economic benefits. It 
also states that agencies that award Recovery Act contracts and grants 
obtain maximum competition; minimize vendors' cost, schedule, and 
performance risks; and ensure that an adequate number of sufficiently- 
trained staff are available to plan, evaluate, award, and monitor 
contracts and grants. The guidance specifically discourages agencies 
from using noncompetitive (e.g., sole source) procurements, unless 
fully justified.[Footnote 51] In addition, the guidance states that, to 
the maximum extent practicable, Recovery Act contracts should be 
awarded as fixed price contracts. It also addresses detailed state 
reporting requirements established in Section 1512 of the Recovery Act 
as well as the Buy American and prevailing wage requirements. 

On August 21, 2009, the State Controller's office issued Recovery Act 
Supplemental Provisions for Contractors who receive Recovery Act funds. 
The office also provided guidance to agencies and IHEs on how these 
supplemental provisions should be used with existing contracts, grants, 
and purchase orders and with new Recovery Act contracts, grants, and 
purchase orders, and how agencies and IHEs should address new guidance 
on reporting issued by OMB. 

Procurement Requirements Have Created Staffing Shortages at State 
Agencies, According to State Officials: 

Procurement requirements associated with Recovery Act contracts and 
grants have created staffing shortages at some Colorado agencies, 
according to officials. On April 28, 2009, DPA reported on the results 
of a survey it conducted of the personnel needs necessary to facilitate 
implementation of the Recovery Act in the areas of purchasing, 
accounting, contracts, and risk mitigation. The survey involved DPA as 
well as the Governor's Energy Office, Department of Local Affairs, and 
Colorado Department of Education. These three agencies were surveyed 
because DPA expects a significant increase above the normal level of 
contracts that the agencies--with DPA assistance--will award, given the 
increase in Recovery Act funds and the agencies' limited delegations of 
procurement authority. 

The results of the survey indicated that, altogether, DPA and the other 
three agencies need a total of 16 staff at an estimated total annual 
cost of almost $1.1 million to handle the increase in purchasing and 
contract administration and oversight expected with the influx of 
Recovery Act funding. Specifically, the survey found that DPA needs a 
total of six staff, including three in purchasing and three in 
contracts; the Governor's Energy Office needs a total of eight staff, 
including three in purchasing, three in accounting, and two attorneys 
to negotiate and assist in monitoring contracts; the Department of 
Local Affairs needs an internal auditor to assist with risk mitigation; 
and the Colorado Department of Education needs one purchasing agent. In 
addition, the Colorado Department of Education indicated that it 
submitted a separate request for one accountant and one accounting 
technician. According to a budget official, the results of this survey 
have not been approved through the state's budget process and therefore 
are estimated needs. 

On August 27, 2009, DPA officials informed us that the specific 
analysis cited above had not been updated but that personnel needs 
associated with Recovery Act work were now being addressed through the 
Controller's statewide cost allocation plan. The Director of the State 
Purchasing Office said that some agencies such as the Governor's Energy 
Office and Department of Local Affairs have some administrative funding 
available that is being used to pay for this staffing. For example, he 
said that the Governor's Energy Office is using administrative funds to 
hire employees on a "temporary" basis. In contrast, the Controller 
pointed out that the state's central agencies such as DPA currently do 
not have any funding for such purposes and are awaiting approval of the 
state's cost allocation plan. In addition, the Office of the State 
Controller does not have any Recovery Act administrative funding 
available and therefore cannot fill two current vacancies that are 
directly related to Recovery Act oversight. 

Agencies Plan to Use Colorado's New Centralized Contract Management 
System to Track Recovery Act Contracts: 

On July 1, 2009, Colorado implemented a new statewide Contract 
Management System, which is being used to track all state contracts, 
including those for Recovery Act activities and funds. Contracting 
officials in DPA said that from 1994 until June 30, 2009, Colorado used 
a decentralized data collection system embedded within the state's 
Colorado Financial Reporting System (COFRS) to monitor and report on 
contracts. They described this system as being decentralized with each 
state agency tracking contract data separately. For example, Colorado's 
IHEs each conducted contract monitoring and reporting independently 
while other agencies used Microsoft Access or Excel spreadsheets to 
track their contracts. Contracting officials said that in 2007, the 
Colorado legislature called for a new contracts database and that when 
the state received Recovery Act funds in 2009, state officials decided 
to use the state's new system to gather data on those contracts. 

Contracting officials said that all agencies and IHEs are required to 
report all contract and grant information into the Contract Management 
System regardless of dollar value or purpose. They stated that the new 
system generally involves eight steps: (1) determination of a need for 
a contract, (2) application of the procurement process, (3) contract 
creation, (4) contract negotiation, (5) contract review and approval, 
(6) contract monitoring, (7) contract payments, and (8) contract 
closeout. Officials in the Colorado State Purchasing Office also stated 
that they are primarily responsible, in most cases, for the first five 
steps of the procurement process leading to the award of contracts 
subject to the state procurement code. Once a contract is awarded, 
primary responsibility for contract administration, or the final three 
steps of the process, rests with the agency program staff. Contracting 
officials told us that they are now providing training on the Contract 
Management System to about 200 employees at agencies and IHEs who are 
involved in contract administration. 

Colorado's Recovery Act Contracts Reflect Diverse Situations: 

Colorado has already awarded a number of Recovery Act contracts for a 
variety of programs and these contracts reflect diverse needs and 
contracting situations. In each case, we reviewed the contract and 
discussed it with officials, as follows: 

* Johnson Village North Project. On May 6, 2009, CDOT awarded the 
Johnson Village North project contract to conduct work in support of 
the Highway Infrastructure Investment program. The contract has a total 
value of $5.2 million with a project start date of July 13, 2009, and a 
projected completion date of October 23, 2009. The contract was awarded 
to repave 12.6 miles of mountainous highway and includes work related 
to curbs, gutters, signs, and traffic control. According to the CDOT 
awarding official, the contract was awarded competitively following 
CDOT's contracting procedures; five bidders submitted sealed proposals 
and CDOT selected the low bid, which was 23 percent lower than the 
agency's estimate for the work. The official told us that the work was 
awarded using a fixed unit price contract. The contract includes a 
provision for the contractor to provide information to the state to 
meet its Recovery Act reporting requirements, according to an agency 
official. The official said that contract oversight personnel were 
assigned before the contract was awarded and that oversight would be 
performed in accordance with CDOT project administration standards. A 
project engineer as well as inspectors and materials testers will 
oversee the project and measure compliance with the contract 
specifications before providing contractor payments. 

* C-470 Project. On May 27, 2009, CDOT awarded the C-470 project 
contract to conduct work in support of the Highway Infrastructure 
Investment program. The contract has a total value of $25.8 million 
with a project start date of July 9, 2009, and a projected completion 
date of August 15, 2010. The contract was awarded to remove existing 
asphalt pavement patches, remove and replace concrete slab, seal 
concrete pavement cracks, and conduct asphalt overlay and guardrail 
construction on highway C-470 in the Denver metropolitan area. 
According to the CDOT awarding official, the contract was awarded 
competitively following CDOT's contracting procedures; seven bidders 
submitted sealed proposals and CDOT selected the lowest bid, which was 
15 percent lower than the agency's estimate for the work. The official 
told us that the work was awarded using a fixed unit price contract. 
Like the Johnson Village North project, the official stated that the 
contract includes a provision for the contractor to provide information 
to the state to meet its Recovery Act reporting requirements. The 
official said that contract oversight personnel were assigned before 
the contract was awarded and that oversight would be performed in 
accordance with CDOT project administration standards. A project 
engineer as well as inspectors and materials testers will oversee the 
project and measure compliance with the contract specifications before 
providing contractor payments. 

* Arapahoe County Weatherization Division. On April 17, 2009, the 
Governor's Energy Office awarded a contract for support of the 
Weatherization Assistance Program to the Arapahoe County Weatherization 
Division. This contract has a total value of $2.9 million with a 
project start date of July 1, 2009, and a projected completion date of 
June 30, 2010. The contract was awarded as a fixed price contract. It 
provides for weatherizing 641 housing units at a cost of $4,562.52 per 
unit. According to officials from the Governor's Energy Office, the 
contract was not competitively awarded because it is considered a grant 
agreement and such agreements with local administering agencies, such 
as Arapahoe County, are not subject to the state's procurement code and 
thus not required to be awarded competitively. The contracts were 
competitively awarded to Arapahoe County and other local administering 
agencies in 1997 but have not been competed since this time, according 
to officials. However, beginning in fiscal year 2011, officials from 
the Governor's Energy Office told us that they are planning on 
competing future contracts for weatherization services. They also 
stated that the Arapahoe County contract did not contain a provision 
for the contractor to provide information to the state to meet its 
Recovery Act reporting requirements, according to an official from the 
Governor's Energy Office, but will be modified to incorporate such 
requirements. Arapahoe County officials told us that inspectors conduct 
oversight of weatherization work through a final inspection process 
that follows completion of work at each housing unit. In addition, the 
Governor's Energy Office annually inspects a minimum of 5 percent of 
all housing units. 

* Housing Resources of Western Colorado. On April 28, 2009, the 
Governor's Energy Office awarded a contract for support of the 
Weatherization Assistance Program to Housing Resources of Western 
Colorado. This contract has a total value of almost $1.3 million with a 
project start date of July 1, 2009, and a projected completion date of 
June 30, 2010. The contract was awarded as a fixed price contract. It 
provides for weatherizing 325 housing units at a cost of $3,913.60 per 
unit. The contract calls for the installation of weatherization 
measures, such as insulating homes, correcting air leaks, repairing 
windows and doors, and purchasing energy-efficient appliances. Like 
Arapahoe County, the contract was not competitively awarded but will be 
competed starting in fiscal year 2011, according to state officials. 
The contract did not contain a provision for the contractor to provide 
information to the state to meet its Recovery Act reporting 
requirements, but will be modified to incorporate such requirements, 
according to an official from the Governor's Energy Office. Also 
similar to Arapahoe County, inspectors from Housing Resources of 
Western Colorado conduct oversight of weatherization work following 
completion of work at each housing unit and the Governor's Energy 
Office annually inspects a minimum of 5 percent of all housing units. 

* Governor's legal services contract. On April 2, 2009, the Governor of 
Colorado entered into a contract with an international law firm to 
represent the Governor's Office in analyzing the Recovery Act. More 
specifically, a state official said that the law firm agreed to help 
the Governor and his representatives complete the certifications 
required in the Recovery Act in order for Colorado to receive and 
distribute its full share of Recovery Act funds in the most transparent 
and efficient manner possible. In addition, according to this official, 
the firm waived its standard practice of requiring a retainer and 
agreed to provide the services of three attorneys at an hourly rate 
discounted from its standard rate for attorneys. According to state 
officials, this contract was not competitively awarded because the 
state's procurement requirements contain an exception for elected 
officials to use sole-source contracts. 

Colorado Plans to Report Centrally but Unresolved Issues May Affect Its 
Ability to Report Recovery Act Data to OMB in a Complete and Timely 
Manner: 

Colorado Recovery officials are planning to use centralized reporting 
to meet Recovery Act reporting requirements. Section 1512 of the 
Recovery Act requires that, no later than 10 days after the end of each 
calendar quarter, every entity that received Recovery Act funds from a 
federal agency report on those funds. This reporting requirement 
applies to any entity, including states that received Recovery Act 
funds directly from the federal government and includes funds received 
through a grant, loan, or contract.[Footnote 52] This report must 
include: 

* the total amount of Recovery Act funds received from that federal 
agency; 

* the amount of Recovery Act funds expended or obligated to projects or 
activities; 

* a detailed list of all projects or activities for which Recovery Act 
funds were expended or obligated, including the name and description of 
each project or activity; an evaluation of the completion status of 
each project or activity, and an estimate of the number of jobs created 
and retained by each project or activity; and certain other information 
for infrastructure investments made by state and local governments; 
and: 

* certain detailed information on any subcontracts or subgrants awarded 
by the recipient, including information required to comply with the 
Federal Funding Accountability and Transparency Act of 2006.[Footnote 
53] 

The first deadline for these reports is October 10, 2009. 

To ensure that the Section 1512 reporting requirements are carried out, 
OMB issued guidance on June 22, 2009, describing how recipients and 
subrecipients of Recovery Act funds are to report on their use of those 
funds.[Footnote 54] Generally, prime recipients--nonfederal entities 
that receive Recovery Act funds from federal agencies--are to submit 
information to [hyperlink, http://www.federalreporting.gov], an online 
portal that will collect Recovery Act information. Subrecipients--any 
nonfederal entity that is responsible for program requirements and 
spends federal funds awarded by a prime recipient--may or may not be 
delegated reporting responsibility by a prime recipient. The June 
guidance also identified the data elements to be reported, including 
project description and status, expenditure amount, and job narrative 
and number. These data elements were updated by OMB in August 2009 and 
include almost 100 items. 

While Colorado Recovery officials determined that a centralized process 
provides more control and ability to prevent duplicate reporting than 
the alternate decentralized process described in OMB guidance, 
unresolved issues with the processes and procedures being developed and 
their integration with OMB's online portal may affect the completeness 
and timeliness of the state's report. Unresolved issues include being 
able to upload consolidated data to OMB and completing the development 
and testing of the elements that will be used in the centralized 
process to collect data from grant recipients, including the 
compilation of jobs data. We discussed these issues with officials in 
the Recovery Office and the Controller's office and with officials in 
several state agencies who will be responsible for implementing the 
reporting procedures being developed. 

Colorado Is Developing a Centralized Process for Reporting Recovery Act 
Data to OMB: 

Colorado is planning on centrally reporting Recovery Act data to OMB 
rather than having state recipients and subrecipients report to 
[hyperlink, http://www.federalreporting.gov] individually. Colorado 
officials believe that a centralized process is necessary to oversee 
data collection, improve data quality, ensure completeness, and prevent 
duplication of data. In addition, a centralized process allows the 
state to capture data and report on its own Recovery Web site. Because 
of the numerous state agencies involved, potentially large numbers of 
Recovery Act projects, and many data elements that must be reported to 
OMB, state officials believe that creating a process to collect and 
report most of the data through a central location would increase the 
overall reliability of the data. To emphasize the importance of the 
process, the Governor's Recovery Office assigned a staff member to 
focus on Recovery Act reporting requirements and coordinate the 
activities of the different offices providing reporting information to 
ensure reporting occurs as required by OMB. 

To report centrally, Colorado's Controller and the Governor's Office of 
Information Technology are developing new processes and procedures that 
will collect Recovery Act data to report to OMB. The State Controller 
issued a series of three alerts in May, July, and August 2009 
explaining the state's policies and accounting and reporting 
requirements, defining prime recipients and subrecipients from the 
state perspective, and directing state agencies to use the centralized 
process.[Footnote 55] The alerts set up a coding structure in the 
state's accounting system to track Recovery Act funds awarded to, and 
expended by, state agencies and external subrecipients that receive 
Recovery Act funds from the state agencies. The most recent alert 
describes how the state's new Contract Management System will be used 
to input Recovery Act nonfinancial information, such as jobs created or 
retained and subrecipient's congressional district. According to state 
officials, they had to develop new capabilities in the Contract 
Management System to capture and report Recovery Act data. As shown in 
figure 4, the state will gather agencies' financial data from the 
state's accounting system, COFRS, and nonfinancial data from the 
state's Contract Management System, and consolidate the data in the 
state's Financial Data Warehouse (FDW).[Footnote 56] Data for agencies 
that do not use COFRS as their primary system, such as CDOT and IHEs, 
will be collected separately in the warehouse. Data on jobs will be 
gathered by prime recipients from all state agencies for vendors and 
subrecipients using manually prepared summary documents. 

Figure 4: Colorado's Planned Process for Reporting Recovery Act Data to 
OMB: 

[Refer to PDF for image: illustration] 

This chart shows the flow of information from state agencies using the 
COFRS accounting system as their primary system and state agencies, 
such as IHEs and CDOT, that do not use COFRS as their primary 
accounting system. 

State agencies using COFRS: 
Job information: 
Contract Management System–nonfinancial information; COFRS–financial 
information; 

Process flow to: Colorado’s Financial Data Warehouse. 

State agencies not using COFRS (IHEs, CDOT): Job information: 
Collect financial and nonfinancial information; 

Process flow to: Colorado’s Financial Data Warehouse. 

From Colorado’s Financial Data Warehouse, to: [hyperlink, 
http://www.federalreporting.gov]; then to: [hyperlink, 
http://www.recovery.gov]. 

Source: GAO analysis of state information. 

Note: State agencies can act as either a recipient or an internal 
recipient of Recovery Act funds. Job information is gathered and 
submitted by the primary recipients. 

[End of figure] 

Once the state's Recovery Act data are gathered centrally, the state 
plans to upload the data to [hyperlink, 
http://www.federalreporting.gov]. State agencies are responsible for 
reviewing and verifying their information once it is compiled and 
reported by the state. OMB's June 22, 2009, guidance provided a 
timeline for agencies to review their data and make any necessary 
corrections. For the first cycle, recipient reports are due by October 
10, 2009, state corrections can be made from October 11 through October 
21, and corrections from federal agency reviews can be made from 
October 22 through October 29. Final reports will be posted on the 
[hyperlink, http://www.recovery.gov] Web site on October 30, 2009. To 
prepare state agencies for reporting, officials with the Governor's 
Recovery Office and the Controller's office have been meeting with 
state agencies to provide briefings and answer questions specific to 
each agency on what their roles and responsibilities will be relative 
to reporting data and reviewing the data on the Web site. 

Colorado's centralized reporting process does not apply to local 
entities that receive Recovery Act funds directly from federal 
agencies, which is explained in the Controller's alerts. According to 
state officials, the state has no authority over local entities, such 
as RTD and other transit agencies, that receive Recovery Act funds 
directly from federal agencies rather than through a state agency. The 
state cannot dictate the reporting of such entities, but it is expected 
that the local entities will report directly to OMB. 

Colorado Faces Challenges in Developing Its Reporting Process and 
Unresolved Issues May Affect Colorado's Ability to Report during the 
Recovery Act's First Quarterly Reporting Cycle: 

Colorado officials face two primary challenges in developing the 
state's process to consolidate and report the necessary Recovery Act 
information to OMB, which may limit the state's ability to ensure the 
completeness and timeliness of the reported information. First, state 
officials are working to resolve certain security control issues 
related to the uploading of Colorado's data to [hyperlink, 
http://www.federalreporting.gov], and second, Colorado's plan for 
submitting data to OMB is in the process of being developed and tested. 

Colorado officials are working on security control issues that must be 
resolved before the state will be able to upload agency data to OMB's 
Web site. According to OMB's June 22, 2009, guidance, part of the 
security measures require recipients to register on the OMB Web site to 
be able to submit and review the information. To do this, the 
recipients must be registered in the federal government's Central 
Contractor Registration (CCR) database and must also have a Dun and 
Bradstreet (DUNS) number.[Footnote 57] A users' guide posted on 
[hyperlink, http://www.recovery.gov] identifies various steps that the 
state will have to take before it will be able to upload the state 
agencies' Recovery Act information.[Footnote 58] Based on the user 
guide, the Controller has informed the state agencies of the actions 
they must take immediately for the state to be able to meet OMB's 
reporting deadline. These actions include updating their DUNS and CCR 
information on the respective Web sites. Of particular importance is 
updating the CCR information for each agency's point of contact. 
According to the user guide, the agency points of contact will have to 
provide authorization on [hyperlink, http://www.federalreporting.gov] 
before the state can report all grant award information associated with 
the DUNS numbers for the respective agencies. Without the authorization 
from the points of contact, the state will not be able to upload the 
data. To further that process, the Controller has instructed all state 
agencies to identify all awards of Recovery Act funds so that an 
inventory of applicable DUNS numbers can be compiled. The inventory is 
critical for the identification of all authorizations that must be 
obtained from the points of contact. 

According to state officials, they have learned that other states 
planning to do centralized reporting have also identified significant 
limitations with the security design of the [hyperlink, 
http://www.federalreporting.gov] Web site. According to Colorado 
officials, the Recovery Accountability and Transparency Board has 
proposed an enhancement to the system that would address many of the 
states' centralized reporting concerns. The main feature of the 
enhancements is that the state could more easily upload its data by 
making one data submission without the currently required multiple 
points of contact authorization. State officials did not have 
information on any milestones for the enhancements that are being 
developed. State officials said that they plan to use the new process 
for uploading data, but will proceed with the actions they are 
currently taking to report centrally as a backup strategy for reporting 
should the board's proposed uploading process not be available. 

In addition to security challenges, Colorado's process for centralized 
reporting involves new codes, reports, and programs to gather the 
information necessary to meet OMB's requirements and not all elements 
of the process have been fully developed or tested. Testing of the 
process is ongoing, as is development of various data formats and data 
accumulation media. For example, the formats for inputting the 
nonfinancial information into the Contract Management System and for 
compiling and uploading the information from the FDW to the OMB Web 
site have not been finalized. In addition, revisions will need to be 
made to the process state agencies had planned to use to review their 
data because of changes to the OMB Web site announced by the Recovery 
Accountability and Transparency Board on September 14, 2009. Colorado 
officials initially told us that for the first quarterly reporting 
cycle, the state agencies could review their data on [hyperlink, 
http://www.recovery.gov]. The data were expected to be available on 
October 11, 2009. However, according to the September 14 announcement, 
all data will now be displayed on October 30, 2009, which, according to 
state officials, will not allow state agencies to review their data as 
planned. Because of the change, the Controller's office is now working 
to develop the capability for agencies to review their Recovery Act 
financial data in FDW and nonfinancial data in the Contract Management 
System before it is submitted to [hyperlink, 
http://www.federalreporting.gov\. The Controller stated that he is 
uncertain whether his office has the resources to accomplish that task. 
Finally, because testing of Colorado's system is ongoing, it is 
uncertain whether the state will be able to report its data as 
scheduled. The Controller has set October 7, 2009, as the date the 
state's information will be uploaded to OMB. Until testing is 
completed, the Controller's office will not know how much time will be 
required to consolidate the data after the end of the month and whether 
there will be sufficient time before October 7, 2009, to consolidate 
all of the data. 

Colorado's Comments on this Summary: 

We provided officials in the Colorado Governor's Recovery Office, as 
well as other pertinent state officials, with a draft of this appendix 
for comment. State officials agreed with this summary of Colorado's 
Recovery efforts to date. The officials provided technical comments, 
which were incorporated into the appendix, as appropriate. 

GAO Contacts: 

Robin M. Nazzaro, (202) 512-3841 or nazzaror@gao.gov: 

Brian Lepore, (202) 512-4523 or leporeb@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Paul Begnaud, Steve Gaty, 
Kathy Hale, Kay Harnish-Ladd, Susan Iott, Jennifer Leone, Tony Padilla, 
Kathleen Richardson, Lesley Rinner, and Mary Welch made significant 
contributions to this report. 

[End of section] 

Footnotes for Appendix III: 

[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[2] GAO, Recovery Act: States' and Localities' Current and Planned Uses 
of Funds While Facing Fiscal Stresses (Colorado), [hyperlink, 
http://www.gao.gov/products/GAO-09-830SP] (Washington, D.C.: July 8, 
2009). 

[3] OMB memorandum, M-09-18, Payments to State Grantees for 
Administrative Costs of Recovery Act Activities (Washington, D.C., May 
11, 2009). 

[4] 2009 Colo. Legis. Serv. Ch. 285 (S.B. 09-297) (West). 

[5] The use of Recovery Act funds must comply with specific program 
requirements but also, in some cases, enables states to free up state 
funds to address their projected budget shortfalls. 

[6] FMAP is discussed in detail in [hyperlink, 
http://www.gao.gov/products/GAO-09-1016]. 

[7] Programs that were not part of this budget-balancing plan were (1) 
K-12 education, which the Governor identified as protected by the 
Colorado Constitution, and (2) CDOT and the Colorado Department of 
Labor and Employment, which receive no general fund monies. Budget cuts 
were in addition to actions taken prior to the start of fiscal year 
2010 to reduce the budget, such as instituting four furlough days for 
nonessential state employees, transferring funds from cash funds to the 
general fund, using $45 million of the SFSF funds to balance the 
budget, and reducing the statutory reserve from 4 percent to 2 percent. 

[8] Revenue forecasts are from the Legislative Council's June 22, 2009, 
forecast. 

[9] Colorado Senate Joint Resolution 09-044, adopted in May 2009. 

[10] In cutting the budget, the Governor's budget office cited 
statutory authority that authorizes the Governor to suspend or 
discontinue, in whole or in part, the functions or services of any 
department, board, bureau, or agency of the state government during any 
fiscal period when there are not sufficient revenues available for 
expenditures. 

[11] According to a state official, this reduction will not cause the 
state funding to drop below the state maintenance-of-effort level 
required for K-12. 

[12] The state has allocated funds to LEAs for 2010, but according to 
Colorado officials, they have not yet spent SFSF funds. 

[13] The other two public transit programs receiving Recovery Act funds 
are the Fixed Guideway Infrastructure Investment Program and the 
Capital Investment Grant Program, each of which was apportioned $750 
million. The Transit Capital Assistance Program and the Fixed Guideway 
Infrastructure Investment Program are formula grant programs, which 
allocate funds to states or their subdivisions by law. Grant recipients 
may then be reimbursed for expenditures for specific projects based on 
program eligibility guidelines. The Capital Investment Grant Program is 
a discretionary grant program, which provides funds to recipients for 
projects based on eligibility and selection criteria. 

[14] Urbanized areas are areas encompassing a population of not less 
than 50,000 people that have been defined and designated in the most 
recent decennial census as an "urbanized area" by the Secretary of 
Commerce. Nonurbanized areas are areas encompassing a population of 
fewer then 50,000 people. 

[15] The 2009 Supplemental Appropriations Act authorizes the use of up 
to 10 percent of each apportionment for operating expenses. Pub. L. No. 
111-32, §1202, 123 Stat. 1859, 1908 (June 24, 2009). In contrast, under 
the existing program, operating assistance is generally not an eligible 
expense for transit agencies within urbanized areas with populations of 
200,000 or more. 

[16] The federal share under the existing formula grant program is 
generally 80 percent. 

[17] CDOT's Transit Unit manages the state's nonurbanized Transit 
Capital Assistance formula programs in rural areas with populations 
less than 50,000. 

[18] For the Transit Capital Assistance 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 grant agreement. 

[19] RTD also received $18.6 million in Recovery Act funds transferred 
from FHWA to FTA through DOT's flexible funding provisions. Flexible 
funds are legislatively-specified funds that may be used either for 
highway or transit purposes. The Denver Regional Council of Governments 
(DRCOG, the Denver area's large Metropolitan Planning Organization) 
requested this transfer. FTA has obligated 100 percent of these funds; 
the $18.6 million will be used to provide partial funding for Denver 
Union Station, a $500 million multi-modal transit hub. In particular, 
the funds will be used to pay for a part of the design and construction 
of bus bays at Denver Union Station. 

[20] FTA has not obligated funds for the $2.2 million project to buy 
buses and other vehicles. CDOT officials stated that they expect to 
submit the project to FTA by December 30, 2009; FTA officials stated 
that they expect to obligate funds for this project by March 5, 2010. 

[21] Pub. L. No. 111-32, § 1202, 123 Stat. 1859, 1908 (June 24, 2009). 

[22] The Single Audit Act of 1984, as amended (31 U.S.C. §§ 7501-7507), 
requires that each state, local government, or nonprofit organization 
that expends $500,000 or more a year in federal awards must have a 
Single Audit conducted for that year subject to applicable 
requirements, which are generally set out in OMB Circular No. A-133, 
Audits of States, Local Governments and Non-profit Organizations (June 
27, 2003). If an entity expends federal awards under only one federal 
program, the entity may elect to have an audit of that program. 

[23] The requirements for reviews of Urbanized Area Formula Grant 
activities are contained in 49 U.S.C 5307(i) and consist of reviewing 
grantees' compliance with federal requirements in 23 areas. This 
process is described in a recent GAO report, GAO, Public 
Transportation: FTA's Triennial Review Program Has Improved, but 
Assessments of Grantees' Performance Could Be Enhanced, GAO-09-603 
(Washington, D.C.: June 30, 2009). 

[24] The Weatherization Assistance Program funded through annual 
appropriations is not subject to the Davis-Bacon Act. 

[25] The five types of "interested parties" are state weatherization 
agencies, local community action agencies, unions, contractors, and 
congressional offices. 

[26] In our last Recovery Act report, GAO-09-830SP, we reported that 
officials from the Governor's Energy Office were concerned about a 
potential delay in DOE's approval of their weatherization plan. 
According to these officials, DOE had told Colorado that they were 
planning to approve Colorado's plan on July 1, 2009, the same day that 
some of the Governor's Energy Office's contracts with local 
administering agencies were scheduled to begin. While DOE was delayed 
in approving Colorado's plan, officials from the Governor's Energy 
Office told us that the delay did not affect weatherization activities 
in Colorado and that they were able to move forward with contracts 
based on the award amount even though the plan was not yet approved. 

[27] State officials told us that the contracts between the Governor's 
Energy Office and the local administering agencies are considered grant 
contracts and are therefore not subject to the procurement code nor do 
they need to be competed. The local administering agencies follow their 
own procurement processes to award contracts to local contractors. 

[28] Arapahoe County does not plan to hire any contractors to conduct 
Recovery Act weatherization work; rather, they plan to have contractors 
conduct weatherization work using other sources of weatherization 
funding. 

[29] Housing Resources of Western Colorado currently uses a contractor 
to conduct some administrative activities. In the past, Housing 
Resources of Western Colorado contracted with another agency to conduct 
weatherization work in Southwestern Colorado. However, the Governor's 
Energy Office is contracting with a new local administering agency to 
conduct weatherization activities in that area of the state. 

[30] As we reported previously in July 2009, when the Governor's Energy 
Office first learned that they would be receiving an influx of 
weatherization funds from the Recovery Act and began developing its 
state plan for spending the funds, officials from the office talked to 
the local administering agencies to determine how much weatherization 
funding the agencies believed they could reasonably spend. In 2008, 
Colorado received almost $5.5 million from DOE for the weatherization 
program, compared to almost $80 million allocated under the Recovery 
Act, and officials from the Governor's Energy Office recognized that 
not all agencies may be equipped to handle the resulting influx of 
funds. In compiling the numbers from the agencies, officials at the 
Governor's Energy Office determined that there was a gap between 
available Recovery Act funds and the amount of work the agencies 
believed they could deliver, so the office initiated two new requests 
for applications and has awarded contracts to two new agencies to fill 
in the gaps to conduct weatherization work in certain regions of the 
state. 

[31] In selecting a subgrantee, grantees are to give preference to any 
agency that has or is currently administering an effective program, as 
defined in regulation. 10 C.F.R. § 440.15(a)(3). When scoring local 
administering agencies' applications for weatherization contracts, the 
Governor's Energy Office plans to give a 15-point bonus to all agencies 
in good standing. 

[32] The Governor's Energy Office directed all of the local 
administering agencies to complete the Labor weatherization survey. The 
two agencies we visited told us that they completed the survey. 

[33] Davis-Bacon Act prevailing wage requirements do not apply to local 
government employees. 29 C.F.R. § 5.2 (h); see also Department of Labor 
Advisory Letter to Department of Energy, dated June 1, 2009. 

[34] According to officials, because there was no weatherization wage 
rate before the Davis-Bacon Act weatherization wage rates were 
released, Housing Resources of Western Colorado paid weatherization 
workers the Davis-Bacon Act labor wage rate in the interim. 

[35] This does not include obligations associated with $18.6 million of 
apportioned funds that were transferred from FHWA to FTA for transit 
projects. Generally, FHWA has authority pursuant to 23 U.S.C. § 
104(k)(1) to transfer funds made available for transit projects to FTA. 

[36] DOT has interpreted the term "obligation of funds" to mean the 
federal government's contractual commitment to pay for the federal 
share of the project. This commitment occurs at the time the federal 
government signs a project agreement. States request reimbursement from 
FHWA as the state makes payments to contractors working on approved 
projects. 

[37] CDOT initially planned 92 projects, but plans to present new 
projects to the Transportation Commission later in September; at that 
time it will remove 1 project from the list of certified projects and 
may add more. 

[38] Economically distressed areas are defined by the Public Works and 
Economic Development Act of 1965, as amended (42 U.S.C. § 3161). 
According to this act, to qualify as an economically distressed area, 
the 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 
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-term or long-term changes in economic conditions. GAO recommended 
in our July 2009 report that the Secretary of Transportation develop 
clear guidance on identifying and giving priority to economically 
distressed areas. 

[39] During our second bimonthly review of Recovery Act spending in 
Colorado, we reviewed IDEA Part C, which we did not review during this 
cycle. 

[40] 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. 

[41] Schools that have missed academic achievement targets for 3 
consecutive years must offer students public school choice or 
supplemental educational services, which are additional academic 
services, such as tutoring or remediation, designed to increase the 
academic achievement of students. 

[42] 20 U.S.C. § 6316(b)(10). 

[43] An LEA is identified for improvement if it has missed academic 
achievement targets for 2 consecutive years. 

[44] 20 U.S.C. § 6316(c)(7)(A)(iii). 

[45] 20 U.S.C. § 6316(b)(3)(A)(iii). 

[46] Under ESEA, the amount that an LEA provides for supplemental 
educational services for each child is the lesser of the amount of: the 
agency's Title I, Part A, Subpart 2 allocation divided by the number of 
children below the poverty level in the LEA or the actual costs of the 
supplemental educational services received by the child. 20 U.S.C. § 
6316(e)(6). 

[47] OMB Circular A-87 establishes a choice of two methodologies states 
may use to reimburse state recipients for central administrative costs 
and provide a uniform approach for determining costs and promote 
effective program delivery and efficiency. 

[48] A statewide cost allocation plan identifies, accumulates, and 
allocates costs incurred by agencies or develops billing rates based on 
the allowable costs of services provided by a governmental unit to its 
departments and agencies. The costs of these services may be allocated 
or billed to benefiting agencies. 

[49] According to the Controller, the state legislature must approve 
any uses of the state's statutory reserve and the legislature is not in 
session until January 2010; similarly, the state can borrow funds from 
its pool of investment funds, but cannot do so without guarantee of 
repayment. 

[50] 2009 Colo. Legis. Serv. Ch. 285 (SB09-297) (West). 

[51] According to Colorado's Recovery Act procurement guidance, in 
those circumstances where an agency determines that it must use a 
noncompetitive contract, the agency must fully justify this action and 
provide evidence in the contract file that appropriate action has been 
taken to protect the taxpayer. Procurement officials stated that use of 
a noncompetitive contract must also be approved by officials in 
Colorado's Recovery Office. 

[52] This reporting requirement does not apply to individuals. 

[53] Pub. L. No. 109-282, 120 Stat. 1186 (Sept. 26, 2006). 

[54] OMB memorandum, M-09-21, Implementing Guidance for the Reports on 
Use of Funds Pursuant to the American Recovery and Reinvestment Act of 
2009 (Washington, D.C., June 22, 2009). 

[55] Office of the State Controller, Alert #184, Coding Requirements 
Established for Recovery Act Monies, Compensated Absences Liability, 
and Electronic Funds Transfers for Employee Reimbursements, May 13, 
2009; Alert #185, Recovery Act Funds-Schedule of Expenditures of 
Federal Awards Reporting Requirements, New Recovery Act Grant Tracking 
Requirements, Recovery Act Oversight Costs: Recent Guidance from Health 
and Human Services Division of Cost Allocation, Revised Fiscal Rule 5- 
1: Travel Effective July 1, 2009, Electronic Funds Transfer Travel 
Reimbursement COFRS Programming Changed on July 6, 2009, Lease-Purchase 
Threshold Increased with Passage of HB09-1218, Office of State 
Controller Staffing Changes, July 10, 2009; and Alert #186, Recovery 
Act Policies and Additional Recovery Act Grant Tracking Requirements, 
August 4, 2009. 

[56] FDW is a Web-based reporting tool that allows the state's users to 
pull data on a daily basis. 

[57] A DUNS number is a unique number that identifies businesses, 
including government agencies. 

[58] Recovery Accountability and Transparency Board, ARRA In-bound 
Recipient Reporting FederalReporting.gov Recipient Point of Contact/ 
DUNS Administrator User Guide-Registration and Next Steps Version 1.0 
(undated). 

[End of section] 

Appendix IV: District of Columbia: 

Overview: 

The following summarizes GAO's work on the third of its bimonthly 
reviews of the American Recovery and Reinvestment Act (Recovery 
Act)[Footnote 1] spending in the District of Columbia (District). The 
full report on all of our work in 16 states and the District is 
available at [hyperlink, http://www.gao.gov/recovery/]. 

In the District, we reviewed three Recovery Act programs funded by the 
U.S. Department of Education (Education), and the Transit Capital 
Assistance program funded by the U.S. Department of Transportation's 
Federal Transit Administration (FTA). These programs were selected 
primarily because they include existing programs receiving significant 
amounts of Recovery Act funds. In addition, Education has designated 
the District's Office of the State Superintendent for Education (OSSE) 
as a high-risk grantee, for weaknesses related to financial management 
and grants management for several of the programs receiving Recovery 
Act funds. Further, the Transit Capital Assistance funds had a 
September 1, 2009, deadline for obligating a portion of the funds, and 
also provided an opportunity to review nonstate entities that receive 
Recovery Act funds. We also reviewed contracting procedures and 
examined four contracts awarded with Recovery Act funds--two for 
highway infrastructure projects, and two for public housing projects-- 
to examine how District agencies were implementing the Recovery Act. 
Consistent with the purposes of the Recovery Act, funds from the 
programs we reviewed are being directed to help the District stabilize 
its budget and to stimulate infrastructure development and expand 
existing programs--thereby providing needed services and potentially 
jobs. We focused on how funds were being used; how safeguards were 
being implemented, including those related to procurement of goods and 
services; and how the District plans to meet the Recovery Act reporting 
requirements. The funds include the following: 

* U.S. Department of Education (Education) State Fiscal Stabilization 
Fund: As of August 28, 2009, Education had awarded the District about 
$65.3 million of the District's total Education State Fiscal 
Stabilization Fund (SFSF) allocation of about $89.3 million. As of 
September 1, 2009, the District had not allocated any of these funds to 
local education agencies (LEA). An OSSE official told us that the 
District plans to submit a revised SFSF application to Education that 
proposes increasing the percentage of SFSF funds to school districts to 
restore the District's fiscal year 2010 funding for elementary and 
secondary education to the fiscal year 2008 funding level. 

* Title I, Part A, of the Elementary and Secondary Education Act of 
1965 (ESEA): Education allocated about $37.6 million in Recovery Act 
funds to the District to be used to help improve teaching, learning, 
and academic achievement for students from families that live in 
poverty. As of September 1, 2009, the District had made preliminary 
allocations of $33.8 million to LEAs, which have not drawn down these 
funds. The remaining $3.8 million was set aside for school recognition 
financial awards, school improvement, and administration. 

* Individuals with Disabilities Education Act (IDEA), Parts B and C: 
Education allocated about $18.8 million to the District to be used to 
support early intervention, special education, and related services for 
infants, toddlers, children, and youth with disabilities. As of 
September 1, 2009, the District has made preliminary allocations of the 
$16.7 million in IDEA Part B funds to LEAs, which had not yet drawn 
down these funds. The remaining $2.1 million are IDEA Part C funds that 
had not been allocated as of September 1, 2009. 

* Transit Capital Assistance Program: FTA apportioned $214.6 million of 
Recovery Act Transit Capital Assistance funding to the National Capital 
Region, which consists of Washington, D.C., and surrounding counties in 
Maryland and Virginia. As of September 1, 2009, FTA had obligated 
almost 100 percent of the apportioned funds for transit projects in the 
DC/Maryland/Virginia Urbanized Area. The Washington Metropolitan Area 
Transit Authority (WMATA), the National Capital Region's largest 
recipient of Recovery Act Transit Capital Assistance funding, was 
apportioned $201.8 million in grants that it plans to use to fund 
capital projects, such as equipment purchases, station upgrades, and 
purchases of buses and vans. 

* Highway Infrastructure Investment Funds: The U.S. Department of 
Transportation's Federal Highway Administration (FHWA) apportioned $124 
million to the District in March 2009 for highway infrastructure and 
other eligible projects. As of September 1, 2009, $115.7 million had 
been obligated. The District Department of Transportation (DDOT) is 
using its apportioned funds for 15 "shovel ready" projects to repave 
streets and interstates, rehabilitate bridges, improve and replace 
sidewalks and roadways, and expand the city's bike-share program. We 
selected one contract and one task order for two ongoing projects to 
discuss in greater depth with the relevant agency contracting 
officials. The task order was for a streetlight upgrade on Dalecarlia 
Parkway, Northwest Washington D.C., and the contract was for sidewalk 
repair at various locations in the District. 

* Public Housing Capital Fund: The U.S. Department of Housing and Urban 
Development (HUD) has allocated $27 million to the District of Columbia 
Housing Authority (DCHA). DCHA plans to use the Recovery Act funds on 
18 projects that include the rehabilitation of nearly 2,000 housing 
units and the installation of new energy-efficient projects at public 
housing facilities. As of September 3, 2009, 9 of the projects were 
underway. We selected two contracts to discuss in greater depth with 
the relevant agency contracting officials. The first contract we 
reviewed was for balcony repairs at the Greenleaf Gardens public 
housing community, and the second contract we reviewed was for kitchen 
and bathroom upgrades at the Benning Terrace public housing community. 

Recovery Act Funds Have Helped the District Close Its Budget Gap: 

The infusion of Recovery Act funds has helped mitigate the negative 
effects of the recession on the District's budget. On June 22, 2009, 
the District revised its revenue projections downward for fiscal year 
2009 and subsequent years.[Footnote 2] As a result, the District faced 
a $190 million projected revenue shortfall for fiscal year 2009, and a 
$150 million projected shortfall for fiscal year 2010. Since fiscal 
year 2009 was nearly three-quarters completed at the time of the June 
2009 revenue revision, District officials decided that it was too late 
to attempt to increase revenues by increasing taxes or fees. District 
officials decided to make up the $190 million gap with funds from its 
general fund balance.[Footnote 3] For fiscal year 2010, the District 
eliminated its $150 million budget gap through a combination of savings 
from reduced spending by District agencies, using $36 million in 
Recovery Act SFSF funds, as well as funds from the District's general 
fund, and new revenue proposals, as discussed below. 

To balance its fiscal year 2010 budget, the District will eliminate 250 
full-time equivalent positions through a combination of layoffs and 
attrition. In addition, the chancellor of the District of Columbia 
Public Schools (DCPS) recently announced that an unspecified number of 
teachers would be laid off as a result of a funding shortfall in the 
District's fiscal year 2010 education budget. District officials noted 
that without the Recovery Act funds, job cuts would have been much 
larger. For example, according to District officials, hundreds of 
additional teaching positions would have been eliminated without the 
Recovery Act funds. 

In addition to the expenditure reductions and additional Recovery Act 
funding, the District enacted the Budget Support Emergency Act of 2009, 
which included a sales tax increase, along with increased taxes on 
gasoline and cigarettes, to help close its 2010 budget gap. The Act 
also postponed the increase in income tax deduction levels, which 
should result in increased revenue to the District. District officials 
told us that they decided not to use the District's Rainy Day fund to 
close its budget gaps because by law if the Rainy Day funds are used 
they must be paid back in full over the following 2 years--with one 
half of the funds being repaid in the first year and the remainder of 
the funds repaid in the second year. According to the District's Chief 
of Budget Execution, District officials decided to use a combination of 
spending reductions, general fund balance, and some revenue proposals 
to help close the budget gaps for fiscal years 2009 and 2010, instead 
of tapping the Rainy Day fund. The District has had to prepare for the 
effects of the drop-off in Recovery Act funds beginning in fiscal year 
2011, because, officials explained, the District is required by law to 
maintain a 5-year balanced budget. As a result, District officials have 
fully accounted for the future decrease in Recovery Act funds in 
budgets for fiscal years 2011 to 2013. 

District officials have been working with the U.S. Department of Health 
and Human Services (HHS) to develop a cost-allocation plan for 
reimbursement of Recovery Act central administrative costs, based on 
OMB's guidance. Once the plan is completed, the District will apply for 
reimbursement of allowable Recovery Act administrative costs. 

Allocation of Recovery Act Education Funds and Distribution of Guidance 
to LEAs Are in Early Stages: 

Education has allocated Recovery Act funds to the District for three 
programs--SFSF, ESEA Title I, and IDEA, as discussed in the following 
sections. 

The District Plans to Use Additional SFSF Funds to Help Address 
Shortfalls in Funding for Elementary and Secondary Education: 

The Recovery Act created a State Fiscal Stabilization Fund (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 be used to alleviate shortfalls 
in state support for education to school districts and public 
institutions of higher education (IHE). The initial award of SFSF 
funding required each state to submit an application to Education that 
provides several assurances, including that the state will meet 
maintenance-of-effort requirements (or the state will be able to comply 
with waiver provisions) and that it will implement strategies to meet 
certain educational requirements, such as increasing teacher 
effectiveness, addressing inequities in the distribution of highly 
qualified teachers, and improving the quality of state academic 
standards and assessments. In addition, states were required to make 
assurances concerning accountability, transparency, reporting, and 
compliance with certain federal laws and regulations. States must 
allocate 81.8 percent of their SFSF 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). After maintaining state support for 
education at fiscal year 2006 levels, states must use education 
stabilization funds to restore state funding to the greater of fiscal 
year 2008 or 2009 levels for state support to school districts or 
public IHEs. When distributing these funds to school districts, states 
must use their primary education funding formula, but they can 
determine how to allocate funds to public IHEs. In general, school 
districts maintain broad discretion in how they can use stabilization 
funds, but states have some ability to direct IHEs in how to use these 
funds. 

On June 16, 2009, Education approved the District's application for 
SFSF funds and as of August 28, 2009, Education had awarded the 
District $49 million in education stabilization funds out of a total 
SFSF allocation of $73.1 million.[Footnote 4] Due to unanticipated 
shortfalls in the District's projected revenue for fiscal year 2010, 
OSSE plans to modify its SFSF application to allocate a larger 
percentage of SFSF funds to restore the District's fiscal year 2010 
funding for elementary and secondary education to the fiscal year 2008 
funding level. The approved SFSF application included $17.9 million to 
restore the level of the District's support for elementary and 
secondary education in fiscal year 2009 to fiscal year 2008 levels, and 
indicated that no SFSF funds would be needed to restore District 
funding for fiscal year 2010.[Footnote 5] In addition, the District had 
initially allocated 20 percent of the government services fund for 
elementary and secondary education; however, an OSSE official told us 
that OSSE anticipates that the District will allocate an additional 40 
percent of the government services fund for this purpose (for a total 
of 60 percent of the funds).[Footnote 6] OSSE has not yet provided 
guidance to LEAs on the use of SFSF funding. 

OSSE Has Made Preliminary Allocations of ESEA Title I Recovery Act 
Funds to LEAs: 

The Recovery Act provides $10 billion to help LEAs educate 
disadvantaged youth by making additional funds available beyond those 
regularly allocated through Title I, Part A of the Elementary and 
Secondary Education Act (ESEA) of 1965. The Recovery Act requires these 
additional funds to be 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 current 
statutory and regulatory requirements and must obligate 85 percent of 
the funds by September 30, 2010.[Footnote 7] 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. Education made the first half of 
states' Recovery Act ESEA Title I, Part A funding available on April 1, 
2009, and announced on September 4, 2009, that it had made the second 
half available. 

As of September 4, 2009, the District had received $37.6 million in 
ESEA Title I Recovery Act funds, and OSSE had allocated $33.8 million 
across 51 of its 58 LEAs, with the largest LEA, the District of 
Columbia Public Schools (DCPS), receiving $23.4 million.[Footnote 8] 
The District plans to use the remaining funds as follows--$1.9 million 
for school recognition financial awards, $1.5 million for school 
improvement activities, and $400,000 for state administration. Before 
any ESEA Title I Recovery Act funds are distributed, OSSE requires LEAs 
to submit an application that describes how the funds will be used and 
provide assurances that the uses will comply with the Recovery Act. 
According to OSSE officials, all LEAs that are eligible to receive ESEA 
Title I Recovery Act funds have submitted their assurances regarding 
the management, use, and reporting of ESEA Title I Recovery Act funds. 
On September 11, 2009, OSSE distributed the applications for the LEAs 
to describe their specific plans for expenditures of ESEA Title I 
Recovery Act funds. OSSE officials told us that while the LEAs could 
obligate ESEA Title I Recovery Act funds and expend their own funds 
without an approved plan, LEAs could not submit receipts for 
reimbursement until OSSE approved the LEAs' individual plans for 
expenditures. An OSSE official noted that some LEAs have ESEA Title I 
carry over funds from prior years that should be expended by the LEAs 
before the funds expire on September 30, 2009, and prior to expending 
any new ESEA Title I funds, including Recovery Act funds. 

OSSE Plans to Offer Additional Training on ESEA Title I Recovery Act 
Funds and Has Yet to Determine Monitoring Protocols: 

OSSE provided Web-based training sessions in June and July 2009 on 
allowable uses of ESEA Title I Recovery Act funds, the purpose and 
guiding principles of the Recovery Act education funds, and a brief 
introduction to tracking and reporting the funds. According to OSSE 
officials, representatives from 28 LEAs participated in the training, 
including representatives from the 3 LEAs we visited. Officials from 2 
of the LEAs we visited reported that the Web-based training was 
informative and useful. OSSE also held a four-day grants-management 
training course that included information on Recovery Act fund 
management, as well as management of other federal funds. At the 
training course, OSSE distributed information packets that included 
each LEA's allocation of ESEA Title I Recovery Act funds, as well as 
guidance on the appropriate uses of these funds, and information on 
tracking and reporting expenditures. Further, an OSSE official told us 
that OSSE plans to conduct mandatory Web-based technical assistance on 
tracking and reporting ESEA Title I Recovery Act funds in September 
2009, and as needed by the LEAs. The official told us that OSSE had 
received guidance from Education on tracking jobs created and saved 
with Recovery Act funds, however OSSE is still comparing the Education 
guidance with the District's internal reporting requirements. 

Officials from the LEAs we visited shared their preliminary plans for 
using ESEA Title I Recovery Act funds. Officials from all three LEAs we 
visited told us that some ESEA Title I Recovery Act funds would be used 
for activities to supplement the school day, such as after-school 
programs. One of the three LEAs we visited has obligated ESEA Title I 
Recovery Act funds. Officials from that LEA told us that the LEA 
obligated the funds to hire a consultant to help them target academic 
interventions aimed at improving student skills, such as reading and 
math skills. According to the LEA officials, the consultant will use 
data to determine the effectiveness of interventions on specific 
student populations, as well as evaluate the cost-effectiveness of such 
actions. 

OSSE officials told us that they would finalize their ESEA Title I 
monitoring protocols and schedule in September 2009. As of September 
11, 2009, OSSE officials had not determined the methodology for 
monitoring the LEAs' use of ESEA Title I Recovery Act funds. However, 
OSSE officials told us that their monitoring would be partially based 
on risk assessments accomplished through their ongoing collection and 
review of financial data, such as the rate money has been expended, and 
reimbursement requests that OSSE determined were for unallowable or 
disallowed expenses.[Footnote 9] In addition, OSSE plans to use the 
quarterly reports submitted by the LEAs, as well as information from 
other sources--such as audits and past monitoring visits--to complete 
their risk assessments. While OSSE has not determined the relevant risk 
of the individual charter school LEAs, an OSSE official told us such an 
assessment was a priority for OSSE. 

Education has designated OSSE as a high-risk grantee due to weaknesses 
in financial management and grants management, including ESEA Title I. 
On July 31, 2009, OSSE submitted a corrective action plan report to 
Education addressing these concerns. The report describes five working 
groups and their plans, including time frames, to address findings 
concerning financial support services, business support services, grant 
allocations, grant monitoring, and grant reporting. 

OSSE Made Preliminary Allocations of IDEA Recovery Act Funds to LEAs: 

The Recovery Act provided supplemental funding for programs authorized 
by Parts B and C of the Individuals with Disabilities Education Act 
(IDEA), the major federal statute that supports the provisions of early 
intervention and special education and related services for infants, 
toddlers, children, and youth with disabilities. Part B funds programs 
that ensure preschool and school-aged children with disabilities have 
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 (section 619). 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. Education made the first half of states' Recovery Act 
IDEA funding available to state agencies on April 1, 2009, and 
announced on September 4, 2009, that it had made the second half 
available. 

OSSE has determined the preliminary IDEA Part B Recovery Act 
allocations to the LEAs. However, these preliminary amounts have not 
been adjusted in consideration of an August 17, 2009, proposal by 
Education to increase the amount state education agencies are allowed 
to set aside for administration. The allocated amounts are also 
expected to change after enrollment audits are complete. OSSE allocated 
about $13.3 million of its federal fiscal year 2009 IDEA Part B 
Recovery Act funds to the District's largest LEA, DCPS, which serves 
about 64 percent of the District's public school students, and serves 
as the IDEA LEA for 17 of the District's charter school LEAs. As of 
September 11, 2009, OSSE had not finalized the application the LEAs 
must complete describing their specific plans for expenditures of IDEA 
Recovery Act funds. An OSSE official told us that while the LEAs could 
obligate IDEA Recovery Act funds and expend their own funds, they could 
not receive reimbursements until OSSE approved the LEAs' individual 
plans for expenditures. 

OSSE officials told us that they held Web-based sessions in June and 
July 2009, related to IDEA funds in general with limited information on 
Recovery Act funds, and on IDEA Recovery Act funds, respectively. While 
34 LEAs attended the more general Web-based training, only 5 LEAs 
participated in the Web-based guidance session focused on IDEA Recovery 
Act funds. This second session included information on the guiding 
principles of Recovery Act funds for education, time frames for 
accessing and using the funds, and allowable uses of the funds, with 
examples. Officials from one LEA we visited told us that they had not 
received any information on IDEA Recovery Act funds and had not 
participated in any Web-based sessions for these funds, officials from 
a second LEA told us that the staff person who may have attended had 
since left the LEA, and an official with the third LEA we visited told 
us that someone from the LEA had participated. 

Education has designated OSSE as a high-risk grantee, for weaknesses 
related to financial management and grants management, including IDEA. 
OSSE officials noted that Education may hold $500,000 of OSSE's fiscal 
year 2009 IDEA, Part B state-level funds, generally used for 
administration of IDEA funds. This action was due to noncompliance 
found in the fiscal year 2007 single audit. On July 31, 2009, OSSE 
submitted a corrective action plan report to Education outlining how it 
plans to address the various findings. The report describes five 
working groups and their plans, including time frames, to address 
findings concerning financial support services, business support 
services, grant allocations, grant monitoring, and grant reporting. The 
corrective action plan report notes that 33 findings have been resolved 
and 169 findings remain unresolved. Many of the findings are long- 
standing weaknesses. Nine unresolved issues or areas of concern are 
related to OSSE's administration of IDEA Recovery Act funds, including 
OSSE's process for determining IDEA allocations across LEAs. OSSE's 
initial grant application for its LEAs includes a section with 
additional Recovery Act assurances to inform and ensure that the LEAs 
will be held accountable for spending these funds appropriately. 

OSSE Plans to Safeguard Recovery Act Funds Are in Early Phases: 

OSSE plans on holding LEAs accountable for Recovery Act funds by 
reviewing all LEA applications for Recovery Act grants for SFSF, ESEA 
Title I, and IDEA funds, and by monitoring the use of the funds. An 
OSSE official told us that relevant LEA information will be posted to 
the agency Web site including LEA allocations and draw down rates. LEAs 
must submit grant applications to OSSE in order to request and receive 
Recovery Act funds. As part of the applications, an LEA is required to 
provide a signed statement that the LEA agrees to take adequate and 
appropriate steps to ensure that it has the capacity to comply with the 
Recovery Act requirements, as well as administer each Recovery Act 
program in accordance with all applicable statutes and regulations. The 
grant applications require the LEA to provide OSSE a description of how 
the LEA will spend its requested grant funds in accordance with the 
requirements and objectives of the Recovery Act. According to OSSE 
officials, they plan to review each application and determine if the 
LEA's expenditure plan complies with the allowed uses of funds under 
the Recovery Act. 

OSSE uses its reimbursement tracking system as its principal monitoring 
tool to ensure expenditures made using federal grant funds, including 
SFSF, ESEA Title I and IDEA funds, are allowable. According to an OSSE 
official, the reimbursement tracking system was developed in February 
2009, and LEAs began implementing the system in April 2009. The system 
is centralized, so OSSE can track all reimbursement requests submitted 
by LEAs, and payments made to LEAs. The system allows OSSE to track and 
report on expenditures for individual grants, as well as for all OSSE 
grants. 

An LEA spends its own funds in accordance with its grant application, 
after which the LEA submits a reimbursement request to OSSE that 
describes what the funds were spent on and how much was spent. OSSE 
officials review the reimbursement request and compare it to the LEA's 
grant application. If the costs are consistent with the LEA's 
expenditure plan, OSSE reimburses the LEA. If the costs are 
questionable or they are unallowable based on the application and 
Education guidelines, OSSE contacts the LEA to resolve the discrepancy, 
and arranges for technical assistance, if needed. Payment to the LEA is 
only made after the discrepancy is resolved. If the discrepancy is not 
resolved, the LEA will not receive its requested funds. 

The reimbursement system is linked to OSSE's subgrantee budget tracking 
system, which uses many linked spreadsheets to produce summary reports 
of the District LEAs' budget information. It tracks the amount an LEA 
has expended and compares it to the LEA's application, budget, and set- 
asides.[Footnote 10] By comparing the three factors, OSSE officials 
monitor the cash flow of the LEA and provide technical assistance if 
warranted. OSSE officials stated that the two systems enable the agency 
to gather data on LEA drawdown rates and track LEA reimbursement 
requests. OSSE can analyze the data to identify problem areas that LEAs 
have in grant funding management. Because the reimbursement system has 
only recently been implemented, not enough data have been collected to 
analyze LEA performance. 

OSSE Is Preparing to Meet Recovery Act Recipient Reporting 
Requirements: 

OSSE is a prime recipient of Recovery Act funds as defined by OMB's 
guidance.[Footnote 11] The Office of the City Administrator (OCA) 
provided guidance to all District agency directors that required them 
to assign grant managers to each Recovery Act grant. Grant managers are 
responsible for ensuring that all required information for the grant, 
including data from subrecipients and vendors, is submitted to OCA in 
accordance with the Recovery Act Section 1512 recipient reporting 
requirements. OSSE officials stated that they had assigned grant 
managers to SFSF, ESEA Title I and IDEA grants. 

According to an OSSE official, LEAs were provided written guidance 
about OMB reporting requirements, as well as the LEAs' responsibilities 
for meeting those requirements, during the recent four-day training 
course. An OSSE official also told us that OSSE will collect the 
required information from LEAs, and then enter the information into the 
District's centralized Web-based system. OSSE officials also told us 
they were considering other ways in which to measure the impact of the 
Recovery Act funds directly on students, as well as indirectly on 
parents and the community. 

The District's Inspector General Plans to Provide Additional Oversight 
of OSSE's IDEA Recovery Act Management Practices: 

The District's Office of Inspector General (OIG) fiscal year 2010 audit 
and inspection plan, issued August 31, 2009, includes a focus on 
Recovery Act spending by District agencies. If resources permit, the 
OIG plans to audit the Recovery Act funds appropriated for IDEA. The 
objectives would be to determine whether (1) OSSE properly managed and 
distributed Recovery Act funds to LEAs and (2) DCPS used Recovery Act 
funds for their intended purposes. The OIG is reviewing DCPS' use of 
IDEA funds because of the past problems identified in DCPS' handling of 
IDEA funds, and to protect the District from incurring disallowed 
costs, and subsequently reimbursing the federal government for those 
disallowed costs. The OIG also plans to review whether OSSE ensures an 
appropriate level of accountability and transparency for OSSE-received 
Recovery Act funds. 

DC/Maryland/Virginia Urbanized Area Has Met a Key Recovery Act 
Obligation Deadline for Transit Projects: 

The Recovery Act appropriated $8.4 billion to fund public transit 
throughout the country through three existing Federal Transit 
Administration (FTA) grant programs, including the Transit Capital 
Assistance Program.[Footnote 12] The majority of the public transit 
funds, $6.9 billion (82 percent), were apportioned for the Transit 
Capital Assistance Program, with $6.0 billion designated for the 
urbanized area formula grant program and $766 million designated for 
the nonurbanized area formula grant program.[Footnote 13] Under the 
urbanized area formula grant program, Recovery Act funds were 
apportioned to urbanized areas--which in some cases include a 
metropolitan area that spans multiple states--throughout the country 
according to existing program formulas. The Recovery Act funds were 
also apportioned to the states under the nonurbanized area formula 
grant program 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. Up to 10 percent of apportioned 
Recovery Act funds may also be used for operating expenses.[Footnote 
14] Under the Recovery Act, the maximum federal fund share for projects 
under the Transit Capital Assistance Program is 100 percent.[Footnote 
15] 

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 (MPO)-- 
develop a list of transit projects that project sponsors (typically 
transit agencies) will submit to FTA for Recovery Act funding.[Footnote 
16] FTA reviews the project sponsors' grant applications to ensure that 
projects meet the eligibility requirements and then obligates Recovery 
Act funds by approving the grant application. Project sponsors must 
follow the requirements of the existing programs, which include 
ensuring the projects funded meet all regulations and guidance 
pertaining to the Americans with Disabilities Act (ADA), pay a 
prevailing wage in accordance with federal Davis-Bacon requirements, 
and comply with goals to ensure disadvantaged businesses are not 
discriminated against in the awarding of contracts. 

Funds appropriated through the Transit Capital Assistance Program must 
be used in accordance with Recovery Act requirements. Specifically, 50 
percent of Recovery Act funds apportioned to urbanized areas or states 
are to be obligated within 180 days of apportionment (before September 
1, 2009) and the remaining apportioned funds are to be obligated within 
1 year. The Secretary of Transportation is to withdraw and redistribute 
to other urbanized areas or states any amount that is not obligated 
within these time frames.[Footnote 17] 

FTA apportioned $214.6 million in Transit Capital Assistance program 
funds to the National Capital Region in March 2009. The National 
Capital Region includes transit agencies serving the District and 
surrounding counties in Maryland and Virginia. The transit agencies 
within the region include the Washington Metropolitan Area Transit 
Authority (WMATA), the Maryland Transit Administration (MTA), the 
Potomac and Rappahannock Transportation Commission (PRTC), the Virginia 
Railway Express (VRE), and Fredericksburg Regional Transit (FRED). 
According to FTA, as of September 1, 2009, FTA had obligated $213.0 
million of the Transit Capital Assistance funds (99.3 percent) 
apportioned to the National Capital Region, thus meeting the Recovery 
Act requirement that 50 percent of the funds be obligated by September 
1, 2009. 

WMATA Has Started Awarding Contracts for Recovery Act Transit Projects: 

Within the National Capital Region, we focused on WMATA's use of 
Recovery Act funds because it was apportioned the largest amount of 
Recovery Act transit funding. WMATA operates the second largest rail 
transit system, sixth largest bus network, and eighth largest 
paratransit network in the United States. As of August 18, 2009, WMATA 
was awarded $201.8 million in Recovery Act funds, $182.5 million for 
the purchase of 47 buses, 74 vans, and station upgrades, and $17.7 
million for rail improvement and equipment purchases. 

WMATA Used a New Strategic Prioritization Process to Select Recovery 
Act Projects: 

WMATA developed a new strategic prioritization process for selecting 
projects that met Recovery Act requirements and supported WMATA's 
short- term needs and long-term goals. Through this process, WMATA 
identified about $530 million in shovel-ready projects. Agency 
officials stated that the strategic prioritization process began with 
WMATA analyzing over $11 billion worth of capital projects needed to 
maintain, expand, and improve WMATA's three transit services--
Metrorail, Metrobus, and MetroAccess paratransit service. To identify 
projects for Recovery Act funding, WMATA identified projects that were 
ready to start, eligible for federal funding, and could not be 
implemented without additional funds. These projects were then refined 
and prioritized based on how well they linked to WMATA's five strategic 
goals and 12 strategic objectives. The projects selected included the 
replacement of WMATA's oldest buses, construction of a new bus body and 
paint shop, replacement of the Southeastern bus garage, replacement of 
crumbling platforms at select Metrorail stations, purchase of new 
communications equipment for the operations control center, and 
upgrades to the three oldest Metrorail stations. The following figure 
shows the distribution of capital projects for FTA Recovery Act formula 
grants by category. 

Figure 1: WMATA's Planned Use of Recovery Act Funds: 

[Refer to PDF for image: pie-chart] 

Maintenance facilities: 33%; 
Vehicles and vehicle parts: 20%; 
Maintenance and repair equipment: 15%; 
Operations systems: 10%; 
Passenger facilities: 10%; 
Safety and security: 6%; 
Information technology: 5%; 
Funds for reprogramming: 1%. 

Source: GAO analysis based on WMATA data as of August 18, 2009. 

Note: According to a WMATA official, some of the funds in the 
Operations Systems, Maintenance and Repair Equipment, Passenger 
Facilities, Maintenance Facilities, and Vehicles and Vehicle Parts 
program categories will be used for safety projects. 

[End of figure] 

WMATA officials stated that they are in the early stages of 
implementing the 30 projects supported with Recovery Act funds, and 
have awarded about 70 contracts for Recovery Act funds. According to 
WMATA officials, WMATA has begun awarding contracts for the replacement 
of the oldest buses with new hybrid/electric buses, expansion and 
replacement of the MetroAccess paratransit fleet, and purchase and 
reconditioning of emergency tunnel evacuation carts. Since contracts on 
these projects were only recently awarded, it is too early to tell 
whether the projects are on schedule. 

WMATA Is Applying for about $122 Million in Additional Recovery Act 
Funding: 

WMATA officials stated that they used its new strategic prioritization 
process to guide the agency's application for about $122 million in 
additional Recovery Act funding in the form of discretionary grants. 
WMATA has already been selected to receive $9.6 million in funds over 3 
years through the Transit Security Grant Program.[Footnote 18] 
According to WMATA officials, the Transit Security Grant funds will be 
used to hire 20 full-time officers to form five antiterrorism teams, 
fund the purchase of vehicles and specialty equipment and provide 
training. Additionally, WMATA officials stated that they are applying 
for discretionary grants for the following two programs: 

* The Transportation Investments Generating Economic Recovery program 
(TIGER):[Footnote 19] WMATA officials stated that they have contributed 
to the development of the TIGER grant proposal submitted by the 
Washington Council of Governments, which was approved by the 
Transportation Planning Board (TPB) on July 15, 2009.[Footnote 20] This 
proposal consists of a variety of services and infrastructure 
improvements such as a new transit-way, a bike-sharing system, and 
enhanced bus service. WMATA officials noted that while some of the 
projects within this proposal would aid WMATA-operated services, WMATA 
would not directly implement or manage them. WMATA officials added that 
they are preparing a separate TIGER grant proposal to request about $90 
million in funds for construction of bus facilities that would support 
enhanced bus service in the TIGER grant. 

* Transit Investments in Greenhouse Gas and Energy Reduction program: 
[Footnote 21] WMATA officials stated that they also submitted an 
application for $22.4 million that would be used to fund the 
installation of more energy-efficient lighting in 50 underground 
Metrorail stations and 112 adjacent tunnels, as well as lighting 
upgrades in center tracks, platform edges, along escalators, and in 
retaining walls. Award announcements for this program are planned for 
September 2009. 

WMATA has Developed Procedures to Track Recovery Act Funds and Intends 
to Use Its Existing System to Meet Recovery Act Reporting Requirements: 

According to WMATA officials, they have developed a process to track 
funding by project using their existing accounting system. Recovery Act 
funds received by WMATA are assigned a unique fund number. WMATA uses 
this fund number to identify Recovery Act funding sources to keep 
sources segregated. All transactions are tagged with a specific project 
identification (ID) code. WMATA officials said they have also developed 
a Recovery Act-specific project ID and all payments using Recovery Act 
funds are tracked using that ID. A unique project ID is assigned to 
each Recovery Act-funded project at inception and is used for 
individual transactions as they are processed through WMATA's 
accounting system. 

WMATA officials stated that they have established a hierarchy of roles 
and responsibilities to coordinate management to comply with Recovery 
Act objectives. The designation of roles brings together key offices to 
manage financial controls covering contract and project spending, 
monitoring, and reporting. WMATA designated the agency's Chief 
Administrative Officer (CAO) as the overall Recovery Act program 
manager. Existing project management and financial reporting processes 
remain intact, but are coordinated through the CAO. 

According to WMATA officials, the agency should not have a problem in 
meeting the recipient reporting requirements under section 1512 of the 
Recovery Act, because WMATA has already provided similar information to 
the House Committee on Transportation and Infrastructure. At the 
Committee's request, WMATA has submitted reports in April, May, June 
and July 2009. WMATA officials told us that they have already 
established the reporting procedures that will enable the agency to 
collect and report the recipient data required by the Recovery Act. 
WMATA officials also told us they were considering developing 
performance measures that could be used to assess the impact of the 
Recovery Act funds. 

The District Is Using Existing Contracting and Oversight Procedures for 
Recovery Act Highway Funds: 

The Recovery Act provides funding to the states for restoration, 
repair, and construction of highways and other activities allowed under 
the 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 regional and local use. Highway funds are apportioned 
to states through federal-aid highway program mechanisms, and states 
must follow the existing program requirements, which include ensuring 
the project meets all environmental requirements associated with the 
National Environmental Policy Act (NEPA), paying a prevailing wage in 
accordance with federal Davis-Bacon Act requirements, complying with 
goals to ensure disadvantaged businesses are not discriminated against 
in the awarding of construction contracts, and using American-made iron 
and steel in accordance with Buy America 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. 

The District was apportioned $124 million in March 2009 for highway 
infrastructure and other eligible projects. As of September 1, 2009, 
$115.7 million had been obligated. The U.S. Department of 
Transportation has interpreted the term "obligation of funds" to mean 
the federal government's contractual commitment to pay for the federal 
share of the project. This commitment occurs at the time the federal 
government approves a project and a grant agreement is executed. The 
District Department of Transportation (DDOT) is using its apportioned 
funds for 15 "shovel ready" projects to repave streets and interstates, 
rehabilitate bridges, improve and replace sidewalks and roadways, and 
expand the city's bike-share program. Figure 2 shows obligations by the 
types of road and bridge improvements being made in the District. 
States request reimbursement from FHWA as the state makes payments to 
contractors working on approved projects. The first project to be 
completed was the repaving of Interstate 395 in the District. As of 
September 1, 2009, $556,440 had been reimbursed by FHWA. 

Figure 2: Highway Obligations for the District of Columbia by Project 
Improvement Type as of September 1, 2009: 

[Refer to PDF for image: pie-chart] 

Pavement projects total ($46.8 million): 40%; Bridge projects total 
($35.9 million): 31%; Other ($33.1 million): 29%. 

Source: GAO analysis of FHWA data. 

Note: Totals may not add due to rounding. "Other" includes safety 
projects, such as improving safety at railroad grade crossings, and 
transportation enhancement projects, such as pedestrian and bicycle 
facilities, engineering, and right-of-way purchases. 

[End of figure] 

According to DDOT's Chief Contracting Officer, no changes have been 
made to the contract or financial management processes specifically for 
Recovery Act contracts because DDOT officials deemed its existing 
processes as suitable to track the use of the funds. According to the 
same official, DDOT uses a competitive bid process for awarding highway 
contracts. Each bidder's qualifications are reviewed before a contract 
is awarded. The review process analyzes information on the bidder's 
past contracts, financial information, personnel, equipment, and past 
performance history, including checking references and conducting site 
visits to the contractor's ongoing projects. 

Prior to awarding contracts for projects funded with Recovery Act 
funds, DDOT held a prebidding conference with potential bidders that 
described the bidding process and additional reporting requirements 
mandated by the Recovery Act. DDOT officials have also participated in 
a roundtable discussion given by the District's Office of Contracting 
and Procurement to discuss Recovery Act projects. DDOT's Chief 
Contracting Officer stated that DDOT has seen an increase in bids for 
Recovery Act projects, including bids from new contractors, and that 
thus far it has accepted the lowest bids for each project. 

As discussed in our July 2009 report, DDOT has procedures in place to 
track the expenditure of Recovery Act funds.[Footnote 22] According to 
DDOT officials, they are using their existing system to track Recovery 
Act funds. In addition, DDOT officials assigned unique labels to 
Recovery Act funds that tie to Recovery Act--related projects, allowing 
DDOT to separately track and identify funds. DDOT's financial 
management system is also integrated with FHWA's financial management 
system, providing an additional layer of oversight. 

We selected one contract and one task order for two ongoing projects to 
discuss in greater depth with the relevant agency contracting 
officials. See table 1 below for a summary of contract information for 
the two projects. 

Table 1: Key Information for Two District Highway Projects Reviewed: 

Streetlight upgrade on Dalecarlia Parkway, Northwest Washington, D.C.; 
Projected cost: $2,182,469; 
Project start: April 2009; 
Expected completion: January 2010. 

Sidewalk repair at various locations in the District; Projected cost: 
$3,500,000; 
Project start: June 2009; 
Expected completion: December 2009. 

Source: DDOT. 

[End of table] 

We reviewed a task order for a streetlight upgrade on Dalecarlia 
Parkway, Northwest Washington D.C. A task order was issued on April 13, 
2009, for an amount not to exceed $2,182,469. The project started on 
April 13, 2009, and is projected to be completed by January 20, 2010. 
The task order requires the contractor to furnish all necessary labor, 
equipment, materials, and other incidentals for upgrading street lights 
on Dalecarlia Parkway and to furnish and install fixtures and cables. 
According to DDOT's Chief Contracting Officer, to expedite the project 
an order for the work was placed against an existing indefinite 
delivery/indefinite quantity (IDIQ) contract, which was awarded 
competitively. The Chief Contracting Officer also stated that DDOT 
saved money by not having to advertise a new contract and prepare new 
contract documents. 

The second contract we reviewed was for sidewalk repair at various 
locations in the District. A task order for this work was issued on 
June 11, 2009, for an amount not to exceed $3,500,000 with a project 
start date of June 11, 2009, and a projected completion date of 
December 17, 2009. The task order requires the contractor to construct 
new sidewalks and replace existing sidewalks in locations to be 
determined in the order. According to a DDOT official an existing IDIQ 
competitively-awarded contract was modified to expedite the project. 
The official also noted that because DDOT had to identify shovel-ready 
projects to be funded with Recovery Act money, both projects already 
had a design in place which could be easily added to an existing DDOT 
IDIQ contract. 

According to DDOT officials, both the task order and contract require 
the contractor to provide DDOT with information to support the agency's 
Recovery Act reporting requirements regarding job creation. As required 
by the District's Chief Procurement Officer, DDOT has added specific 
clauses in its Recovery Act contracts that describe the specific 
Recovery Act reporting requirements, provide the reporting template and 
give specific instructions on how to complete the report, and advise 
the contractors that GAO and the relevant Inspector General have the 
ability to examine the contractors' records and interview the 
contractors' employees. According to DDOT officials, the clauses 
require the contractor to report the number of direct on-the-project 
jobs for its workforce and the workforce of its subcontractors during 
the reporting month. 

In addition, according to a DDOT official, the agency has standard 
procedures for oversight on all contracts. These procedures include 
having DDOT personnel or qualified consultants retained by DDOT, or 
both, perform regular inspections on each project. After the project 
manager receives the schedule for the project and approves it, an 
inspection plan is generated. The inspection plan includes site visits 
and reviews of materials and personnel being used on the project. DDOT 
personnel or qualified consultants are on-site on a daily basis 
checking on the status of the project. They are responsible for 
generating a daily report that describes the number of tasks completed 
that day, and the number of people and types of equipment used on the 
project. DDOT personnel or qualified consultants are also required to 
verify the reports with the contractor so there will not be any 
conflicting views on any issues that may arise. In addition, according 
to the same official, the DDOT contracting staff holds regular meetings 
with the contractor, where issues and action items are discussed. 

The District Is Using Existing Contracting and Oversight Procedures for 
Recovery Act Public Housing Capital Funds: 

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.[Footnote 23] The Recovery Act 
requires the U.S. Department of Housing and Urban Development (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. Recovery Act requirements specify that public housing 
agencies must obligate funds within 1 year of the date on which they 
are made available to public housing agencies, expend at least 60 
percent of funds within 2 years, and expend 100 percent of the funds 
within 3 years. Public housing agencies are expected to give priority 
to projects where contracts can be awarded based on bids within 120 
days from the date on which the funds are made available, as well as 
projects that rehabilitate vacant units, or those already underway or 
included in their current required 5-year capital fund plans. 

HUD is 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 retrofit investments. In a Notice 
of Funding Availability published May 7, 2009, and revised June 3, 
2009, HUD outlined four categories of funding for which public housing 
agencies could apply: 

* creation of energy-efficient communities ($600 million); 

* gap financing for projects that are stalled due to financing issues 
($200 million); 

* public housing transformation ($100 million); and: 

* improvements addressing the needs of the elderly or persons with 
disabilities ($95 million). 

For the creation of energy-efficient communities, applications (which 
were due July 21, 2009) were to be rated and ranked according to 
criteria outlined in the Notice of Funding Availability. The last three 
categories will be threshold-based, meaning applications that meet all 
the threshold requirements will be funded in order of receipt. If funds 
are available after all applications meeting the thresholds have been 
funded, HUD may begin removing thresholds after August 1, 2009, in 
order to fund additional applications in the order of receipt until all 
funds have been awarded. Applications in these three categories were 
accepted until August 18, 2009. 

HUD has allocated $27 million to DCHA. As of September 5, 2009, DCHA 
had obligated about $5 million or about 19 percent of the $27 million 
it received in capital grant funds, and drawn down about $1.5 million 
from DCHA's Electronic Line of Credit Control System account with HUD. 
DCHA plans to use the Recovery Act funds on 18 projects that include 
the rehabilitation of nearly 2,000 housing units and the installation 
of new energy-efficient projects at public housing facilities. As of 
September 3, 2009, 9 of the projects were underway. 

DCHA is using its existing contract-management procedures to monitor 
the use of Recovery Act funds.[Footnote 24] According to a DCHA 
contracting official, no changes have been made to contract or 
financial management processes specifically for Recovery Act contracts 
because DCHA believes its existing processes are suitable to monitor 
the use of the funds. According to the same official, DCHA uses job- 
order contracting to establish a competitive bid process for awarding 
housing contracts.[Footnote 25] DCHA officials stated that job-order 
contracting procedures minimize unnecessary engineering, design, and 
other procurement processes by awarding long-term contracts to 
contractors for a wide array of project improvements and renovations. 
According to DCHA officials, DCHA currently has 11 job-order contracts 
and assesses each of the contractor's qualifications, current workload, 
and past performance in order to decide which contractor will be 
awarded a job order for each specific Recovery Act project. 

As discussed in our July 2009 report, DCHA has procedures in place to 
track the expenditure of Recovery Act funds. According to DCHA 
officials, its existing accounting system is used to track Recovery Act 
funds. DCHA officials stated that Recovery Act funds have an "S" at the 
end of their accounting code and can be identified by project number 
and task order. 

We selected two contracts to discuss in greater depth with the relevant 
agency contracting officials. See table 2 below for a summary of 
contract information for the two contracts. 

Table 2: Key Information for Two Public Housing Capital Projects 
Reviewed: 

Balcony repairs at Greenleaf Gardens; 
Projected cost: $1,259,424; 
Project start: March 2009; 
Expected completion: November 2009. 

Kitchen and bathroom upgrade at Benning Terrace; Projected cost: 
$839,798; 
Project start: August 2009; 
Expected completion: May 2010. 

Source: DCHA. 

[End of table] 

The first contract we reviewed was for balcony repairs at the Greenleaf 
Gardens public housing community. The job order was placed on March 27, 
2009, for an amount not to exceed $1,259,424. The project started on 
March 27, 2009, and is projected to be completed by November 28, 2009. 
The job order requires the contractor to repair concrete balconies and 
rails, remove and reinstall metal balcony rails, and paint all rails, 
walls, ceilings, and floors. According to a DCHA official, the use of 
job-order contracting helps expedite the award of the project by 
awarding the work as a job order on an existing contract. 

The second contract we reviewed was for kitchen and bathroom upgrades 
at the Benning Terrace public housing community. The job order was 
placed on August 4, 2009, for an amount not to exceed $839,798. The 
project started on August 4, 2009, and has a projected completion date 
of May 1, 2010. The job order requires the contractor to furnish all 
necessary labor, tools, transportation, supervision, material, and 
equipment required to renovate 84 kitchens and bathrooms at the Benning 
Terrace property. 

According to DCHA officials, the agency has already been collecting the 
information necessary to meet its Recovery Act reporting requirement 
regarding job creation. Specifically, DCHA is already required to 
comply with the Section 3 HUD mandate that requires recipients of HUD 
funds, to the greatest extent possible, to provide job training, 
employment, and contract opportunities for low-or very-low-income 
residents in connection with projects and activities in their 
neighborhoods. DCHA has been collecting the number of jobs created and 
retained by contractors or subcontractors on all projects. 

In addition, according to a DCHA official, the agency has standard 
procedures for oversight on all contracts. These procedures include 
having DCHA contracting personnel perform regular inspections on each 
project. Contractors must also file a weekly progress report. DCHA's 
project inspectors and the contractors have to agree on the level of 
project completion each week and sign a certification document, in 
order to ensure there will not be any conflicts about what work has 
been completed and appropriate payments are made. In addition, 
according to DCHA officials, before projects are started in a 
particular housing community, the residents are consulted and continue 
to remain involved throughout the life of the project. DCHA also 
sometimes hires community residents as project monitors. 

The District Has Made Preparations for Meeting Recovery Act Reporting 
Requirements: 

The Office of the City Administrator (OCA) has taken several actions to 
address the recipient reporting requirements in section 1512 of the 
Recovery Act.[Footnote 26] OCA has designed a centralized Web-based 
system to collect all required data and submit them into 
federalreporting.gov, the Web site the federal government established 
for recipients to report Recovery Act data. OCA considered two 
approaches for meeting the Recovery Act reporting requirements-- 
developing the software application internally or purchasing a Recovery 
Act reporting package offered by several firms. OCA researched six 
commercial vendors that provide software to support recipient reporting 
data collection. After consulting with senior District officials and 
the Office of the Chief Technology Officer (OCTO), OCA officials 
decided that developing a recipient reporting system internally would 
better ensure accountability and the need for rapid implementation. 
Also, OCTO staff had experience in developing similar systems for the 
District government. The system is based on an approach the District 
has used for several other applications, and is available only to 
District officials responsible for Recovery Act funds, at 
reporting.dc.gov beginning September 1, 2009. 

All District agencies are considered prime recipients for reporting 
purposes. On July 23, 2009, OCA issued guidance to all District agency 
directors discussing the requirements of Section 1512 and the 
responsibilities agencies have regarding the requirements.[Footnote 27] 
The guidance defines multiple tiers of accountability and the 
responsibilities assigned to each tier. Each tier consists of positions 
that are held accountable for recipient reporting data management and 
collection or for quality assurance. Specifically, the guidance 
instructs agency directors to assign an individual staff member as the 
grant manager for each Recovery Act grant award received by the agency. 
The grant manager is responsible for day-to-day management of the grant 
including submitting required reporting data accurately and within the 
deadlines. In addition, the grant manager is responsible for submitting 
required information for subrecipients and vendors for that grant. 
Grant managers can choose to submit data for subrecipients or delegate 
the responsibility to subrecipients to submit data directly. The 
guidance instructed all agency directors to either declare that the 
agency has not received and does not expect to receive any Recovery Act 
funds or provide a list of all Recovery Act grants expected by the 
agency, and the identities of all responsible parties. 

OCA and OCTO developed a Web-based system to serve as a central 
repository for the Recovery Act data the District plans to submit 
directly to federalreporting.gov. According to District officials, 
setting up its own Web site (reporting.dc.gov) allows OCA to review the 
aggregate data before it is submitted to federalreporting.gov. Grant 
managers will use the OCA Web site starting September 1, 2009, to enter 
all required data as the prime recipient. OCA conducted three Recovery 
Act training sessions for grant managers during August 2009 on the 
reporting.dc.gov tool and overall expectations for Recovery Act grant 
reporting. In addition, OCTO has held several sessions with grant 
managers specifically on how to use the reporting.dc.gov tool. The 
training included a review of the reporting requirements, key tasks, 
and instructions on how to use the new system. 

The District plans on testing the system beginning September 1, 2009. 
Grant managers will create an account at OCA's Web site and submit 
required Recovery Act recipient reporting data through August 31, 2009. 
The test will give OCTO a chance to test the system and resolve issues 
before the actual reporting date. Grant managers are required to input 
the data every month, so reviewers perform quality reviews and detect 
errors and omissions as soon as possible, instead of waiting until the 
end of a quarter to review the data. OCTO officials stated that they 
developed quality and data controls into the system. 

Key Efforts to Safeguard the District's Use of Recovery Act Funds Have 
Been Delayed or Cutback: 

Two key components of the District's oversight efforts to safeguard 
Recovery Act funds have encountered delays or cutbacks that could 
impede the District's efforts to correct previously identified internal 
control weaknesses in programs that are receiving Recovery Act funds. 

The District uses the single audit[Footnote 28] to aid in determining 
whether the District's internal controls provide reasonable assurances 
that there is reliable reporting for federal funds, that accountability 
is maintained over assets, and that operations are effective and 
efficient. The District's fiscal year 2008 Single Audit was required to 
be submitted to the federal government by June 30, 2009; however, as of 
September 11, 2009, it had not been completed by the District's 
auditors. According to District officials, the fiscal year 2008 Single 
Audit was delayed because some District agencies had difficulties in 
providing requested documentation to the external auditor to complete 
the single audit. The District was granted an extension for completing 
the fiscal year 2007 single audit by the Department of Health and Human 
Services. However, an Office of Integrity and Oversight (OIO) official 
stated that the department did not grant the District an extension for 
completing the fiscal year 2008 Single Audit. The official stated that 
the District was expecting the extension to be approved as had happened 
in previous years. The official stated that the 2008 Single Audit may 
be completed in late-September 2009. 

In our July 2009 report, we stated that the District relies on Single 
Audit findings as a key source of oversight of its agencies. Untimely 
single audit reporting deadlines and delays in the completion of single 
audit reports make it difficult for the District to resolve material 
weaknesses before more federal funds, including Recovery Act funds are 
received. Therefore, because the District has not received its single 
audit findings, these federal funds are subject to the same material 
weaknesses from the previous year and are at risk of mismanagement, 
fraud, waste, and abuse. Both the District's past single audits and 
District OIG reports have identified numerous internal control 
weaknesses in four District programs that are receiving Recovery Act 
funds. 

The District has also cut back plans to conduct a comprehensive review 
of internal controls in all District agencies. In our July 2009 report, 
we noted that although the District government and agencies have 
various internal controls, the controls are not integrated or included 
in a citywide internal control program. Past reports from the OIG have 
identified numerous weaknesses in the District's internal controls. In 
September 2008, the Office of the Chief Financial Officer (OCFO) 
contracted with an independent accounting firm to identify areas in the 
office with internal control problems and deficiencies. The District 
planned to have the firm expand its review to District agencies after 
it completed its OCFO assessment. On August 17, 2009, an OCFO official 
informed us that review will be limited to just the OCFO and the firm 
will not expand its review to District agencies. The contract expires 
at the end of September 2009. According to District officials, funding 
concerns prompted the District Council to reduce the length of the 
contract, which officials stated is unlikely to be extended. The 
official added that the OCFO's new Chief Risk Officer will be 
addressing internal control risks by developing an internal control 
program for the OCFO. 

Both District OIG reports and Single Audit reports have identified 
internal control weaknesses. The most recent Single Audit report, for 
fiscal year 2007, identified 89 material weaknesses in internal 
controls over both financial reporting and compliance with requirements 
applicable to major federal programs. There were material weaknesses in 
financial reporting found in the District's Medicaid program and DCPS. 
The single audit report identified material weaknesses in compliance 
with requirements applicable to major federal programs including 
Medicaid's Federal Medical Assistance Percentage (FMAP), ESEA Title I 
Education grants, and Workforce Investment Act programs, all of which 
are receiving Recovery Act funds. The findings were significant enough 
to result in a qualified opinion for that section report. Fiscal year 
2008 single audit findings were not available to examine at the time of 
our review. 

The District OIG Plans on Providing Additional Recovery Act Oversight 
If Resources Permit: 

The District's OIG's fiscal year 2010 audit and inspection plan was 
issued on August 31, 2009. The plan focuses on providing additional 
oversight on Recovery Act spending at District agencies. The plan 
includes audits of the following areas: 

* qualifications and background checks for contracting officials; 

* Recovery Act funds appropriated for IDEA; 

* FMAP increase under the Recovery Act; and: 

* DDOT construction contracts awarded under the Recovery Act. 

Additionally, the OIG is recommending that the Comprehensive Annual 
Financial Report auditors expand their scope to cover spending of 
Recovery Act funds by District agencies. The OIG stated that the plans 
can only be initiated provided there are adequate resources to support 
the work. 

District Comments on This Summary: 

We provided the Office of the Mayor of the District, the District 
agencies for the programs we examined, and WMATA with a draft of this 
summary on September 8, 2009. On September 10 and 11, 2009, the Office 
of the Mayor, the District agencies, and WMATA provided technical 
comments, which we have incorporated where appropriate. 

GAO Contact: 

William O. Jenkins, Jr., (202) 512-8757 or jenkinswo@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, John Hansen, Assistant 
Director; Mark Tremba, analyst-in-charge; Laurel Beedon; Sunny Chang; 
Marisol Cruz; Nagla'a El-Hodiri; Linda Miller; Justin Monroe; Melissa 
Schermerhorn; and Kathy Smith made major contributions to this report. 

[End of section] 

Footnotes for Appendix IV: 

[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[2] The District's fiscal year begins on October 1 and ends on 
September 30. 

[3] The District's general fund is the fund that is supported by local 
revenue, including taxes and nontax revenue. The funds used by the 
District to close the budget gap were not dedicated for specific policy 
goals or for emergency cash reserves. 

[4] As of August 28, 2009, Education had also awarded the District 
$16.3 million in SFSF funds for the government services fund. 

[5] The District also plans to use about $1.4 million of SFSF funds to 
restore funding in fiscal years 2009 and 2010 to its sole IHE, the 
University of the District of Columbia. After restoring education 
spending through 2011, any remaining education funds will be 
distributed across LEAs in accordance with the District's ESEA Title I 
funding formula. 

[6] The additional 40 percent being allocated to education was 
previously designated as "undetermined." The District has not changed 
its proposed use of the remaining 40 percent of the government services 
fund, which is to assist low-and moderate-income residents with down 
payments and closing costs on their first homes. 

[7] 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. 

[8] Five of the seven LEAs that did not receive ESEA Title I 
allocations do not serve children ages 5 to 17, but serve either 
preschool-age children or adults. One LEA was eligible for ESEA, Title 
I Recovery Act funds but opted out. The other LEA was not eligible, 
based on the District's ESEA, Title I eligibility criteria. 

[9] According to OSSE officials, some LEA reimbursement requests are 
disallowed because the LEA has overspent in a budgetary category. 

[10] Set-asides are grant amounts that are held by the LEA to be used 
for specific projects, as allowed or required by the federal program. 

[11] OMB Memorandum, M-09-21, Implementing Guidance for the Reports on 
Use of Funds Pursuant to the American Recovery and Reinvestment Act of 
2009 (June 22, 2009). 

[12] The other two public transit programs receiving Recovery Act funds 
are the Fixed Guideway Infrastructure Investment program and the 
Capital Investment Grant program, each of which was apportioned $750 
million. The Transit Capital Assistance Program and the Fixed Guideway 
Infrastructure Investment program are formula grant programs, which 
allocate funds to states or their subdivisions by law. Grant recipients 
may then be reimbursed for expenditures for specific projects based on 
program eligibility guidelines. The Capital Investment Grant program is 
a discretionary grant program, which provides funds to recipients for 
projects based on eligibility and selection criteria. 

[13] Urbanized areas are defined as areas encompassing a population of 
not less than 50,000 people that has been defined and designated in the 
most recent decennial census as an "urbanized area" by the Secretary of 
Commerce. Nonurbanized areas are defined as areas encompassing a 
population of fewer then 50,000 people. 

[14] The 2009 Supplemental Appropriations Act authorizes the use of up 
to 10 percent of each apportionment for operating expenses. Pub. L. No. 
111-32, §1202, 123 Stat. 1859, 1908 (June 24, 2009). In contrast, under 
the existing program, operating assistance is generally not an eligible 
expense for transit agencies within urbanized areas with populations of 
200,000 or more. 

[15] The federal share under the existing formula grant program is 
generally 80 percent. 

[16] Designated recipients are entities designated by the chief 
executive officer of a state, responsible local officials, and publicly 
owned operators of public transportation to receive and apportion 
amounts that are attributable to transportation management areas. 
Transportation management areas are areas designated by the Secretary 
of Transportation as having an urbanized area population of more than 
200,000, or upon request from the governor and metropolitan planning 
organizations designated for the area. MPOs 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 Program (TIP) and 
the approved State Transportation Improvement Program (STIP). 

[17] Pub. L. No. 111-5, 123 Stat. 115, 209 (Feb. 17, 2009). 

[18] The Recovery Act provided $150 million for the Transit Security 
Grant Program. 

[19] The Recovery Act appropriated $1.5 billion of discretionary grant 
funds to be awarded by the Department of Transportation for capital 
investments in surface transportation infrastructure projects. The 
Department of Transportation refers to these grants as "Grants for 
Transportation Investment Generating Economic Recovery" or "TIGER 
Discretionary Grants." According to the National Capital Region's 
Transportation Planning Board officials, National Capital Region TIGER 
projects, which are developed in conjunction with local jurisdictions, 
consist of: (1) K Street Transitway from 9th to 23rd Street, N.W.; (2) 
enhanced bus service (example--dedicated bus lanes); (3) a bike-sharing 
system; (4) improvements to two Metrorail stations (example--high-speed 
elevators) and the creation of one new transit center at the Takoma/ 
Langley Transit Center; (5) existing and planned managed High Occupancy 
Vehicle/High Occupancy Toll lanes; and (6) additional bus priority 
treatments across two Potomac River crossings and along three 
arterials. 

[20] The TPB is the National Capital Region's metropolitan planning 
organization. The TPB oversees project selections, including Recovery 
Act project selections, through a formal approval process called the 
TIP, a 6-year financial program that describes the schedule for 
obligating federal funds to state and local projects. 

[21] Public transportation agencies are eligible to receive Transit 
Investments for Greenhouse Gas and Energy Reduction (TIGGER) Program 
grants. TIGGER grants are for projects that either reduce energy 
consumption or greenhouse gas emissions through a capital investment. 

[22] GAO, 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). 

[23] Public housing agencies receive money directly from the federal 
government (HUD). Funds awarded to the public housing agencies do not 
pass through the District's budget. 

[24] According to the District's Chief Procurement Officer, DCHA is 
exempt from both the District of Columbia Procurement Practices Act of 
1985, and the District Office of Contracting and Procurement authority. 

[25] A Job Order Contract is a specially designed indefinite quantity 
contract that is awarded on a periodic basis to one or more 
contractors. 

[26] Pub. L. No. 111-5, div A, § 1512, 123 Stat. 115, 287 (Feb. 17, 
2009). 

[27] Office of the City Administrator memo: ARRA 09-2, Defining 
Accountabilities for Implementing the American Recovery and 
Reinvestment Act Reporting Requirements (July 23, 2009). 

[28] The Single Audit Act, as amended (31 U.S.C. §§ 7501-7507), 
requires states, local governments, and nonprofit organizations 
expending more than $500,000 in federal awards in a year to obtain an 
audit for that year 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. 

[End of section] 

Appendix V: Florida: 

Overview: 

The following summarizes GAO's work on the third of its bimonthly 
reviews of American Recovery and Reinvestment Act (Recovery Act) 
spending in Florida.[Footnote 1] The full report covering all of our 
work in 16 states and the District of Columbia is available at 
[hyperlink, http://www.gao.gov/recovery]. 

GAO's work focused on three federal programs funded under the Recovery 
Act: the Workforce Investment Act (WIA) Youth Program, the 
Weatherization Assistance Program, and the Highway Infrastructure 
Investment Program. These programs were selected primarily because they 
have begun disbursing Recovery Act funds or are existing programs that 
are receiving significant amounts of these funds. Specifically, we 
selected WIA because a summer youth program was implemented in Florida 
this summer with Recovery Act funds. We selected the weatherization 
program based on discussions with the Florida Chief Inspector General, 
who considers the program high risk; and we selected the Highway 
Infrastructure Investment Program because it is one of the largest 
programs receiving Recovery Act funds flowing to the state and 
localities. Consistent with the purposes of the Recovery Act, funds 
from the programs we reviewed are being directed to help Florida and 
local governments stabilize their budgets and stimulate infrastructure 
development and expand existing programs intended to provide needed 
services and jobs. 

We conducted site visits at two regional workforce boards for WIA in 
Broward and Hillsborough Counties because these boards are among the 
largest recipients of Recovery Act WIA dollars in the state and had the 
highest numbers of anticipated participants. In these counties we 
visited two contractors administering summer youth programs. We 
selected two contracts managed by Florida Department of Transportation 
(FDOT) district offices located in Lake City in Columbia County and 
Chipley in Washington County because they were among the largest dollar 
contracts that had been awarded as of July 20, 2009. 

The following provides highlights from our review: 

WIA Youth Program: 

* The state of Florida received almost $43 million for WIA youth 
activities under the Recovery Act and set a goal of serving 16,000 
youth in 2009 through its WIA summer employment activities for youth 
program. As of August 15, 2009, the Agency for Workforce Innovation 
estimates that it has expended $22.3 million or 52 percent of its total 
and in its July 31, 2009 report to the Department of Labor (Labor) said 
it had served 11,902 youth. 

* The agency expects to meet its enrollment goal by the end of the 
summer program. However, Broward and Hillsborough counties' summer 
youth programs overcame several implementation challenges. Both 
counties were challenged by recruiting participants under tight time 
frames, and other factors, such as screening applicants for 
eligibility. 

* Broward County and Hillsborough County workforce boards have taken 
steps to monitor activities performed with Recovery Act WIA Youth 
funds, such as work experience and work-based learning activities. 
However, Hillsborough County's on-site monitoring activities for older 
participants is limited in comparison to Broward County. Employers and 
youth we talked with praised the summer youth programs in Broward and 
Hillsborough counties, but data on the extent to which youth achieved 
gains in work readiness are not yet available. 

Weatherization Assistance Program: 

* The Department of Energy (DOE) has allocated about $176 million over 
3 years to Florida for the Recovery Act Weatherization Assistance 
Program to weatherize over 19,000 homes. On June 18, 2009, DOE had 
provided to the state about $88 million, or about half the total fund 
allocation. As of August 31, 2009, the Florida Department of Community 
Affairs (DCA) had obligated about $4.2 million and expended about $1.1 
million of the initial $88 million allocated by DOE. 

* Florida has begun using Recovery Act weatherization funds to increase 
the capacity of local providers to weatherize homes. Florida is 
intending to implement training and internal controls to help ensure 
quality and oversight of Recovery Act spending on weatherization. 
However, as of August 31, 2009, Florida has not yet started 
weatherizing homes. 

* Recovery Act funds for weatherization have created jobs in Florida. 
State officials still have questions about reporting requirements and 
concerns about the required documentation for the Davis-Bacon Act. 
Recovery Act funding has created 109 jobs. 

Highway Infrastructure Investment: 

* The U.S. Department of Transportation's (DOT) Federal Highway 
Administration (FHWA) apportioned $1.35 billion in Recovery Act funds 
to Florida. As of September 1, 2009, the federal government has 
obligated $1 billion, and $196,000 has been reimbursed by FHWA to the 
state for payments to contractors. 

* While some progress has been made in awarding contracts for statewide 
highway projects (25 contracts out of 45 FHWA-approved projects, 
totaling $726 million as of August 28, 2009), few contracts have been 
awarded by localities (5 contracts out of the 395 FHWA-approved 
contracts, totaling $1 million). According to state officials, unlike 
the state's funds, which were required to be obligated before June 30, 
2009, funds that were suballocated to local agencies were not subject 
to the 120-day rule. As a result, the local agencies were given more 
time to obligate funds, advertise bids, and award contracts. 

* State officials consider current processes and procedures adequate 
for highway contract solicitation and management, and the Florida 
Department of Transportation districts use consultants to assist with 
project monitoring. To report data on jobs created, the Florida 
Department of Transportation has developed an automated system, which 
was put into operation on May 29, 2009. For the months of June and 
July, the Florida Department of Transportation reported to FHWA that a 
total of 155 jobs were created as a direct result of Recovery Act- 
funded highway projects. 

Updated Information on Safeguards and Transparency: 

* Florida continues to take steps to provide safeguards and 
transparency. State Inspectors General have provided fraud training, 
prepared agencies to implement reporting requirements, and assessed 
internal controls, among other activities. Florida's Office of Economic 
Recovery continues to develop a database to collect Recovery Act data 
from state agencies that it will then upload to the federal database. 
While the fiscal year 2009 Single Audit is currently under way, the 
state auditor is awaiting additional federal guidance from the Office 
of Management and Budget (OMB) on Single Audits on Recovery Act 
programs. 

While Its Economy Remains Sluggish, Florida Plans Ahead for Funds 
Expiration, but with Concerns Regarding Costs of Recovery Act-Related 
Oversight: 

Florida's fiscal condition is expected to improve slowly beginning in 
spring 2010, according to Florida's August 2009 projections. However, 
declines in general revenues persist while expenditure pressures 
continue due to increased demands for some services, such as Medicaid, 
education, and prison construction. For example, collection of sales 
tax--the largest component of the state's general revenue budget--are 
projected to fall as a result of reductions in consumer and business 
purchases for state fiscal year 2009-2010. Nevertheless, state 
estimates and national economic data suggest that economic conditions 
may improve beginning later this calendar year or early next year. 
[Footnote 2] For example, the Florida legislature's Office of Economic 
and Demographic Research reports that despite a weakening employment 
picture, falling housing prices could attract buyers and lead to an 
improvement in the economy.[Footnote 3] Moreover, Florida's fiscal year 
2010-2011 revenue collections forecast remains positive, marking an end 
to 4 consecutive years of declining revenue. However, predicting the 
future course of the economy is uncertain, especially given the current 
degree of economic disruption. 

State agencies are beginning preparation of their state fiscal year 
2010-2011 budget requests in light of fiscal stress while planning for 
when Recovery Act funds will no longer be available. (Florida's fiscal 
year runs from July 1 through June 30.) For the upcoming fiscal year 
2010-2011 budget, Florida budget officials said they project using $2.5 
billion in Recovery Act funds. For this current fiscal year, a year-end 
shortfall is currently not expected, according to an August 2009 
Florida General Revenue Estimating Conference.[Footnote 4] In our July 
2009 report, we noted that Florida closed a $4.8 billion budget gap in 
the current fiscal year 2009-2010 General Revenue Fund in part, by 
using about $1.6 billion of the $5.3 billion in Recovery Act 
funds.[Footnote 5] 

As part of its annual budget process, state agencies will receive 
instructions for developing long-range program plans that include 
strategies for when projected federal outlays to states and localities 
under the Recovery Act are expected to substantially decrease after 
2011, according to state budget officials. As we reported in July, 
Florida has also planned for this "cliff effect" by increasing revenue 
producing initiatives--such as a cigarette surcharge, motor vehicle 
fees, and court fees--that are expected to produce more than $2 billion 
in new general revenues on a recurring basis beginning in 2009-2010-- 
while at the same time reducing state expenditures. Ultimately, Florida 
state officials see the current fiscal constraints as cyclical (short 
term) rather than structural (long term), so they believe as the 
economy improves, the state will be prepared for when Recovery Act 
funds will no longer be available. 

State officials said that Florida may not utilize the federal process 
for identifying administrative costs related to Recovery Act activities 
because the state has already appropriated and prescribed the use of 
Recovery Act funds for fiscal year 2009-2010 for programs and services. 
According to OMB guidance, central administrative costs incurred by 
state recipients in the management and administration of Recovery Act 
programs are allowable costs that can be recovered out of program funds 
as indirect costs to the program[Footnote 6]. Florida executive branch 
officials said this challenge is due in part to audit and reporting 
requirements of the Recovery Act, even though the state did not budget 
some or any of the Recovery Act funds for administrative activities. 
For example, to comply with Recovery Act reporting requirements, the 
Florida Office of Economic Recovery is developing a reporting system to 
compile information from agencies and upload it to the federal system. 
State officials said they have reservations about requesting funds for 
oversight from already appropriated sums to programs. As a result, a 
senior official said the state is considering absorbing Recovery Act 
administrative costs within existing state resources rather than 
seeking reimbursement through the federal process and shifting funds 
from programs and services. 

Broward and Hillsborough Counties' Summer Youth Programs Overcame 
Several Implementation Challenges but Do Not Yet Know If Participants 
Met Work Readiness Measures: 

The Recovery Act provides an additional $1.2 billion in funds for the 
Workforce Investment Act (WIA) Youth program, including summer 
employment. Administered by the U.S. Department of Labor (Labor), the 
WIA Youth program is designed to provide low-income in-school and out- 
of-school youth 14 to 21 years old,[Footnote 7] who have additional 
barriers to success, with services that lead to educational achievement 
and successful employment, among other goals. Funds for the program are 
distributed to states based on a statutory formula; states, in turn, 
distribute at least 85 percent of the funds to local areas, reserving 
as much as 15 percent for statewide activities. The local areas, 
through their local workforce investment boards, have the flexibility 
to decide how they will use the funds to provide required services. 

While the Recovery Act does not require all funds to be used for summer 
employment, in the conference report accompanying the bill that became 
the Recovery Act,[Footnote 8] the conferees stated they were 
particularly interested in states using these funds to create summer 
employment opportunities for youth. While the WIA Youth program 
requires a summer employment component to be included in its year-round 
program, Labor has issued guidance indicating that local areas have the 
flexibility to implement stand-alone summer youth employment activities 
with Recovery Act funds.[Footnote 9] Local areas may design summer 
employment opportunities to include any set of allowable WIA Youth 
activities--such as tutoring and study skills training, occupational 
skills training, and supportive services--as long as it also includes a 
work experience component. A key goal of a summer employment program, 
according to Labor's guidance, is to provide participants with the 
opportunity to (1) experience the rigors, demands, rewards, and 
sanctions associated with holding a job, (2) learn work readiness 
skills on the job, and (3) acquire measurable communication, 
interpersonal, decision-making, and learning skills. Labor has also 
encouraged states and local areas to develop work experiences that 
introduce youth to opportunities in "green" educational and career 
pathways. Work experience may be provided at public sector, private 
sector, or nonprofit work sites. The work sites must meet safety 
guidelines, as well as federal and state wage laws.[Footnote 10] 
Labor's guidance requires that each state and local area conduct 
regular oversight and monitoring of the program to determine compliance 
with programmatic, accountability, and transparency provisions of the 
Recovery Act and Labor's guidance. Each state's plan must discuss 
specific provisions for conducting its monitoring and oversight 
requirements. 

The Recovery Act made several changes to the WIA Youth program when 
youth are served using these funds. It extended eligibility through age 
24 for youth receiving services funded by the act, and it made changes 
to the performance measures, requiring that only the measurement of 
work readiness gains will be required to assess the effectiveness of 
summer-only employment for youth served with Recovery Act funds. 
Labor's guidance allows states and local areas to determine the 
methodology for measuring work readiness gains within certain 
parameters. States are required to report to Labor monthly on the 
number of youth participating and on the services provided, including 
the work readiness attainment rate and the summer employment completion 
rate. States must also meet quarterly performance and financial 
reporting requirements. 

Florida Expects to Meet Its WIA Youth Enrollment Goal: 

The state of Florida received almost $43 million for WIA youth 
activities under the Recovery Act and set a goal of serving 16,000 
youth in 2009 through its WIA summer employment activities for youth 
program. A 45-member board appointed by the Governor oversees and 
monitors the administration of the state's workforce policy, programs, 
and services. These programs are carried out by the 24 business-led 
Regional Workforce Boards and Florida's Agency for Workforce 
Innovation, which operates the state's workforce system. As of August 
15, the Agency for Workforce Innovation estimates that it has expended 
$22.3 million or 52 percent of its total and in its July 31, 2009 
report to Labor, said it had served 11,902 youth. The agency attributed 
the lower number of reported youth placed to late reporting by some 
local programs and expects to meet its enrollment goal by the end of 
the summer program. Table 1 shows selected characteristics of youth in 
the program. 

Table 1: Selected Characteristics of Youth in Florida's Summer Youth 
Program as of July 31, 2009: 

Category: Youth age 22 to 24; 
Number of youth: 1,245. 

Category: Youth age 19 to 21; 
Number of youth: 3,190. 

Category: Youth age 14 to 18; 
Number of youth: 7,467. 

Category: Total; 
Number of youth: 11,902. 

Category: Out-of-school youth; 
Number of youth: 5,371. 

Source: Florida Agency for Workforce Innovation. 

[End of table] 

According to a state Agency for Workforce Innovation official, the 
state workforce agency will collect and ensure the validity of Recovery 
Act data collected on the summer programs. The official told us that 
Florida did not delegate subrecipient quarterly reporting requirements 
to local workforce boards, and they would collect the required 
information using its existing reporting system. Once the quarterly 
reporting process begins in September, agency staff will review the 
submitted data remotely and will go onsite to the workforce boards and 
review case samples for data validation. The official also told us that 
the agency already has staff out in the field working with workforce 
boards to ensure the validity of the first quarterly reports. 

Broward and Hillsborough Counties Used Recovery Act Funds to Expand 
Summer Youth Services: 

We selected two regional workforce boards--Workforce One, Employment 
Solutions (Broward County) and the Tampa Bay WorkForce Alliance 
(Hillsborough County). We evaluated their implementation of the 
Recovery Act-funded summer youth program in Florida because these 
boards are among the largest recipients of Recovery Act WIA Youth funds 
in the state and had the highest numbers of anticipated participants. 
In addition, each program represented a different geographic region of 
the state. Table 2 shows the amount of funds Hillsborough County and 
Broward County received and how much they have expended to date as of 
August 31, 2009. 

Table 2: Allocations Workforce Boards Received and Funds Expended as of 
August 31, 2009: 

Workforce board: Broward County; 
Funds received: $2,362,791; 
Funds expended: $2,321,460. 

Workforce board: Hillsborough County; 
Funds received: $2,534,737; 
Funds expended: $792,076. 

Source: Workforce boards. 

[End of table] 

Both Broward and Hillsborough counties took advantage of the Recovery 
Act's extended age eligibility by operating work experience programs 
for older youth--Broward for ages 19 to 24 and Hillsborough for ages 20 
to 24. Each county provided work-readiness training for participants 
covering soft employment skills, such as appropriate dress and showing 
up for work on time. Both used pre-and post-tests to measure learning 
gains by training participants. At the completion of their work- 
readiness training, participants were placed in a wide variety of jobs 
with public, private, and nonprofit employers.[Footnote 11] Neither 
county identified "green" jobs for youth placement because officials 
said there is currently no federal or state definition of what 
constitutes a "green" job,[Footnote 12] and neither county offered 
academic or occupational skills training as part of their summer youth 
programs. Broward officials told us they did not offer academic or 
occupational skills because they felt that in these economic times a 
job/work experience would be most valuable for the older youth. In 
addition to its work experience program for older youth, Hillsborough 
County is using its Recovery Act funds on a separate work-based 
learning program for younger participants.[Footnote 13] For this 
program, Hillsborough County enrolled 803 youth ages 17 to 19 in a 4- 
week Employment and Leadership Exploration program.[Footnote 14] The 
instruction covered business ethics and business simulation models 
during the first 2 weeks, with pre-and post-tests administered to 
measure learning gains. In the third and fourth weeks, participants 
formed teams and applied the skills learned to create a simulated 
online magazine of their choice. Participants also completed a skills 
assessment and participated in one onsite visit to an employer. (See 
table 3 for more information on participants and placements.) 

Table 3: Selected Data on Broward County's and Hillsborough County's 
Summer Youth Programs: 

Total participants; 
Broward County: 724; 
Hillsborough County: 1049. 

Employment and Leadership Exploration program; Broward County: N/A; 
Hillsborough County: 803. 

Work Experience program; 
Broward County: 724; 
Hillsborough County: 246. 

Type of participants: Out-of-school youth; Broward County: 722; 
Hillsborough County: 565. 

Type of participants: Youth 22-24 years old; Broward County: 152; 
Hillsborough County: 97. 

Percentage of work experience jobs available by sector[A]: Public; 
Broward County: 52; 
Hillsborough County: 14. 

Percentage of work experience jobs available by sector[A]: Private; 
Broward County: 17; 
Hillsborough County: 66. 

Percentage of work experience jobs available by sector[A]: Nonprofit; 
Broward County: 31; 
Hillsborough County: 21. 

Source: Workforce boards. 

[A] Numbers may not total to 100 percent due to rounding. 

[End of table] 

Broward and Hillsborough Counties Were Both Challenged by Recruiting 
Participants under Tight Time Frames and Other Factors: 

Broward County set a goal of 900 participants for its work experience 
program and faced recruiting challenges, exacerbated by time 
constraints. Youth were initially unresponsive to Broward's offer to 
pay $7.21 per hour to participants. A Broward official told us that the 
pay was not competitive with local businesses. However, after the 
Workforce Board raised the hourly wage to $9.00, more than 3,000 
applications were submitted by the deadline, forcing the county to 
reduce the goal for the number of participants from 900 to 724 because 
of the higher wage. The response was so overwhelming during the final 2 
weeks of the application period (which ran from March 3 to May 29) that 
officials said they worked weekends to meet their time frames. 

Determining participant eligibility and, at least initially, paying 
participants were also problems cited by Broward officials. Officials 
said youth often had difficulty producing eligibility information, for 
example, income information and proof of Selective Service 
registration, and had to return several times to produce the necessary 
paperwork. Broward officials said if they operate a summer youth 
program again, they would use One-Stop staff to oversee the eligibility 
process. In addition to determining eligibility, some employers 
required youth background checks and some checks revealed multiple 
offenses, including theft and fraud, making the youth hard to place. 

Broward County also initially had issues paying participants. The 
county wanted to use direct deposit for payment and encouraged 
participants to open accounts at a local credit union or bank. However, 
many youth wanted to receive their pay via a popular pre-paid debit 
card, and there were initial problems getting paychecks credited to 
those cards. In other instances, banks kept portions of paychecks that 
were direct deposited into overdrawn accounts to recover the overdrawn 
amounts. 

Finally, for Broward County, there were some issues with employers when 
participants reported on the first scheduled day of work. Some 
employers pulled out of the program,[Footnote 15] others asked for more 
employees than they needed and then sent some back to the workforce 
board, and others used the first work day to interview participants 
rather then put them to work. As a result, Broward officials had to 
find new work assignments for some participants. 

Hillsborough County greatly exceeded its recruiting goals for its work 
experience program, but officials said they struggled with the 60-day 
time frame they had from the time Labor issued its program guidance to 
the time they launched their programs. Hillsborough set a goal of 60 to 
80 participants for its work experience program and 1,000 participants 
for its work-based learning program. Initially, Hillsborough officials 
anticipated a rush of applications but no rush materialized. To boost 
enrollment, officials began advertising on radio, television news 
programs, movie theaters, and many other places. As a result, they 
enrolled 803 participants in the work-based learning program and 
enrolled 246 in the work experience program, greatly exceeding their 
80- participant goal. The limited time to get the program up and 
running was cited by officials as one of their biggest challenges. 

Hillsborough County did not report any issues in gathering eligibility 
information and in some cases used wage information from the 
Unemployment Insurance system to verify income. The county found that 
some of the program participants failed employer and other eligibility 
requirements: Some employers required background checks, and all work 
experience participants were screened for drugs. Of the 246 
participants placed in work experience jobs by Hillsborough, 15 were 
terminated because they failed the drug test. In contrast to Broward, 
Hillsborough County didn't experience any problems using pre-paid debit 
cards or paychecks, primarily for older participants. Hillsborough 
County officials took steps to avoid problems with employers pulling 
out of the program by pre-screening youth for level of education and 
work experience, and then allowing employers to interview participants 
at two job fairs in advance of start dates and make the decisions on 
who they wanted to hire. 

Work-Site Monitoring of Older Youth Was More Extensive in Broward 
County than in Hillsborough County: 

In Broward County, workforce officials said WIA program advisors visit 
each of the 280 work sites regularly. Officials said 26 WIA program 
advisors visit each site at least twice a week to speak with 
supervisors, obtain time sheets, and provide feedback to participants. 
The WIA program advisors document their site visit in notes placed in 
each participant's case file. Workforce officials said they also tasked 
work-site supervisors with conducting job performance evaluations for 
each participant after one week of work using a standardized evaluation 
form to rate the participant. Supervisors can also provide comments on 
the individual's strengths and weaknesses.[Footnote 16] The performance 
evaluation results are shared with the participant. Officials told us 
that a second performance evaluation will be administered 6 weeks into 
the program, and both evaluations, like the pre-and post-tests, would 
be used to assess any gains in work-readiness skills during the summer 
youth program-provided employment. 

A Hillsborough official also told us they developed a work-site 
monitoring plan and instituted it in mid August after receiving 
feedback from Labor in late July.[Footnote 17] The Hillsborough County 
official said that business consultants are to visit each of the 52 
work sites once during the two and one-half month period. According to 
Hillsborough's monitoring plan, consultants are to assess whether the 
site meets health and safety standards, determine if participants' job 
descriptions match work assigned, and elicit from the work-site 
supervisors their experience with time-or record-keeping processes and 
if any type of performance evaluation will be completed for the 
employee. In addition, the monitoring plan calls for the WIA Youth 
program staff to interview one participant at each work site. Interview 
topics to be covered include whether the supervisor provides feedback, 
if someone is in charge when the supervisor is not around, and whether 
the participant signs in and out every day. A Hillsborough official 
told us that youth have an opportunity to address work-site issues when 
they come to the workforce board to collect their pay checks every 2 
weeks. Both youth and employers are expected to contact the WIA program 
staff when issues arise. A monitoring plan summary shows that work-site 
visits were conducted between August 1 and August 31, 2009. 

For its work-based learning program for 17-19 year olds, the 
Hillsborough County workforce board is monitoring the performance of 
contractors who administer the program. According to officials, 
monitoring began with Hillsborough County workforce officials from 
procurement, programmatic, and WIA Youth program departments conducting 
a review of 13 competing proposals. Officials told us a thorough on- 
site inspection was conducted prior to awarding 9 contracts.[Footnote 
18] We reviewed 2 of the 9 work-based learning site contracts, 
discussed the contracts with workforce board officials, and interviewed 
officials at the two corresponding sites. According to workforce board 
officials, the contracts we reviewed were cost-reimbursement contracts 
with a fixed-price agreement for a maximum amount of deliverables. Each 
contract contained a detailed description of services to be provided by 
the contractor and a list of deliverables for which supporting 
documentation was required for payment. According to Hillsborough 
County workforce officials, ongoing monitoring of contractors consists 
of two WIA career managers, under the direction of a WIA supervisor, 
who visit the work-based learning sites twice a week to observe, 
examine, and collect documentation, such as time sheets. WIA managers 
are responsible for collecting these documents to verify contractor 
performance for compensation purposes and to assess the work readiness 
of the youth participants. 

The Counties Took Different Approaches in Measuring Gains in Work 
Readiness of Youth: 

Broward County and Hillsborough County use different approaches to 
measure youths' gains in work readiness. Within the restrictions set by 
federal agency guidance, local boards may determine the methodology 
used to measure work readiness gains as required for Recovery Act 
funds. Although both counties use pre-and post-tests, each county's 
test differed in length and content. Broward used a 30-question 
multiple choice and true/false test; Hillsborough used a 10-question 
multiple choice test.[Footnote 19] Hillsborough's test focused on what 
to do in an interview; Broward's test focused on work-related skills 
and behaviors. As mentioned previously, Broward also uses performance 
evaluations at the work site to assess participants' work readiness. 
Although both counties have administered their pre-and post-tests and 
Broward has conducted its performance evaluations, neither have 
completed their assessments of work-readiness gains. Officials said 
they will not have results until the youth complete their programs, the 
latest being in September 2009. 

Although data on gains in work readiness is not yet available, work- 
based learning supervisors and employers we interviewed said summer 
youth programs have been a success. In Broward County, we spoke with 
employers and youth at two different work sites and found they were 
very pleased with the program. At one work site, the employer told us 
he is planning to offer positions to 7 of the 17 summer youth program 
participants when their summer program ends. At the second work site, 
one participant shared a slide presentation of a project plan and 
campaign she developed to help the company "go green." The participant 
had presented her plan to the CEO, and her employment had been extended 
2 weeks so she could assist with the implementation of her project. In 
addition, we also spoke with two contract work-based learning site 
supervisors in Hillsborough County, who said the work-based learning 
experience, introduced youth to business principals and ethics, 
encouraged teamwork, and broadened their horizons. Furthermore, the 20- 
to 24-year old youth we spoke to said they felt the job fair process 
used to match employers and participants was very well organized, that 
they were able to learn valuable new skills in their work experience 
jobs, and would participate again if the program is offered next 
summer. 

Florida Is Funding Local Service Providers and Program Infrastructure, 
but Has Not Yet Started Weatherizing Homes: 

The Recovery Act appropriated $5 billion over a 3-year period for the 
Weatherization Assistance Program, which the U.S. Department of Energy 
(DOE) administers through each of the states, the District of Columbia, 
and seven territories and Indian tribes. The program 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, or air conditioning. Over the past 32 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. 

As of September 14, 2009, DOE had approved the weatherization plans of 
all but two of the states, the District of Columbia, the territories, 
and Indian tribes--including all 16 states and the District of Columbia 
in our review. DOE has provided to the states almost $2.3 billion of 
the $5 billion in weatherization funding under the Recovery Act. Use of 
the Recovery Act weatherization funds is subject to Section 1606 of the 
act, which requires all laborers and mechanics employed by contractors 
and subcontractors on Recovery Act projects to be paid at least the 
prevailing wage, including fringe benefits, as determined under the 
Davis-Bacon Act.[Footnote 20] Because the Davis-Bacon Act had not 
previously applied to weatherization, Labor had not established a 
prevailing wage rate for weatherization work. In July 2009, DOE and 
Labor issued a joint memorandum to Weatherization Assistance Program 
grantees authorizing them to begin weatherizing homes using Recovery 
Act funds, provided they pay construction workers at least Labor's wage 
rates for residential construction, or an appropriate alternative 
category, and compensate workers for any difference if Labor 
established a higher local prevailing wage rate for weatherization 
activities. Labor then surveyed five types of "interested parties" 
about labor rates for weatherization work.[Footnote 21] Labor completed 
establishing prevailing wage rates in all of the 50 states and the 
District of Columbia by September 3, 2009. As of September 4, 2009, 
Labor had posted wage rates for 44 states, including Florida. 

DOE has allocated about $176 million over 3 years to Florida for the 
Recovery Act Weatherization Assistance Program. On June 18, 2009, DOE 
approved Florida's state plan for the program for 2009-2012 and had 
provided a total of about $88 million, or half the state's allocation. 
The state's Department of Community Affairs (DCA) is responsible for 
administering the program. As stated in the state plan, DCA's goals 
include weatherizing at least 19,090 dwellings, which according to a 
DCA official could result in as much as $5.7 million in overall energy 
savings annually. Of the $176 million the state will receive, the 
planned allocation includes about $137 million for weatherization of 
homes and about $30 million for training and technical assistance. 

DCA awards contracts to local service providers, which include 
nonprofit organizations or local governments, to assist low-income 
households by making long-term energy efficiency improvements to their 
residences, including measures such as installing insulation, sealing 
leaks around doors and windows, or modernizing heating equipment and 
air circulating fans. Once a local service provider determines that a 
household is eligible for the program, it sends an inspector to the 
home to determine if it is suitable for improvements and to perform an 
energy audit to identify appropriate improvements.[Footnote 22] Once 
the inspector has completed the home inspection and energy audit, they 
prepare a work order that lists the improvements to be made to the 
home. The local service providers may employ either in-house 
construction crews or use contractors or a combination of both to make 
the home improvements. When completed, the improvements are checked by 
an inspector. 

Florida Has Begun Using Recovery Act Weatherization Funds to Increase 
the Capacity of Local Providers to Weatherize Homes: 

As of August 31, 2009, DCA had obligated about $4.2 million and 
expended about $1.1 million of the initial $88 million provided by DOE 
for the Weatherization Assistance Program on expenses such as payroll 
for DCA staff, contracts with local service providers to expand their 
capacity to weatherize homes, training and travel for new DCA and local 
provider staff, and supplies. 

DCA has obligated about $3.6 million of the $4.2 million to award 
initial contracts to 26 of its 29 current local service providers, and 
used about $1 million of the $1.1 million expended for these same 
contracts. These local service providers can use the funds for 
nonproduction weatherization operating costs, such as planning, hiring 
staff, sending inspectors to training, purchasing equipment, obtaining 
liability insurance, and verifying income eligibility for clients on 
their waiting lists for weatherization. The funds may also be used to 
conduct the home inspections and energy audits. DCA officials explained 
that once a local service provider meets performance measures detailed 
in the DCA contract, DCA will award the providers a final contract to 
weatherize homes. DCA officials said they expect to award these final 
contracts by early September 2009.[Footnote 23] 

Of the $4.2 million obligated, $498,750 is provided for training home 
inspectors. To meet increased production goals--weatherizing an 
additional 19,090 homes over the next 3 years--the number of inspectors 
employed by local service providers could significantly increase from 
39 to more than 100, according to DCA officials. To address the need 
for training, DCA awarded a contract to the University of Central 
Florida Solar Energy Center to develop and provide weatherization 
inspector training. 

Florida Is Implementing Training and Internal Controls to Help Ensure 
Quality and Oversight of Recovery Act Spending: 

DCA officials said they plan to increase oversight and monitoring of 
Recovery Act weatherization funds by increasing DCA staff and by 
performing more audits of local service providers. They plan to award 
contracts for field inspectors, fiscal monitors, and monitoring and 
technical assistance for compliance with Davis-Bacon Act requirements. 
Local service providers that administer the weatherization program have 
inspectors who perform home inspections to determine needed 
weatherization services and afterward, to determine if work is 
completed. DCA awarded a contract to the University of Central Florida 
Solar Energy Center to provide 1 week of training and field testing for 
up to 150 inspectors and new hires that will include an introduction to 
weatherization, health and safety issues, building diagnostics and 
guidance on weatherizing homes. A DCA official told us that as of 
August 24, 2009, two training sessions had been held at the Solar 
Energy Center with 34 attendees, including at least one home inspector 
from each of the 28 local service providers awarded contracts by DCA. 
According to DCA officials, two additional sessions have been scheduled 
to begin late August and early September. 

To add an extra layer of home inspection over and above what is done by 
local service providers and to conduct compliance monitoring of these 
providers, a DCA official said the agency will hire contractors. DCA's 
goal is to have contractor-provided field inspectors in place in all 67 
Florida counties. These contractors will ensure that at least 50 
percent of the weatherized homes funded by the Recovery Act are 
inspected by DCA. DOE guidelines require DCA to inspect at least 5 
percent of all weatherized homes. For this statewide inspection 
program, DCA issued a request for proposals on July 13, 2009. Proposals 
were due to DCA by August 7, 2009, and the anticipated award date is 
September 11, 2009. In addition to conducting field inspections, these 
contractors are to review 100 percent of local service providers' files 
to ensure they contain the correct documentary support for each home 
weatherization project, including such paperwork as invoices, building 
permits, and resident income verification. Monitoring of contractors 
will be done by in-house DCA staff, which DCA plans to hire. In 
addition to the contractor-led inspections, DCA staff will inspect 
other homes to achieve its goal of having 60 percent of the homes 
weatherized with Recovery Act funds inspected, according to a DCA 
official. 

Lastly, DCA plans to issue requests for proposals for contractors who 
will provide local service providers with: 

* fiscal monitoring and technical assistance on implementing program 
procedures, establishing and maintaining files, developing internal 
controls and accounting protocols, correcting problems reported by the 
Inspector General and independent auditors; 

* oversight, training, and technical assistance on the Davis-Bacon Act 
wage and reporting requirements; and: 

* procurement training because procurement for services and goods is 
done locally, not statewide. 

Prior to the Recovery Act, most local service providers in Florida did 
not receive enough federal weatherization funding to be subject to the 
Single Audit Act/A-133 requirements: each provider would have had to 
expend at least $500,000 in federal funding. With the allocation of 
additional weatherization funding through the Recovery Act, all local 
service providers in Florida will meet the funding threshold and be 
subject to single audit. The DCA Inspector General told us her office 
has allocated 600 hours to auditing Recovery Act weatherization 
projects during the 2009-2010 state fiscal year. According to the 
Inspector General, a risk assessment was used to develop the audit 
plan, which includes evaluating internal processes and implementation 
of Recovery Act guidelines for accountability and transparency. The 
Inspector General said these audits will cover the DCA program office, 
DCA statewide contractors, and local service providers. The Inspector 
General plans to enter into a contract with an individual who will work 
full time on Recovery Act Weatherization Assistance Program audits and 
reallocate another existing employee's work half time to the audits. 

In June 2009, the Inspector General issued a weatherization program 
audit report that identified internal control weaknesses. Although the 
report did not focus on Recovery Act funds, the Inspector General told 
us the findings are still applicable. For example, one of the three 
local service providers reviewed could not provide complete and 
accurate supporting documentation for incurred expenses reimbursed by 
DCA, and submitted final status reports prior to completion of work. 
The Inspector General said DCA's plan to use a contractor to implement 
a statewide inspection plan for Recovery Act weatherization projects 
should correct this control weakness. DCA considers its principal risk 
for Recovery Act spending to be poor quality work. The risk is 
mitigated by the fact that 28 of the 29 local service providers have 
previous experience managing weatherization of homes--some for as many 
as 30 years. 

Recovery Act Funds for Weatherization have Created Jobs in Florida, but 
State Officials Still Have Questions about Reporting Requirements and 
Compliance with the Davis-Bacon Act: 

DCA has started collecting performance measurement data on the number 
of jobs created and retained with Recovery Act funds for 
weatherization. DCA officials told us that as of August 27, 2009, 109 
jobs have been created or retained in Florida as a result of the 
Recovery Act weatherization funds. 

DCA will also measure energy savings, and plans to track kilowatts used 
before and after weatherization, primarily with information from 
utility companies. DCA officials said they are using kilowatts used 
versus dollars saved because the cost of a unit of energy can vary over 
time and location. DCA officials said measuring actual kilowatts saved 
will be more accurate than DOE's methodology for calculating energy 
savings, which looks at total cost savings from all the energy 
efficiency improvements that could be made to a home versus the actual 
changes made to the home. 

DCA officials stated that they will be reporting the results of 
expenditures of Recovery Act Weatherization Assistance Program funds to 
both DOE and OMB as required. DCA is responsible for reporting on 
performance measures to DOE, including jobs created and retained, 
documentation to support compliance with the Davis-Bacon Act, number of 
homes weatherized, and energy savings achieved. Currently, DCA reports 
quarterly to DOE on the non-Recovery Act-funded Weatherization 
Assistance Program. DCA officials stated that they are still waiting 
for final DOE guidance, but anticipated that Recovery Act reporting 
will be monthly. DCA will also report as required by OMB on jobs 
created and retained.[Footnote 24] DCA officials said they will enter 
the information in the state's new automated Web-based Recovery Act 
reporting system. Currently, this new reporting system is being 
populated and tested. 

To meet DOE and OMB reporting requirements, DCA plans to collect 
performance measurement data from local service providers using its 
Web- based eGrants system, an existing grant administration tool. DCA 
program staff will monitor the system to ensure local service providers 
report by the 15th of each month. In addition, DCA plans to validate 
data submitted before reporting it to the DOE and the state Web-based 
Recovery Act reporting system by using planned statewide contracts for 
financial monitoring and field inspections. These contractors will 
validate data submitted to DCA on information such as number of jobs 
created and retained, number of homes weatherized, and number of 
individuals served by the units weatherized (e.g., size of family), 
according to DCA officials.[Footnote 25] The DCA Inspector General will 
also be responsible for validating job data submitted by DCA to the 
state's Recovery Act Web-based reporting system. 

DCA officials expressed concerns about the application of the Davis- 
Bacon Act to Recovery Act weatherization projects, which was not 
applicable to non-Recovery Act weatherization projects.[Footnote 26] 
They have questions about increased documentation that local service 
providers may need to collect to support the certified payroll and 
prevailing wages and benefits information required by Labor. According 
to DCA officials, many Florida contractors, particularly smaller firms, 
have shared concerns about the documentation and administrative tasks 
they must perform to be in compliance. Officials told us that the DCA 
contracts awarded to local service providers will stipulate that all 
laborers and mechanics employed by contractors and subcontractors for 
Recovery Act-funded weatherization work be paid not less than the 
prevailing wage for their skill set based on the county where the 
project is located and as listed on Labor's Web site.[Footnote 27] DCA 
officials said current prevailing wages for construction workers in 
Florida are significantly above minimum wage, and they believe the 
results of the new Labor weatherization wage and benefit survey for 
weatherization construction workers will mirror those rates. On 
September 2, 2009, Labor published the new wage and benefit survey 
results for weatherization workers in Florida. The wages averaged about 
$14 to $15 per hour, while the state's hourly minimum wage rate is 
$7.25. DCA officials received but did not complete the Labor survey on 
wages because the survey was for local service providers to complete. 
DCA officials also said they do not have information on which 
organizations or businesses in the state of Florida were surveyed other 
than their local service providers. As of August 28, 2009, 13 of the 28 
local service providers had provided DCA with a copy of the completed 
survey they retuned to Labor. 

DCA has not issued guidance to local service providers on final 
Recovery Act reporting requirements because officials said they are 
waiting for final guidance from DOE and OMB. The DCA officials said 
final contracts awarded to local service providers for actual 
weatherization of homes will include a provision stating that the 
contracts are subject to change in reporting requirements for Davis- 
Bacon as guidance is received from OMB and DOE. A local service 
provider we interviewed stated that DCA has made them aware that final 
reporting requirements, including those related to the Davis-Bacon Act, 
are subject to change until guidance is finalized by OMB and DOE. 

While Some Progress Has Been Made in Awarding Statewide Highway 
Contracts, Few Local Contracts Have Been Awarded; Yet, State Officials 
Said Monitoring and Reporting Processes Are in Place: 

The Recovery Act provides funding to states for restoration, repair, 
and construction of highways and other activities allowed under the 
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, which 
include ensuring the project meets all environmental requirements 
associated with the National Environmental Policy Act (NEPA), paying a 
prevailing wage in accordance with federal Davis-Bacon Act 
requirements, complying with goals to ensure disadvantaged businesses 
are not discriminated against in the awarding of construction 
contracts, and using American-made iron and steel in accordance with 
Buy America 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. 

The U.S. Department of Transportation's (DOT) Federal Highway 
Administration (FHWA) apportioned $1.35 billion in Recovery Act funds 
to Florida. As of September 1, 2009, the federal government has 
obligated[Footnote 28] $1 billion and $196,000 has been reimbursed 
[Footnote 29] by the FHWA. The state, in turn, allocated $902 million-- 
67 percent--to statewide projects; and $404 million[Footnote 30]--30 
percent--was suballocated to local agencies, which includes, but is not 
limited to, a county, an incorporated municipality, or a metropolitan 
planning organization (MPO) based on population;[Footnote 31] and the 
remaining $40 million--3 percent--to local highway enhancement 
projects, such as sidewalk construction. According to the Florida 
Department of Transportation (FDOT), FHWA has approved 519 Recovery 
Act- funded projects proposed by Florida, and as of August 28, 2009, 25 
of 45 statewide highway construction contracts with a total value of 
$726 million had been awarded.[Footnote 32] In addition, as of 
September 1, 2009, 5 out of 395 local projects have been awarded 
contracts with a total value of $1 million. 

Almost 40 percent of Recovery Act highway obligations for Florida have 
been for pavement widening projects. Specifically, $401 million of the 
$1 billion obligated for Florida as of September 1, 2009, is being used 
for highway widening projects that will add capacity to existing 
highways and interstates. Figure 1 shows obligations by the types of 
road and bridge improvements being made. 

Figure 1: Highway Obligations for Florida by Project Improvement Type 
as of September 1, 2009: 

[Refer to PDF for image: pie-chart] 

Pavement projects total (69 percent, $690.7 million): Pavement widening 
($401.1 million): 40%; Pavement improvement ($173.2 million): 17%; New 
road construction ($116.4 million): 12%. 

Bridge projects total (14 percent, $144.3 million): New bridge 
construction ($89.6 million): 9%; Bridge improvement ($54.8 million): 
5%. 

Other (17 percent, $165.9 million): 
Other ($165.9 million): 17%. 

Source: GAO analysis of FHWA data. 

Note: Totals may not add due to rounding. "Other" includes safety 
projects, such as improving safety at railroad grade crossings, and 
transportation enhancement projects, such as pedestrian and bicycle 
facilities, engineering, and right-of-way purchases. 

[End of figure] 

Florida's Focus on Capacity May Explain Rate of Progress in Awarding 
Contracts: 

In an August 6, 2009, letter to the Governor of Florida, the Chairman 
of the U.S. House of Representative's Committee on Transportation and 
Infrastructure expressed concern about Florida's progress in spending 
the transportation funding provided by the Recovery Act for 
transportation projects. In their joint response to the Chairman, the 
FDOT Secretary and Special Advisor to the Governor noted that Florida 
selected projects with the greatest economic impact, such as increasing 
road capacity, as a way to explain the pace of obligations. (Even 
though Florida was among the last to begin seeking obligation of 
Recovery Act transportation funds, it was one of the first states to 
meet the act's requirement to obligate 50 percent of the apportioned 
funds before the June 30, 2009 deadline.) In addition, state officials 
said because most of the statewide projects are large in scale and 
involve federal-aid roadways, they face more federal requirements 
relating to environmental issues and acquisition of rights of way and 
thus require more time before bids can be requested and contracts can 
be awarded. For example, they noted that many other states are using 
Recovery Act money to resurface roads--less complicated projects to 
initiate. In Florida, officials said design drawings and environmental 
impact studies may need updating before a detailed scope of work can be 
prepared for requests for proposals (RFP), thus delaying the bid 
advertisement process. In addition, new construction requires more 
preparation onsite. For example, in Nassau County, Florida, a projected 
$26 million Recovery Act project will add two lanes to provide four 12- 
foot-wide travel lanes to State Road 200, a primary commuter and 
hurricane evacuation route. However, starting the project will require 
phased construction including temporary pavement and median 
construction for business and residential access. In Okaloosa County, 
Florida, state officials said utility companies must relocate utility 
and gas lines and crews must remove trees from rights of way before 
construction can begin on a projected $25 million project to widen 
sections of State Roads 85 and 123. FDOT officials said that even 
though many of these major projects are ongoing, they required the 
funding provided by the Recovery Act to proceed with the next phase in 
design, RFPs, and on-site preparation. 

While large-scale, statewide projects require more time, FDOT officials 
said the state had little need to invest Recovery Act funds in more 
quickly bid paving or bridge projects because Florida's roads were in 
good condition. According to the officials, 2 percent of highways 
eligible for federal-aid were reported in poor condition and less than 
1 percent of bridges were categorized as in need of critical repairs. 
State officials said Recovery Act money is better invested in 
increasing road capacity and improving traffic flow. For example, the 
$26 million Recovery Act funded construction project in Nassau County 
between Callahan and Fernandina Beach should provide about 6 miles of 
four travel lanes, 4-foot wide bicycle lanes, and a 5-foot-wide 
sidewalk on each side of the road in the urban section. The 
improvements will facilitate hurricane evacuation and provide an 
alternative route for tourists and truck traffic traveling between 
Interstates 10 and 95, officials said, as well as a connector between 
east and west Nassau County. 

Officials said that at the local level, many of the contracts have not 
been awarded because localities were given more time to bid the 
projects. Under the act, states are required to ensure that all 
apportioned funds--including suballocated funds--are obligated within 1 
year. Fifty percent of the funds apportioned to the state had to be 
obligated within 120 days of the apportionment (i.e., before June 30, 
2009). However, unlike the states' funds, the funds that were 
suballocated to local agencies were not required to meet the 120-day 
rule. As a result, the local agencies were given more time to obtain 
approval of grant agreements, advertise bids, and award contracts. FDOT 
officials said their local agency program administrators are working 
closely with local agencies to provide assistance in bid advertisement 
and contract award processes. However, state officials emphasized that 
the local agencies are responsible for advertising and awarding 
contracts for the projects. 

State Officials Consider Current Processes and Procedures Adequate for 
Highway Contract Solicitation and Management: 

FDOT is a decentralized state agency, and many of its contract- 
monitoring functions are performed by its seven district offices and 
Florida's Turnpike Enterprise.[Footnote 33] To obtain an understanding 
of Florida's highway contracting procedures and processes, we selected 
two statewide contracts that were awarded as of July 20, 2009, to 
review--a $25 million contract managed by the Chipley FDOT District 
Office in Washington County and a $26 million contract managed by the 
Lake City FDOT District Office in Columbia County. According to FDOT 
officials, controls and oversight of the two projects included ensuring 
that: 

* contractors who submitted bids met prequalification requirements, 
which included assessment of contractor's ability, prior work history, 
financial capability, and record checks for debarment and suspension, 

* contracts were awarded on a fixed-price and competitive basis, 

* contract requirements were linked to Recovery Act objectives, and: 

* trained personnel were in place when the contracts were awarded. 

According to state officials, Florida requires all contractors to meet 
specific qualifications before bidding on state construction projects 
costing in excess of $250,000. Officials explained that the 
prequalification process saves time during bid reviews by establishing 
contractor competency and adequate financial resources to perform the 
work while awaiting reimbursement from the FDOT. State officials said 
Florida advertised both projects for 60 days and received nine bids 
total; both contracts were awarded at 50 percent less than estimated 
project bid amounts. In addition, in both instances, the contracts were 
awarded to the lowest responsive bid. Lastly, both contracts contained 
specific provisions for contractor compliance with Recovery Act 
reporting requirements. 

FDOT Districts Use Consultants to Assist with Project Monitoring: 

While district offices typically have responsibility for managing 
highway construction projects from start to completion, FDOT officials 
said private consultants are used to assist. Chipley and Lake City 
district offices have contracted with private consultants and other 
companies to assist in overseeing the Recovery Act-funded projects 
reviewed here. According to FDOT officials, consultants will perform 
about 80 percent of daily project management duties for the two 
district offices. Consultants will provide routine monitoring and 
inspection of the highway projects to ensure compliance with the 
state's quality standards and with specific performance requirements in 
the construction contract. Within the district offices, project 
managers will perform daily reviews of the work of the consultants to 
ensure that they are also in compliance with the terms of its contracts 
and conducting adequate inspections of the contractors' work. For 
example, according to state officials in the Lake City District Office, 
project managers should spend about 20 percent of their time providing 
oversight of the consultants, and the office has adequate resources to 
manage this workload. 

FDOT Developed Automated System to Report Data on Jobs Created: 

In addition to other reporting requirements, the Recovery Act requires 
states to report on the number of direct jobs created or sustained, 
indirect jobs (to the extent possible), and total increase in 
employment since the act. The FDOT Office of Inspector General is 
responsible for ensuring compliance with the act's reporting 
requirements, and has developed an automated system--which was placed 
into operation on May 29, 2009--that captures and reports by contract 
the total number of employees, hours worked, and contractor's payroll 
amounts. For the months of June and July, the FDOT reported to FHWA 
that a total of 155 jobs were created as a direct result of Recovery 
Act-funded highway projects. FDOT officials stated FHWA will report 
data on the number of indirect jobs that were created. FDOT officials 
said they will also enter the information in the state's new automated 
Web-based Recovery Act reporting system. 

Inspectors General Continue to Take Steps to Provide Oversight of 
Recovery Act Funds: 

Florida's Inspectors General reported taking a number of actions to 
provide oversight of Recovery Act funds. These included (1) providing 
fraud training; (2) reviewing reporting requirements, providing 
briefings, and monitoring agencies' progress toward implementation; (3) 
developing or modifying databases for reporting and planning to ensure 
data quality; (4) reviewing whether respective agencies had appropriate 
internal controls in place for the use of Recovery Act funds; (5) 
carrying out reviews of contracts and files of authorized projects; and 
(6) allocating staff and/or including oversight of Recovery Act funds 
in their work plans. For example, as a partner in one effort, the 
Office of the Chief Inspector General helped train 459 government 
auditors, investigators, Inspectors General, and procurement employees 
on detecting fraud as of September 9, 2009. The Florida Department of 
Law Enforcement (FDLE) reviewed all Recovery Act reporting requirements 
and helped modify the agency's data system to capture required Recovery 
Act data. FDLE also assigned an auditor to provide independent 
oversight and monitoring of Recovery Act funding and added this 
oversight to its work plan. At the Agency for Workforce Innovation, the 
Inspector General initiated an internal audit of Recovery Act 
monitoring by the agency's program areas. And last, the Office of the 
Inspector General at the Florida Department of Transportation conducted 
a post-authorization file review of Recovery Act funded transportation 
projects in a number of the state's transportation districts. 

Florida Has Efforts Under Way to Meet Recovery Act Reporting 
Requirements: 

The Florida Office of Economic Recovery has provided agencies with 
guidance on reporting requirements. It has done this through a series 
of conference calls and a memo released in early September, which 
outlines the basic requirements, plans, and time lines for agencies to 
meet the requirements of the Recovery Act. According to the head of the 
office, the recovery czar, Florida is waiting to finalize its guidance 
because officials want to make certain they fully understand the 
federal approach, which they believe has been shifting. State staff 
have broadly participated in the OMB Webinars.[Footnote 34] 

Agencies receiving Recovery Act funds will compile the information 
required for Recovery Act reporting. Florida is developing a reporting 
system which will gather this information and upload it to the federal 
system. Each agency will have the option to delegate data entry to 
subrecipients or to enter Recovery Act information for them. 
Subrecipients will be required to use the state system for funds where 
the recipient is a state agency. Entities that are not state agencies 
but are recipients of Recovery Act funds directly from a federal agency 
will not report to the state system but directly to the federal system. 
According to the Recovery Czar, the state has begun gathering 
identifying information such as award numbers and loading it into the 
database that will comprise the initial data load of the state 
reporting system. The Recovery Czar said his office has identified all 
15 state agencies which are Recovery Act recipients subject to 
reporting requirements; loaded subrecipient information for 12 of the 
15; and will be loading the others in the near future. 

Officials have developed a draft data quality protocol and plan to have 
staff review the information in the state reporting system. At the 
agency level, the protocols require agencies to clearly communicate 
reporting requirements to subrecipients, including the data elements 
and the mechanics of the reporting process, and to have a process for 
verifying the information submitted, among other things. The draft 
protocols suggest that at the state level there will be reviews of 
summary level reports to look for outliers as well as evaluations of 
period-to-period changes. These would be coupled with procedures to 
identify and/or eliminate potential double counting due to delegation 
of reporting responsibility to subrecipients. According to the Recovery 
Czar, these protocols have not been finalized and will likely change 
when tested against the realities of data reporting. 

To prepare for recipient reporting, the Recovery Czar said his office 
has performed an initial pilot by having three agencies provide the 
data to populate the state database. Dry runs and submission of test 
data to OMB are planned once they have the capability of receiving it. 
Staff have developed large and complex systems in the past, according 
to the Recovery Czar, and are developing and testing a system to 
generate the data extract required for inputs to the federal system. 

Florida state officials have a number of concerns regarding Recovery 
Act reporting requirements. A major concern pertains to duplicate 
reporting. According to Florida Office of Economic Recovery meeting 
summaries, some federal agencies informed their state counterpart 
agencies that they should report information directly to the federal 
agency, in addition to, or instead of the federal site for data 
collection. Other concerns were the amount of work required to 
implement the reporting requirements; the fact that OMB guidance has 
left many questions unanswered--for example, which identifier to use 
for reporting on FHWA construction projects, and the logistics of 
uploading data to the federal site. Based on available guidance, 
Florida originally understood that it would be able to upload 
information on all awards across all agencies in a single transfer, but 
learned later that data would have to be uploaded separately for each 
agency.[Footnote 35] Finally, Florida officials said they are concerned 
that lack of clarity on how to calculate the number of jobs retained 
and created--for instance, the number of hours that constitute full- 
time work--could lead to inconsistencies among the states and recipient 
entities. 

State Auditor Awaiting Additional OMB Guidance for Single Audit on 
Recovery Act Programs: 

The Florida Auditor General's office is awaiting additional OMB 
guidance on the Single Audit process. Officials said they need 
clarification of the required testing of internal controls at state 
agencies for fiscal years 2009 and 2010 under the Recovery Act. The 
Single Audit, a key accountability mechanism, assists in determining 
whether expenditures of federal funds are in compliance with applicable 
laws and regulations and the effectiveness of key internal controls 
related to the Recovery Act.[Footnote 36] Although OMB provided 
guidance to states in August 2009,[Footnote 37] officials in the 
Auditor General's office said it does not appear to reflect the final 
expectations for testing, time frames, and reporting on internal 
controls related to the Recovery Act. Similarly, Florida officials said 
the August guidance does not yet clearly address OMB audit requirements 
for Recovery Act reporting. Given that Recovery Act funds are to be 
distributed quickly, GAO reported that effective internal controls are 
critical to help ensure effective and efficient use of resources, 
compliance with laws and regulations, and accountability, including 
preparing reliable financial statements and other financial reports. 
The Auditor General's office is awaiting the issuance of the next 
addendum to OMB's Circular A-133 Compliance Supplement, which is due 
September 30, 2009. Meanwhile, the fiscal year 2009 single audit is 
under way and the Auditor General's office officials said they are 
concerned the September guidance will contain requirements they did not 
anticipate in planning their work, necessitating additional work on an 
accelerated time frame. Without more clearly defined and complete 
federal guidance, the officials said they have not yet established 
plans for fiscal year 2010 interim testing. 

State Comments on This Summary: 

We provided the Special Advisor to Governor Charlie Crist, Florida 
Office of Economic Recovery, with a draft of this appendix on September 
8, 2009, and he responded on September 10, 2009. The Florida official 
generally concurred with the information in the appendix and provided 
technical suggestions that were incorporated, as appropriate. 

GAO Contacts: 

Andrew Sherrill, (202) 512-7252 or sherrilla@gao.gov: 

Zina Merritt, (202) 512-5257 or merrittz@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Fannie Bivins, Patrick di 
Battista, Lisa Galvan-Trevino, Kevin Kumanga, Frank Minore, Brenda 
Ross, Cherie' Starck, and James Whitcomb made major contributions to 
this report. Susan Ashoff assisted with writing, and Amy Anderson, 
Rachel Frisk, and Kenrick Isaac assisted with quality assurance. 

[End of section] 

Footnotes for Appendix V: 

[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[2] Although some economists have pointed to signs of economic 
improvement, associations representing states have also reported that, 
in general, states' fiscal conditions historically lag behind any 
national economic recovery. 

[3] The Florida Legislature, Office of Economic and Demographic 
Research, Florida: An Economic Overview (Tallahassee, Fla., Aug. 4, 
2009). 

[4] Florida uses the General Revenue Estimating Conference for 
forecasting revenues. Comprised of one member from each of the staffs 
of the Office of the Governor, the Senate, the House of 
Representatives, and the Division of Economic and Demographic Research, 
a major purpose for the conference is to provide a common ground with 
respect to the funds available for budgeting. The General Revenue Fund 
is Florida's primary operating fund that is subject to annual 
allocation through the legislative process, funding programs such as 
education and human services. 

[5] Florida enacted a $66.5 billion budget for 2009-2010 before the 
start of its July 1 fiscal year and in doing so, used Recovery Act 
funds, withdrew some of its available reserves, cut spending, and 
raised additional sources of revenue. As we reported in July, Florida 
budgeted a total of $5.3 billion of Recovery Act funds or about 8 
percent of its budget. Recovery Act funds used to stabilize the state's 
operating budget included funds made available as a result of increased 
Federal Medical Assistance Percentage and State Fiscal Stabilization 
Fund monies. 

[6] OMB guidelines state that the budgeted or estimated administrative 
cost amount for administrative or indirect costs should not be in 
excess of 0.5 percent of total Recovery Act funds received by the 
State. Based on OMB guidance, a state is to modify its Statewide Cost 
Allocation Plan (SWCAP) to allow for charge backs for costs associated 
with centralized services. See OMB, Memorandum M-09-18: Payments to 
State Grantees for Administrative Costs of Recovery Act Activities (May 
11, 2009). 

[7] An out-of-school youth is an individual who (a) is an eligible 
youth who is a school dropout; or (b) is an eligible youth who has 
either graduated from high school or holds a General Educational 
Development (GED) credential, but is basic skills deficient, is 
unemployed, or underemployed. 

[8] H.R. Rep. No. 111-16, at 448 (2009). 

[9] Department of Labor, Training and Employment Guidance Letter No. 
14- 08 (Mar. 18, 2009). 

[10] Current federal wage law specifies a minimum wage of $7.25 per 
hour. Where federal and state laws have different minimum wage rates, 
the higher rate applies. 

[11] In Broward County the types of jobs filled include library page, 
clerical, camp counselor and recreation aide, cafeteria and teacher 
assistant, and custodial. In Hillsborough County the types of jobs 
filled include Boys & Girls Club youth development specialist, customer 
sales and service, cashier, clerical, and hotel worker. 

[12] Hillsborough County also offered an optional 12-hour green 
training initiative to create awareness among participants in its work- 
based learning experience titled "Your Role in the Green Economy." A 
national certification is issued to participants who pass the test at 
the conclusion of the program. 

[13] Broward County is using its general revenues to fund its younger 
summer youth program. 

[14] According to Hillsborough officials, program administration was 
competitively contracted out to nine public or nonprofit groups. 
Officials told us that contractors are paid based on documented 
deliverables such as the pre-and post-tests, trainee skill assessments, 
and program completion. 

[15] Officials told us that some employers pulled out of the program 
because they did not like the way the youth presented themselves the 
first day, they did not think the youth had the skills to perform the 
required work, or the employer's business had taken a turn for the 
worse since they first requested the youth and they no longer needed 
the help. 

[16] The performance evaluation form is signed by the supervisor, the 
summer youth program participant, and the WIA summer youth program 
advisor. 

[17] Hillsborough's summer youth program for 20-24 year olds started 
July 14 and will end September 30. 

[18] There were a total of 10 work-based learning sites, but only a 
total of 9 contracts were awarded, since one learning site was a 
Hillsborough workforce facility. 

[19] In Hillsborough County younger youth were given a Junior 
Achievement pre-and post-test. 

[20] The Weatherization Assistance Program funded through annual 
appropriations is not subject to the Davis-Bacon Act. 

[21] The five types of "interested parties" are state weatherization 
agencies, local community action agencies, unions, contractors, and 
congressional offices. 

[22] Homes that are in disrepair, such as those needing a new roof, are 
considered unsuitable for improvements because the poor condition of 
the home would result in damage to the improvements or render them 
ineffective. 

[23] According to DCA officials, as of August 17, 2009, DCA had 
delivered the contracts to the local service providers. At least three 
of the local service providers had met the benchmarks in their capacity 
contracts. As of September 4, 2009, DCA had obligated funds for one of 
the three local service providers, which can begin weatherizing homes. 

[24] According to state officials, in the state of Florida as defined 
by OMB, DCA is considered the prime recipient and the local service 
providers and statewide contractors are considered the subrecipients of 
Recovery Act weatherization funds. 

[25] According to DCA officials, they will obtain information directly 
from the utility companies on the energy savings for homes weatherized 
with Recovery Act funds. 

[26] The Recovery Act requires all laborers and mechanics employed by 
contractors and subcontractors on Recovery Act projects to be paid at 
least the prevailing wages as determined under the Davis-Bacon Act. 
Recovery Act, div. A, title XVI, §1606. Under the Davis-Bacon Act, 
Labor determines the prevailing wage for projects of a similar 
character in the locality. 40 U.S.C. §§ 3142-3148. 

[27] [hyperlink, 
http://www.dol.gov/esa/whd/recovery/dbsurvey/weather.htm]. 

[28] For the Highway Infrastructure Investment Program, the U.S. DOT 
has interpreted the term obligation of funds to mean the federal 
government's contractual commitment to pay for the federal share of the 
project. This commitment occurs at the time the federal government 
signs a project agreement. 

[29] States request reimbursement from FHWA as the state makes payments 
to contractors working on approved projects. 

[30] Of the $404 million allocated to local agencies, the federal 
government has obligated $270 million and $81,400 has been reimbursed 
by the FHWA. 

[31] MPOs, federally mandated regional organizations, representing 
local governments and working in coordination with state departments of 
transportation, 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. 

[32] The state dedicated over 67 percent or $902 million of its $1.35 
billion in apportioned Recovery Act funds to these projects. 

[33] FDOT District Offices and the Florida Turnpike Enterprise are 
located in Bartow (Polk County), Lake City (Columbia County), Chipley 
(Washington County), Fort Lauderdale (Broward County), Deland (Volusia 
County), Miami (Miami-Dade), Tampa (Hillsborough County), and Ocoee 
(Orange County), Florida. 

[34] Seven Webinars in total covered such topics as how to calculate 
and report job creation estimates and reporting from the perspective of 
the subrecipient. 

[35] According to Florida officials, they are continuing to work with 
OMB and others as these issues evolve. 

[36] In Florida, the Auditor General is appointed by Florida's 
legislature and serves as the state's independent auditor for the 
Single Audit. 

[37] OMB, "OMB Circular A-133 Compliance Supplement-Addendum #1" (June 
2009). Although it is dated June 2009, OMB did not make the guidance 
available until August 2009. 

[End of section] 

Appendix VI: Georgia: 

Overview: 

The following summarizes GAO's work on the third of its bimonthly 
reviews of American Recovery and Reinvestment Act (Recovery Act) 
spending in Georgia.[Footnote 1] The full report on all of our work, 
which covers 16 states and the District of Columbia, is available at 
[hyperlink, http://www.gao.gov/recovery/]. 

We reviewed three programs in Georgia funded under the Recovery Act-- 
the Transit Capital Assistance Program, the Weatherization Assistance 
Program, and the Workforce Investment Act (WIA) Youth Program. We 
selected these programs for different reasons. The Transit Capital 
Assistance Program had a September 1, 2009, deadline for obligating a 
portion of the funds and provided an opportunity to review nonstate 
entities that received Recovery Act funds. Georgia received a 
substantial increase in Weatherization Assistance Program funds, and 
work got under way in late August 2009. The focus of the WIA Youth 
Program in Georgia was a summer employment program that was well under 
way. For these programs, we focused on how funds were being used; how 
safeguards were being implemented, including those related to the 
procurement of goods and services; and how results were being assessed. 
In addition to these three programs, we also updated information on 
Highway Infrastructure Investment funds because significant Recovery 
Act funds had been obligated. We reviewed five contracts financed with 
Recovery Act Highway Infrastructure Investment funds and four contracts 
under the WIA Youth Program. Consistent with the purposes of the 
Recovery Act, funds from the programs we reviewed are being directed to 
help Georgia and local entities stabilize their budgets and to 
stimulate infrastructure development and expand existing programs-- 
thereby providing needed services and potential jobs. The following 
provides highlights of our review of these funds: 

Transit Capital Assistance Program: 

* The U.S. Department of Transportation's Federal Transit 
Administration (FTA) apportioned $141 million in Recovery Act funds to 
Georgia and urbanized areas located in the state. As of September 1, 
2009, FTA had obligated $120 million. 

* As of September 1, 2009, FTA concluded that the 50 percent obligation 
requirement had been met for Georgia and urbanized areas located in the 
state. 

* The Metropolitan Atlanta Rapid Transit Authority (MARTA), the largest 
transit agency in Georgia, will use the majority of its $55.4 million 
to fund a fire protection system upgrade and preventive maintenance. 

Weatherization Assistance Program: 

* The U.S. Department of Energy (DOE) allocated about $125 million in 
Recovery Act weatherization funding to Georgia for a 3-year period. As 
of September 1, 2009, DOE had provided $62.4 million to Georgia, and 
the state had obligated $22.9 million of these funds. 

* Georgia has awarded contracts to all 22 service providers that it 
plans to use to weatherize homes, and weatherization activities got 
under way in late August 2009. With the Recovery Act funds, the state 
expects to weatherize at least 13,000 homes. 

WIA Youth Program: 

* The U.S. Department of Labor (Labor) allotted about $31.4 million in 
WIA youth Recovery Act funds to Georgia. According to Labor, $16 
million had been expended in the state as of August 31, 2009. 

* As of September 15, 2009, the local workforce boards had received 
more than 30,000 applications, and 10,717 youth had been enrolled in 
summer youth programs statewide. Georgia exceeded its target of serving 
10,253 youth. 

* The three workforce boards we interviewed focused on offering youth 
summer work experience. Work sites included government agencies, a 
private company that packages supplies for health-care providers, and a 
nonprofit organization that recycles computers. 

Highway Infrastructure Investment: 

* The U.S. Department of Transportation's Federal Highway 
Administration (FHWA) apportioned $932 million in Recovery Act funds to 
Georgia for highway infrastructure and other eligible projects. As of 
September 1, 2009, $546 million had been obligated, and $10 million had 
been reimbursed by FHWA. 

* Almost 70 percent of Recovery Act highway obligations for Georgia 
have been for pavement projects. Specifically, $376 million of the $546 
million obligated as of September 1, 2009, is being used for pavement 
improvement, pavement widening, and new road construction projects. 

* The Georgia Department of Transportation (GDOT) is completing its 
second, and final, phase of Recovery Act planning. As of September 1, 
2009, the state had awarded 108 contracts with a total value of $391 
million. 

Georgia Made Budget Cuts in Face of Continuing Fiscal Challenges and 
Plans More Cuts: 

Georgia's fiscal condition continues to decline, as evidenced by the 
following: 

* The state's net revenue collections for June 2009 were 15.7 percent 
less than they were in June 2008, representing a decrease of 
approximately $255 million in total taxes and other revenue. Because 
the state did not meet its revenue projections for fiscal year 2009 
(which ended June 30, 2009), the Governor's Office of Planning and 
Budget started fiscal year 2010 by withholding 5 percent of agencies' 
state general fund allotments and requiring employees to take 3 
furlough days during the first half of the fiscal year.[Footnote 2] 

* Unemployment in Georgia continues to increase, with the state 
reporting a 10.3 percent unemployment rate in July 2009 compared with 
6.2 percent in July 2008. The unemployment insurance benefits paid out 
in June 2009 were $167 million, about $100 million more than benefits 
paid in June 2008. The increase in unemployment claims has started to 
deplete the state's unemployment trust fund. As of November 2008, the 
trust fund contained $1 billion; by August 2009, the balance had 
decreased to $431 million, a 59 percent reduction. 

Georgia is preparing for the cessation of Recovery Act funding by 
continuing to reduce state spending levels. The Governor's Office of 
Planning and Budget has asked each state agency to provide budget 
reduction plans of 4 percent, 6 percent, and 8 percent for the amended 
fiscal year 2010 and fiscal year 2011 budgets. The office has 
instructed state agencies to consider the fiscal year 2010 funding 
reductions as permanent reductions for future years and stated that any 
need for additional funding should be accomplished with a 
redistribution of existing funds within an agency's budget. For the 
fiscal year 2011 budget, the state has implemented a new process 
requiring agencies to rate each of their programs in the following 
areas using a scale of one to five: whether it is a core state service, 
whether it is of strategic importance, the numbers of Georgians served, 
the relationship between funding and level of service (that is, the 
impact of a 10 percent cut in state funding on services), its 
performance relative to recognized industry standards, and the 
proportion of funding from state sources. The Governor's Office of 
Planning and Budget will use the score for each state program to help 
prioritize decisions. 

Given its fiscal challenges, Georgia is seeking to recover 
administrative costs associated with overseeing Recovery Act funds. 
States may recoup costs for central administrative services such as 
oversight and reporting, as provided in the May 11, 2009, U. S. Office 
of Management and Budget (OMB) guidance.[Footnote 3] The guidance 
discusses two ways that states might recoup central administrative 
costs through State-wide Cost Allocation Plans (SWCAP), which states 
submit to the U.S. Department of Health and Human Services (HHS) 
annually. States may estimate costs for centralized services or 
describe their methodology for billing services. The guidance states 
that any estimated cost amount should not exceed 0.5 percent of the 
total Recovery Act funds received by the state. On July 22, 2009, 
Georgia officials submitted a number of questions about this guidance; 
for example, they asked if the allowed 0.5 percent was an aggregate cap 
or a limitation on individual awards and if the 0.5 percent could be 
captured after funds were obligated, but not expensed. On August 3, 
2009, HHS provided answers to some questions and referred Georgia to 
OMB for responses to the rest. Georgia officials are also working 
through the National Association of State Auditors, Comptrollers and 
Treasurers to get additional guidance on recouping administrative 
costs. 

While awaiting further guidance, Georgia has begun developing an 
addendum to its SWCAP for Recovery Act oversight costs.[Footnote 4] The 
state plans to submit the addendum to HHS for approval at the end of 
September 2009. The state plans to use both alternatives for cost 
reimbursement by billing for certain services and estimating the costs 
of centralized services. The Georgia Recovery Act Accountability 
Officer has informed state agencies that they are to set aside 0.5 
percent of their Recovery Act funds for the state's administrative 
costs. The state took this step prior to the approval of its SWCAP 
addendum to provide agencies the opportunity to plan for the 
possibility of such expenses. With the 0.5 percent, the state hopes to 
cover costs associated with additional Recovery Act audits to be 
conducted by the State Auditor and Inspector General; the State 
Accounting Office's oversight of Recovery Act reporting; maintaining 
Georgia's Recovery Act Web site to promote transparency; and general 
oversight of Recovery Act funds by the office of the Recovery Czar. 
[Footnote 5] 

More Than Half of Georgia's Transit Capital Assistance Program Funds 
Have Been Obligated for a Variety of Projects: 

The Recovery Act appropriated $8.4 billion to fund public transit 
throughout the country through three existing FTA grant programs, 
including the Transit Capital Assistance Program.[Footnote 6] The 
majority of the public transit funds--$6.9 billion (82 percent)--was 
apportioned for the Transit Capital Assistance Program, with $6.0 
billion designated for the urbanized area formula grant program and 
$766 million designated for the nonurbanized area formula grant 
program.[Footnote 7] Under the urbanized area formula grant program, 
Recovery Act funds were apportioned to 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 under the nonurbanized area 
formula grant program 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. Up to 10 percent of apportioned 
Recovery Act funds may also be used for operating expenses.[Footnote 8] 
Under the Recovery Act, the maximum federal fund share for projects 
under the Transit Capital Assistance Program is 100 percent.[Footnote 
9] 

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 (MPO)-- 
develop a list of transit projects that project sponsors (typically 
transit agencies) submit to FTA for Recovery Act funding.[Footnote 10] 
FTA reviews the project sponsors' grant applications to ensure that 
projects meet eligibility requirements and then obligates Recovery Act 
funds by approving the grant application. Project sponsors must follow 
the requirements of the existing programs, which include ensuring the 
projects funded meet all regulations and guidance pertaining to the 
Americans with Disabilities Act (ADA), pay a prevailing wage in 
accordance with federal Davis-Bacon Act requirements, and comply with 
goals to ensure disadvantaged businesses are not discriminated against 
in the awarding of contracts. 

Fifty percent of Recovery Act funds apportioned to urbanized areas or 
states are to be obligated within 180 days of apportionment (before 
Sept. 1, 2009) and the remaining apportioned funds are to be obligated 
within 1 year. The Secretary of Transportation is to withdraw and 
redistribute to other urbanized areas or states any amount that is not 
obligated within these time frames.[Footnote 11] In March 2009, $141 
million in Recovery Act Transit Capital Assistance Program funds were 
apportioned to Georgia and urbanized areas located in the state for 
transit projects.[Footnote 12] As of September 1, 2009, FTA concluded 
that the 50 percent obligation requirement had been met for Georgia and 
urbanized areas located in the state. For the Transit Capital 
Assistance Program, the U.S. 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. As of September 1, 2009, FTA had obligated $120 million. 

Transit Providers in Georgia Are Funding Vehicle Replacements and 
Preventive Maintenance: 

Recipients of funds from the Transit Capital Assistance Program include 
both GDOT and transit providers. More specifically, GDOT is the 
recipient of $37.9 million for the small urban areas under 200,000 and 
rural areas in Georgia. It oversees seven small urban transit agencies 
and 90 rural transit providers. In March 2009, GDOT issued a call for 
projects to the small urban and rural transit providers in the state. 
They were asked to submit a list of projects that were (1) eligible for 
Recovery Act funds, (2) ready for implementation ("shovel ready") with 
all planning and environmental program requirements completed, and (3) 
included in their region's transportation improvement plans. In June 
2009, the state selected a number of projects, including construction 
of a transportation facility in Albany, Georgia. To ensure that all of 
the Recovery Act funds are obligated, GDOT announced another call for 
projects on September 15, 2009. 

We visited two transit providers that are Recovery Act recipients, 
MARTA and Gwinnett County, to discuss how they planned to use and 
safeguard the funds. MARTA received a $55.4 million Transit Capital 
Assistance grant, while Gwinnett County received about $9.4 million. 
The urbanized area intends to use the maximum 10 percent of Transit 
Capital Assistance Program funding apportioned to the urbanized area 
for operating expenses and the remaining grant money to fund capital 
projects. Table 1 describes the various capital projects that MARTA and 
Gwinnett County selected. MARTA officials told us they focused on 
projects that were a high priority and that enabled them to address 
safety concerns identified in a recent facility audit. According to 
Gwinnett County officials, they focused on existing priorities for 
safety and operations and projects most likely to provide local 
economic benefits. 

Table 1: Recovery Act Projects Selected by MARTA and Gwinnett County: 

Project: MARTA: Fire protection system upgrade; Project description: 
Comprehensive upgrade or replacement of the fire protection system at 
MARTA transit facilities systemwide; Estimated project cost: $27.3 
million. 

Project: MARTA: Preventive maintenance; Project description: Ongoing 
maintenance of transit vehicles, facilities, and equipment to keep them 
in good operating order; Estimated project cost: $20 million. 

Project: MARTA: Bus purchase; 
Project description: Acquisition of 18 clean fuel-powered buses; 
Estimated project cost: $7.6 million. 

Project: MARTA: Security enhancements; 
Project description: Upgrade and renovation of lighting in rail 
passenger stations to increase security, safety, and energy efficiency; 
Estimated project cost: $555,000. 

Project: Gwinnett County: Bus overhaul; Project description: Mid-
lifecycle overhaul of 28 transit buses, including complete engine 
overhaul and body work; Estimated project cost: $3.7 million. 

Project: Gwinnett County: Installation of audio-video and surveillance 
equipment; 
Project description: Technology will help to more effectively manage 
the fleet, increase system security and safety, and provide customers 
with real-time transit service information; Estimated project cost: 
$3.3 million. 

Project: Gwinnett County: Pedestrian access and walkways; Project 
description: Will provide safe access and enhanced ADA access by 
improving bus stop access; includes installing or upgrading walkway 
connections, shelters, and signs; 
Estimated project cost: $1.5 million. 

Project: Gwinnett County: Bus shelters; Project description: Install 
bus shelters at high-activity bus stops; Estimated project cost: 
$800,000. 

Project: Gwinnett County: Paratransit buses; Project description: 
Replacing two obsolete paratransit buses currently operating beyond the 
typical useful service life; Estimated project cost: $161,000. 

Sources: MARTA and Gwinnett County Transit. 

[End of table] 

GDOT Plans to Modify Current Oversight Processes for Recovery Act Grant 
Funding in Response to an FTA Review; the Transit Providers We 
Interviewed Will Use Existing Processes: 

Due to a recent review that had multiple findings, GDOT's 
administration of Recovery Act transit grants will be closely 
scrutinized by FTA.[Footnote 13] FTA's final report, dated June 29, 
2009, noted nine material weaknesses and four significant deficiencies, 
including that GDOT did not adequately monitor its subgrantees and did 
not have adequate entity-level controls for grants management.[Footnote 
14] FTA delayed the obligation of Recovery Act funds to GDOT until it 
submitted an acceptable corrective action plan, which it did on July 
29, 2009. Among other corrective actions, GDOT hired a consultant to 
review and revise its transit oversight process and has been seeking a 
transportation consultant to help improve its oversight of the state's 
small urban, intercity, and rural transit programs and assist with 
management and execution of projects, programs, and grants related to 
the Recovery Act. FTA accepted GDOT's corrective action plan on August 
7, 2009, subject to implementation progress. FTA will continue to 
monitor GDOT through monthly status meetings and on-site reviews every 
2 months. In addition, FTA has developed an oversight strategy to 
monitor how GDOT is implementing the plan through an FTA triennial 
review scheduled for the week of September 7, 2009, and during its 
follow-up financial management oversight review scheduled for 2010. 
[Footnote 15] 

Both MARTA and Gwinnett County intend to administer their Recovery Act 
funds using existing internal control procedures. FTA most recently 
reviewed MARTA's internal control procedures for federally funded 
transit projects in March 2009 as part of a financial management 
oversight review. As a result of advisory comments from that review, 
MARTA has been updating its accounting policies and procedures manual. 
According to Gwinnett County officials, the county will use its 
current, standard internal control procedures for all transit projects. 
According to the officials, FTA vets these internal controls through 
the triennial review process, which was most recently completed in May 
2008. The final report for the 2008 review identified deficiencies in 9 
of 23 areas, including financial and technical. Gwinnett County agreed 
to correct all deficiencies by September 2008. All corrective actions 
were officially closed in October 2008. 

Project Sponsors Must Meet FTA Reporting Requirements: 

Project sponsors must submit periodic reports, as required under the 
maintenance-of-effort for transportation projects section (§1201(c) of 
the Recovery Act) on the amount of federal funds appropriated, 
allocated, obligated, and outlayed; the number of projects put out to 
bid, awarded, or on which work has begun or been completed; project 
status; and the number of jobs created or retained. In addition, 
grantees must report detailed information on any subcontractors or 
subgrants awarded by the grantee. Because FTA had obligated money for 
Gwinnett County projects before July 31, 2009, the transit provider was 
required to submit its report in August 2009, which it did. The report 
contained information on the total amount of funds awarded, the number 
of contract solicitations issued related to funds under the grant, and 
the estimated amount of funds associated with the contract 
solicitations. GDOT and MARTA are not required to submit their first 
1201(c) reports until February 2010. 

Georgia Is Taking Steps to Get Its Weatherization Assistance Program 
Under Way and Safeguard Funds: 

The Recovery Act appropriated $5 billion over a 3-year period for the 
Weatherization Assistance Program, which DOE administers through each 
of the states, the District of Columbia, and seven territories and 
Indian tribes. The program 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, or air 
conditioning equipment. Over the past 32 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. 

As of September 14, 2009, DOE had approved the weatherization plans of 
all but two of the states, the District of Columbia, the territories, 
and Indian tribes--including all 16 states and the District of Columbia 
in our review. DOE had provided to the states almost $2.3 billion of 
the $5 billion in weatherization funding under the Recovery Act. Use of 
the Recovery Act weatherization funds is subject to Section 1606 of the 
act, which requires all laborers and mechanics employed by contractors 
and subcontractors on Recovery Act projects to be paid at least the 
prevailing wage, including fringe benefits, as determined under the 
Davis-Bacon Act.[Footnote 16] Because the Davis-Bacon Act had not 
previously applied to weatherization, Labor had not established a 
prevailing wage rate for weatherization work. In July 2009, DOE and 
Labor issued a joint memorandum to Weatherization Assistance Program 
grantees authorizing them to begin weatherizing homes using Recovery 
Act funds, provided they pay construction workers at least Labor's wage 
rates for residential construction, or an appropriate alternative 
category, and compensate workers for any differences if Labor 
establishes a higher local prevailing wage for weatherization 
activities. Labor then surveyed five types of "interested parties" 
about labor rates for weatherization work.[Footnote 17] The department 
completed establishing prevailing wage rates in all of the 50 states 
and the District of Columbia by September 3, 2009. 

Under the Recovery Act, the Georgia Environmental Facilities Authority 
(GEFA), the state agency that administers the Weatherization Assistance 
Program, will receive approximately $125 million. With the funding, 
GEFA expects to weatherize at least an additional 13,000 units over the 
next 2 to 3 years. DOE approved Georgia's weatherization plan on June 
26, 2009, for a project period of April 1, 2009, through March 31, 
2012. As of September 1, 2009, the state had received $62.4 million (50 
percent of its weatherization allocation), obligated $22.9 million, and 
spent about $9,000. 

GEFA Has Awarded Contracts for Recovery Act Weatherization Projects, 
and Work Began in August: 

GEFA has awarded contracts to service providers, and weatherization 
work is under way. GEFA is using the same 22 service providers-- 
comprising a combination of community action agencies, nonprofit 
agencies, and local governments--that currently provide weatherization 
services under the state's non-Recovery Act weatherization program. 
GEFA gave each service provider 10 percent of the service provider's 
total allocation to help with implementation costs such as hiring 
staff, renting additional space, training employees, and procuring 
vehicles, field equipment, and services. As of September 10, 2009, all 
22 service providers had been awarded contracts. According to GEFA 
officials, each service provider received an advance of 25 percent of 
its total allocation upon contract award. Each of the providers will be 
responsible for hiring subcontractors to conduct weatherization work, 
which began in late August 2009. 

As part of its implementation strategy, GEFA plans to contract with a 
vendor to provide training to its service providers. The training will 
include a combination of field training and training at the vendor's 
facilities in Atlanta. The vendor will provide classes, a circuit rider 
(a trainer that will spend 1 to 2 days in the field answering questions 
and providing on-site assistance), a Web site, and technical 
assistance. These classes began in early September 2009. The vendor is 
hoping to train all new crew members 30 to 120 days after they begin 
working for a service provider. 

Despite Uncertainty about Davis-Bacon Act Requirements, Weatherization 
Work Will Proceed as Planned: 

Although weatherization work is under way, service providers expressed 
concerns about wage rate determinations and other Davis-Bacon Act 
requirements. Officials at weatherization agencies across the state 
received a survey from Labor in July 2009, which was used to determine 
the Davis-Bacon Act prevailing wage for weatherization workers. Labor 
set the wage rates in Georgia on August 29, 2009. Consistent with 
guidance from DOE and Labor, GEFA did not withhold funding to the 
service providers while the prevailing wage was being set. 

However, at the preaward kick-off meeting that GEFA held on August 5 
and 6, 2009 (which we attended), the service providers expressed 
confusion about the Davis-Bacon Act requirements and how they would 
apply to the weatherization program. Specifically, the service 
providers were concerned about the requirements for a weekly payroll 
and were confused as to which employees would fall under the act's 
guidelines. Some of the service providers discussed signing contracts 
for each individual house to limit the contract amount to below the 
Davis-Bacon Act threshold of $2,000. 

As part of its monitoring efforts, GEFA is requiring each service 
provider to submit reports on compliance with Davis-Bacon Act 
requirements (as discussed below in more detail). GEFA is hiring a 
fiscal monitor who will be responsible for gauging the subrecipients' 
and vendors' compliance with the Davis-Bacon Act, along with other 
provisions of the Recovery Act. 

State Officials Established Risk-Assessment, Fiscal, and Performance 
Monitoring Processes for Service Providers Receiving Weatherization 
Funds: 

GEFA has taken a number of steps to monitor the use of Recovery Act 
weatherization funds. First, the agency completed a risk assessment of 
its service providers that involved assessing the level of performance 
at each provider and rating their performance as high, standard, or at 
risk. In addition, GEFA examined the providers' internal controls, 
audited financial statements, and previous history with federal awards. 
Second, GEFA has established financial reporting requirements. Each of 
the service providers must submit a monthly financial report that 
includes all reimbursable expenses for production completed during the 
previous month, such as administrative costs, labor, and materials. 
Each of the providers also must provide a regular invoice that tracks 
expenses to date and the contract balance. GEFA is planning to 
implement an online tool to collect these invoices by the first quarter 
of 2010. According to GEFA officials, the online system will make it 
easier for them to identify potential "red flags" and track the 
progress of the providers. As noted above, GEFA will hire a fiscal 
monitor to review the financial records of the subrecipients and 
vendors for accuracy. 

Third, GEFA plans to contract with a vendor to monitor whether the 
service providers are in compliance with all applicable DOE regulations 
and other requirements, including the policies and procedures in the 
Georgia Weatherization Assistance Program's operations manual. For 
purposes of monitoring, the state is being divided into 12 territories. 
Each territory will house a weatherization educator and a 
weatherization inspector. The weatherization educator will review file 
documentation, report problems, and work with the service provider to 
prevent errors in future reporting by providing educational 
opportunities to the service provider's staff and contractors. The 
educator also will provide information to the homeowner about the need 
for weatherization, its benefits, and the procedures that will occur 
during the process. This homeowner education component is new for 
Georgia's Recovery Act weatherization program. Monthly, the 
weatherization inspector will randomly select at least 10 percent of 
the homes in each county to evaluate the service providers' work. 

Fourth, GEFA has developed a process intended to replace ineffective 
weatherization providers. GEFA plans to replace any service provider 
that does not meet its contractual obligations--for example, by failing 
to maintain adequate fiscal controls and accounting procedures, filing 
late or inaccurate financial and programmatic reports, misusing program 
funds, failing to adhere to the schedule for goals and objectives, or 
not providing quality weatherization. GEFA's service provider contract 
included language describing the terms for terminating the contract. 
GEFA plans to issue a request for information to identify potential 
replacement providers and has developed a policy for selecting 
replacements. The policy states that GEFA will consider the potential 
provider's (1) experience and performance in weatherization or housing 
renovation activities; (2) experience in assisting low-income persons 
in the area to be served; and (3) capacity to undertake a timely and 
effective weatherization program. 

State Has Plans to Assess the Impact of Recovery Act Weatherization 
Funds: 

GEFA plans to use a number of performance measures to determine the 
impact of Recovery Act weatherization funds. In addition to measuring 
home energy savings after weatherization based on DOE's methodology, it 
plans to track the number of units weatherized, the number of people 
assisted, and the number of jobs created and retained. The service 
providers are responsible for reporting this data to GEFA in monthly 
reports. Specifically, the service providers will provide information 
including the types of housing units served, information on the 
clients, and the estimated energy savings. Additionally, the service 
providers have to provide regular reports separate from the monthly 
financial and production reports to GEFA that are intended to track the 
impact of the funds. The reports must include jobs created and retained 
by state and local contractors, hours trained, and equipment purchases 
exceeding $5,000. 

Georgia Used Recovery Act Funds to Expand Summer Youth Services, but 
Implementation Methods Varied across the State: 

The Recovery Act provides an additional $1.2 billion in funds for the 
WIA Youth Program, including summer employment. Administered by Labor, 
the WIA Youth Program is designed to provide low-income in-school and 
out-of-school youth 14 to 21 years old, who have additional barriers to 
success, with services that lead to educational achievement and 
successful employment, among other goals. Funds for the program are 
distributed to states based on a statutory formula; states, in turn, 
distribute at least 85 percent of the funds to local areas, reserving 
as much as 15 percent for statewide activities. The local areas, 
through their local workforce investment boards, have the flexibility 
to decide how they will use the funds to provide required services. 

While the Recovery Act does not require all funds to be used for summer 
employment, in the conference report accompanying the bill that became 
the Recovery Act,[Footnote 18] the conferees stated they were 
particularly interested in states using these funds to create summer 
employment opportunities for youth. While the WIA Youth Program 
requires a summer employment component to be included in its year-round 
program, Labor has issued guidance indicating that local areas have the 
flexibility to implement stand-alone summer youth employment activities 
with Recovery Act funds.[Footnote 19] Local areas may design summer 
employment opportunities to include any set of allowable WIA youth 
activities--such as tutoring and study skills training, occupational 
skills training, and supportive services--as long as it also includes a 
work experience component. A key goal of a summer employment program, 
according to Labor's guidance, is to provide participants with the 
opportunity to (1) experience the rigors, demands, rewards, and 
sanctions associated with holding a job; (2) learn work readiness 
skills on the job; and (3) acquire measurable communication, 
interpersonal, decision-making, and learning skills. Labor has also 
encouraged states and local areas to develop work experiences that 
introduce youth to opportunities in "green" educational and career 
pathways. Work experience may be provided at public sector, private 
sector, or nonprofit work sites. The work sites must meet safety 
guidelines, as well as federal and state wage laws.[Footnote 20] 
Labor's guidance requires that each state and local area conduct 
regular oversight and monitoring of the program to determine compliance 
with programmatic, accountability, and transparency provisions of the 
Recovery Act and Labor's guidance. Each state's plan must discuss 
specific provisions for conducting its monitoring and oversight 
requirements. 

The Recovery Act made several changes to the WIA Youth Program when 
youth are served using these funds. It extended eligibility through age 
24 for youth receiving services funded by the act, and it made changes 
to the performance measures, requiring that only the measurement of 
work readiness gains will be required to assess the effectiveness of 
summer-only employment for youth served with Recovery Act funds. 
Labor's guidance allows states and local areas to determine the 
methodology for measuring work readiness gains within certain 
parameters. States are required to report to Labor monthly on the 
number of youth participating and on the services provided, including 
the work readiness attainment rate and the summer employment completion 
rate. States must also meet quarterly performance and financial 
reporting requirements. 

Labor allotted about $31.4 million to Georgia in WIA Youth Recovery Act 
funds. The Georgia Department of Labor (GDOL), which is the state's 
administering agency, allocated $26.7 million of these funds to local 
workforce boards. According to Labor, $16 million had been expended in 
the state as of August 31, 2009. GDOL encouraged local areas to spend 
their funding quickly, but wisely and in accordance with the rules and 
regulations governing the funds. The local workforce boards we 
interviewed--the Atlanta Regional Workforce Board, Coastal Workforce 
Services, and the Richmond/Burke Job Training Authority--had a goal of 
spending the majority of their funds by September 30, 2009.[Footnote 
21] 

Local Workforce Areas Largely Met the Georgia Department of Labor's 
Participant Targets: 

As of September 15, 2009, the state had served 10,717 youth through its 
Recovery Act funded summer youth program, exceeding its target of 
10,253 youth. The state set enrollment targets for each of the state's 
20 workforce boards. The state developed these targets by dividing the 
allocation amount for each workforce board by $2,600, which was the 
amount that the state estimated would be required to serve one youth. 
As shown in table 2, 11 of the workforce boards have exceeded their 
targets, while 9 are still below their targeted levels of enrollment. 
For example, the Macon/Bibb workforce board adopted a policy that 
limited participants' work hours to 20 hours per week, which allowed it 
to increase the number of youth served. State officials explained that 
boards below their targets may be slow in entering data into the 
state's tracking system. However, in some cases, other circumstances 
have delayed enrollment. For example, the Southwest Georgia workforce 
board began the second phase of the program focusing on older youth in 
August 2009. 

Table 2: Projected and Enrolled Youth by Workforce Area, as of 
September 15, 2009: 

Local area: Macon/Bibb[A]; 
Projected number of youth to be served: 244; Number of applications 
received: 1,176; Number of youth enrolled: 554; 
Percentage of target enrolled: 227. 

Local area: Atlanta Regional; 
Projected number of youth to be served: 1,184; Number of applications 
received: 1,784; Number of youth enrolled: 1,637; 
Percentage of target enrolled: 138. 

Local area: Coastal; 
Projected number of youth to be served: 535; Number of applications 
received: 4,739; Number of youth enrolled: 722; 
Percentage of target enrolled: 135. 

Local area: Lower Chattahoochee; 
Projected number of youth to be served: 355; Number of applications 
received: 1,800; Number of youth enrolled: 464; 
Percentage of target enrolled: 131. 

Local area: Northeast Georgia; 
Projected number of youth to be served: 610; Number of applications 
received: 3,020; Number of youth enrolled: 785; 
Percentage of target enrolled: 129. 

Local area: East Central Georgia; 
Projected number of youth to be served: 324; Number of applications 
received: 600; 
Number of youth enrolled: 409; 
Percentage of target enrolled: 126. 

Local area: Fulton; 
Projected number of youth to be served: 252; Number of applications 
received: 400; 
Number of youth enrolled: 289; 
Percentage of target enrolled: 115. 

Local area: South Georgia; 
Projected number of youth to be served: 331; Number of applications 
received: 512; 
Number of youth enrolled: 368; 
Percentage of target enrolled: 111. 

Local area: Heart of Georgia; 
Projected number of youth to be served: 607; Number of applications 
received: 2,477; Number of youth enrolled: 636; 
Percentage of target enrolled: 105. 

Local area: Atlanta; 
Projected number of youth to be served: 1,055; Number of applications 
received: 3,000; Number of youth enrolled: 1,098; 
Percentage of target enrolled: 104. 

Local area: Cobb Works; 
Projected number of youth to be served: 445; Number of applications 
received: 1,484; Number of youth enrolled: 447; 
Percentage of target enrolled: 100. 

Local area: DeKalb; 
Projected number of youth to be served: 895; Number of applications 
received: 1,200; Number of youth enrolled: 836; 
Percentage of target enrolled: 93. 

Local area: Southeast Georgia; 
Projected number of youth to be served: 168; Number of applications 
received: 509; 
Number of youth enrolled: 153; 
Percentage of target enrolled: 91. 

Local area: Northwest; 
Projected number of youth to be served: 820; Number of applications 
received: 1,301; Number of youth enrolled: 741; 
Percentage of target enrolled: 90. 

Local area: Richmond/Burke; 
Projected number of youth to be served: 394; Number of applications 
received: 1,320;
Number of youth enrolled: 352; 
Percentage of target enrolled: 89. 

Local area: Middle Georgia; 
Projected number of youth to be served: 298; Number of applications 
received: 967; 
Number of youth enrolled: 232; 
Percentage of target enrolled: 78. 

Local area: Georgia Mountains[B]; 
Projected number of youth to be served: 264; Number of applications 
received: 536; 
Number of youth enrolled: 181; 
Percentage of target enrolled: 69. 

Local area: Southwest Georgia[C]; 
Projected number of youth to be served: 704; Number of applications 
received: 1,700; Number of youth enrolled: 404; 
Percentage of target enrolled: 57. 

Local area: West Central Georgia[B]; 
Projected number of youth to be served: 578; Number of applications 
received: 1,458; Number of youth enrolled: 316; 
Percentage of target enrolled: 55. 

Local area: Middle Flint[B]; 
Projected number of youth to be served: 190; Number of applications 
received: 339; 
Number of youth enrolled: 93; 
Percentage of target enrolled: 49. 

Local area: Total; 
Projected number of youth to be served: 10,253; Number of applications 
received: 30,322; Number of youth enrolled: 10,717; 
Percentage of target enrolled: 105. 

Source: Georgia Department of Labor. 

[A] The Macon/Bibb workforce board adopted a policy that limited the 
participants' work hours to 20 hours per week, which allowed the board 
to serve more youth. 

[B] This workforce board is taking advantage of a waiver from Labor to 
serve older youth through March 2010. 

[C] The Southwest Georgia workforce board began a second phase of the 
program focusing on older youth in August 2009. 

[End of table] 

Implementation Approaches Varied across Georgia's Local Workforce 
Areas: 

The local workforce boards implemented their WIA summer youth programs 
in a variety of ways across the state. As shown in table 3, the local 
entities we interviewed differed in the length of their programs, wages 
paid, and whether they operated the program in-house or contracted with 
service providers. 

Table 3: Overview of Selected Local Workforce Boards: 

Number of counties served: 
Atlanta Regional: 7; 
Coastal: 9; 
Richmond/Burke: 2. 

Program implementation: 
Atlanta Regional: Contracted with service providers; (Nine previous 
providers and one new provider for payroll); Coastal: Contracted with 
service providers; (Three previous providers); Richmond/Burke: Managed 
in-house by the workforce board. 

Program design: 
Atlanta Regional: Focused on work experience; Coastal: Focused on work 
experience; 
Richmond/Burke: Focused on work experience with academic portion for 
younger youth. 

Length of program: 
Atlanta Regional: 4 to 8 weeks, depending on service provider; Coastal: 
120 hours per youth; 
Richmond/Burke: 30 hours per week for 7 weeks. 

Length of work readiness training and incentives paid: Atlanta 
Regional: 6 to 20 hours; Unpaid to $175; Coastal: 3 to 5 days; $75 to 
$150; 
Richmond/Burke: 1 week; Unpaid. 

Identifying youth and determining eligibility: Atlanta Regional: 
Determined by service providers; Coastal: Board centrally identified 
youth and provided a prescreened list to service providers, who were 
responsible for determining final eligibility; 
Richmond/Burke: Conducted in-house by workforce board staff. 

Identifying work sites: 
Atlanta Regional: Service providers and workforce board identified and 
recruited; 
Coastal: Service providers identified and recruited; Richmond/Burke: 
Workforce board identified and recruited. 

Wage range: 
Atlanta Regional: Minimum wage to $14; 
Coastal: Minimum wage to $7.55; 
Richmond/Burke: Minimum wage. 

[End of table] 

Source: GAO. 

Recruiting Work Sites: 

Of the three workforce boards we interviewed, two stated they did not 
have trouble recruiting work sites. These two areas relied on their 
service providers to identify various work sites for the youth. For 
example, one of the service providers for the Atlanta Regional 
Workforce Board contacted local Chambers of Commerce, business 
associations, and faith-based agencies and advertised in local 
newspapers. One service provider for Coastal Workforce Services was 
affiliated with the city of Savannah and worked to develop work sites 
within other city departments, such as storm water management services 
and economic development. While neither board had problems recruiting 
work sites, their service providers reported some difficulty placing 
youth 14 to 15 years old. The other area, Richmond/Burke Job Training 
Authority, had challenges recruiting private companies as work sites. 
The board overcame the challenge of placing younger youth by adding an 
academic portion to the younger youth's summer program. The board 
developed a classroom learning experience for youth 14 to 15 years old 
that focused on skills such as searching and applying for colleges and 
jobs. Youth enrolled in the program spent 12 hours a week in the 
classroom and 18 hours a week with an employer. 

The boards we interviewed took a number of different steps to ensure 
that their work sites were safe. The Atlanta Regional Workforce Board 
contracted with a vendor to provide workers' compensation insurance. 
Prior to providing the insurance, the vendor assessed the safety of 
each work site. The other two workforce boards (or their service 
providers) used a risk-based approach to determine which work sites to 
visit. All three local workforce boards assessed the safety of the work 
sites either through monitoring visits or work site agreements 
validating the safety of the site. 

All three boards we interviewed designed their summer youth programs to 
focus on work experience, rather than academic training. The service 
providers we interviewed used different processes to match youth with 
work sites. Some service providers held job fairs or had youth 
interview at the various sites, while other service providers placed 
youth at work sites based on their interests and only involved the work 
sites in the process upon request. The Richmond/Burke Job Training 
Authority determined the youth's interest and then had the youth 
contact the work site to schedule an interview. 

The three boards we interviewed offered a variety of work 
opportunities. More specifically, we found the following examples: 

* About 100 youth participated in a summer learning program offered by 
a service provider. Youth at this site received training and work 
experience in the areas of drama, video production, and other visual 
arts. These youth worked with industry professionals in these areas and 
were expected to complete a project related to their area of study. For 
example, the youth in the drama program were responsible for developing 
and producing a play that was held at the end of the summer program. 
They also attended occupational workshops and participated in basic 
life and career skills training. 

* A private company in the health-care sector employed youth in its 
warehouse, where the youth learned to gather the supplies that would be 
packaged for health-care providers. 

* Some youth worked at various county or city government agencies. For 
example, one site was a county library, at which the youth categorized 
materials, among other tasks. 

* A youth center utilized youth participants as summer camp counselors 
and administrative clerks. 

GDOL provided the local areas with some guidance on how to identify 
green jobs, including summarizing guidance provided by Labor and 
listing examples of green jobs. Despite this guidance, local officials 
expressed confusion about the definition of a green job. Some local 
workforce board officials suggested that while a site might be 
considered a green work site, the work experience opportunity for the 
youth might not be a green job. For example, an organic food company 
was considered a green employer; however, at least one of the youth was 
performing clerical duties. GDOL officials noted that it was correct to 
classify this work experience as a green job based on guidance from 
Labor. In addition, officials at one service provider told us they 
thought it was more important to find meaningful work experiences for 
the youth than it was to focus on identifying and developing green 
jobs. 

All three workforce boards we interviewed identified some green work 
sites but estimated they were a small portion of the total number of 
job opportunities. For instance, the Atlanta Regional Workforce Board 
worked with a local technical college to develop a 4-week water 
management camp for youth. This camp combined work experience and 
classroom activities in bioscience and environmental science to help 
youth develop marketable skills applicable to the water quality 
management industry. Coastal Workforce Services recruited a nonprofit 
organization that developed a computer refurbishing and recycling 
program for at-risk youth to learn how to refurbish computers that 
would have ended up in land fills (see fig. 1). The program combined 
work experience and classroom activities. The Richmond/Burke Job 
Training Authority placed some youth at the Burke County Forestry 
Commission, where they performed clerical and office duties. 

Figure 1: Computer Recycling Program at a Nonprofit Organization: 

[Refer to PDF for image: photographs] 

The photo on the left shows two used computers being prepared for 
refurbishing at a youth work site recruited by Coastal Workforce 
Services. The photo on the right shows multiple stacks of used 
computers that will also be refurbished at the same work site. 

Source: GAO. 

[End of figure] 

Recruiting and Determining Eligibility of Youth: 

Georgia did not have challenges recruiting youth. Local workforce 
boards across the state received more than 30,000 applications for 
about 10,000 slots. According to the local workforce boards we 
interviewed, they recruited youth through the school systems, the 
state's foster care agency, the juvenile justice system, one-stop 
career centers, and other sources. Each of the local workforce boards 
we interviewed developed a checklist to determine the youth's 
eligibility to participate in the program. Each one outlined the income 
eligibility requirements and barriers to employment, such as the need 
for additional assistance to complete an educational program or secure 
employment. 

Youth Wages and Length of Program: 

Consistent with the Fair Labor Standards Act, GDOL required that youth 
be paid the federal minimum wage.[Footnote 22] However, the wage range 
varied across the three workforce boards we interviewed. Two workforce 
boards consistently paid youth at or slightly above the federal minimum 
wage. The other workforce board paid wages that varied from the minimum 
wage to $14 an hour. Local workforce board officials explained that 
wages were set at $12 or higher to match the wages of other employees 
at the work site with the same job description but not in the summer 
youth program. 

The local workforce boards we visited also served youth for varying 
lengths of time. Two of the local workforce boards we interviewed set a 
standard for the number of hours a youth could work during the summer 
youth program, while one did not. For example, in the Coastal region, 
youth could work up to 120 hours, spread over 6 weeks. Similarly, in 
the Richmond/Burke area, youth were required to work for 30 hours per 
week for 7 weeks to complete the program. However, the Atlanta Regional 
Workforce Board did not set a time frame. In some instances, youth 
worked about 8 weeks, while others worked 4 to 5 weeks. 

State and Local Areas Have Implemented Multiple Monitoring Tools: 

The summer youth programs were monitored at the state and local level. 
GDOL plans to conduct a three-phase monitoring approach for the summer 
youth programs.[Footnote 23] The first phase consisted of a preprogram 
assessment to determine each local workforce board's readiness to 
implement a summer youth program. This phase concluded on June 1, 2009. 
GDOL conducted informal discussions with local area workforce boards to 
ensure the boards were acting in accordance with the Recovery Act. The 
second phase included monitoring work sites and reviewing program and 
financial records. More specifically, GDOL staff visited a sample of 
work sites and randomly tested participant eligibility. These reviews 
are scheduled to be completed by September 30, 2009. To guide its 
monitoring efforts, GDOL created a monitoring tool that addressed areas 
such as programmatic design and oversight, transparency, file reviews, 
work site evaluation, and contract monitoring activities. In December 
2009, GDOL plans to complete the third phase, which will focus on 
reporting and closing out the program. 

GDOL identified a number of findings during its phase-two monitoring 
visits and will include corrective actions plans for the local 
workforce boards in the final reports, which are scheduled to be 
completed by October 31, 2009. More specifically, at the local 
workforce boards we interviewed, GDOL identified issues related to 
contracting, overobligation of funds, and time sheet signatures. Due to 
the timing of the reviews, the department was able to work with some 
local workforce boards to correct some findings prior to the completion 
of their summer youth programs. Table 4 describes some of the findings 
that GDOL had at each local workforce board we interviewed. 

Table 4: Georgia Department of Labor's Findings at Local Workforce 
Boards We Interviewed: 

Workforce board: Atlanta Regional Workforce Board; Status of finding: 
Preliminary; 
GDOL finding: Amendments to service provider contracts did not include 
some of the required Recovery Act language (for example, language 
requiring the provider to ensure that work sites adhere to applicable 
federal and state wage, labor, and workers' compensation laws); Local 
workforce board's response: According to Atlanta Regional Workforce 
Board officials, they did not receive from GDOL the contract language 
GDOL told them they needed to include. 

Workforce board: Atlanta Regional Workforce Board; Status of finding: 
Preliminary; 
GDOL finding: The board overobligated its funding and went over its 
enrollment target by approximately 470 youth. The issue arose because 
the board did not turn away any eligible youth. GDOL is working with 
the board to identify weaknesses in its financial and management 
information systems; 
Local workforce board's response: According to Atlanta Regional 
Workforce Board officials, non-Recovery Act WIA funding will be used to 
meet its overobligation, which means that a large portion of youth 
served with non-Recovery Act WIA funding will be recruited from the 
Recovery Act summer youth program. 

Workforce board: Coastal Workforce Services; Status of finding: 
Preliminary; 
GDOL finding: GDOL raised concerns about the meaningfulness of the 
board's work readiness measure; 
Local workforce board's response: GDOL and board officials worked to 
develop a more meaningful measure. 

Workforce board: Richmond/Burke Job Training Authority; Status of 
finding: Final; 
GDOL finding: Agreements with educational service providers did not 
include some of the required Recovery Act language (for example, 
language on Recovery Act wage rate requirements); Local workforce 
board's response: Workforce board has 90 days to respond to the final 
monitoring report. 

Workforce board: Richmond/Burke Job Training Authority; Status of 
finding: Final; 
GDOL finding: Some time sheets did not have supervisor signatures; 
Local workforce board's response: Workforce board has 90 days to 
respond to the final monitoring report. 

Sources: Georgia Department of Labor and workforce board officials. 

Note: GDOL sent a final monitoring report to the Richmond/Burke Job 
Training Authority on August 31, 2009. The results of GDOL's monitoring 
visits to the Atlanta Regional Workforce Board and Coastal Workforce 
Services are still preliminary. 

[End of table] 

The three local workforce boards we interviewed stated they had 
monitoring efforts in place for the service providers and work sites. 
For example, the Atlanta Regional Workforce Board developed a 
monitoring plan for its summer youth service providers. These service 
providers were visited at least twice over the course of the summer and 
in one case five times between June 11, 2009, and July 31, 2009. These 
reviews consisted of desk and contract reviews, reviews of participant 
and work site files, and interviews with youth participants, service 
provider staff, and work site supervisors, among others. Coastal 
Workforce Services planned to review 100 percent of its work sites over 
the course of the program and review eligibility of all participants 
before paying final invoices to service providers. The Richmond/Burke 
Job Training Authority stated that 25 percent of the work sites would 
be monitored. 

Work Readiness Measures Varied among Local Workforce Boards: 

Consistent with federal program guidance, GDOL allowed the three local 
areas we interviewed to determine their own work readiness performance 
measure. GDOL issued guidance to help local workforce boards develop 
the measure. According to the GDOL training provided to the workforce 
boards, youth have attained work readiness if they demonstrate a 
measurable increase in skills, including world-of-work awareness, labor 
market knowledge, occupational information, values clarification and 
personal understanding, career planning and decision making, and job 
search techniques.[Footnote 24] The local workforce boards were given 
flexibility in defining goals and choosing an assessment tool. They 
record the date and the outcome of the work readiness measure in the 
information system the state uses to manage the WIA programs (they 
enter "yes" or "no" under the category "Attained Recovery Act Work 
Readiness Increase"). The state plans to track other outcome measures 
in this system, such as youth hired into unsubsidized employment. 

The Atlanta Regional Workforce Board allowed its service providers to 
choose from one of three different measures of work readiness. The 
first measure would require the youth to pass a postparticipation test 
one level above the preparticipation test benchmark using a series of 
assessments that measure applied math, reading, and other skills. The 
second measurement would require the youth to earn Georgia WorkReady 
Certification, which is an assessment of skills in math, reading, and 
work habits. The third measure makes use of the work site supervisor's 
performance evaluation as the pre-, mid-, and post-test measure, with 
youth passing this measurement if they were rated higher at the end of 
the summer than they were at the beginning. The two service providers 
we visited used the third measure, relying on evaluations by the 
supervisor. The form they used asked the supervisor to rate the youth 
on work performance, work behavior, and critical thinking skills, among 
other things. For a youth to be deemed work ready, the providers were 
looking for a 50 percent increase in evaluated skills. 

In response to a monitoring finding, Coastal Workforce Services worked 
with GDOL to develop an evaluation that supervisors were asked to 
complete at the end of each pay period. The survey rated the youth in 
10 areas, including overall performance, quality of work, and ability 
to solve problems. The board decided to use the first survey as the 
"pretest" measure and the last survey as the "posttest" measure. Youth 
were deemed to have attained work readiness if there was an increase in 
their rating by the end of the summer. The workforce board did not set 
a specific goal for improvement. 

The Richmond/Burke Job Training Authority used two methods to determine 
if youth had attained work readiness. The first was to have youth take 
the same test at the beginning and end of the summer. The test covered 
15 competencies such as preparing a resume, job interviewing, 
completing tasks effectively, and demonstrating a positive attitude. 
The youth would attain work readiness if they passed one competency 
that they previously failed. If the youth failed this measure or did 
not take the tests, the youth's work readiness would be determined 
using supervisor evaluations. For example, the form required 
supervisors to rate youth as "poor," "average," or "exceeds" in areas 
such as completing tasks effectively and being punctual. 

Recovery Act Funds in Georgia Continue to Be Obligated for Federal-Aid 
Highway Projects: 

The Recovery Act provides funding to states for restoration, repair, 
and construction of highways and other activities allowed under the 
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, which 
include ensuring the project meets all environmental requirements 
associated with the National Environmental Policy Act (NEPA), paying a 
prevailing wage in accordance with federal Davis-Bacon Act 
requirements, complying with goals to ensure disadvantaged businesses 
are not discriminated against in the awarding of construction 
contracts, and using American-made iron and steel in accordance with 
Buy America 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. 

As we reported in July 2009, $932 million was apportioned to Georgia in 
March 2009 for highway infrastructure and other eligible projects. 
[Footnote 25] As of September 1, 2009, $546 million had been obligated. 
[Footnote 26] For the Highway Infrastructure Investment Program, the 
U.S. Department of Transportation has interpreted the term "obligation 
of funds" to mean the federal government's contractual agreement to pay 
for the federal share of the project. This commitment occurs at the 
time the federal government signs a project agreement. As of September 
1, 2009, $10 million had been reimbursed by FHWA.[Footnote 27] 

Almost 70 percent of Recovery Act highway obligations for Georgia have 
been for pavement projects. Specifically, $376 million of the $546 
million obligated as of September 1, 2009, is being used for pavement 
improvement, pavement widening, and new road construction projects. 
Another $49 million was obligated for bridge projects. State officials 
told us they selected projects based on various factors, including 
eligibility requirements, whether the project was shovel ready, and 
geographic dispersion across the state. Figure 2 shows obligations by 
the types of road and bridge improvements being made. 

Figure 2: Highway Obligations for Georgia by Project Improvement Type, 
as of September 1, 2009: 

[Refer to PDF for image: pie-chart] 

Pavement projects total (69 percent, $376.1 million): Pavement 
improvement ($185.9 million): 34%; New road construction ($110.3 
million): 20%; Pavement widening ($79.9 million): 15%. 

Bridge projects total (9 percent, $49.1 million): Bridge replacement 
($49.1 million): 9%. 

Other (22 percent, $120.9 million): 
Other ($120.9 million): 22%. 

Source: GAO analysis of FHWA data. 

Note: "Other" includes safety projects, such as improving safety at 
railroad grade crossings, and transportation enhancement projects, such 
as pedestrian and bicycle facilities, engineering, and right-of-way 
purchases. 

[End of figure] 

GDOT is completing its second, and final, phase of Recovery Act 
planning. The final list of projects was approved by the State 
Transportation Board in August 2009. Projects selected include safety 
improvements, bridge repair, and interstate rehabilitation. GDOT 
officials noted they might add more projects if, as we discuss later, 
bids continue to come in as low as they have in recent months. As of 
September 1, 2009, the department had awarded 108 contracts with a 
total value of $391 million.[Footnote 28] 

We selected five highway contracts to discuss in greater depth with the 
relevant contracting officials--three state-administered projects in 
Charlton, Fulton, and Greene Counties and two locally administered 
projects in Gwinnett County.[Footnote 29] We focused on how the 
contracts were awarded and how they will be monitored. The three 
contracts GDOT awarded were for pavement improvement projects (grading, 
repaving, and road marking) on state road sections in three counties. 
The department awarded the contracts on May 29, 2009, with a projected 
completion date of April 30, 2010, for all three contracts. According 
to department officials, the contracts were awarded competitively to 
contractors on the state's prequalified list.[Footnote 30] The 
officials stated that the successful bids were from 12 percent to 26 
percent lower than the department's estimate for the work, in part 
because of the reduced cost of materials. As we discussed in our July 
2009 report, GDOT has established internal controls intended to 
safeguard Recovery Act projects.[Footnote 31] Contract engineers are to 
perform monthly construction audits on all Recovery Act projects, and 
on-site inspectors will review project progress daily. In addition, 
GDOT's internal audit department plans to perform compliance testing on 
selected contracts. 

Gwinnett County's two projects are intended to manage traffic more 
effectively through the use of surveillance equipment and remote 
traffic signal controls. The contracts were awarded on July 21, 2009, 
with a projected completion date of October 28, 2011. According to 
county officials, the county awarded the contracts competitively to the 
lowest, responsive bidders. Only contractors that are on GDOT's 
prequalified list could bid on the projects. County officials stated 
that bids came in from 30 percent to 35 percent lower than the county's 
original estimates. According to county officials, the projects will be 
overseen by an engineering firm hired to monitor and validate completed 
work compared with contract requirements. More specifically, the firm 
will provide construction engineering supervision services such as 
interpretation of specifications, testing and material certification, 
contract changes, construction documentation, and intermediate and 
final inspections. 

GDOT has created an electronic application to meet FHWA reporting 
requirements on the use of Recovery Act funds. The data collected from 
subrecipients include the number of employees working on a project for 
the month, the number of hours worked on the project for the month, and 
the total payroll for the project that month. In addition to the data 
reported to FHWA on jobs created, GDOT tracks performance measures such 
as the percentage of construction projects completed within the 
expected completion period and percentage of state highways with 
pavements that meet or exceed minimum standards for the Governor's 
Office of Planning and Budget. 

Although Reporting Will Be Decentralized, Georgia Has Been Preparing 
State Agencies for Recovery Act Reporting: 

Since our last Recovery Act report, Georgia has decided to decentralize 
Recovery Act reporting. Although individual state agencies will be 
responsible for reporting, the State Accounting Office is taking a 
number of steps to prepare agencies. 

Georgia Has Instituted a Decentralized Reporting Approach: 

Since the issuance of OMB's June 22, 2009, guidance, Georgia has 
modified its approach to Recovery Act reporting.[Footnote 32] We 
reported in July 2009 that the State Accounting Office planned to use a 
Web-based system to capture information from state agencies and then 
centrally report the data to OMB.[Footnote 33] However, on August 7, 
2009, the State Accounting Office issued a memorandum instituting a 
decentralized approach to Recovery Act reporting. The reasons for the 
change in approach included the following: 

* OMB's guidance clarified that "prime recipients" (that is, the state 
agencies) were responsible for recipient and subrecipient data, not the 
state. 

* Decentralized reporting would avoid duplication of effort because 
several state agencies were required to report additional information 
to federal agencies. 

* Funds needed to adequately develop a long-term centralized data 
warehouse had not materialized as anticipated. 

* Many state agencies had requested permission to pursue a 
decentralized reporting approach. 

Figure 3 illustrates the decentralized Recovery Act reporting approach 
in Georgia. 

Figure 3: Decentralized Recovery Act Reporting Structure in Georgia: 

[Refer to PDF for image: illustration] 

The figure illustrates the decentralized Recovery Act reporting 
approach in Georgia. This approach requires lead state agencies in 
Georgia, who are prime recipients and are also responsible for 
subrecipient data, to report directly to OMB. 

Source: GAO. 

[End of figure] 

The August 7, 2009, memorandum from the State Accounting Office further 
established the roles and responsibilities of state agencies and their 
subrecipients. Each state agency, institution, or authority that 
received the initial award of Recovery Act funds is responsible for 
reporting required information into OMB's Web reporting system. 
Agencies generally will not be allowed to delegate the reporting 
responsibility to subrecipients, so that the state will have better 
control over the accuracy, timeliness, and completeness of the reported 
information. Agency heads and chief financial officers will be held 
accountable for the accuracy, completeness, and timeliness of 
reporting. As a standard internal control to ensure a proper level of 
review, the State Accounting Office will require a certification of the 
data from each agency head and chief financial officer prior to 
submission to OMB. By signing the certification, the agency head and 
chief financial officer confirm that (1) the report does not contain 
any misleading information or untrue statement of material fact, (2) 
the report does not omit any required information, and (3) the agency 
has designed and evaluated the effectiveness of its internal controls 
over reporting to provide reasonable assurance about the reliability 
and preparation of the report. 

Although individual state agencies will be responsible for Recovery Act 
reporting to OMB, the state still will collect some information 
centrally. The State Accounting Office plans to develop a state summary 
report that will capture consolidated Recovery Act information for 
Georgia's Recovery Act Web site, the Governor, the legislature, and 
other stakeholders. The exact format of the report still has not been 
determined. 

Georgia Plans to Provide Technical Assistance to State Agencies and 
Monitor Recovery Act Reporting: 

The state's Recovery Act implementation team and State Accounting 
Office plan to work with state agencies to help them prepare for 
Recovery Act reporting and monitor their submissions.[Footnote 34] For 
the first report due on October 10, 2009, the implementation team plans 
to hold weekly "countdown" meetings from August 26, 2009, to November 
15, 2009, to help prepare state agencies for the reporting deadline. At 
these countdown meetings, agency officials will have an opportunity to 
ask questions, propose different scenarios for discussion, and discuss 
lessons learned after their initial submission. In addition, the State 
Accounting Office plans to provide training to state agencies. The 
training will be targeted to Recovery Act reporting coordinators, chief 
financial officers, and other agency staff involved in Recovery Act 
reporting. It will focus on the reporting requirements and include a 
detailed example of how to complete OMB's data collection tool. 

Officials from the State Accounting Office also plan to work 
individually with selected agency heads and chief financial officers to 
assess their agencies' reporting readiness. The State Accounting Office 
started conducting these readiness reviews in early September 2009. 
These reviews will be mandatory for seven agencies selected based on 
factors such as the amount of Recovery Act funds received. The State 
Accounting Office has developed a questionnaire to help agencies 
prepare for these reviews. The agency will have 60 minutes to present 
to a team of reviewers, including staff from the State Accounting 
Office, Governor's Office of Planning and Budget, and other agency 
heads. The presentations are to focus on the following: 

* how the agency plans to collect the information for the reports, 

* the controls in place to review and validate the prime recipient data 
and data from subrecipients, 

* the certification and submission process, and: 

* postsubmission data quality reviews. 

The State Accounting Office may ask other state agencies to present 
their process and procedures for Recovery Act reporting, as necessary. 

The State Accounting Office plans to monitor state agencies' Recovery 
Act reporting using a risk-based approach; that is, it developed an 
audit risk tool to prioritize resources and identify high-risk 
agencies. The tool identifies high-risk agencies based on the following 
criteria: (1) award amount, (2) prior audit findings, (3) operational 
process or system complexity, (4) new program, (5) number of 
subrecipients or vendors, (6) lack of manpower or resources, and (7) 
analysis of the risk-management plans required by the Governor's Office 
of Planning and Budget.[Footnote 35] Each of these criteria will be 
graded using a three-level scale (high, medium, and low risk). A 
composite score will be derived to determine the overall audit risk of 
the agency. The State Accounting Office plans to contract with an 
accounting firm to assist with Recovery Act monitoring. The plan is for 
the selected firm to perform reviews of agency internal controls and 
perform detailed testing based upon the risks and agencies identified 
in the ranking tool. 

State Agencies or Other Direct Recipients Are Taking Steps to Prepare 
for Recovery Act Reporting: 

State agencies are taking a number of different steps to prepare for 
Recovery Act reporting. For the Federal-Aid highway program, GDOT has 
developed an electronic tool to capture data from subrecipients. 
Information on jobs created and retained is collected from 
subrecipients on a monthly basis and includes the number of employees 
working on the project each month, number of hours worked on the 
project, and the total payroll for the month. GDOT field personnel and 
headquarters staff in the construction division review the data. The 
internal audit department will perform spot checks of contractor 
employment records. 

In contrast to the highway program, where GDOT is responsible for all 
of the Recovery Act reporting in the state, both GDOT and transit 
providers that are recipients of Transit Capital Assistance grants are 
responsible for Recovery Act reporting (see fig. 4). GDOT will report 
data supplied by the small urban and rural transit providers it 
oversees. To date, GDOT has not issued guidance on Recovery Act 
reporting to its subrecipients. To capture the data from its 
subrecipients, the department plans to use a system similar to the one 
it has developed for the highway program. GDOT's internal audit 
department plans to perform a review of the data submitted to OMB. 
Among other things, it will verify reported projects, subrecipients, 
and vendors; analyze the reasonableness of job impact numbers; and 
identify missing data that should be reported. 

Figure 4: Transit Recovery Act Reporting Structure for GDOT and Transit 
Providers in Metropolitan Atlanta: 

[Refer to PDF for image: illustration] 

The figure illustrates the Transit Recovery Act reporting structure for 
the Georgia Department of Transportation (GDOT) and transit providers 
in metropolitan Atlanta. Both GDOT and the transit providers in 
metropolitan Atlanta will report directly to OMB. Seven metropolitan 
Atlanta transit agencies are responsible for Recovery Act reporting, 
which includes MARTA, the Georgia Regional Transportation Authority, 
and the following counties, Cobb, Douglas, Gwinnett, Cherokee, and 
Henry. GDOT will report for its small urban and rural subrecipients, 
and MARTA will report for its subrecipient, Clayton County. 

Source: GAO. 

[End of figure] 

Both of the transit providers with which we spoke still were 
determining how to meet Recovery Act reporting requirements. For 
example, after reviewing guidance from FTA and OMB, Gwinnett County had 
not yet determined how it would account for job creation among its 
contractors. Officials cited their bus overhaul project as an example 
of how complicated it could be to estimate jobs. The bus overhaul work 
was awarded to a single contractor with subcontracts for engine 
overhaul, cooling system upgrades, and bus paint and body work. 
Gwinnett County plans to work with its contractors to come up with a 
methodology for estimating jobs created. MARTA had formed a working 
group to develop plans for Recovery Act reporting. For activities such 
as preventive maintenance, it plans to use the factors in the OMB 
guidance to convert staff hours to full-time equivalents. For its fire 
prevention system upgrade, it has issued an addendum to the proposed 
contract documents requiring information on jobs created and retained. 
Officials noted that it was unclear if they should track jobs 
associated with their bus purchase. FTA's guidance on its reporting 
requirements indicated that transit providers did not need to report 
jobs associated with the vehicle manufacturing process because they 
were indirect jobs; however, OMB's guidance did not clearly indicate 
that jobs associated with vehicle procurements were indirect jobs. 

For the weatherization program, GEFA will report data supplied by its 
service providers. According to GEFA officials, its contracts with 
service providers require them to provide GEFA with a report on the use 
of Recovery Act funding within 5 days of the end of each quarter. These 
reports are to include the total amount of funds received and spent; a 
list of the projects and activities funded, including a program 
description, completion status, and an estimate of the jobs created or 
retained; and details on subawards and other payments. GEFA officials 
are developing an electronic data collection tool to meet reporting 
requirements. This tool is projected to be implemented by September 30, 
2009. All of the service providers must use the tool and certify that 
the information presented is correct. According to GEFA officials, the 
agency has not yet provided guidance to its service providers on 
Recovery Act reporting, but a webinar is planned for September 24, 
2009. 

For the WIA Youth Program, GDOL will be responsible for submitting 
information supplied by the local workforce boards. The local workforce 
boards will be required to submit data as of August 30, 2009. GDOL set 
this early cutoff date in order to have the data ready by October 10, 
2009, as required. The department issued an OMB-developed spreadsheet 
for the local workforce boards to complete and guidance on August 28, 
2009. The department plans to assess data quality during its regular 
monitoring visits, which include a financial component. 

Georgia's Comments on This Summary: 

We provided the Governor of Georgia with a draft of this appendix on 
September 8, 2009, and a representative from the Governor's office 
responded on September 9, 2009. The official agreed with our draft, 
stating that it accurately reflects the current status of the Recovery 
Act program in Georgia. 

GAO Contacts: 

Terri Rivera Russell, (404) 679-1925 or russellt@gao.gov: 

Alicia Puente Cackley, (202) 512-7022 or cackleya@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Paige Smith, Assistant 
Director; Nadine Garrick, analyst-in-charge; Chase Cook; Erica 
Harrison; Marc Molino; Daniel Newman; Barbara Roesmann; David 
Shoemaker; and Robyn Trotter made major contributions to this report. 

[End of section] 

Footnotes for Appendix VI: 

[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[2] According to state budget officials, the only exceptions to the 5 
percent budget cut were the Medicaid, PeachCare (the state's health 
program for children), and Education programs--which were cut by 3 
percent--and the Georgia Department of Behavioral Health & 
Developmental Disabilities (the department that provides mental health 
services), which was not cut at all. Medicaid Federal Medical 
Assistance Percentage grant awards under the Recovery Act are discussed 
in detail in [hyperlink, http://www.gao.gov/products/GAO-09-1016]. 

[3] See OMB Memorandum, M-09-18, Payments to State Grantees for 
Administrative Costs of Recovery Act Activities (May 11, 2009). 

[4] Georgia is behind on its SWCAP plans. It is currently working from 
its 2004 plan. The State Auditor cited the state's failure to prepare 
and submit a SWCAP plan as a finding in its 2008 Single Audit report. 

[5] For the fiscal year 2009 Single Audit report, the State Auditor 
estimates its workload will increase by about 3,500 audit hours because 
of new internal control and program requirements associated with the 
Recovery Act. For this Single Audit report, the State Auditor plans to 
audit Recovery Act funds expended at four state agencies, including the 
Georgia Departments of Labor and Transportation. 

[6] The other two public transit programs receiving Recovery Act funds 
are the Fixed Guideway Infrastructure Investment program and the 
Capital Investment Grant program, each of which was apportioned $750 
million. The Transit Capital Assistance Program and the Fixed Guideway 
Infrastructure Investment program are formula grant programs, which 
allocate funds to states or their subdivisions by law. Grant recipients 
may then be reimbursed for expenditures for specific projects based on 
program eligibility guidelines. The Capital Investment Grant program is 
a discretionary grant program, which provides funds to recipients for 
projects based on eligibility and selection criteria. 

[7] Urbanized areas are areas encompassing a population of not less 
than 50,000 people that have been defined and designated in the most 
recent decennial census as an "urbanized area" by the Secretary of 
Commerce. Nonurbanized areas are areas encompassing a population of 
fewer then 50,000 people. 

[8] The 2009 Supplemental Appropriations Act authorizes the use of up 
to 10 percent of each apportionment for operating expenses. Pub. L. No. 
111-32, §1202, 123 Stat. 1859, 1908 (June 24, 2009). In contrast, under 
the existing program, operating assistance is generally not an eligible 
expense for transit agencies within urbanized areas with populations of 
200,000 or more. 

[9] The federal share under the existing formula grant program is 
generally 80 percent. 

[10] Designated recipients are entities designated by the chief 
executive officer of a state, responsible local officials, and publicly 
owned operators of public transportation to receive and apportion 
amounts that are attributable to transportation management areas. 
Transportation management areas are areas designated by the Secretary 
of Transportation as having an urbanized area population of more than 
200,000, or upon request from the governor and MPOs designated for the 
area. MPOs 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 plan and the approved State Transportation Improvement 
Program (STIP). 

[11] Pub. L. No. 111-5, 123 Stat. 115, 209 (Feb. 17, 2009). 

[12] The jurisdiction of some urbanized areas within this state crosses 
into at least one other state. Therefore, some urbanized areas are 
included in multiple state totals. 

[13] The financial management oversight review examined the 
effectiveness of GDOT's internal controls as they related to compliance 
with FTA requirements for financial management systems. 

[14] A material weakness is a deficiency or deficiencies in internal 
control that raises a reasonable possibility that a material 
misstatement of the entity's financial statements will not be prevented 
or detected on a timely basis. Significant deficiencies are less severe 
than material weaknesses, yet important enough to merit attention by 
those charged with governance. 

[15] FTA's triennial review program evaluates grantee adherence to 
federal requirements at least once every 3 years. See GAO, Public 
Transportation: FTA's Triennial Review Program Has Improved, But 
Assessments of Grantees' Performance Could Be Enhanced, [hyperlink, 
http://www.gao.gov/products/GAO-09-603] (Washington, D.C.: June 30, 
2009). 

[16] The Weatherization Assistance Program funded through annual 
appropriations is not subject to the Davis-Bacon Act. 

[17] The five types of "interested parties" are state weatherization 
agencies, local community action agencies, unions, contractors, and 
congressional offices. 

[18] H.R. Rep. No. 111-16, at 448 (2009). 

[19] U.S. Department of Labor, Training and Employment Guidance Letter 
No. 14-08 (Mar. 18, 2009). 

[20] Current federal wage law specifies a minimum wage of $7.25 per 
hour. Where federal and state laws have different minimum wage rates, 
the higher rate applies. 

[21] We visited the Atlanta Regional Workforce Board and Coastal 
Workforce Services and interviewed officials at the Richmond/Burke Job 
Training Authority. We also interviewed five service providers and one 
contractor who provided payroll and workers' compensation services. In 
addition, we visited four work sites. We selected these local areas 
based on the amount of WIA youth funds they received and geographic 
distribution. 

[22] The federal minimum wage changed from $6.55 to $7.25, effective 
July 24, 2009. 

[23] These monitoring efforts were in addition to the normal monitoring 
process, in which each local workforce board is reviewed annually. 

[24] Local areas' work readiness measures should include, among other 
things, a preassessment to identify work readiness skills at the start 
of the experience and a postassessment to determine attainment of 
goals. 

[25] GAO, Recovery Act: States' and Localities' Current and Planned 
Uses of Funds While Facing Fiscal Stresses (Georgia), [hyperlink, 
http://www.gao.gov/products/GAO-09-830SP] (Washington, D.C.: July 8, 
2009). 

[26] This does not include obligations associated with $25 million of 
apportioned funds that were transferred from FHWA to FTA for transit 
projects. Generally, FHWA has authority pursuant to 23 U.S.C. § 
104(k)(1) to transfer funds made available for transit projects to FTA. 

[27] States request reimbursement from FHWA as the state makes payments 
to contractors working on approved projects. 

[28] This amount represents only those contracts awarded by the Georgia 
Department of Transportation. Some localities within Georgia also may 
have awarded contracts with Recovery Act funds. 

[29] We selected the state-administered highway projects based on 
geographic distribution and total award amounts (more than $2 million). 
We selected the two Gwinnett County projects because they were 
described in our July 2009 report. 

[30] As stated on GDOT's subcontractor application, in order to be 
added to the state's prequalified contractor's list, the contractor 
must receive a favorable review of its application, which includes 
disclosure of general company information, work history, company 
management structure, past job performance evaluations, fixed assets, 
claims of damage or violations, and reference letters. 

[31] [hyperlink, http://www.gao.gov/products/GAO-09-830SP]. 

[32] OMB Memorandum, M-09-21, Implementing Guidance for the Reports on 
Use of Funds Pursuant to the American Recovery and Reinvestment Act of 
2009 (June 22, 2009). 

[33] [hyperlink, http://www.gao.gov/products/GAO-09-830SP]. 

[34] As noted in our April 2009 report, Georgia's Recovery Act 
implementation team includes a senior management team, officials from 
various state agencies, and a group to support accountability and 
transparency. 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.: April 23, 2009). 

[35] As stated in our July 2009 report, the Governor's Office of 
Planning and Budget required state agencies receiving Recovery Act 
funds to complete risk management plans. The State Accounting Office 
plans to evaluate these plans to help it determine where to apply audit 
resources. Some of the risks identified by state agencies included 
risks associated with reporting requirements, subrecipient issues, 
information system issues, and insufficient staff. See GAO-09-830SP. 

[End of section] 

Appendix VII: Illinois: 

Overview: 

The following summarizes GAO's work on the third of its bimonthly 
reviews of American Recovery and Reinvestment Act (Recovery 
Act)[Footnote 1] spending in Illinois. The full report on all of our 
work, which covers 16 states and the District of Columbia, is available 
at [hyperlink, http://www.gao.gov/recovery/]. 

GAO's work in Illinois updated funding information on three education 
and one public housing program, and focused on three other programs 
funded under the Recovery Act--Highway Infrastructure Investment, the 
Transit Capital Assistance Program, and the Workforce Investment Act 
(WIA) Youth Program. The three programs we focused on were selected for 
different reasons: 

* Illinois developed its own criteria to define economically distressed 
areas for projects to be funded with Highway Infrastructure Investment 
funds. We followed up to determine if Illinois reassigned any of its 
transportation projects in light of any feedback from federal or state 
officials pertaining to the state's criteria in identifying distressed 
areas. In addition, highway contracts have been underway in Illinois 
and provided an opportunity to review oversight procedures for use of 
Recovery Act funds. 

* The deadline for obligating a portion of Transit Capital Assistance 
funds was September 1, 2009, and, further, this program provided an 
opportunity to review non-state entities that receive Recovery Act 
funds. 

* The Recovery Act provided funding for WIA Youth Program activities 
including summer employment and, therefore, provided an opportunity to 
review a program that was well underway in Illinois. 

For these three programs in Illinois, GAO focused on how funds were 
being used; how safeguards were being implemented, including those 
related to procurement of goods and services; and how results were 
being assessed. Consistent with the purposes of the Recovery Act, funds 
from the programs we reviewed are being directed to help Illinois and 
local governments stabilize their budgets, stimulate infrastructure 
development and expand existing programs. 

* Three education programs under the Recovery Act. The U.S. Department 
of Education (Education) has awarded Illinois approximately $1.5 
billion in U.S. Department of Education State Fiscal Stabilization Fund 
(SFSF) funds. These funds have helped the state restore its school 
districts' funding shortages. As of September 1, 2009, local 
educational agencies (LEAs) have drawn down $1.2 billion. Additionally, 
Education has awarded Illinois $210 million in Recovery Act funds under 
Title I, Part A, of the Elementary and Secondary Education Act (ESEA) 
of 1965. These funds are to be used to help educate disadvantaged 
youth; for example, through providing professional development to 
teachers on how to relate to this special population. Based on 
information available as of September 1, 2009, LEAs have drawn down 
$431,500. Education has also awarded Illinois $253 million of its 
Recovery Act funds under the Individuals with Disabilities Education 
Act (IDEA), Part B. These funds are to be used to support special 
education and related services for infants, toddlers, children, and 
youth with disabilities. Illinois LEAs have drawn down $1.4 million in 
IDEA funds as of September 1, 2009. While the first half were available 
as of April 1, 2009, Education announced on September 4, 2009 that the 
second half of Title I and IDEA Recovery Act funds were available. 

* Highway Infrastructure Investment. The U.S. Department of 
Transportation's (DOT) Federal Highway Administration (FHWA) 
apportioned $936 million in Recovery Act funds to Illinois for highway 
infrastructure projects. As of September 1, 2009, $736 million had been 
obligated and $200 million, the most of any state in the country, had 
been reimbursed by the federal government. 

* Transit Capital Assistance Program. The U.S. Department of 
Transportation's Federal Transit Administration (FTA) apportioned 
$375.5 million in Recovery Act funds to Illinois and urbanized areas 
located in the state. Of this amount, $354.3 million was for urbanized 
areas, and $21.2 million was for non-urbanized areas. As of September 
1, 2009, the federal government's obligation for Illinois and urbanized 
areas located in Illinois was $360.9 million. 

* Workforce Investment Act Youth Program. The U.S. Department of Labor 
(Labor) allotted about $62 million to Illinois in Workforce Investment 
Act Youth Program Recovery Act funds. The state has allocated about $53 
million to local workforce investment boards, and as of September 1, 
2009, expended about $22 million. As of the end of August, almost 
13,000 youth had been placed in summer employment activities across the 
state. Illinois expects to meet its target for youth summer employment 
activities of 15,000 youth, and the local workforce area in the state 
receiving the most funds--the Chicago local workforce area--has met its 
target of 7,300 youth. We found that the type of summer employment 
opportunities varied across the two workforce areas we visited and 
included positions such as office assistants, teacher's aides, camp 
counselor assistants, and clerical aides. 

* Public Housing Capital Fund. Illinois has 99 public housing agencies 
that, in total, have received $221 million in Recovery Act-funded, 
Public Housing Capital Fund formula grants. As of September 5, 2009, 83 
of these public housing agencies have obligated a total of $76 million 
and 56 have drawn down a total $6 million. 

Recipient Reporting: States and localities are among those receiving 
Recovery Act funds directly from federal agencies that are expected to 
report quarterly on a number of measures--including use of the funds, 
an estimate of the number of jobs created and the number of jobs 
retained. In preparation for these reporting requirements, Illinois 
issued guidance since our last report requiring state agencies to 
develop procedures for collecting, entering, reviewing and reconciling 
these data elements. The state is also in the process of conducting a 
trial run of the reporting process for state agencies required to 
report on the impact of the act. In reviewing plans for complying with 
recipient reporting, we found that state and local agencies varied in 
their approach to, and understanding of, reporting requirements. For 
example, the Illinois State Board of Education is currently working on 
a collection tool that will be used by LEAs in reporting Recovery Act 
required data elements to the Board, while officials from transit 
agencies told us that they largely had existing systems in place to 
report required information. Local workforce board officials told us 
that while they are tracking required information for reporting, they 
were unclear on how to report potential jobs created or retained 
through the WIA program's summer youth component. 

As Illinois Begins Fiscal Year 2010 Facing Fiscal Stress, Recovery Act 
Funds Continue to Provide Financial Relief: 

Large decreases in Illinois' state revenues in fiscal year 2009 
contributed to an anticipated shortfall of $3.7 billion that will be 
carried into fiscal year 2010, which began on July 1, 2009. The budget 
for fiscal year 2010 was passed in July 2009, appropriating $26.1 
billion against $29.3 billion in estimated revenues and transfers in as 
well as $2.8 billion in statutory transfers out, such as debt payments. 
The appropriation for fiscal year 2010 is over $4 billion less than 
that of fiscal year 2009, although the fiscal year 2010 appropriation 
does not include funds to pay down the estimated $3.9 billion backlog 
in unpaid bills from fiscal year 2009. The state borrowed $1.250 
billion in August 2009 to assist in paying down this backlog of bills. 
The $29.3 billion in revenue budgeted for fiscal year 2010 is about 
$150 million more than estimated fiscal year 2009 revenues. However, 
state revenue sources have declined significantly since fiscal year 
2008. See Table 1. Budgeted state revenue sources in fiscal year 2010 
are nearly $3 billion less than those earned in fiscal year 2008. 
Federal revenue sources increased substantially over the same time 
period, from $4.815 billion in fiscal year 2008 to a budgeted $7.131 
billion in fiscal year 2010. 

Table 1: State of Illinois Revenue Summary for Fiscal Years 2008, 2009 
and 2010 (in billions of dollars): 

Total Revenues: 
Fiscal Year 2008 Actual: $27.759; 
Fiscal Year 2009 Estimated as of 9/9/09: $27.551; Fiscal Year 2010 
Budget as of 7/15/09: $27.078. 

State Sources: 
Fiscal Year 2008 Actual: $22.944; 
Fiscal Year 2009 Estimated as of 9/9/09: $20.984; Fiscal Year 2010 
Budget as of 7/15/09: $19.947. 

Federal Sources: 
Fiscal Year 2008 Actual: $4.815; 
Fiscal Year 2009 Estimated as of 9/9/09: $6.567; Fiscal Year 2010 
Budget as of 7/15/09: $7.131. 

Statutory Transfers In: 
Fiscal Year 2008 Actual: $1.900; 
Fiscal Year 2009 Estimated as of 9/9/09: $1.593; Fiscal Year 2010 
Budget as of 7/15/09: $2.221. 

Total Operating Revenues Plus Transfers In: Fiscal Year 2008 Actual: 
$29.659; 
Fiscal Year 2009 Estimated as of 9/9/09: $29.144; Fiscal Year 2010 
Budget as of 7/15/09: $29.299. 

Source: Illinois Governor's Office data. 

[End of table] 

The fiscal year 2010 budget included $3.4 billion in borrowing to cover 
required pension costs, which would make additional funds available for 
other needs. The General Assembly granted the Governor discretion over 
these additional funds by allocating $2.2 billion to human services 
programs and $1.2 billion to undesignated programs in lump sums, as 
opposed to specific line items, requiring the Governor to make the 
final decision as to which programs to fund. 

Governor Quinn also signed a 6-year, $31 billion capital budget in July 
2009, funded by bonds from the state in addition to federal and local 
matching funds. State officials expect over $3.7 billion in Recovery 
Act funding for projects included in the capital budget, depending upon 
the extent to which the state obtains additional grant money available 
through the Act. The state's anticipated contribution to the overall 
plan is $13 billion. The capital plan calls for increases in a variety 
of motorist fees, in addition to the September 1, 2009 increases to 
sales taxes on candy, alcoholic beverages and other products to support 
the bonds. State officials also anticipated a new revenue stream of 
$300 million annually from video gaming terminals to support the bonds, 
although revenues from the terminals were expected to be limited in 
fiscal year 2010 while the new program was implemented. 

Recovery Act funds continued to assist the state in stabilizing its 
distressed financial condition. According to the Commission on 
Government Forecasting and Accountability, the receipt of Recovery Act 
funds allowed Illinois to avoid its largest ever 1-year decrease in 
revenue in fiscal year 2009. State officials expected the receipt of 
Recovery Act funding to allow the state to include an additional $1.965 
billion in services in the fiscal year 2010 budget. This includes 
$1.016 billion from SFSF and $949 million made available as a result of 
the increased FMAP, compared to $1.039 billion from SFSF and $1.145 
billion[Footnote 2] made available as a result of the increased FMAP in 
fiscal year 2009. State officials said that the state did not have any 
reserve funds available from prior years. 

An official from the Illinois Office of Management and Budget said that 
the state is likely to seek an increase in tax revenues later in fiscal 
year 2010 and expected to see enhanced revenues as a result of an 
economic recovery from the recession over the next two fiscal years. 
This official anticipated that the revenue increases would provide the 
support necessary to transition into fiscal year 2011 when SFSF from 
the Recovery Act are not expected to be available. This state official 
also acknowledged that the state is likely to maintain a balance of 
approximately $3.7 billion in unpaid bills at the end of fiscal year 
2010. While this is a decrease from the expected balance of $3.9 
billion in unpaid bills at the end of fiscal year 2009, any balance at 
the end of fiscal year 2010 will still affect the budget for fiscal 
year 2011. The state has also formed a Pension Modernization Task Force 
to consider options for pension reform, as its pension plans contended 
with over $54 billion in unfunded liabilities as of the state's most 
recently published calculation at the end of fiscal year 2008. 

Following the federal Office of Management and Budget's (OMB) guidance 
on central administrative costs, an official from the Illinois 
Governor's Office said that Illinois had not determined the method by 
which to submit reimbursement requests[Footnote 3]. However, this 
official noted that the state was leaning towards the billed services 
option because of the fluidity remaining in the fiscal year 2010 
budget. The alternate option would rely on budgeted or estimated costs 
instead of actual costs, which would present a challenge for Illinois 
while its budget was still undergoing changes. The decision as to which 
method to use in claiming reimbursement for administrative costs was 
being delayed upon advice from the state's contractor for Statewide 
Cost Allocation Plan issues, who suggested that further legislation may 
be required in order for the state to comply with OMB's guidance. 
According to the official, the contractor advised the state that 
applying for reimbursement of administrative costs would be premature 
before the passage of H.R. 2182, currently under consideration in 
Congress[Footnote 4]. The state sought clarification from the U.S. 
Department of Health and Human Services to address this concern, but as 
of September 10, 2009 had not received a response. The official 
confirmed that the state has identified programs for which it could 
eventually receive reimbursement for administrative costs and believed 
that the costs would fall within OMB's defined limit of 0.5 percent of 
Recovery Act funds received. This official further stated that Illinois 
may have been better positioned to monitor Recovery Act activities more 
aggressively and proactively if the funding for the administrative 
costs of doing so were more readily available. 

State Fiscal Stabilization Fund Largest Disbursement of Recovery Act 
Education Funds: 

SFSF: 

The Recovery Act created a State Fiscal Stabilization Fund (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 be used to alleviate shortfalls 
in state support for education to school districts and public 
institutions of higher education (IHE). The initial award of SFSF 
funding required each state to submit an application to the U.S. 
Department of Education that provides several assurances, including 
that the state will meet maintenance-of-effort requirements (or it will 
be able to comply with waiver provisions) and that it will implement 
strategies to meet certain educational requirements, such as increasing 
teacher effectiveness, addressing inequities in the distribution of 
highly qualified teachers, and improving the quality of state academic 
standards and assessments. In addition, states were required to make 
assurances concerning accountability, transparency, reporting, and 
compliance with certain federal laws and regulations. States must 
allocate 81.8 percent of their SFSF 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). After maintaining state support for 
education at fiscal year 2006 levels, states must use education 
stabilization funds to restore state funding to the greater of fiscal 
year 2008 or 2009 levels for state support to school districts or 
public IHEs. When distributing these funds to school districts, states 
must use their primary education funding formula, but they can 
determine how to allocate funds to public IHEs. In general, school 
districts maintain broad discretion in how they can use stabilization 
funds, but states have some ability to direct IHEs in how to use these 
funds. 

ESEA Title I: 

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 (ESEA) of 1965. The Recovery 
Act requires these additional funds to be 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 
current statutory and regulatory requirements and must obligate 85 
percent of these funds by September 30, 2010.[Footnote 5] The U.S. 
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 U.S. Department of Education made the first half of states' 
Recovery Act ESEA Title I, Part A funding available on April 1, 2009 
and announced on September 4, 2009 that it had made the second half 
available. 

IDEA: 

The Recovery Act provided supplemental funding for programs authorized 
by Part B of the Individuals with Disabilities Education Act (IDEA), 
the major federal statute that supports the provisions of early 
intervention and special education and related services for infants, 
toddlers, children, and youth with disabilities. Part B funds programs 
that ensure preschool and school-aged children with disabilities have 
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 (section 619). The U.S. Department of 
Education made the first half of states' Recovery Act IDEA funding 
available to state agencies on April 1, 2009 and announced on September 
4, 2009 that it had made the second half available. 

Illinois' Allocation of Recovery Act Funds from the Department of 
Education: 

As of September 1, 2009, Illinois had been awarded $1.5 billion, $210 
million, and $253 million in SFSF; ESEA Title I, Part A; and IDEA, Part 
B Recovery Act funds, respectively. Of these amounts, approximately 
$1.2 billion in SFSF; $431,500 in Title I, Part A; and $1.4 million in 
IDEA, Part B funds have been disbursed to LEAs. Illinois did not use 
any SFSF funds to restore funding to public institutions of higher 
education (IHEs) for fiscal year 2009. 

In fiscal year 2010, both LEAs and IHEs will receive SFSF funds to 
offset cuts in state education funding. SFSF distributions in 2010 are 
estimated to represent about 13 percent of the state's spending of $7.3 
billion in general funds on K-12 education. The state's total fiscal 
year 2010 budget for K-12 education is projected to be approximately 
$11 billion, of which about $2.3 billion represents non-Recovery Act 
federal spending. In fiscal year 2010, the Governor plans to also use 
all SFSF government services funds for education. Eighty-six percent of 
government services funds will be used to fund LEAs and 14 percent will 
be used for public higher education. Table 2 below shows how funds were 
awarded and disbursed for three Education programs in Illinois. 

Table 2: Awards and Disbursements of IDEA-Part B, SFSF, and ESEA Title 
I-Part A Recovery Act Funds: 

Program Name--2009 Funding: IDEA--Part B; Amount Awarded to State: $253 
million; 
Amount State Disbursed to LEAs: $1.4 million. 

Program Name--2009 Funding: SFSF; 
Amount Awarded to State: $1.5 billion; 
Amount State Disbursed to LEAs: $1.2 billion. 

Program Name--2009 Funding: ESEA Title I--Part A; Amount Awarded to 
State: $210 million; 
Amount State Disbursed to LEAs: $431,500. 

Source: GAO analysis of U.S. Department of Education data and Illinois 
State Board of Education data. 

[End of table] 

There was little Recovery Act activity related to the ESEA Title I and 
IDEA programs in Illinois in fiscal year 2009. Only four LEAs applied 
for 2009 ESEA Title I Recovery Act funds, and 11 LEAs applied for 2009 
IDEA Recovery Act funds. Local officials said that they did not apply 
for these funds in 2009 because of a burdensome application process 
over a relatively short time span, in addition to the fact that the 
funds available in fiscal year 2009 would still be available in fiscal 
year 2010. 

OIG Reviewing Illinois Education Recovery Act Internal Controls: 

The U.S. Department of Education's Office of the Inspector General 
(OIG), Chicago/Kansas City/Dallas Region, is currently reviewing the 
internal controls used by entities in Illinois--such as LEAs --that are 
responsible for handling Recovery Act funds. This review will be 
performed in two phases. Phase I determines whether entities charged 
with responsibility for overseeing Recovery Act funds have designed 
internal control systems that are sufficient to provide reasonable 
assurance of compliance with the Recovery Act, program regulations, and 
guidance. During Phase II, reviewers will test controls to determine 
whether they are effective, and determine whether the entity is 
complying with applicable laws and regulations. 

The scope of the review will be limited to controls over data quality, 
cash management, sub-recipient monitoring, and use of Recovery Act 
funds for the SFSF, ESEA Title I, and IDEA programs. The OIG has 
selected a small, medium, and large LEA for its detailed fieldwork. It 
will also include the Illinois State Board of Education's (ISBE's) role 
in distributing these funds in the scope of its review. The OIG plans 
to release its Phase I report on September 30, 2009. 

Funds Distribution, Cash Management, and Reporting: 

ISBE is using the SFSF stabilization education funds to fill budget 
shortfalls in its General State Aid payments to LEAs. Therefore, ISBE 
officials explained, IBSE is required by state law to distribute these 
funds on a predetermined schedule of payments--semi-monthly, in equal 
installments on the 10TH and 20TH of each month. However, SFSF funds 
are federal funds governed by the applicable federal cash management 
rules.[Footnote 6] In general, these rules require executive agencies 
implementing federal assistance programs and states participating in 
them to minimize the time elapsing between the transfer of federal 
funds to a state and the disbursement of those funds by the state and 
the time elapsing between a state's disbursement of federal funds to 
subgrantees, such as LEAs, and the disbursement of those funds by 
subgrantees.[Footnote 7] 

ISBE has used SFSF funds for its semi-monthly payments to LEAs since 
April 2009, but has not documented cash needs for these payments as 
required prior to making the semi-monthly disbursements. State 
officials explained that ISBE does not have the ability to identify 
specific cash needs from LEAs prior to distributing SFSF. Failure to 
adequately manage cash needs could result in two possible adverse 
effects on the federal government. First, ISBE may draw down SFSF funds 
unnecessarily by not minimizing the time elapsing between its drawdown 
and its payments to LEAs, effectively borrowing money from the federal 
government contrary to the general cash management rules. Second, the 
federal government may be subsidizing excess cash balances by LEAs if 
ISBE makes unnecessary payments to the LEAs and the LEAs do not then 
remit interest on the balances to the federal government. 

ISBE, as part of its quarterly expenditure reporting process, completes 
a Cash Summary report designed to identify excess cash balances 
maintained by LEAs. According to state officials, LEAs are considered 
to be maintaining excess cash balances when they do not expend the 
funds they receive within the established timeframe. Cash management by 
ISBE and LEAs in Illinois is an issue we intend to continue addressing 
in future reports. The OIG is also currently evaluating Illinois' 
timeliness in monitoring excess cash among LEAs. 

Illinois Is Managing Highway Projects and Will Be Asked to Review Its 
Determinations of Economically Distressed Areas: 

The Recovery Act provides funding to the states for restoration, 
repair, and construction of highways and other activities allowed under 
the 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 the states through federal-aid highway program 
mechanisms and states must follow the existing program requirements, 
which include ensuring the project meets all environmental requirements 
associated with the National Environmental Policy Act (NEPA), paying a 
prevailing wage in accordance with federal Davis-Bacon Act 
requirements, complying with goals to ensure disadvantaged businesses 
are not discriminated against in the awarding of construction 
contracts, and using American-made iron and steel in accordance with 
Buy America 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. 

Illinois was apportioned $936 million in March 2009 for highway 
infrastructure and other eligible projects. As of September 1, 2009, 
$736 million has been obligated. For the Highway Infrastructure 
Program, the U.S. Department of Transportation has interpreted the term 
obligation of funds to mean the federal government's contractual 
commitment to pay for the federal share of the project. This commitment 
occurs at the time the federal government signs a project agreement. As 
of September 1, 2009, $200 million has been reimbursed by FHWA, the 
highest amount for any state in the country. States request 
reimbursement from FHWA as the state makes payments to contractors 
working on approved projects. 

The majority of Highway Infrastructure Investment funds apportioned to 
Illinois under the Recovery Act have been obligated, but some funds 
remain unobligated at both the state and local levels. At the state 
level, about $38 million in funds available for highways have not been 
obligated largely because contractors' bids came in below estimated 
costs. At the local level, less than half of the funds available for 
highway projects have been obligated. As of September 1, 2009, a total 
of $736 million had been obligated in Illinois, resulting in 423 
highway projects. See Table 3 for data on the amount of allocated, 
obligated, and unobligated funds. 

Table 3: Illinois's Highway Funds Allocated, Obligated, and 
Unobligated: 

70 percent for use on state highways: 
Allocated: $654,914,893; 
Obligated: $616,685,395; 
Unobligated: $38,229,498. 

30 percent of apportioned funds suballocated for metropolitan, regional 
and local use: 
Allocated: $280,677,811; 
Obligated: $118,825,790; 
Unobligated: $161,852,021. 

Total: 
Allocated: $935,592,704; 
Obligated: $735,511,185; 
Unobligated: $200,081,519. 

Source: GAO analysis of FHWA data. 

[End of table] 

About 78 percent of Recovery Act highway obligations are for Illinois's 
highway pavement projects, compared with 9 percent for bridges and 12 
percent for other projects. Specifically, $577 million of the $736 
million obligated for Illinois state highway projects as of September 
1, 2009, is being used for highway pavement projects. This includes 
$554 million for pavement improvements, such as resurfacing. State 
officials told us they selected pavement improvement projects because 
these types of projects can be completed quickly and can create jobs 
immediately. Figure 1 shows obligations by the types of road and bridge 
improvements being made. 

Figure 1: Highway Obligations for Illinois by Project Improvement Type 
as of September 1, 2009: 

[Refer to PDF for image: pie-chart] 

Pavement projects total (78 percent, $577.1 million): Pavement 
improvement ($553.9 million): 75%; New road construction ($18.4 
million): 3%; Pavement widening ($4.8 million): 1%. 

Bridge projects total (9 percent, $67.6 million): Bridge improvement 
($53 million): 7%; 
Bridge replacement ($10.3 million): 1%; New bridge construction ($4.3 
million): 1%. 

Other (12 percent, $90.8 million): 
Other ($90.8 million): 12%. 

Source: GAO analysis of FHWA data. 

Note: Totals may not add due to rounding. "Other" includes safety 
projects, such as improving safety at railroad grade crossings, and 
transportation enhancement projects, such as pedestrian and bicycle 
facilities, engineering, and right-of-way purchases. 

[End of figure] 

Funds appropriated for highway infrastructure spending must be used as 
required by the Recovery Act. States are required to do the following: 

* Ensure that 50 percent of apportioned Recovery Act funds were 
obligated within 120 days of apportionment (before June 30, 2009). The 
50 percent rule applies only to funds apportioned to the state and not 
to the 30 percent of funds required by the Recovery Act to be 
suballocated, primarily based on population, for metropolitan, 
regional, and local use. In addition, states are required to ensure 
that all apportioned funds--including suballocated funds--are obligated 
within 1 year. The Secretary of Transportation is to withdraw and 
redistribute to other states any amount that is not obligated within 
these time frames.[Footnote 8] 

* Give priority to projects that can be completed within 3 years and to 
projects that are located in economically distressed areas. Distressed 
areas are defined by the Public Works and Economic Development Act of 
1965, as amended.[Footnote 9] According to this act, to qualify as 
economically distressed, the 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 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. [Footnote 10] 

* Certify that the state 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 is required to identify the 
amount of funds the state plans to expend from state sources from 
February 17, 2009, through September 30, 2010.[Footnote 11] 

FHWA Will Ask Illinois to Review Its Economically Distressed Areas: 

As of September 1, 2009, Illinois DOT had contracts for 197 of its 223 
Recovery Act highway construction projects, or 88 percent, in the 85 
counties that the state classified as economically distressed. These 
were the same projects the state had reported in June 2009, except for 
three new projects in distressed counties that previously had projects. 
To determine which counties would be considered economically 
distressed, Illinois developed its own criteria, based on the Recovery 
Act provision that a distressed area can be one that has experienced a 
special need arising from severe unemployment or economic adjustment 
problems arising from severe changes in economic conditions, as 
determined by the Secretary of Commerce. Illinois's criteria reflected 
the most current data available to the state based on changes in 
unemployment for each of the state's 102 counties.[Footnote 12] Use of 
these criteria allowed the state to focus its Recovery Act projects on 
areas that were most severely affected by the recent economic downturn, 
according to Illinois Department of Transportation (IDOT) officials. 
The state could have used the original criteria described by FHWA and 
supported by maps of each county on FHWA's website. Using those 
criteria, Illinois would have had 87 of its 223 Recovery Act projects, 
or 39 percent, in the 74 counties that FHWA classified as economically 
distressed. FHWA has since issued additional guidance which clarifies 
the special need criteria, changing the locations that can be 
classified as economically distressed. 

Use of Illinois's criteria led the state to identify several distressed 
areas in more populous areas of the state that were not originally 
identified as economically distressed under FHWA's criteria. By FHWA's 
criteria, 12 of the 15 most populous counties in the state were not 
economically distressed. These included the Chicago area (Cook County 
and its five collar counties) where IDOT put 95 projects, plus several 
other counties with smaller population centers, such as Champaign- 
Urbana, Bloomington, Peoria, Rock Island-Moline, and Springfield. While 
most of the available funds are already obligated, IDOT officials said 
they would consider placing projects in the 35 distressed counties, 
according to Illinois criteria, that have no projects. 

We recommended in our July report that the Secretary of Transportation, 
in consultation with the Secretary of Commerce, develop (1) clear 
guidance on identifying and giving priority to economically distressed 
areas, and (2) more consistent procedures for FHWA to use in reviewing 
and approving states' criteria for designating distressed areas. In 
response to the recommendation, FHWA, in consultation with the 
Department of Commerce, developed guidance that addresses our 
recommendation. In particular, FHWA's August 2009 guidance directs 
states to give priority to projects that are located in an economically 
distressed area and can be completed within the 3-year timeframe over 
other projects. In the guidance, FHWA also directs states to maintain 
information as to how they identified, vetted, examined, and selected 
projects located in economically distressed areas. In addition, FHWA's 
guidance sets out criteria that states may use to identify economically 
distressed areas based on "special need." The criteria aligns closely 
with criteria used by the Department of Commerce's Economic Development 
Administration (EDA) in designating special needs areas 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. According to EDA, while the agency 
traditionally approves special needs designations on a case-by-case 
basis for its own grant program, it does not have the resources to do 
so for the purpose of Recovery Act highway funding.[Footnote 13] 
Rather, in supplemental guidance issued August 24, 2009, FHWA required 
states to document their reliance on "special need" criteria and 
provide the documentation to FHWA Division Offices, thereby making the 
designation of new "special need" areas for the for Recovery Act 
highway funding "self executing" by the states, meaning the states will 
apply the criteria laid out in the guidance to identify these areas. We 
plan to continue to monitor FHWA's and the states' implementation of 
the economically distressed area requirement, including the states' 
application of the special needs criteria, in our future reviews. FHWA 
Illinois Division Office officials said they notified an Illinois DOT 
official about release of the new guidance in early September 2009 but 
had not yet discussed its application with state officials. FHWA 
Division Office officials said they will ask Illinois DOT officials to 
reassess their determinations of economically distressed areas in the 
state. 

State Officials Expect to Meet the State's Maintenance-of-Effort 
Requirement: 

Illinois state officials were satisfied with the state's ability to 
maintain spending levels for transportation. Illinois passed a capital 
plan on July 13, 2009, that should fund transportation infrastructure 
projects, even if the state has an unexpected revenue shortfall. As 
such, while DOT is continuing to enforce the Recovery Act requirement 
that states maintain their February 2009 level of effort, Illinois 
officials say they expect to meet their maintenance-of-effort 
requirements. 

States are required to certify that the state will maintain the level 
of spending that it had planned on the day the Recovery Act was 
enacted. Because the state's initial certification submitted in March 
2009 contained extra explanatory language and required an adjustment in 
an amount computed for the state's maintenance of effort, the state was 
asked to resubmit its certification with revisions. As we reported in 
July 2009, Illinois resubmitted its certification on May 20, 2009, to 
the DOT and DOT concluded that the form of the Illinois's resubmitted 
certification was consistent with its additional guidance. FHWA has 
gathered data to evaluate Illinois's method of calculating the amounts 
it planned to expend for the covered programs to determine if the 
state's calculation complies with DOT guidance, but, according to FHWA 
Illinois Division officials, FHWA has not yet completed its evaluation. 

Illinois Is Using Existing Contracting and Oversight Procedures to 
Oversee Recovery Act Highway Funds: 

According to state officials, Illinois uses the same contracting 
procedures for Recovery Act projects as it does for all other highway 
construction projects. According to officials, the City of Chicago, 
which awards contracts for its own projects, also follows its normal 
contracting procedures. A contract in each area is discussed below (see 
Tables 4 and 5). Both entities use construction performance bonds to 
assure the work is completed satisfactorily. According to officials, 
both entities also incorporate the Recovery Act requirements into the 
written contracts. Illinois DOT has implemented enhanced oversight 
procedures for Recovery Act highway funds. Specifically, the services 
of consultants have been retained to assist management with additional 
oversight activities. Using a risk-based selection approach to 
oversight, the goal is to conduct additional on-site reviews of 25 
percent of state let state projects, 40 percent of state let local 
projects, and 100 percent of local let local projects, including the 
City of Chicago. The enhanced oversight includes additional 
documentation reviews, materials testing and independent weight checks. 
These activities are being coordinated and overseen by in-house 
management. 

Table 4: Summary of Contract Information for State Administered 
Contract: 

Grundy County--11 Miles of Milling and Resurfacing on IL Route 47 from 
IL Route 113 to Interstate 55: 
* Cost--$2,270,771; 
* Project start--August 2009; 
* Expected completion--40 working days. 

Source: Illinois Department of Transportation data. 

[End of table] 

IDOT awards and manages contracts related to Recovery Act construction 
projects in Illinois outside of the City of Chicago. According to IDOT 
officials, to perform the work for this project, the new contract was 
awarded competitively, using a fixed-price contract. The contract was 
reviewed by FHWA before the award to ensure it met Recovery Act 
requirements. Agency officials stated that IDOT construction 
requirements, which are located in the IDOT Construction Manual, were 
followed when the contract was awarded. The officials also stated that 
the federal suspension and debarment list maintained by the General 
Services Administration (GSA) is not checked prior to contract award; 
however, contractors and subcontractors are required to certify that 
they have not been disbarred or suspended. According to officials, DOT 
regulations state that participants in the program are not required to 
make the check, but are encouraged to develop a procedure to verify 
eligibility. Illinois DOT is developing a procedure to verify whether 
or not contractors are on the GSA "Excluded Parties List System" (EPLS) 
prior to contract award and will check all Recovery Act contractors 
(including Aeronautics) against the EPLS to ensure no contracts were 
awarded to debarred/suspended contractors. Additionally, Illinois DOT 
is exploring the possibility of automating the procedure to verify 
whether or not contractors are on the GSA EPLS prior to contract award. 

According to agency officials, the agency has standard procedures for 
monitoring construction projects. Inspectors will review the work and 
check material quantities, and conduct spot interviews with employees 
to ensure employees are paid the prevailing wage rates. 

Table 5: Summary of Contract Information for Locally Administered 
Contract: 

Chicago Project--9 miles of Arterial Streets Resurfacing--North Area: 
* Cost--$7,985,964; 
* Project start--July 2009; 
* Expected completion--December 2009. 

Source: Chicago Department of Transportation data. 

[End of table] 

The Chicago Department of Transportation (CDOT) manages Chicago 
construction projects. The Chicago Department of Procurement Services 
awards the contracts, and for the Chicago project we identified, 
according to officials, a new contract was awarded to perform the 
project work. According to CDOT officials, the contract was awarded 
competitively, using a fixed-price contract. Agency officials stated 
that they followed their usual contracting procedures of conducting 
pre- bid meetings, and providing the bidders with the terms and 
conditions for construction contracts, instruction and execution 
documents, and detailed specifications in the bid books that the 
bidders receive. CDOT officials stated that they check a city 
suspension and debarment list, and that contractors and subcontractors 
are required to certify that they have not been disbarred or suspended. 
They also stated that IDOT reviews the contracts before they are 
awarded to ensure they meet the Recovery Act requirements. According to 
officials, the contract includes requirements for the contractor to 
report monthly employment data as required by Section 1512 of the 
Recovery Act. According to agency officials, the agency: 

* has standard procedures for monitoring construction projects; 

* has job site inspections conducted by resident engineers and the 
material quantities are reviewed; and: 

* utilizes compliance officers and IDOT engineers to conduct site 
visits as well. 

Most Illinois Transit Agency Urbanized Area Formula Program Funds Have 
Been Obligated: 

The Recovery Act appropriated $8.4 billion to fund public transit 
throughout the country through three existing Federal Transit 
Administration (FTA) grant programs, including the Transit Capital 
Assistance Program.[Footnote 14] The majority of the public transit 
funds--$6.9 billion (82 percent)--was apportioned for the Transit 
Capital Assistance Program, with $6.0 billion designated for the 
urbanized area formula grant program and $766 million designated for 
the nonurbanized area formula grant program. [Footnote 15] Under the 
urbanized area formula grant program, Recovery Act funds were 
apportioned to 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 under the nonurbanized area formula grant program 
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. Up to 10 percent of apportioned Recovery Act 
funds may also be used for operating expenses.[Footnote 16] Under the 
Recovery Act, the maximum federal fund share for projects under the 
Transit Capital Assistance Program is 100 percent.[Footnote 17] 

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 (MPO)-- 
develop a list of transit projects that project sponsors (typically 
transit agencies) submit to FTA for Recovery Act funding.[Footnote 18] 
FTA reviews the project sponsors' grant applications to ensure that 
projects meet eligibility requirements and then obligates Recovery Act 
funds by approving the grant application. Project sponsors must follow 
the requirements of the existing programs, which include ensuring the 
projects funded meet all regulations and guidance pertaining to the 
Americans with Disabilities Act (ADA), pay a prevailing wage in 
accordance with federal Davis-Bacon Act requirements, and comply with 
goals to ensure disadvantaged businesses are not discriminated against 
when awarding contracts. 

Funds appropriated through the Transit Capital Assistance Program must 
be used in accordance with Recovery Act requirements, including the 
following: 

* Fifty percent of Recovery Act funds apportioned to urbanized areas or 
states are to be obligated within 180 days of apportionment (before 
Sept 1, 2009) and the remaining apportioned funds are to be obligated 
within 1 year. The Secretary of Transportation is to withdraw and 
redistribute to other urbanized areas or states any amount that is not 
obligated within these time frames.[Footnote 19] 

* State governors must certify that the state will maintain the level 
of state spending for the types of transportation projects, including 
transit 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 is required to identify the amount of funds 
the state plans to expend from state sources from February 17, 2009, 
through September 30, 2010.[Footnote 20] This requirement applies only 
to state funding for transportation projects. The Department of 
Transportation will treat this maintenance-of-effort requirement 
through one consolidated certification from the governor, which must 
identify state funding for all transportation projects. 

* Project sponsors must submit periodic reports, as required under the 
maintenance-of-effort for transportation projects section (§1201(c) of 
the Recovery Act) on the amount of federal funds appropriated, 
allocated, obligated and outlayed; the number of projects put out to 
bid, awarded, or work has begun or completed; project status; and the 
number of jobs created or sustained. In addition, grantees must report 
detailed information on any subcontractors or subgrants awarded by the 
grantee. 

The Recovery Act requires that 50 percent of the funds apportioned to 
urbanized areas or states for the Transit Capital Assistance Program be 
obligated before September 1, 2009. FTA concluded that, as of September 
1, 2009, the 50 percent obligation requirement had been met for 
Illinois and urbanized areas located in the state. More specifically, 

* In March 2009, a total of $354.3 million in Transit Capital 
Assistance Recovery Act funds was apportioned to urbanized areas in 
Illinois. As of September 1, 2009, $349.4 million, or 99 percent had 
been obligated by FTA. [Footnote 21] 

* Over 90 percent of these funds, $327.6 million, were apportioned to 
the Chicago region, and within the Chicago region, the Regional 
Transportation Authority allocated funds among three transit agencies-- 
the Chicago Transit Authority (CTA), Metra (the commuter rail system), 
and Pace (the suburban bus system)--according to an existing regional 
formula. As of September 1, 2009, $325.6 million, or 99 percent of the 
funds apportioned to the Chicago region, had been obligated.[Footnote 
22] 

* Other urbanized areas in Illinois also received apportionments. A 
total of $26.7 million in urbanized area formula funds was apportioned 
to other urban areas in, or partially in, Illinois.[Footnote 23] All of 
these areas have met the 50 percent obligation requirement. 

Large Transit Agencies Have Emphasized Repair and Rehabilitation of 
Vehicles: 

A significant portion of Recovery Act Transit Capital Assistance 
program obligations for the urbanized areas in Illinois have been for 
the repair and rehabilitation of transit vehicles, including the 
Chicago Transit Authority's use of $75.2 million to overhaul and 
rehabilitate bus and rail fleet cars, and Metra's use of $71 million to 
rebuild aging locomotives. Local transit officials told us they 
selected these projects for a large percentage of funding due to their 
agency's large maintenance backlogs. Transit agencies will also use the 
funds for other purposes. Metra, for example, will use funds to repair 
tracks and structures, upgrade signal systems, rehabilitate several 
stations, replace air conditioning units on rail cars, and build 
additional station parking. The agency will apply $6.8 million to pay 
most of the cost of the new station and intermodal facility on its Rock 
Island District at 35th Street in Chicago. The CTA also will use funds 
to repair track and buy 50 hybrid buses, and expects that all of its 
Recovery Act capital projects will be completed by the end of 2010. 

According to transit agency officials, identifying projects for 
Recovery Act funds was not difficult. Both the CTA and Metra had future 
planned projects identified in the regional transportation plan that 
were not yet funded, but could quickly be implemented. Projects they 
could quickly advance were selected, placed in a revised regional plan, 
and submitted to FTA for approval. Both agencies have ongoing contracts 
funded by federal grants and are familiar with federal project 
requirements, which facilitated the process. 

Illinois Has Met the Obligation Requirement for Nonurbanized Areas: 

Illinois was apportioned about $21.2 million in Recovery Act Funds for 
the nonurbanized area formula grant program. The state of Illinois is 
the primary recipient of nonurbanized area funds, and small transit 
agencies will receive Recovery Act funds through IDOT. IDOT has 
obtained an $11.5 million grant, primarily to buy 74 new buses and 24 
paratransit vehicles for these small agencies, to meet the 50 percent 
obligation requirement. For the remaining nonurbanized area funds, IDOT 
is working with small transit providers to identify which additional 
infrastructure projects are shovel-ready, and plans to submit these in 
a second proposal. 

Lack of a Capital Transit Program in Illinois Eliminates the 
Maintenance-of-Effort Requirement: 

The Recovery Act includes provisions for the maintenance-of-effort on 
the part of states, specifically to continue funding existing programs 
at the planned level, and not reduce their level of financial effort. 
In the case of Illinois, the state did not have a capital program for 
transit for the 5 years prior to the passage of the Recovery Act, and 
the state was not providing capital funds to transit districts. As a 
result, Illinois effectively has no maintenance-of-effort threshold to 
meet. Illinois has not transferred any Recovery Act highway funds into 
transit programs. 

Illinois Expects to Meet Its Participation and Expenditure Targets for 
Youth Placed in WIA Summer Employment Activities and Has Begun to 
Monitor Use of Recovery Act Funds: 

The Recovery Act provides an additional $1.2 billion in funds for 
Workforce Investment Act (WIA) Youth Program activities, including 
summer employment. Administered by the Department of Labor (Labor), the 
WIA Youth program is designed to provide low-income in-school and out- 
of-school youth 14 to 21 years old, who have additional barriers to 
success, with services that lead to educational achievement and 
successful employment, among other goals. Funds for the program are 
distributed to states based on a statutory formula; states, in turn, 
distribute at least 85 percent of the funds to local areas, reserving 
as much as 15 percent for statewide activities. The local areas, 
through their local workforce investment boards, have the flexibility 
to decide how they will use the funds to provide required services. 

While the Recovery Act does not require all funds to be used for summer 
employment, in the conference report accompanying the bill that became 
the Recovery Act,[Footnote 24] the conferees stated they were 
particularly interested in states using these funds to create summer 
employment opportunities for youth. While the WIA Youth program 
requires a summer employment component to be included in its year-round 
program, Labor has issued guidance indicating that local areas have the 
flexibility to implement stand-alone summer youth employment activities 
with Recovery Act funds.[Footnote 25] Local areas may design summer 
employment opportunities to include any set of allowable WIA Youth 
activities--such as tutoring and study skills training, occupational 
skills training, and supportive services--as long as it also includes a 
work experience component. A key goal of a summer employment program, 
according to Labor's guidance, is to provide participants with the 
opportunity to (1) experience the rigors, demands, rewards, and 
sanctions associated with holding a job (2) learn work readiness skills 
on the job, and (3) acquire measurable communication, interpersonal, 
decision-making, and learning skills. Labor has also encouraged states 
and local areas to develop work experiences that introduce youth to 
opportunities in "green" educational and career pathways. Work 
experience may be provided at public sector, private sector, or 
nonprofit work sites. The work sites must meet safety guidelines, as 
well as federal and state wage laws.[Footnote 26] Labor's guidance 
requires that each state and local area conduct regular oversight and 
monitoring of the program to determine compliance with programmatic, 
accountability, and transparency provisions of the Recovery Act and 
Labor's guidance. Each state's plan must discuss specific provisions 
for conducting its monitoring and oversight requirements. 

The Recovery Act made several changes to the WIA Youth Program when 
youth are served using these funds. It extended eligibility through age 
24 for youth receiving services funded by the act, and it made changes 
to the performance measures, requiring that only the measurement of 
work readiness gains will be required to assess the effectiveness of 
summer-only employment for youth served with Recovery Act funds. 
Labor's guidance allows states and local areas to determine the 
methodology for measuring work readiness gains within certain 
parameters. States are required to report to Labor monthly on the 
number of youth participating and on the services provided, including 
the work readiness attainment rate and the summer employment completion 
rate. States must also meet quarterly performance and financial 
reporting requirements. 

Illinois Expects to Meet Expenditure and Participation Targets: 

Illinois was awarded a total of about $62 million in Recovery Act funds 
for the WIA Youth Program. The Department of Commerce and Economic 
Opportunity (DCEO), the state's workforce agency, set aside 15 percent 
of this amount for statewide activities and allocated the remaining 
funds to the local workforce investment areas. As of September 1, 2009, 
about $22 million of the $62 million had been expended across the 
state, with $270,000 of this amount expended from the state's 15 
percent set-aside for statewide youth activities. In addition, a total 
of about $57 million had been obligated by the state as of that date, 
including nearly $4 million from the state's 15 percent set-aside. 

State officials told us that they expect to meet participation targets 
for youth placed in summer employment activities. The state targeted 
15,000 youth to be placed in Recovery Act-funded WIA summer youth 
employment activities. As of August 31, Illinois reported that almost 
13,000 participants had been placed in summer employment activities 
across the state. DCEO officials told us that they expect the state to 
meet its target of 15,000 youth placed in employment activities as more 
participant reports come in from local workforce areas. The Chicago 
local workforce area targeted 7,300 youth to be placed in summer 
employment activities, and surpassed this target in August. Department 
of Family and Support Services (DFSS) officials we spoke with told us 
that they were able to work with a total of 34 contractors to help meet 
this target. The Grundy-Livingston-Kankakee local workforce area 
targeted 205 youth for summer employment activities, and a local 
workforce board official told us that the area was able to place 75 of 
the targeted 205 youth for the summer. According to officials, the area 
was not able to achieve its target largely due to eligibility--either 
youth that were recruited by contractors not being eligible, or youth 
that may have been eligible failing to submit the required 
documentation. However, in addition to the 175 currently enrolled, 130 
youth served through the traditional year-round program are having 
summer employment activities supplemented by Recovery Act funds. 

DCEO did not set a spending target for local areas' Recovery Act 
funding for the WIA Youth Program but the agency issued guidance in May 
and June advising local workforce investment areas to expend 
significant Recovery Act funds in the summer of 2009, so long as they 
have the necessary infrastructure in place to quickly implement 
programming. The two local workforce areas we visited--Chicago and 
Grundy-Livingston-Kankakee--had set spending targets for summer youth 
employment activities in their areas. The Chicago local workforce area, 
which was allocated about $17 million in Recovery Act WIA Youth funds, 
set a target to expend its entire allocation by September 30. According 
to officials we met with from the Chicago Workforce Investment Board 
and the Chicago DFSS, they expect to meet this target.[Footnote 27]As 
of September 10, about 50 percent of the area's allocation had been 
expended. The Grundy-Livingston-Kankakee local workforce area targeted 
about $400,000 of its roughly $900,000 Recovery Act WIA Youth Program 
allocation to be expended by September 30. Officials from the local 
workforce investment board stated that they expect about $370,000 to be 
expended by that date. However, this local workforce area also used 
Recovery Act funds to cover youth from the WIA year-round program who 
were enrolled in summer employment activities. According to a program 
official, a total of about $195,000 in additional Recovery Act funds 
will be spent for this purpose by September 30. 

Local Workforce Areas Faced Challenges Related to WIA Youth Eligibility 
and Took Steps to Address Them: 

Officials from both local workforce areas we visited told us that 
challenges existed in determining and documenting WIA youth 
eligibility. Officials told us that they had a limited amount of time 
to determine whether youth applying for summer employment were 
eligible, and to obtain the necessary documentation from them. In the 
Chicago local workforce area, DFSS officials also faced a large number 
of applications, as a total of about 79,000 youth had applied for 
summer youth employment opportunities. To address these issues, DFSS 
officials told us that they provided training to their contractors on 
WIA eligibility, assigned a liaison to each contractor to provide 
assistance, and conducted file reviews for youth selected for 
employment by contractors to ensure that eligibility criteria were met. 
They also utilized other employees within the department to adequately 
implement eligibility tasks. A Grundy-Livingston-Kankakee Workforce 
Board official told us that, for new contractors--those not part of the 
WIA year-round program--a staff member was assigned to go on-site to 
assist the contractor in determining eligibility and obtaining proper 
documentation from youth. Board officials explained that the limited 
amount of time for youth to provide documentation contributed to the 
workforce area's inability to meet its target for youth participation. 
Finally, a contractor for WIA summer youth employment activities in the 
Grundy-Livingston-Kankakee workforce area also stated that eligibility 
restrictions-low-income youth without additional employment barriers 
were not eligible to participate in the program--added another 
challenge in recruiting and enrolling youth.[Footnote 28] 

Summer Youth Employment Encompassed Various Demographic Categories and 
Sectors: 

WIA summer youth employment activities in Illinois encompassed various 
demographic categories, such as out-of-school and older youth, and in 
some cases, incorporated academic or occupational skills training. For 
example, as of August 31, a little less than half of all youth 
participants placed in employment activities across the state were out- 
of-school youth. Further, while about two-thirds of participants 
statewide were youth 14 to 18 years of age, about 10 percent were older 
youth--ranging from 22 to 24 years of age. We also found participation 
by various demographic categories at the local workforce areas we 
visited. In Chicago, more than half of youth placed in employment 
activities as of September 1 were out-of-school youth, and a little 
less than 10 percent were older youth. In the Grundy-Livingston- 
Kankakee workforce area, a little less than half of the youth were out- 
of-school youth, and a little over 5 percent were older youth. See 
Table 6 for data on the age of youth placed in summer employment 
activities across the state. 

Table 6: Age of Illinois Youth Placed in Summer Employment Activities, 
as of August 31, 2009: 

Category: Youth age 14 to 18; 
Number of youth: 8,152; 
Percentage: 63. 

Category: Youth age 19 to 21; 
Number of youth: 3,420; 
Percentage: 26. 

Category: Youth age 22 to 24; 
Number of youth: 1,384; 
Percentage: 11. 

Category: Total; 
Number of youth: 12,956; 
Percentage: 100. 

Source: Illinois Department of Commerce and Economic Opportunity data. 

[End of table] 

According to officials in both workforce areas, about one-fourth of the 
youth received academic skills training as part of their summer work 
employment. In the Chicago local workforce area, DFSS officials also 
told us that one-fourth to one-half received occupational skills 
training in areas such as hospitality, marketing, and health and 
nutrition. Further, one contractor we spoke with in Chicago included a 
financial literacy component for younger youth to teach them how to 
manage their finances, and youth spent the first week of their summer 
experience learning life skills, such as how to prepare for a job and 
address issues in the workplace. In the Grundy-Livingston-Kankakee 
workforce area, officials told us that occupational skills training was 
not required and, instead, was offered informally by contractors. These 
officials estimated that about one-half of the youth they placed were 
receiving training of this type. 

WIA youth summer program participants were also placed in a range of 
jobs at the two local workforce areas we visited. In the Chicago local 
workforce area, contractors had flexibility in designing their own 
summer program based on the types of jobs they wanted to offer and the 
youth they wanted to target. Overall, youth were employed in a variety 
of work sites, such as Chicago Public Schools, City Colleges of 
Chicago, the Chicago Park District, local museums, retail stores, 
hotels, and community centers. The jobs included positions such as 
office assistants, teacher's aides, data entry positions, and clerical 
aides, and some included supervisory positions of other summer youth 
participants. One worksite we visited---the Museum of Science and 
Industry---enrolled youth as peer educators who facilitated science 
activities to youth and young children at various locations across the 
city, such as libraries and schools. The museum also enrolled some 
participants as staff who supervised youth presenting science 
activities at the museum. Another work site we visited employed youth 
at a retail clothing store, where they assisted with customer service 
and various retail tasks, such as inventory and cataloging. 

In the Grundy-Livingston-Kankakee workforce area, youth were employed 
in jobs such as office assistants, camp counselor assistants, and 
groundskeepers at various worksites such as a local park district, 
community resource center, and community college. At one worksite we 
visited, older youth were mentoring and tutoring younger youth on basic 
education skills, such as math and reading. At both local workforce 
areas, officials stated that some youth were participating in green 
jobs, such as recycling positions at park districts. One contractor we 
interviewed in Chicago had about 25 percent of youth employed in green 
jobs. In the Grundy-Livingston-Kankakee workforce area, about one- 
fourth of employers had youth enrolled in green jobs. Officials in both 
local workforce areas did not identify any issues with how to define a 
green job. However, they primarily defined jobs as green based on their 
own criteria or criteria they identified as appropriate. 

State and Local Efforts to Monitor WIA Youth Summer Employment Focus on 
File Reviews and Site Visits: 

The Illinois Department of Commerce and Economic Opportunity indicated 
that staff has begun to monitor aspects of the Recovery Act-funded 
summer youth employment activities, such as whether youth have met 
eligibility requirements of the program, and the extent to which work 
sites are adhering to workplace safety guidelines and federal/state 
wage laws. The state will utilize similar procedures for monitoring and 
oversight of Recovery Act WIA funds as it does for other WIA funds. For 
example, according to officials, the agency utilizes a file review 
instrument and samples files from all 26 local workforce areas to check 
that eligibility requirements are being met. The agency also conducts 
site visits to the local workforce areas to verify information such as 
participation and completion rates. However, the fiscal year 2008 
Statewide Single Audit contained a finding that the agency did not 
adequately document supervisory reviews of on-site monitoring 
procedures for the program, and did not communicate findings to sub- 
recipients in a timely manner. The agency noted to us that in the 
process of monitoring summer employment activities thus far, it has 
encountered some eligibility documentation issues, such as participant 
files missing signatures or documentation of citizenship status. The 
agency has notified local workforce areas that they must produce 
documentation to prove compliance with eligibility, or costs associated 
with their program participants will not be reimbursed. The agency is 
also conducting additional file reviews where eligibility issues have 
been found to determine the costs that could be disallowed. Further, 
officials indicated that, as of August 31, programmatic monitoring 
plans were incorporated into the state's automated system for WIA file 
reviews. 

The two local workforce areas we visited relied primarily on file 
reviews and site visits to conduct monitoring of Recovery Act-funded 
summer youth activities. Chicago's DFSS officials explained that, in 
addition to providing training on WIA eligibility to summer youth 
contractors, DFSS officials conducted file reviews of youth placed in 
summer employment activities to confirm that the proper eligibility 
documents were in place. DFSS officials stated that the department also 
has an auditing unit that will be conducting file reviews of 20 percent 
of the applications submitted for summer youth employment. Furthermore, 
of the two contractors we visited in Chicago, one used a checklist for 
documenting youth eligibility, and the other required youth to meet 
with in-house staff members that typically work with youth on the WIA- 
year-round program, to obtain the necessary documentation. Officials 
from the latter contractor also told us that they hired eight 
additional staff to assist with determining eligibility, among other 
program implementation tasks. As mentioned earlier, officials with the 
Grundy-Livingston-Kankakee Workforce Board told us that for new 
contractors--those not part of the WIA year-round program--a staff 
member was assigned to go on-site to assist the contractor in 
determining eligibility and obtaining proper documentation from youth, 
and conducted file reviews to ensure the necessary documents were in 
place. 

Both local workforce areas also utilized site visits to monitor whether 
youth had meaningful work, and whether worksites met safety 
requirements. In Chicago, DFSS officials told us that a liaison 
assigned to the contractor and staff from the monitoring division of 
the department conduct announced and unannounced site visits to work 
sites. After a site visit, a report is completed that describes whether 
youth employment activities correspond to descriptions submitted by the 
contractor, timesheets are completed on a weekly basis, and the extent 
to which participants have completed work readiness requirements. 
According to officials in the Grundy-Livingston-Kankakee workforce 
area, workforce board staff conducts two site visits to each worksite 
over the course of the summer and fills out a similar report for each 
visit. We also found that contractors conduct site visits to their work 
sites. For example, one contractor that has multiple work sites in 
Chicago told us that staff conducts weekly site visits to ensure that 
youth are performing meaningful work. Similarly, a contractor we 
interviewed in Kankakee also told us that staff members visit each work 
site twice throughout the summer. 

State and Local Workforce Areas Are Attempting to Measure Program 
Outcomes: 

State and local officials we spoke with stated that they are attempting 
to measure the outcome of Recovery Act-funded summer youth employment 
activities. The Recovery Act specifies that, of the WIA Youth Program 
performance measures, only the work readiness measure is required to 
assess the effectiveness of summer-only employment for youth. Work 
readiness focuses on personal traits--such as work ethic and 
professionalism--and communication and interpersonal skills. 

In Illinois, local workforce boards are required to utilize the WorkNet 
system to measure work readiness. The system contains an online portal 
with a work readiness feature that requires youth to take a pre-test, 
work through several modules such as interviewing and workplace skills, 
and then take a post-test to measure work readiness gains. In addition 
to tracking the work readiness measure, Illinois also plans to rely on 
existing systems that track measures under the traditional WIA year- 
round program to track more information on summer employment 
activities, such as the number of participants enrolled and completion 
rates, per Labor's requirements. A DCEO official told us that a few 
modifications were made to reporting fields based on program features 
in the Recovery Act. For example, the agency made changes to account 
for youth ages 22 to 24 since they became eligible for WIA Youth 
Program activities through funds made available under the Recovery Act. 
Workforce Investment Board officials from both local areas we visited 
told us that they will also be tracking work readiness, and 
participation and completion rates through their existing systems, and 
will also be attempting to track the extent to which any youth are 
hired on permanently after their summer employment activities are over. 
Officials in both workforce areas explained that since the end-date for 
summer employment activities is September 30, 2009, information on all 
youth would not be available until after that date. 

Illinois Public Housing Agencies Continue to Obligate and Draw Down 
Recovery Act Formula Grants: 

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.[Footnote 29] The Recovery Act 
requires the U.S. Department of Housing and Urban Development (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. Recovery Act requirements specify that public housing 
agencies must obligate funds within 1 year of the date on which they 
are made available to public housing agencies, expend at least 60 
percent of funds within 2 years, and expend 100 percent of the funds 
within 3 years. Public housing agencies are expected to give priority 
to projects that can award contracts based on bids within 120 days from 
the date on which the funds are made available, as well as projects 
that rehabilitate vacant units, or those already under way or included 
in their current required 5-year capital fund plans. 

HUD is 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 retrofit investments. In a Notice 
of Funding Availability published May 7, 2009, and revised June 3, 
2009, HUD outlined four categories of funding for which public housing 
agencies could apply: 

* creation of energy-efficient communities ($600 million), 

* gap financing for projects that are stalled due to financing issues 
($200 million), 

* public housing transformation ($100 million), and: 

* improvements addressing the needs of the elderly or persons with 
disabilities ($95 million). 

For the creation of energy-efficient communities, applications (which 
were due July 21, 2009) were to be rated and ranked according to 
criteria outlined in the Notice of Funding Availability. The last three 
categories will be threshold based, meaning applications that meet all 
the threshold requirements will be funded in order of receipt. If funds 
are available after all applications meeting the thresholds have been 
funded, HUD may begin removing thresholds after August 1, 2009, in 
order to fund additional applications in the order of receipt until all 
funds have been awarded. Applications in these three categories were 
accepted until August 18, 2009. 

Illinois has 99 public housing agencies that have received Recovery Act 
formula grants. In total, these public housing agencies received $221 
million in Public Housing Capital Fund formula grants (see fig. 4). As 
of September 5, 2009, 83 of these public housing agencies have 
obligated $76 million and 56 have drawn down $6 million. We visited two 
public housing agencies in Illinois for our July report. They are the 
Chicago Housing Authority and the Housing Authority for LaSalle County. 
We will provide updated information on these housing agencies in a 
future report. 

Figure 2: Percentage of Public Housing Capital Funds Allocated by HUD 
that Have Been Obligated and Drawn Down in Illinois, as of September 5, 
2009: 

[Refer to PDF for image: 3 pie-charts] 

Funds obligated by HUD: 100%; $221,498,521; Funds obligated by public 
housing agencies: 34.2%; $75,704,050; Funds drawn down by public 
housing agencies: 2.8%; $6,266,406. 

Number of public housing agencies: 
Entering into agreements for funds: 99; Obligating funds: 83; 
Drawing down funds: 56. 

Source: GAO analysis of HUD data. 

[End of figure] 

State and Local Agencies We Met with Varied in Their Approaches to, and 
Understanding of, Recipient Reporting Requirements: 

States and localities are among those receiving Recovery Act funds 
directly from federal agencies that are responsible for tracking and 
reporting on those funds.[Footnote 30] More specifically, they 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. The jobs created and jobs retained numbers are part 
of the recipient reports required under section 1512(c) of the Recovery 
Act and will be submitted by recipients starting in October 2009. In 
preparation for reporting, Illinois has disseminated guidance to state 
agencies on federal reporting requirements, including preliminary 
guidance on jobs created and retained. Since our last report, the 
state's Recovery Act Executive Committee issued a memorandum to state 
agencies requiring that they develop procedures and reconciliations for 
the collection of data elements, entry of data, and review of data. 
[Footnote 31] The Executive Committee has also sent a questionnaire to 
state agencies inquiring about award amounts, number of subrecipients 
and related contract information, project status documentation, and job 
creation information to assess the potential timeliness and accuracy of 
reporting. Further, Illinois is in the process of utilizing the 
templates made available through federalreporting.gov to conduct a 
'test run' by each of the state agencies required to report on the 
impact of the act on October 10th. According to state officials, the 
main benefit of conducting the test run is that it will provide 
additional information for the state to proactively identify areas 
where reporting and technical questions still exist. It will also allow 
the state to identify misconceptions or conflicts to previously issued 
guidance and provide clarifications prior to the October deadline. The 
reporting deadline for the test run was September 9, 2009. As of 
September 15TH, specific results from the test run had not yet been 
completely finalized. 

Education Programs: 

The Governor's Office has directed ISBE to perform certain functions 
related to the administration of Recovery Act SFSF funds, including 
collection of data and reporting, in meeting the requirements of 
Section 1512. ISBE is currently working on a collection tool that will 
be used by LEAs in reporting Recovery Act required data elements to 
ISBE. The electronic expenditure reports generated will be collected 
along with required Recovery Act data on jobs saved, created, and 
vendor information. ISBE will capture and forward all of these required 
data to federalreporting.gov. ISBE officials have also met with staff 
in the Governor's office responsible for Recovery Act reporting to 
ensure that they are adequately prepared. ISBE has also received 
guidance from the state on job creation and retention, and officials 
have attended all OMB Recovery Act reporting online seminars to ensure 
they are familiar with, and meeting, OMB requirements. Lastly, ISBE is 
working with a technical assistance team from the U.S. Department of 
Education Risk Management Service office to resolve questions and 
issues related to the Recovery Act, including reporting. 

Highway Infrastructure Investment: 

For highway projects, Illinois collects and reports employment data and 
information related to project implementation and expenditures. 
Illinois transportation officials stated that they require contractors 
and subcontractors to submit monthly employment information, including 
the number of employees, the amount they are paid, and hours worked. 
According to Illinois Department of Transportation officials, they use 
a Web application called IDOT American Recovery and Reinvestment Act-- 
Contractor/Consultant Reporting to track the number of jobs created 
through Recovery Act highway funds. This contractor reporting system 
was originally developed around FHWA's Recovery Act monthly employment 
data requirements, but is being modified to capture additional data 
specified in OMB's recent guidance.[Footnote 32] For any project that 
receives FHWA Recovery Act funds, the state must require its 
contractors to report on its own workforce as well as the workforces of 
any subcontractors that were active for the reporting month, and to 
report data quarterly to OMB's federalreporting.gov Web site. 

Both state and local highway officials were unclear on how to treat one 
reporting requirement described in OMB's guidance. The requirement 
calls for recipients and subrecipients to report the names and 
compensation for each of their five most highly compensated officers 
for the calendar year in which the award is given. State and local 
officials stated that while this could apply for contractors, they were 
uncertain as to how it should be applied to government agencies. IDOT 
officials said they had asked FHWA for clarification. In September 
2009, FHWA provided guidance explaining that this reporting requirement 
only applies to certain recipients--contractors working for a state or 
local agency do not have to report and state or local governments only 
have to report if they meet specific reporting thresholds.[Footnote 33] 
Illinois governments do not meet those reporting thresholds, according 
to an Illinois DOT official. 

Transit Capital Assistance: 

The Recovery Act also provides reporting requirements for transit 
agencies to track funds they receive. Officials from the large transit 
agencies we visited for this review--the Chicago Transit Authority and 
Metra--did not consider the reporting requirements to present 
compliance problems. Officials from both agencies said existing 
information systems could readily segregate Recovery Act funds and 
accommodate the reporting requirements. For example, Metra's existing 
grants tracking system produces detailed reports on the financial 
status of all projects by funding source, including Recovery Act 
funding. Likewise, IDOT officials said that existing systems can be 
used to collect and report the transit information required under the 
Recovery Act. 

WIA Summer Youth Activities: 

For WIA summer youth employment activities, officials with the 
Department of Commerce and Economic Opportunity told us that they are 
not delegating any Section 1512 reporting to subrecipients, and expect 
that this will avoid any potential double-counting. Officials told us 
that they are confident in the agency's ability to report on the amount 
of funds spent using the agency's own system, which tracks information 
on obligations and expenditures. However, officials told us that 
specific information regarding vendors of subrecipients--entities that 
the local workforce boards contract with--may not be readily available 
or easily verified. They also told us that the agency is working on a 
system or a Web site to capture this information, but the details of 
how this information will be collected had not been finalized at the 
time of our meeting. Officials at both local workforce areas we visited 
told us that they are tracking jobs created or retained through use of 
Recovery Act funds either at their local offices or by vendors to 
support implementation of the program, but are not clear on how to 
report this information due to little guidance they have seen. Further, 
officials are attempting to track the number of youth hired permanently 
with employers after their summer employment activities are completed, 
but are also unsure of how to report this information. They anticipate 
receiving additional guidance from the Department of Commerce and 
Economic Opportunity. 

State Comments on This Summary: 

We provided the Office of the Governor of Illinois with a draft of this 
appendix on September 11, 2009. The Deputy Chief of Staff responded for 
the Governor on September 14, 2009. The state concurred with our 
statements and observations. The official also provided technical 
suggestions that were incorporated, as appropriate. 

GAO Contacts: 

Leslie Aronovitz, (312) 220-7712 or aronovitzl@gao.gov: 

Cindy Bascetta, (202) 512-7114 or bascettac@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above Paul Schmidt, Assistant 
Director; Tarek Mahmassani, analyst-in-charge; Rick Calhoon; Dean 
Campbell; Robert Ciszewski; Roberta Rickey; and Rosemary Torres Lerma 
made major contributions to this report. 

[End of section] 

Footnotes for Appendix VII: 

[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[2] Of the $1.145 billion made available as a result of the increased 
FMAP in fiscal year 2009, $527 million was made available by the 
increased FMAP and $618 million was made available to assist in 
decreasing the state's Medicaid payment cycle to 30 days. 

[3] OMB Memorandum, M-09-18, Payments to State Grantees for 
Administrative Costs of Recovery Activities, provides two alternatives 
for states to recoup costs for central administrative services, such as 
oversight and reporting. Alternative 1, Use of Estimated Costs for 
Centralized Services, authorizes the state to use budgeted or estimated 
costs in the submission of Statewide Cost Allocation Plans (SWCAP). 
Alternative 2, Billed Services, allows a state to submit the 
methodology for identifying, recording and charging administrative 
costs. 

[4] H.R. 2182, 111th Cong. (2009). H.R. 2182 passed in the House of 
Representatives on May 19, 2009, but, as of September 8, 2009, had not 
passed the Senate. As passed by the House, H.R. 2182 would allow state 
and local governments to set aside 0.5 percent of Recovery Act funds, 
in addition to funds already allocated to administrative expenditures, 
to conduct planning and oversight to prevent and detect waste, frauds, 
and abuse. 

[5] 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. 

[6] The Cash Management Improvement Act of 1990, as amended, requires 
the Secretary of the Treasury, along with the states, to establish 
equitable funds transfer procedures so that federal financial 
assistance is paid to states in a timely manner and funds are not 
withdrawn from Treasury earlier than they are needed by the states for 
grant program purposes. The act requires that states pay interest to 
the federal government if they draw down funds in advance of need and 
requires the federal government to pay interest to states if federal 
program agencies do not make program payments in a timely manner. The 
Department of the Treasury promulgates regulations to implement these 
requirements. 31 C.F.R. pt. 205. However, cash management by 
subgrantees, such as LEAs, is subject to Department of Education grant 
administration regulations, which may require subgrantees to remit to 
the U.S. government interest earned on excess balances. See 34 C.F.R. 
§§ 74.22, 80.21. 

[7] For the Department of Education, see 34 C.F.R. § 80.21(b). The 
specific requirements can vary depending on whether the program (1) is 
listed in the Catalogue of Federal Domestic Assistance, (2) meets the 
threshold for a major federal assistance program, and (3) is covered by 
an agreement between the U.S. Treasury Department and the state, among 
other circumstances. 

[8] Pub. L. No. 111-5, 123 Stat. 115, 206 (Feb. 17, 2009). 

[9] 42 U.S.C. § 3161 

[10] 42 U.S.C. § 3161(a). Eligibility must be supported using the most 
recent federal data available or, in the absence of recent federal 
data, by the most recent data available through the government of the 
state in which the area is located. Federal data that may be used 
include data reported by the Bureau of Economic Analysis, the Bureau of 
Labor Statistics, the Census Bureau, the Bureau of Indian Affairs, or 
any other federal source determined by the Secretary of Commerce to be 
appropriate (42 U.S.C. § 3161(d)). 

[11] Pub. L. No. 111-5, § 1201, 123 Stat. 115, 212 (Feb. 17, 2009). 

[12] IDOT classified counties as economically distressed based on (1) 
whether the 2008 year-end unemployment rate was at or above the 
statewide average, (2) whether the change in the unemployment rate 
between 2007 and 2008 was at or above the statewide average, or (3) 
whether the number of unemployed persons for 2008 had grown by 500 or 
more. 

[13] FHWA's guidance specifies that special needs determinations will 
be solely for Recovery Act highway funding and will not apply to EDA 
grant programs. 

[14] The other two public transit programs receiving Recovery Act funds 
are the Fixed Guideway Infrastructure Investment program and the 
Capital Investment Grant program, each of which was apportioned $750 
million. The Transit Capital Assistance Program and the Fixed Guideway 
Infrastructure Investment program are formula grant programs, which 
allocate funds to states or their subdivisions by law. Grant recipients 
may then be reimbursed for expenditures for specific projects based on 
program eligibility guidelines. The Capital Investment Grant program is 
a discretionary grant program, which provides funds to recipients for 
projects based on eligibility and selection criteria. 

[15] Urbanized areas are areas encompassing a population of not less 
than 50,000 people that have been defined and designated in the most 
recent decennial census as an "urbanized area" by the Secretary of 
Commerce. Nonurbanized areas are areas encompassing a population of 
fewer then 50,000 people. 

[16] The 2009 Supplemental Appropriations Act authorizes the use of up 
to 10 percent of each apportionment for operating expenses. Pub. L. No. 
111-32, §1202, 123 Stat. 1859, 1908 (June 24, 2009). In contrast, under 
the existing program, operating assistance is generally not an eligible 
expense for transit agencies within urbanized areas with populations of 
200,000 or more. 

[17] The federal share under the existing formula grant program is 
generally 80 percent. 

[18] Designated recipients are entities designated by the chief 
executive officer of a state, responsible local officials, and publicly 
owned operators of public transportation to receive and apportion 
amounts that are attributable to transportation management areas. 
Transportation management areas are areas designated by the Secretary 
of Transportation as having an urbanized area population of more than 
200,000, or upon request from the governor and metropolitan planning 
organizations designated for the area. Metropolitan planning 
organizations 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 TIP and 
the approved State Transportation Improvement Program (STIP). 

[19] Pub. L. No. 111-5, 123 Stat. 115, 209 (Feb. 17, 2009). 

[20] Pub. L. No. 111-5, §1201(a), 123 Stat. 115, 212 (Feb. 17, 2009). 

[21] For the Transit Capital Assistance Program, the U.S. Department of 
Transportation has interpreted the term obligation of funds to mean the 
federal government's contractual commitment to pay for the federal 
share of the project. This commitment occurs at the time the federal 
government signs a grant agreement. 

[22] Illinois also received a significant amount of Recovery Act 
transit assistance under the Fixed Guideway program. Specifically, the 
Chicago Transit Authority (CTA) has received $48.9 million, and Metra, 
the Chicago regional commuter railroad, received 46.6 million. 
Illinois' Fixed Guideway funds are 100 percent obligated. 

[23] The jurisdiction of some urbanized areas within this state crosses 
into at least one other state. These urbanized areas are reflected in 
each state that it is located. Therefore, some urbanized areas are 
included in multiple state totals. 

[24] H.R. Rep. No. 111-16, at 448 (2009). 

[25] Department of Labor, Training and Employment Guidance Letter No. 
14-08 (Mar. 18, 2009). 

[26] Current federal wage law specifies a minimum wage of $7.25 per 
hour. Where federal and state laws have different minimum wage rates, 
the higher rate applies. 

[27] The WIA Youth Program in Chicago is implemented by the Chicago 
Department of Family Support Services in coordination with the Chicago 
Workforce Investment Board. 

[28] One or more of the following barriers to employment must be 
demonstrated for eligibility: (1) school dropout; (2) basic literacy 
skills deficiency; (3) homeless, runaway, or foster child; (4) pregnant 
or a parent; (5) an offender; or (6) needs help completing an 
educational program or securing and holding a job. 

[29] Public housing agencies receive money directly from the federal 
government (HUD). Funds awarded to the public housing agencies do not 
pass through the state budget. 

[30] Pub. L. 111-5, § 1512, 123 Stat. 115, 287 (Feb. 17, 2009). 

[31] The Recovery Act Executive Committee is comprised of state 
executives, including the Deputy Chief of Staff for Economic Recovery, 
the Chief Internal Auditor, the Budget Director, and the Chief 
Information Officer 

[32] Recent OMB reporting guidance includes its June 22, 2009, memo and 
a recipient reporting data model (version 2.0 and version 3.0). 

[33] A state or local government would meet the reporting threshold if 
it received 80 percent or more of its annual gross revenues in the 
preceding fiscal year from federal awards, and it received $25 million 
or more in annual gross revenues in the preceding fiscal year from 
federal awards, and the public does not have access to the information 
through Securities and Exchange Commission or Internal Revenue Service 
filings as specified in the Federal Funding Accountability and 
Transparency Act of 2006. 

[End of section] 

Appendix VIII: Iowa: 

Overview: 

The following summarizes our work on the third of our bimonthly reviews 
of American Recovery and Reinvestment Act (Recovery Act)[Footnote 1] 
spending in Iowa. The full report on all of our work, which covers 16 
states and the District of Columbia, is available at [hyperlink, 
http://www.gao.gov/recovery/]. 

Our work in Iowa examined the state's actions to stabilize its budget, 
to report on Recovery Act results to the federal Office of Management 
and Budget (OMB), and to monitor controls over Recovery Act funds. We 
updated funding information on Recovery Act education programs. In 
addition, for three programs--higher education, highway infrastructure, 
and weatherization--we reviewed the use of Recovery Act funds; the 
implementation of safeguards over these funds, including those related 
to the procurement of goods and services; and efforts to assess results 
from the use of these funds. We selected these three programs because 
they are among the programs receiving the greatest amount of Recovery 
Act funds in Iowa and have recently begun to disburse or are already 
using significant amounts of Recovery Act funds. Specifically, Iowa 
institutions of higher education have received their first 
disbursements of Recovery Act funds, providing the opportunity to 
examine the use of Recovery Act funds by nonstate entities. Iowa has 
obligated funds for several highway infrastructure projects, providing 
an opportunity to review contract administration for four selected 
projects--two state-administered and two locally administered--located 
in different highway districts and counties. Finally, Iowa's 
Weatherization Assistance Program has received 50 percent of its total 
Department of Energy (DOE) allocation, providing the opportunity to 
examine the use of some of these funds and review Iowa's program to 
weatherize more than 7,000 homes of low-income residents. 

Consistent with the purposes of the Recovery Act, funds from the 
programs we reviewed are being directed to help Iowa and its local 
governments stabilize their budgets and promote economic recovery-- 
thereby providing needed services and potentially creating and saving 
jobs. In addition, the use of Recovery Act funds must comply with 
specific program requirements but also, in some cases, enables states 
to free up state funds to address their projected budget shortfall. The 
following provides highlights of our review: 

Education Programs Funded under the Recovery Act: 

* As of August 31, 2009, the U.S. Department of Education (Education) 
has made available about $439.1 million of the total $566.6 million in 
Recovery Act funds Iowa expects to use for education. 

* As of August 31, 2009, Education had made available to Iowa about 
$51.5 million in Recovery Act funds under Title I, Part A, of the 
Elementary and Secondary Education Act (ESEA) of 1965. The Iowa 
Department of Education had disbursed about $16.2 million to school 
districts. These funds are to be used to help educate disadvantaged 
youth. 

* As of August 31, 2009, Education had also made available to Iowa 
about $126.2 million in Recovery Act funds under the Individuals with 
Disabilities Education Act (IDEA), Part B. The Iowa Department of 
Education had disbursed about $25.2 million to school districts and 
area education agencies. These funds support special education and 
related services for children and youth with disabilities. 

* As of August 31, 2009, Education had made available to Iowa about 
$261.4 million of the $388.9 million in State Fiscal Stabilization Fund 
(SFSF) funds for education stabilization and government services funds 
that Iowa plans to use for education. Iowa had disbursed about $40 
million to school districts, $13.2 million to public universities, and 
$4.3 million to community colleges. Iowa plans to use these funds to 
restore state aid to school districts and community colleges and to 
restore state appropriations to public universities. Iowa plans to use 
an additional $83.5 million in SFSF government services funds for other 
programs, including public assistance and Medicaid. 

Institutions of Higher Education: 

* Of the $388.9 million in SFSF funds Iowa plans to use for education, 
it is using approximately $105 million to support institutions of 
higher education--about $79.4 million for public universities, and 
about $25.6 million for community colleges. As of August 31, 2009, 
public universities had received about $13.2 million, and community 
colleges had received about $4.3 million in SFSF funds. The two 
institutions of higher education that we visited are using Recovery Act 
funds to stabilize their budgets, mitigate tuition increases, and save 
jobs. 

Highway Infrastructure Investment Program: 

* The U.S. Department of Transportation's Federal Highway 
Administration (FHWA) apportioned $358 million in Recovery Act funds to 
Iowa. As of September 1, 2009, the federal government had obligated 
$320 million for Iowa projects,[Footnote 2] and Iowa had been 
reimbursed $91 million for work submitted for payment by highway 
contractors.[Footnote 3] 

* According to state transportation officials, citing Iowa's most 
recent report to the U.S. House Committee on Transportation and 
Infrastructure, the Recovery Act funded 2,724 highway contractor 
employees in July 2009. Officials said that, cumulatively, Iowa's 
Department of Transportation has reported to the committee that the 
Recovery Act has funded more than 363,000 hours of work. 

* Iowa transportation officials estimated that for projects completed 
as of August 17, 2009, Recovery Act funding has contributed to the 
repair of more than 110 miles of state, county, and city roads. 

Weatherization Assistance Program: 

* The U.S. Department of Energy (DOE) allocated $80 million in Recovery 
Act funds to Iowa for the Weatherization Assistance Program. Iowa plans 
to use these funds to help more than 7,000 low-income families reduce 
their utility bills by making long-term energy-efficient improvements 
to their homes. 

* As of August 31, 2009, Iowa had received about $40.4 million, or 50 
percent of its total DOE allocation, but had spent only about 5 percent 
of the funding received. No homes had been weatherized using Recovery 
Act funds, but Iowa has used funds to provide training and technical 
assistance and purchase vehicles and equipment--"ramp up" activities-- 
that will be used when the Recovery Act Weatherization Program is fully 
implemented in the state. 

* Home weatherization activities were on hold in Iowa until August 19 
when the Department of Labor (Labor) established a prevailing wage rate 
for weatherization work in the state. On August 20, state officials 
received notification that prevailing wages had been determined and 
notified local agencies that they could accept bids and issue contracts 
for weatherization. 

While Recovery Act Funds Helped Iowa Respond to Declining Revenues, the 
State Is Planning for the Possibility of Additional Budget Shortfalls: 

Iowa's use of approximately $710.3 million in Recovery Act funds for 
fiscal years 2009 and 2010 has helped stabilize its state budgets for 
these fiscal years by replacing some of the state's lost tax revenues. 
[Footnote 4] The Iowa Department of Management expects the fiscal year 
2009 budget to be balanced after the Iowa Department of Management 
reconciles the books in September 2009, while the Legislative Services 
Agency expects a year-end revenue shortfall for the fiscal year 2009 
budget. Senior officials from the Iowa Department of Management 
indicated that, in addition to the use of Recovery Act funds as 
allocated by the General Assembly, the Governor has the authority to 
transfer up to $50 million from Iowa's Economic Emergency Fund to 
balance the fiscal year 2009 budget. Additionally, state officials 
expect a reduction in revenues for the state budget in fiscal years 
2010 and 2011. The Governor also has the authority to continue controls 
on certain administrative expenditures and to implement across-the- 
board reductions in agency budgets if the Iowa Revenue Estimating 
Conference (REC) reduces revenue projections for fiscal year 2010 
according to state officials. Further, some agencies are planning for 
furloughs and layoffs in fiscal year 2010.[Footnote 5] Depending on the 
decision by the REC, the state is also considering the need for further 
reductions in agencies' budgets in fiscal year 2011. 

As of July 2009, state officials reported that gross General Fund 
receipts for fiscal year 2009 had declined more than previously 
expected,[Footnote 6] primarily due to a reduction in revenues 
collected from personal income, corporate income, and taxes on 
insurance premiums. Iowa had already used approximately $166.2 million 
in Recovery Act funds to offset revenue losses in fiscal year 2009, 
thereby avoiding layoffs, program cuts, and furloughs. Nonetheless, in 
the Iowa Department of Management's monthly 2009 General Fund receipts 
memorandum, budget officials reported that year-to-date gross fiscal 
year 2009 receipts for Iowa's General Fund were about $57.7 million 
below the March 2009 revenue projections made by the REC. Similarly, 
the Iowa Legislative Services Agency reported on July 1, 2009 that 
fiscal year 2009 revenues could be as much as $161 million below 
projections.[Footnote 7] If additional funding is needed, state 
officials said that they cannot use Recovery Act funds because the 
General Assembly did not provide the statutory authority for the 
Governor to use Recovery Act funds to mitigate such shortfalls. 
However, senior officials from the Iowa Department of Management said 
that the Governor has the authority to transfer up to $50 million from 
Iowa's Economic Emergency Fund to balance the state's fiscal year 2009 
budget, and to continue controls on certain administrative expenditures 
such as association memberships and out-of-state travel. In addition, 
senior officials from the Iowa Department of Management said that the 
Governor can call a special session of the General Assembly; however, 
the Governor has indicated that he would not schedule a special 
session. Senior officials from the Iowa Department of Management expect 
that the fiscal year 2009 budget will be balanced when the Iowa 
Department of Management closes the fiscal year 2009 books, because 
refunds are lower than projected by the REC and the return of 
appropriated funds from state agencies are higher than expected due to 
non-program expenditure controls. 

While senior officials from the Iowa Department of Management said that 
the state's fiscal year 2010 budget is balanced using current revenue 
projections from the REC, the REC could lower its estimate of revenues 
available for fiscal year 2010 at its next meeting, which is scheduled 
to occur on October 7, 2009. According to senior officials from the 
Iowa Department of Management, the Governor's executive authority 
provides various options to address any resulting projected shortfalls 
in the state's budget. For example, the Governor may implement across- 
the-board reductions in the state's General Fund appropriations through 
an Executive Order,[Footnote 8] increase efficiencies in programs and 
services, or continue current controls on certain expenditures such as 
out-of-state travel. Senior officials from the Iowa Department of 
Management said that the Governor also has the authority to call the 
General Assembly into a special session to address budgetary issues. 
Iowa plans to use approximately $544.1 million in Recovery Act funds in 
fiscal year 2010 for, among other things, maintaining funding levels 
for existing education and health care programs.[Footnote 9] However, 
senior officials from the Iowa Department of Management noted that if 
the estimated revenues are lowered, and the Governor implements an 
across-the-board reduction in General Fund appropriations, some state 
agencies may have to begin laying off state workers during the fiscal 
year. Furthermore, a few state agencies are already developing 
contingency plans for furloughs of state employees throughout fiscal 
year 2010. 

At the direction of the Governor, Iowa's budget director sent a letter 
on July 23, 2009 to state agencies requiring that they draft a "status 
quo" General Fund budget request for fiscal year 2011, in view of a 
potential decline in General Fund revenues. Each agency was requested 
to limit its fiscal year 2011 budget to its 2010 General Fund 
expenditures, after adjusting for certain one-time appropriations, such 
as those from Recovery Act funds. Additionally, senior officials the 
Iowa Department of Management suggested that agencies draft 
recommendations for reducing the General Fund appropriation from their 
fiscal year 2010 appropriation. According to senior officials from the 
Iowa Department of Management, agencies are required to submit their 
budget requests to the Governor by October 1, 2009. The Governor will 
then use the agencies' requests and revenue estimates from the December 
2009 REC to formulate a consolidated fiscal year 2011 budget proposal 
for consideration by the General Assembly. 

Additionally, state officials are seeking ways to improve government 
efficiency. For example, to make the delivery of state services more 
efficient, the Governor has hired a performance-review consultant to 
identify operational efficiencies and cost savings, such as eliminating 
any duplicate government services provided by different state agencies. 
State officials also said they planned to seek public input for 
identifying cost savings and to develop a Web site for the public to 
track state plans for streamlining government operations. Similarly, 
the bipartisan State Government Reorganization Commission, made up of 
10 General Assembly members, held its first meeting on September 9, 
2009. The Commission is to consider options for reorganizing state 
government to improve efficiency, modernize processes, eliminate 
duplication, reduce costs, and increase accountability. It is also to 
address the expanded use of the Internet and other technology. It is 
scheduled to meet again on December 10, 2009. 

Senior officials from the Iowa Department of Management said that Iowa 
does not plan to take advantage of the federal OMB's recent memorandum 
on recouping administrative costs related to Recovery Act activities 
because the General Assembly has already appropriated and prescribed 
the use of Recovery Act funds for fiscal years 2009 and 2010.[Footnote 
10] Consequently, according to senior officials from the Iowa 
Department of Management, the Governor does not have the authority to 
reallocate such funds for administrative costs. Senior officials from 
the Iowa Department of Management added that the General Assembly had 
already allocated $400,000 in the fiscal year 2010 budget for the 
central administration of Recovery Act funds in Iowa, and noted that 
state agencies are already spending most Recovery Act funds. 

Iowa Is Developing a Centralized Database to Report Financial and 
Performance Information on the Recovery Act to OMB: 

Through a Recovery Act implementation working group, the Iowa 
Department of Management is developing a centralized database to report 
Recovery Act information--funds received and expended, and performance 
measures, such as jobs created and saved--to OMB, other federal 
entities, and the general public, as required by section 1512 of the 
Recovery Act.[Footnote 11] However, state officials said that they need 
specific answers from OMB to help them report information centrally. 
Iowa is implementing procedures and controls in its centralized 
database to help ensure the completeness, accuracy, and consistency of 
the information it reports. In addition to the Recovery Act database, 
Iowa's "Results Iowa" Web site provides information about Iowa's 
efforts towards achieving results in areas such as workforce 
development, economic growth, health care, and education and may offer 
an additional opportunity to demonstrate results of Recovery Act 
funding. 

Iowa's Executive Working Group Is Collaborating with State Agencies and 
Localities to Create a Centralized Database for Reporting on the 
Recovery Act: 

In March 2009, Iowa established a Recovery Act implementation executive 
working group to provide a coordinated process for (1) reporting on 
Recovery Act funds available to Iowa through various federal grants and 
(2) tracking the federal requirements and deadlines associated with 
those grants. The implementation working group comprises 
representatives from nearly two dozen state agencies, led by the 
executive working group, and assisted by groups that will focus on 
implementation issues such as budget and tracking, intergovernmental 
coordination, and communications. Officials from this group told us 
that they are working with Iowa agency officials to create a 
centralized database to collect and summarize Recovery Act information, 
such as funds received and expended and the number of jobs created and 
saved, to be reported to OMB and the general public. Iowa officials 
noted that their first priority is to report on funds received and 
expended by state agencies and then those funds received directly by 
localities throughout the state. 

To centralize reporting on the Recovery Act, Iowa officials told us 
that they are developing a Web-based system that is to collect and 
summarize financial and performance information by state agencies and 
localities receiving funds through state distributions to communicate 
how Recovery Act funds are being used in Iowa, as well as the results 
of those funds. To facilitate this process, Iowa officials told us that 
they provided instructions to state agencies, and are building 
instructions into their database program on how to account for and 
report Recovery Act funds, among other things. Iowa officials also 
completed a summary of data element descriptions to help ensure the 
consistency of the data reported. To help ensure their readiness to 
report on Recovery Act funding by October 10, 2009, Iowa officials 
planned to perform two tests of their Recovery Act reporting system. 
From August 13 through 21, 2009, Iowa tested the appropriateness of the 
data elements and reviewed controls over Recovery Act subrecipients who 
have been delegated reporting responsibilities under section 1512 of 
the Recovery Act. The results of the first test revealed program 
errors, such as difficulties in uploading spreadsheet data, that Iowa 
officials plan to promptly correct. For the second test, to be held 
September 8 through 18, 2009, all agencies are required to report 
Recovery Act funds received in the state's reporting database. 

In addition, Iowa officials told us that they have created a working 
group to develop a consistent methodology to measure jobs created and 
saved from Recovery Act funds as well as from Iowa's I-JOBS program--a 
state program to invest in infrastructure--and federal flood recovery. 
Consistently measuring jobs created and saved can help provide greater 
transparency of the benefits of these programs. 

Iowa Is Developing Internal Controls to Help Ensure Accurate Reporting 
of Recovery Act Results: 

According to officials with the Iowa executive working group, they are 
developing internal controls to help ensure that information reported 
to OMB and the general public from Iowa's centralized reporting 
database is accurate. For example, all Recovery Act funds are 
identified by unique codes in state agencies' accounting systems. In 
addition, data validation processes are being built into the database 
to help reviewers identify and correct any inaccurate data. As an added 
measure, the executive working group plans to reconcile Recovery Act 
funds received against expenditures using reports generated from the 
Recovery Act reporting database as well as Iowa's existing accounting 
system. The executive working group also plans to incorporate a 
tracking function into the database so the state can identify Recovery 
Act recipients and subrecipients and notify appropriate officials if 
reporting time frames are not met. 

As a way to help improve the completeness, accuracy, and consistency of 
the information, state agency and locality officials will be required 
to certify their approval of their agency's Recovery Act Section 1512 
information prior to submission. For example, Iowa transportation 
officials told us that it has a dedicated group that is responsible for 
reviewing Iowa transportation information before it is submitted. 
Similarly, Iowa education officials told us that they are developing 
policies and procedures for the Recovery Act to improve the quality of 
the information. 

Iowa Seeks More Specific Information from OMB on Reporting the Results 
of the Recovery Act: 

Since June 22, 2009, OMB has provided guidance on the reporting 
requirements of the Recovery Act, including how to calculate the number 
of jobs created and saved. Iowa officials told us that they have asked 
OMB for specific guidance on the reporting requirements included in 
Section 1512 of the Recovery Act but as of September 11, 2009, OMB had 
not responded. For example, the state would like to confirm that it may 
use a single Dun & Bradstreet, or D-U-N-S, number because the state 
intends to report Section 1512 information centrally.[Footnote 12] 
State officials are also seeking an answer on whether OMB would serve 
as Iowa's sponsor so that Iowa officials could access the federal 
Central Contractor Registration (CCR) database[Footnote 13] to help 
them validate that Recovery Act subrecipients are registered in the CCR 
system, and use this information to verify whether its subrecipient 
data is consistent with federal data requirements. 

"Results Iowa" Web Site Provides Opportunities for Iowa to Demonstrate 
Results of Recovery Act Funding: 

Iowa created the "Results Iowa" Web site, [hyperlink, 
http://www.resultsiowa.org], to provide information about its efforts 
toward achieving results in areas such as workforce development, 
economic growth, health care, and education. Furthermore, for each 
state agency under the authority of the Governor, "Results Iowa" 
provides strategic and performance plans linking agency programs and 
strategies to specific performance goals, as well as performance 
reports detailing agencies' progress on such goals. Additionally, 
"Results Iowa" allows agencies to highlight and update selected 
performance measures as desired. The "Results Iowa" Web site is an 
existing reporting mechanism that could demonstrate the effects of 
Recovery Act funding on agency programs and initiatives. 

As a next step, Iowa could use "Results Iowa" to demonstrate how 
Recovery Act funding is affecting key performance measures, such as the 
state's unemployment and other key economic indicators. Iowa could also 
modify agency documents, including strategic and performance plans and 
performance reports, to demonstrate how Recovery Act funding is 
affecting progress towards achieving agency wide performance goals, and 
send guidance to agencies on how to integrate the use of Recovery Act 
funding into performance plans. Furthermore, Iowa could integrate 
information from the "Results Iowa" Web site with its Economic Recovery 
Web site's proposed "dashboard" feature[Footnote 14]--a user-friendly 
search capability that is to provide detailed information on how and 
where Recovery Act funds are spent. Such efforts would enable the state 
to link Recovery Act spending for specific programs to statewide and 
agency wide performance goals, which, in turn, would allow Iowa to 
better demonstrate to citizens, state officials, and other policymakers 
how the Recovery Act is affecting Iowa's government and economic 
climate. In response, state officials agreed that using "Results Iowa" 
to demonstrate the effect of Recovery Act funding could help to 
integrate this information onto Iowa's Economic Recovery Web site. 
However, they acknowledged that resources were limited and not 
generally available to immediately modify the "Results Iowa" Web site. 
State officials also agreed that acknowledging the receipt of Recovery 
Act funds in state agency performance plans was important and said they 
would consider providing guidance to agencies to adjust their plans to 
reflect these funds. 

Iowa's State Auditor and Iowa Accountability and Transparency Board 
Continue to Monitor Controls over Recovery Act Funds: 

The Office of the State Auditor is in the final stages of updating its 
2009 audit plan. State audit officials expect to complete the audit 
plan shortly after the state's fiscal year 2009 accounting records are 
closed in September 2009. According to state audit officials, their 
audit plan reflects the increased risk associated with Recovery Act 
funding, as well as agency risk assessments submitted by agency 
auditors. In addition, state audit officials told us that although 
their appropriation was recently reduced by 30 percent, this reduction 
is not expected to affect their ability to oversee Recovery Act funds 
because of their ability to bill state agencies directly for work 
associated with auditing federal funds. However, this reduction to the 
State Auditor's appropriation will likely result in a qualified opinion 
on the state of Iowa comprehensive annual financial report because the 
Office of the State Auditor may not be able to conduct enough audit 
work on certain state agencies to issue an unqualified opinion. 

As we reported in April and July 2009, the Governor created the Iowa 
Accountability and Transparency Board (Iowa Board). The Iowa Board has 
several purposes: ensure that Iowa meets or exceeds the accountability 
and transparency requirements of the Recovery Act; monitor Iowa's use 
of Recovery Act funds to prevent fraud, waste, and abuse; and make 
recommendations to the Governor, as needed, to ensure that best 
practices are implemented. Most recently, the Iowa Board has created an 
Internal Control Evaluation Team (Evaluation Team) composed of 
representatives from Iowa's Department of Management, the Auditor's 
Office, and the Legislative Services Agency to perform an internal 
control evaluation of state agencies receiving Recovery Act funds. To 
assess agencies' risk levels, the evaluation team has reviewed 
agencies' single audit reports and risk assessment questionnaires 
filled out by state agency officials and has prepared a report for the 
Iowa Board that includes recommendations for improvement.[Footnote 15] 

The report from the Evaluation Team identified six high-priority 
programs from the 82 programs surveyed that the Evaluation Team expects 
will have some difficulty in fully complying with the accountability 
and transparency requirements in the Recovery Act. The six high- 
priority programs are as follows:[Footnote 16] 

* Office of Energy Independence--State Energy Program, 

* Office of Energy Independence--Energy Efficiency and Conservation 
Block Grants, 

* Office of Energy Independence--Energy Efficient Appliance Rebates 
Program, 

* Department of Education--State Fiscal Stabilization Fund, 

* Department of Human Rights--Weatherization Assistance Program, and: 

* Iowa Utilities Board--State Electricity Regulatory Assistance Grant. 

The primary reasons for recommending additional technical monitoring 
for these programs were that they received a significant increase in 
funding, were newly created, or have personnel with limited experience. 
The Evaluation Team's Internal Controls Evaluation made three 
recommendations for the Iowa Board. First, all agencies receiving 
Recovery Act funding should receive training in internal controls and 
procurement from the U.S. Department of Energy Office of the Inspector 
General and the U.S. Department of Justice Antitrust Division. Second, 
each agency ranked as a high priority should implement a comprehensive 
accountability plan to review Recovery Act activities. Third, an 
internal agency team should conduct reviews of all high priority 
agencies to ensure that agencies are complying with the accountability 
plan. 

Iowa Is Disbursing Education Recovery Act Funds and Expects to Disburse 
Most Funds by the End of Fiscal Year 2010: 

Iowa will use approximately $566.6 million in Recovery Act funds for 
education through three U.S. Department of Education (Education) 
programs: (1) Title I, Part A, of the Elementary and Secondary 
Education Act of 1965 (ESEA); (2) Individuals with Disabilities 
Education Act (IDEA), Part B; and (3) the State Fiscal Stabilization 
Fund (SFSF) for education stabilization and government services. The 
majority of this amount--about $478.8 million--will be disbursed to 
school districts and institutions of higher education by the end of 
fiscal year 2010. As of August 31, 2009, about $439.1 million of these 
funds had been made available to the Iowa Department of Education and 
the Department of Management, which had disbursed approximately $98.9 
million to school districts, area education agencies,[Footnote 17] and 
institutions of higher education, as seen in figure 1. 

Figure 1: Recovery Act Education Funding Allocated, Made Available, and 
Disbursed in Iowa, as of August 31, 2009 (Dollars in millions): 

[Refer to PDF for image: vertical bar graph] 

Total Allocated to Iowa: 
Program: Title I, Part A: $51.5; 
Program: IDEA, Part B: $126.2; 
Program: SFSF: $388.9. 

Total Made Available to Iowa: 
Program: Title I, Part A: $25.7; 
Program: IDEA, Part B: $63.1; 
Program: SFSF: $261.4. 

Total Disbursed: 
Program: Title I, Part A: $16.2; 
Program: IDEA, Part B: $25.2; 
Program: SFSF: $57.5. 

Source: GAO analysis of Iowa Department of Education and Board of 
Regents data. 

Note: In this figure, SFSF funds include only funds for education 
stabilization and government services that have been designated for 
school districts, community colleges, and public universities. 

[End of figure] 

ESEA Title I, Part A. The Recovery Act provides $10 billion nationally 
to help school districts educate disadvantaged youth by making 
additional funds available beyond those regularly allocated through 
ESEA Title I, Part A. The Recovery Act requires these additional funds 
to be distributed through states to school districts 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, school districts are required to comply with current 
statutory and regulatory requirements and must obligate 85 percent of 
these funds by September 30, 2010.[Footnote 18] Education is advising 
school districts to use the funds in ways that will build their long- 
term capacity to serve disadvantaged youth, such as through providing 
professional development to teachers. Education made the first half of 
states' Recovery Act ESEA Title I, Part A, funding available on April 
1, 2009, and announced on September 4, 2009, that it had made the 
second half available. 

As of August 31, 2009, Education had made available to the Iowa 
Department of Education its estimated $51.5 million ESEA Title I, Part 
A, allocation under the Recovery Act. In turn, the Iowa Department of 
Education had disbursed a total of $16.2 million to school districts 
through two of six planned disbursements to school districts. The next 
disbursement to districts is planned for October 1, 2009, and the Iowa 
Department of Education plans to disburse the majority of its ESEA 
Title I, Part A, funds--or an additional $24.3 million--before the end 
of the state's fiscal year 2010. 

IDEA, Part B. The Recovery Act provided supplemental funding for 
programs authorized by IDEA, Part B, the major federal statute that 
supports the provisions of early intervention and special education and 
related services for children and youth with disabilities. IDEA, Part 
B, funds programs that ensure preschool and school-aged children with 
disabilities have 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 (section 619). 
Education made the first half of states' Recovery Act IDEA funding 
available to state agencies on April 1, 2009, and announced on 
September 4, 2009, that it had made the second half available. 

As of August 31, 2009, Education had made available to the Iowa 
Department of Education its estimated $126.2 million IDEA, Part B, 
allocation under the Recovery Act. In turn, the Iowa Department of 
Education had disbursed a total of about $25.2 million to school 
districts and area education agencies in the first of five planned 
disbursements. The next disbursement to districts and area education 
agencies is planned for October 1, 2009, and the Iowa Department of 
Education plans to disburse approximately an additional 40 percent of 
its allocation of IDEA, Part B, funds--or an additional $50.4 million-- 
in state fiscal year 2010. 

State Fiscal Stabilization Fund (SFSF). 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 be used to alleviate 
shortfalls in state support for education to school districts and 
public institutions of higher education. The initial award of SFSF 
funding required each state to submit an application to Education that 
provides several assurances, including that the state will meet 
maintenance-of-effort requirements (or it will be able to comply with 
waiver provisions) and that it will implement strategies to meet 
certain educational requirements, such as increasing teacher 
effectiveness, addressing inequities in the distribution of highly 
qualified teachers, and improving the quality of state academic 
standards and assessments. In addition, states were required to make 
assurances concerning accountability, transparency, reporting, and 
compliance with certain federal laws and regulations. States must 
allocate 81.8 percent of their SFSF funds to support education (these 
funds are referred to as education stabilization funds), and 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). After maintaining state support for education at 
fiscal year 2006 levels, states must use education stabilization funds 
to restore state funding to the greater of fiscal year 2008 or 2009 
levels for state support to school districts or public institutions of 
higher education. When distributing these funds to school districts, 
states must use their primary education funding formula, but they can 
determine how to allocate funds to public institutions of higher 
education. In general, school districts maintain broad discretion in 
how they can use stabilization funds, but states have some ability to 
direct institutions of higher education in how to use these funds. 

Education allocated to Iowa a total of about $472.3 million in SFSF 
funds, of which about $386.4 million is specifically for education 
stabilization and about $86 million is for government services. In 
total, Iowa plans to use approximately $388.9 million of SFSF funds for 
education. As of August 31, 2009 Iowa had disbursed a total of about 
$40 million to school districts, $13.2 million to public universities, 
and $4.3 million to community colleges. Specifically: 

* As of August 31, 2009, two-thirds of Iowa's SFSF education 
stabilization funds--or about $258.9 million--was made available to the 
state. The Iowa Department of Education and the Department of 
Management have begun disbursing education stabilization funds. As of 
August 31, the Iowa Department of Education had disbursed a total of 
$40 million in education stabilization funds to school districts and 
about $3.9 million to community colleges. The Department of Management 
had disbursed about $13.2 million to public universities. According to 
education officials, these funds are replacing reduced state aid 
payments to districts and community colleges, and replacing lost state 
appropriations for public universities. 

* As of August 31, all $86 million in SFSF government services funds 
had been made available to Iowa. Of this amount, $2.5 million will go 
to community colleges, and the Iowa Department of Education had already 
disbursed about $420,000 of those funds to community colleges. Iowa 
plans to use the rest of the government services funds for such 
programs as public assistance, public safety, and Medicaid. Iowa has 
allocated a total of approximately $63.4 million in government services 
funds for fiscal year 2010. 

University and Community College Officials Said They Will Use Recovery 
Act Funds to Stabilize Budgets, Mitigate Tuition Increases, and Save 
Jobs: 

Iowa plans to provide approximately $105 million of its SFSF funds to 
higher education. Specifically, Iowa's three public universities--Iowa 
State University, the University of Iowa, and the University of 
Northern Iowa--will share approximately $79.4 million in SFSF education 
stabilization funds, and its 15 community colleges will share $23.1 
million in SFSF education stabilization funds and $2.5 million in SFSF 
government services funds. Funds are being disbursed to each university 
and community college in 12 monthly payments, the first of which went 
out in July 2009. As of August 31, 2009, public universities had 
received about $13.2 million, and community colleges had received $4.3 
million in SFSF funds. Iowa's public universities receive about 51 
percent of their operating budgets from tuition and fees, about 43 
percent from state appropriations, and the rest from other sources. The 
Board of Regents, which governs Iowa's public universities, divided the 
SFSF funds among the state's three universities in proportion to the 
size of each university's budget.[Footnote 19] The Iowa Department of 
Education, which oversees Iowa's community colleges, divided the 
community college SFSF funds among the state's 15 community colleges 
according to its usual state aid formula, which is based on a statutory 
formula. Iowa community colleges receive about 47 percent of their 
operating revenue from tuition, 37 percent from state aid, 5 percent 
from local communities, and the rest from other sources. 

We visited two institutions of higher education: Iowa State University 
in Ames and Southwestern Community College in Creston. We selected 
these institutions to include one university and one community college 
located in a rural area. As of August 31, 2009, these two institutions 
had received about 17 percent of their allocation. (See table 1 for 
SFSF funds allocated and disbursed.) 

Table 1: Recovery Act Allocations and Disbursements to Selected 
Institutions of Higher Education, as of August 31, 2009 (Dollars in 
thousands): 

Institution: Iowa State University; 
Allocations and disbursements: Allocated; SFSF education stabilization 
funds: $31,600; SFSF government services funds: $0. 

Institution: Iowa State University; 
Allocations and disbursements: Disbursed; SFSF education stabilization 
funds: $5,270; SFSF government services funds: $0. 

Institution: Southwestern Community College; Allocations and 
disbursements: Allocated; SFSF education stabilization funds: $570; 
SFSF government services funds: $60. 

Institution: Southwestern Community College; Allocations and 
disbursements: Disbursed; SFSF education stabilization funds: $90; SFSF 
government services funds: $10. 

Source: GAO analysis of Iowa Department of Education and Board of 
Regents data. 

[End of table] 

Institutions of Higher Education Plan to Spend All SFSF Funds in Fiscal 
Year 2010 to Pay Salaries and Sustain Academic Services and Programs: 

In December 2008, to balance the state's budget, the Governor issued an 
executive order for a mid-year 1.5 percent across-the-board reduction 
in its General Fund appropriations for the 2009 state fiscal year. As a 
result of this and other reductions in state funding, Iowa State 
University's $519 million fiscal year 2009 budget was reduced by about 
$7.2 million, and Southwestern Community College's $10.2 million fiscal 
year 2009 budget was reduced by $67,581. For fiscal year 2010, as state 
funding levels continued to decline, Iowa State University's budget was 
reduced to $502.7 million, a decrease of 3.1 percent compared with the 
initial fiscal year 2009 budget. Southwestern Community College's 2010 
state aid was reduced in total by about $600,000, representing about a 
6 percent reduction to its operating budget compared to fiscal year 
2009. 

Iowa State University and Southwestern Community College will both 
receive SFSF funds equal to or greater than the reduction to their 2010 
state appropriations: $31.6 million and $630,027, respectively. In 
addition, according to officials at Iowa State University, 
appropriating legislation directed public universities to obligate or 
spend all SFSF funds by the end of fiscal year 2010, or return the 
funds to the state. Southwestern Community College plans to use all of 
its $630,027 SFSF allocation in fiscal year 2010 to pay salaries and 
employee benefits. According to the Southwestern Community College 
chief financial officer, about 76 percent of the school's budget is for 
salaries. Iowa State University plans to spend about $22.2 million, or 
70 percent, of its $31.6 million SFSF allocation, to pay salaries. 
Other expenses being paid for with SFSF funds include building repairs 
($4.0 million), supplies and services ($3.6 million), and equipment 
($1.1 million). 

Iowa institutions of higher education plan to use SFSF funds to sustain 
key educational programs and services even as enrollment increased and 
budgets declined. For example, Iowa State University's enrollment for 
the 2008-2009 school year increased by 2.5 percent over the prior year. 
Southwestern Community College's enrollment for the 2009-2010 school 
year increased by at least 7 percent over the prior year. Iowa State 
University attributed much of its increased enrollment to an increase 
in nonresident students, while Southwestern Community College 
attributed its increased enrollment to layoffs in the local economy and 
students returning to school to learn new skills. Officials from both 
schools said that they expect enrollment to continue to increase at 
least through the current academic year. Southwestern Community College 
is using its SFSF funds to preserve associate degree and trade 
programs, which are critical to students directly affected by the 
downturn in the economy. For example, Southwestern Community College's 
School of Nursing has a waiting list for enrollment, and the 
institution plans to use SFSF funds to hire one nursing instructor. 
Iowa State University used SFSF funds to hire about 10 new veterinary 
medicine faculty in 2009 to educate an anticipated influx of veterinary 
medicine students. Under an agreement with a university in another 
state, veterinary medicine students will attend the out-of-state 
university for their first 2 years after which they will transfer to 
Iowa State University to complete their training. 

Two Institutions of Higher Education Are Tracking SFSF Funds Using 
Existing Systems and Methods: 

Both Iowa State University and Southwestern Community College have 
established new accounts within their existing accounting systems for 
SFSF education stabilization and government services funds and plan to 
separately track and monitor SFSF funds using existing processes and 
procedures. Iowa State University sends monthly reports to the Board of 
Regents and the Department of Management on its use of SFSF funds. Iowa 
State University officials said they have received guidance on the use 
of SFSF funds from the Iowa Board of Regents. As a matter of practice 
for SFSF funds, the Board of Regents will approve all university 
infrastructure expenditures of $500,000 or greater. Southwestern 
Community College's chief financial officer said that she will prepare 
all reporting on the use of Recovery Act funds and maintain file copies 
of supporting documentation and reports submitted to the Iowa 
Department of Education. She said she is also responsible for assuring 
the accurate recording of all deposits and payments. According to the 
chief financial officer, the college's accounts receivable department 
will deposit SFSF funds into the appropriate accounts and the payroll 
department will verify all payees and the amounts paid using SFSF 
funds. 

While Higher Education Institutions Report Positive Results from 
Recovery Act Funds, They Plan to Improve Efficiency in Anticipation of 
Ongoing Fiscal Constraints: 

Officials at the Iowa institutions of higher education we visited told 
us they have not yet reported on the use and results of Recovery Act 
funds under Section 1512 because they are awaiting specific guidance on 
how to report to Iowa's centralized reporting database. In the 
meantime, officials told us, they have identified some savings and 
efficiencies from the use of these funds. The universities and 
community colleges report annually to the state on performance and 
funding. For example, community colleges provide data to the state that 
are published in an annual Condition of Iowa's Community Colleges 
Report--a summary of fiscal and tuition data and enrollment and 
graduation rates. 

Iowa State University and Southwestern Community College officials also 
told us that SFSF funds have allowed them to save jobs, based on their 
own estimates. Iowa State University identified about 50 professional, 
scientific, and other positions for potential layoffs by the end of 
state fiscal year 2010. If the university determines that some layoffs 
are necessary, it will use SFSF funds to pay employees' salaries until 
the time that the layoffs become effective. The university is also 
using SFSF funds to pay the salaries of 210 employees that accepted an 
offer to retire by January 31, 2010--thereby temporarily saving these 
jobs according to school officials. A Southwestern Community College 
official estimated that SFSF funds allowed the school to save seven 
jobs. 

SFSF funds also allowed Iowa State University and Southwestern 
Community College to limit tuition increases. The Board of Regents 
increased tuition for academic year 2009-2010 by 4.2 percent for 
resident undergraduate students at the three public universities, 
including Iowa State University. According to the Iowa Board of 
Regents, however, without SFSF funds, tuition might have increased by 
as much as 8 percent at state universities to offset the loss of state 
appropriations. Historically, when state budgets have declined, Iowa 
State University's tuition has increased significantly. For example, 
according to Iowa State University officials, when state budgets 
declined in the early 2000s, the university raised tuition and fees by 
18.5 percent, followed by a 17.6 percent tuition hike in the following 
year. For Southwestern Community College, the result of the 2010 budget 
shortfall was a potential $19 tuition increase per credit hour. (Annual 
tuition increases have averaged $5.72 per credit hour for the past 9 
years.) However, SFSF funds allowed Southwestern Community College to 
limit the tuition increase to $5.50 per credit hour, about a $14 
reduction for students compared to the potential increase. 

SFSF funds have also provided institutions of higher education the 
opportunity to plan strategically for the long term by restructuring 
for greater efficiency and avoiding the funding cliff effect (i.e., the 
shortfall when Recovery Act funds are spent). Iowa State University 
asked each of its departments to submit plans for reducing costs by a 
total of $38.8 million, an amount equal to the university's 2009 and 
2010 budget cuts. Southwestern Community College also asked its 
departments to submit plans to reduce their budgets by 5 percent (a 
percentage greater than the 2009 statewide reduction, in anticipation 
of future budget cuts). Department plans included proposals for staff 
reductions and process improvements. 

To reduce costs, both institutions have allowed vacant positions to 
remain unfilled and reduced staffing levels through attrition and some 
layoffs. Iowa State University also identified for layoffs 25 of about 
800 professional and scientific staff, and, as discussed earlier, 
officials reported that 210 general services employees will retire by 
January 31, 2010, under the university's early retirement incentive 
offer. SFSF funds will be used to pay the salaries of these employees 
up to their retirement date. Southwestern Community College reduced the 
number of instructors from 48 to 43: 2 instructors left voluntarily, 2 
retired, and 1 was laid off. Both Iowa State University and 
Southwestern Community College plan to retain or hire adjunct 
professors or lecturers--adjunct faculty and lecturers do not have full 
or permanent status and therefore are less costly. Iowa State 
University plans to use technology, such as adding computers or 
streaming video, to provide classroom instruction. Southwestern 
Community College reduced its printing costs by eliminating paper 
copies of the course catalog and student handbook--now both are 
available only online. 

Iowa State University officials told us that they do not expect to have 
a funding cliff in 2010 because the university has reduced its payroll 
through retirements and layoffs and has reengineered education by 
increasing faculty workload and class size. Southwestern Community 
College's strategy to avoid a funding cliff includes avoiding any new 
long-term costs and to plan and operate under the assumption that state 
funds will be cut again. According to Southwestern Community College, 
it is important that the school budget conservatively because it is a 
small, rural school and therefore has fewer funding resources. 

Iowa Has Awarded Most of Its Highway Recovery Act Funds, and Reports 
Funding over 2,700 Contractor Employees in July 2009: 

The U.S. Department of Transportation's Federal Highway Administration 
(FHWA) apportioned $358 million in Recovery Acts funds to Iowa for 
highway construction. As of September 1, 2009, the federal government 
had obligated $320 million for Iowa projects, and Iowa had been 
reimbursed $91 million for work submitted for payment by highway 
contractors. According to state transportation officials, citing the 
state's most recent report to the U.S. House Committee on 
Transportation and Infrastructure, the Recovery Act funded 2,724 
highway contractor employees in July. Officials said, cumulatively, the 
department has reported that more than 363,000 hours of work have been 
funded by the Recovery Act. In addition, transportation officials 
estimate that Recovery Act funding contributed to the repair of more 
than 110 miles of state, county, and city roads. 

The Recovery Act provides funding to the states to restore, repair, and 
construct highways, and conduct other activities allowed under the 
Federal-Aid Highway Surface Transportation Program. The act requires 
that 30 percent of these funds be suballocated for projects in 
metropolitan and other areas of the state. Highway funds are 
apportioned to the states through existing federal-aid highway program 
mechanisms, and states must follow existing program requirements, which 
include ensuring the project meets all environmental requirements 
associated with the National Environmental Policy Act, paying a 
prevailing wage in accordance with federal Davis-Bacon requirements, 
complying with goals to ensure disadvantaged businesses are not 
discriminated against in the awarding of construction contracts, and 
using American-made iron and steel in accordance with Buy America 
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. 

To receive Recovery Act funds for highway infrastructure spending, 
states must meet certain requirements. For example, the states must do 
the following: 

* Ensure that 50 percent of apportioned Recovery Act funds were 
obligated within 120 days of apportionment (before June 30, 2009). The 
50 percent rule applies only to funds apportioned to the state and not 
to the 30 percent of funds required by the Recovery Act to be 
suballocated primarily based on population, for metropolitan, regional, 
and local use. In addition, states are required to ensure that all 
apportioned funds--including suballocated funds--are obligated within 1 
year. The Secretary of Transportation is to withdraw and redistribute 
to other states any amount that is not obligated within these time 
frames. 

* Give priority to projects that can be completed within 3 years and to 
projects located in economically distressed areas. 

* Certify that the state will maintain the level of spending 
(maintenance of effort) 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 
is required to identify the amount of funds the state plans to expend 
from state sources from February 17, 2009, through September 30, 2010. 
[Footnote 20] 

Iowa has met, or is in the process of meeting, these requirements, and 
the U.S. Department of Transportation is currently validating Iowa's 
maintenance-of-effort calculations--the amount of state funds Iowa 
planned to expend for the covered programs through September 30, 2010. 

Iowa has also initiated I-JOBS, an $830 million state-funded program to 
invest in infrastructure. A key component of this program is $115 
million for transportation projects across the state, including $50 
million for bridge safety, $45 million for city streets and secondary 
roads, and the remainder for enhancing public transit and recreational 
trails. As of September 1, 55 bridge safety projects under the state's 
jurisdiction had been approved for I-JOBS funding in fiscal years 2010 
and 2011. 

Almost 90 Percent of Highway Recovery Act Funds Has Been Obligated for 
Iowa Highway Projects: 

As we previously reported, Iowa was apportioned $358 million for 
highway infrastructure and other eligible projects. As of September 1, 
2009, $320 million had been obligated (about 90 percent of available 
funds) for 183 highway projects in 83 of the state's 99 counties. 
[Footnote 21] For those projects where funds have been awarded, Iowa 
Department of Transportation officials reported that 139 projects, 
representing $268 million, had begun. As of September 1, 2009, $91 
million had been paid to contractors and reimbursed by FHWA.[Footnote 
22] Officials estimated that Iowa will spend and be reimbursed a total 
of about $215 million of its Recovery Act transportation funds by the 
end of December 2009. 

About 87 percent of Recovery Act highway obligations for Iowa have been 
for pavement improvement projects. Specifically, $277 million of the 
$320 million obligated to Iowa, as of September 1, 2009, was being used 
for pavement improvement projects, such as the $1.5 million patching 
and resurfacing of 6.4 miles of County Route G35 in Cass County, Iowa 
(discussed below). Additionally, $20 million is being used for bridge 
replacements, such as the $1.1 million for Iowa State Route 92 bridge 
over Keg Creek near Treynor, Pottawattamie County, Iowa (discussed 
below). Figure 2 shows obligations by the types of road and bridge 
improvements being made. 

Figure 2: Highway Obligations for Iowa by Project Improvement Type as 
of September 1, 2009: 

[Refer to PDF for image: pie-chart] 

Pavement projects total (91 percent, $291.2 million): Pavement 
improvement ($276.8 million): 87%; New road construction ($14.4 
million): 5%. 

Bridge projects total (6 percent, $20.9 million): Bridge replacement 
($20.3 million): 6%; Bridge improvement ($0.5 million): 0%; 
New bridge construction ($0.1 million): 0%. 

Other (2 percent, $7.3 million): 
Other ($7.3 million): 2%. 

Source: GAO analysis of FHWA data. 

Note: Totals may not add due to rounding. "Other" includes safety 
projects, such as improving safety at railroad grade crossings, and 
transportation enhancement projects, such as pedestrian and bicycle 
facilities, engineering, and right-of-way purchases. 

Iowa Department of Transportation Is Using Existing Procedures for 
Internal Controls and Contract Administration of Highway Projects: 

State program agencies, such as the Iowa Department of Transportation, 
are responsible for establishing internal controls and procedures to 
ensure that their agencies spend funds as intended by law. Among other 
things, the department is responsible for ensuring contract award and 
performance are in accordance with established standards and conducted 
in compliance with laws and regulations. It is also responsible for 
maintaining important contract and financial documentation. 

The Iowa Department of Transportation has detailed procedures for the 
administration and inspection of work performed by contractors, 
including written contracting procedures, contractor qualification 
standards, and material and construction specifications and guidelines. 
For example, the manual provides detailed guidance on how to sample and 
analyze materials such as freshly mixed concrete. The manual also 
requires that all of the materials used in highway construction in the 
state be listed on the state's list of approved manufacturers and brand 
names. All of this information is published in hard copy, online, and 
on compact discs. The state and local governments also employ 
construction and material inspectors and technicians, and construction 
engineers, to review, measure, and accept work performed by 
contractors. According to officials at the Iowa Department of 
Transportation, each item of work has a method of measurement and basis 
of payment, as well as various associated construction and materials 
specifications. The Iowa State Auditor's Single Audit Report for 2008 
does not identify any material weaknesses in the Department of 
Transportation's highway planning and construction program. 

In addition, according to agencies officials, to help achieve 
consistent contracting procedures across the state, the Iowa Department 
of Transportation requires that all Recovery Act-funded highway 
projects be advertised and bid centrally through the state contracts 
office. For example, the department review includes ensuring that only 
contractors that have been prequalified are requested to bid on 
projects. 

As part of our assessment for this cycle, we reviewed four highway 
infrastructure projects--two resurfacing projects, a grading project, 
and a bridge replacement project--to determine if the contracting 
process for these projects reflected the state's published procedures. 
Two of these projects were state-administered projects and two were 
locally administered; they are located in different state highway 
districts and different counties. The following describes these 
projects: 

* Project 1. The Cass County Board of Supervisors, in southwest Iowa, 
awarded a contract to patch and resurface 6.4 miles of County Route 
G35. This $1.5 million project is being administered locally by the 
Cass County engineer. 

* Project 2. The Iowa Department of Transportation awarded a contract 
to replace the Iowa State Route 92 bridge over Keg Creek, 3 miles west 
of Treynor, in Pottawattamie County, Iowa. This $1.14 million project 
is being administered by Iowa Department of Transportation District 4. 

* Project 3. The Iowa Department of Transportation awarded a contract 
to regrade a 2.6 mile segment of Iowa State Route 141, northwest of 
Mapleton, in western Iowa's Monona County. This $2.27 million project 
to reduce snow blockage along this route is being administered by Iowa 
Department of Transportation District 3. 

* Project 4. The Polk County Board of Supervisors awarded a contract to 
resurface 6 miles of N.W. 118th Avenue in northern Polk County, north 
of the Des Moines metro area, in central Iowa. This $2.1 million 
project, administered by the Polk County engineer, has been completed. 

We reviewed these contracts and confirmed with state and county highway 
officials that all four contracts: 

* were competitively awarded to the lowest qualified bidder; 

* were for a fixed price; 

* considered only prescreened, qualified contractors; 

* established financial penalties for failure to start or complete 
work, as contracted; 

* required reporting of contractor staff and hours worked on the 
project; and: 

* were regularly monitored and inspected by qualified state or local 
engineers and inspectors. 

Iowa's Department of Transportation Reports That the Recovery Act 
Funded More Than 2,700 Contractor Employees in July 2009: 

Like other Iowa agencies, the Department of Transportation has not yet 
reported under Section 1512 of the Recovery Act. However, the 
department continues to report project, financial, and employment 
information to FHWA. This reporting is required by the Recovery Act to 
provide greater accountability and transparency and includes, among 
other things, monthly reporting of contracts awarded, projects in 
process, employees working and employee hours worked. Also the 
department reports this information to the U.S. House of 
Representatives' Committee on Transportation and Infrastructure. In 
addition, the department's Web site provides weekly updates on projects 
funded and contracts awarded under the Recovery Act, and Recovery Act 
funds spent on each project. 

To support these reporting requirements, the Iowa Department of 
Transportation established its own centralized reporting system, in 
addition to the state's centralized reporting system, which allows the 
department's district offices, local governments, and contractors to 
enter and verify required Recovery Act financial and employment data. 
This information provides the basis for the department's report to the 
state's central system, FHWA, the House Committee on Transportation and 
Infrastructure, the Iowa public, and the media. 

In July 2009, according to state transportation officials, citing 
Iowa's most recent report to the House Committee on Transportation and 
Infrastructure, the Recovery Act funded 2,724 highway contractor 
employees. For the same period, transportation officials said that more 
than 160,000 hours of work were funded by the Recovery Act. Officials 
said that, cumulatively, Iowa's Department of Transportation has 
reported to the committee that more than 363,000 hours of highway 
employee work have been funded by the Recovery Act. Iowa transportation 
officials estimate that for projects completed as of August 17, 2009, 
Recovery Act funding has contributed to the repair of more than 110 
miles of state, county, and city roads. 

Use of Weatherization Funds Has Been Limited because of Delay in 
Setting Prevailing Wages for Workers: 

Iowa has for years operated a Weatherization Assistance Program that 
receives funding from several sources, including the U.S. Department of 
Energy (DOE). Each year, Iowa uses this funding to weatherize 
approximately 2,000 homes of low-income clients. The Division of 
Community Action Agencies manages the state's Weatherization Assistance 
Program, and it, in turn, relies on 18 local agencies, all experienced 
in weatherization work, to carry out the program at the local level. In 
2009, Iowa received $8.6 million in regular weatherization funding from 
DOE. However, the amount significantly increased when the Recovery Act 
provided a large increase in weatherization funding later in the year. 
Using the Recovery Act funding, DOE allocated $80.8 million for the 
Weatherization Assistance Program to be used over a 3-year period. Iowa 
plans to use these funds to weatherize an additional 7,196 homes. 

On July 2, 2009, DOE approved Iowa's weatherization plan under the 
Recovery Act and released an additional $32.3 million of the total 
$80.8 million allocated to the state. As of August 31, 2009, Iowa had 
been awarded about $40.4 million, or 50 percent of its total DOE 
allocation, but had spent only about 5 percent of the funding received. 
Furthermore, no homes had been weatherized using Recovery Act funds. 
Instead, Iowa has used these funds to provide training and technical 
assistance and purchase vehicles and equipment--"ramp up" activities-- 
that will be used when the Recovery Act Weatherization Program is fully 
implemented in the state. 

According to state weatherization officials, they refrained from 
spending Recovery Act funds on weatherization work until the U.S. 
Department of Labor (Labor) established the prevailing wage rates for 
weatherization workers covered by the Recovery Act Weatherization 
Assistance Program.[Footnote 23] State officials told us that they and 
all 18 local agencies that manage the Weatherization Assistance Program 
responded to the Labor survey to gather wage and benefit data on 
weatherization workers in Iowa by the requested date. The officials 
understood that the prevailing wages for Iowa would be available by 
July 25, 2009. On July 24, they received notice from Labor that the 
wage rates would be delayed, but should be available by August 14, 
2009. On August 19, 2009 Labor established a prevailing wage rate for 
weatherization work in the state. On August 20, 2009 state officials 
received notification that prevailing wages had been determined and 
notified local agencies that they could accept bids and issue contracts 
for weatherization. 

Because the requirement that workers be paid at least the prevailing 
wages, as determined by the Davis-Bacon Act, had not previously applied 
to the weatherization program and prevailing wages were not yet 
established, state officials provided general guidance to the local 
agencies on the overall requirements of the Davis-Bacon Act and on 
completing the Labor survey. However, officials told us that they were 
reluctant to implement the Recovery Act Weatherization Assistance 
Program without knowing the wages that local agencies and contractors 
who do the work must be paid and because they had limited experience 
with the Davis-Bacon Act. Many of the weatherization contractors are 
small companies that employ few full-time staff, and most do not 
provide benefits to their employees. According to these officials, if 
wages and benefits paid to weatherization workers turned out to be less 
than the prevailing wages, the contractors would be liable for back 
payments. These back payments could be burdensome, especially for the 
smaller contractors, and might also give the appearance that 
contractors intentionally underpaid their employees. Furthermore, under 
the Davis Bacon Act, the local agencies or contractors must prepare a 
certified payroll each week and pay weatherization workers on a weekly 
basis. Both of these requirements are new to the Iowa program. 
Therefore, while waiting for Labor to determine the Davis-Bacon wage 
issues, Iowa continued to use program funds made available through 
annual DOE appropriations to weatherize homes. 

Recovery Act Weatherization Funds Will Be Monitored Largely by Existing 
Program Controls: 

According to state weatherization officials we spoke with, Iowa did not 
complete a risk-based assessment of the local agencies that implement 
its weatherization program primarily because all the agencies have 
demonstrated successful track records implementing a weatherization 
program, as evidenced in annual evaluations. These officials also 
consider existing program controls sufficient to ensure that 
weatherization funds are used for their intended purpose. Seventeen of 
the 18 agencies that implement the Weatherization Assistance Program 
have done so for more than 25 years, and the newest agency has 
implemented the program since 2006. In addition, state officials 
informally assess each local agency's performance on a continuing 
basis. 

Controls over the Weatherization Assistance Program require the state 
to conduct an annual fiscal evaluation of each local agency. An on-site 
fiscal evaluation is completed under an established audit process and 
includes an examination of documents and records pertaining to 
salaries, materials, equipment, and indirect costs charged to the 
Weatherization Assistance Program. According to state officials, the 
same fiscal evaluation will be completed at all local agencies that 
receive Recovery Act funds. In addition, according to state officials, 
each local agency is contractually required to segregate, track, and 
maintain Recovery Act funds independently of other revenue streams. We 
found that the following audit steps are included in the state's fiscal 
evaluation: 

* A sample of files is reviewed to determine if expenses charged to the 
program are adequately documented and comply with established limits. 
The review includes a sample of invoices for materials and labor 
charges and a review of timesheets and payroll ledgers. 

* Inventory data for equipment costing $5,000 or more are reviewed and 
tracked from year to year to assure that the local agency retains the 
equipment and is properly accounting for the equipment on hand. 

* The agency's procedures for handling interest earned on cash deposits 
is reviewed to assure that the agency complies with federal rules 
governing the amount of interest the agency may retain. For the 
Weatherization Assistance Program, interest amounts up to $100 per year 
may be retained. 

* A sample of transactions for costs typically allocated to several 
programs (such as copiers and phones) is reviewed to determine if the 
cost allocation plan and procedures provide for a fair and equitable 
distribution of costs. 

Iowa Officials Plan to Use Existing Performance Measures to Monitor the 
Results of Weatherization Funds: 

State officials will use the existing program performance measures, 
such as the number of homes weatherized and the resulting energy 
savings, to evaluate the Iowa Recovery Act Weatherization Assistance 
Program from an overall perspective and to assess the performance of 
each local agency. In addition, according to state officials, the local 
agencies are contractually required to track and report data on the 
effect of Recovery Act funds, such as the number of jobs created, to 
the Division of Community Action Agencies. The division, in turn, will 
report this information to the state's data center operated by the Iowa 
Department of Management. While state weatherization officials are 
confident that they will be able to track and measure the effect of 
Recovery Act funding, they are awaiting guidance on the specific items 
they are to measure and report. 

Under current DOE requirements, which will continue to be followed 
under the Recovery Act program, each local agency must inspect all 
homes weatherized to ensure that all work was completed properly, all 
materials used were of good quality and installed properly, and no 
health or safety problems were created. The state is required to 
inspect at least 5 percent of the homes weatherized by each local 
agency, but according to state officials, they typically inspect 7 
percent to 9 percent of all homes weatherized. State officials are also 
required to annually assess each agency's performance. During this 
annual assessment, officials evaluate each agency's house inspection 
process and determine the number of homes weatherized, the resulting 
energy savings, and the attendance of the agency's staff at training 
sessions and state meetings. In addition, state officials plan to 
conduct several monitoring visits to each local agency each year to 
determine how well each agency is spending Recovery Act funds and how 
well it is tracking and reporting required data, such as the number of 
jobs created. The state will be adding five staff to assist with the 
monitoring of Recovery Act weatherization funding--two new staff have 
already been hired in the Division of Community Action Agencies and 
another has been reassigned to the program. Two new staff to assist in 
monitoring the local agencies' fiscal controls over weatherization will 
be added in the near future. 

State Comments on This Summary: 

We provided the Governor of Iowa with a draft of this appendix on 
September 9, 2009. The Director, Iowa Office of State-Federal 
Relations, and the Director for Performance Results, Department of 
Management, responded for the Governor on September 14, 2009. Officials 
agreed with our findings. The officials also offered technical 
suggestions, which we have incorporated, as appropriate. 

GAO Contact: 

Lisa Shames, (202) 512-3841 or shamesl@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Thomas Cook, Assistant 
Director; Christine Frye, analyst-in-charge; James Cooksey; Daniel 
Egan; Ronald Maxon; Marietta Mayfield; Mark Ryan; and Carol Herrnstadt 
Shulman made key contributions to this report. 

[End of section] 

Footnotes for Appendix VIII: 

[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[2] This does not include obligations associated with $0.6 million of 
apportioned funds that were transferred from FHWA to the Federal 
Transit Administration (FTA) for transit projects. Generally, FHWA has 
authority pursuant to 23 U.S.C. § 104(k) (1) to transfer funds made 
available for transit projects to FTA. 

[3] States request reimbursement from FHWA as they make payments to 
contractors working on approved projects. 

[4] The use of Recovery Act funds must comply with specific program 
requirements but also, in some cases, enables states to free up state 
funds to address their projected budget shortfalls. 

[5] The REC, which is comprised of the Governor or a designee, the 
director of the Legislative Services Agency or a designee, and a third 
member agreed to by the other two, convenes quarterly to prepare the 
state's estimates of tax-receipt revenues for use in preparing the 
annual budget. 

[6] Iowa's fiscal year begins July 1 and ends June 30. 

[7] According to state budget officials, the Governor's calculations 
for the gross fiscal year 2009 General Fund receipts currently do not 
include estimated tax refunds for taxpayers, receipts of additional 
federal funds, and transfers of surplus funds from agencies. Such 
information will not be completed by state budget officials until the 
state finishes processing revenues and expenses for fiscal year 2009, 
which should occur by the end of September 2009. According to officials 
from the Legislative Services Agency, the agency's calculations for 
fiscal year 2009 revenues include estimated tax refunds for taxpayers 
and monthly transfers to Iowa's school infrastructure refund account. 

[8] In December 2008, because of declining revenue projections, the 
Governor directed an across-the-board 1.5 percent reduction in the 
state's General Fund appropriations. 

[9] Recovery Act funds used to maintain funding levels include, but are 
not limited to, Federal Medical Assistance Percentage funds (discussed 
in GAO-09-1016) and State Fiscal Stabilization Fund monies. 

[10] OMB, Memorandum M-09-18, Payments to State Grantees for 
Administrative Costs of Recovery Activities (May 11, 2009). 

[11] Pub. L. No. 111-5, § 1512, 123 Stat. 115, 287 (Feb. 17, 2009). 

[12] The D-U-N-S number is used by the federal government to identify 
business organizations. 

[13] The CCR is the primary federal registrant database that collects, 
validates, stores, and disseminates data in support of federal 
agencies' acquisition missions, including agency contract and 
assistance awards. 

[14] [hyperlink, http://recovery.iowa.gov] (downloaded on Sept. 9, 
2009). 

[15] The Single Audit Act of 1984, as amended (31 U.S.C. ch. 75), 
requires that each state, local government, or nonprofit organization 
that expends $500,000 or more a year in federal awards must have a 
single audit conducted for that year subject to applicable 
requirements, which are generally set out in OMB Circular No. A-133, 
Audits of States, Local Governments and Non-Profit Organizations (June 
27, 2003). If an entity expends federal awards under only one federal 
program, the entity may elect to have an audit of that program. 

[16] Nine programs were not included in the risk assessment because 
funding had not yet been awarded or the federal guidelines have not 
been issued. These programs will be reviewed as awards are made or 
guidelines issued. 

[17] Iowa's 10 regional area education agencies, which were established 
by the Iowa legislature in 1974 to provide equitable and economical 
educational opportunities for Iowa's children, partner with public and 
some private schools to provide education and instructional support 
services. 

[18] School districts 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. 

[19] The Iowa Board of Regents also governs two special schools: the 
Iowa Braille and Sight Saving School and the Iowa School for the Deaf. 
The Board of Regents allocated SFSF funds for these two special schools 
to put them on par with the general K-12 education system in Iowa, and 
allocated the remaining SFSF funds to Iowa's public universities. 

[20] Pub. L. No. 111-5, § 1201, 123 Stat. 115, 212 (Feb. 17, 2009). 

[21] For the Highway Infrastructure Investment Program, the U.S. 
Department of Transportation has interpreted the term obligation of 
funds to mean the federal government's contractual commitment to pay 
for the federal share of the project. This commitment occurs at the 
time the federal government signs a project agreement. 

[22] A state requests reimbursement from FHWA as it makes payments to 
contractors working on approved projects. 

[23] Use of Recovery Act weatherization funds is subject to Section 
1606 of the act, which requires all laborers and mechanics employed by 
contractors and subcontractors on Recovery Act projects to be paid at 
least the prevailing wage, including fringe benefits, as determined 
under the Davis-Bacon Act. See Pub. L. No. 111-5, § 1606, 123 Stat. 
115, 303 (Feb. 17, 2009). 

[End of section] 

Appendix IX: Massachusetts: 

Overview: 

The following summarizes GAO's work on the third of its bimonthly 
reviews of American Recovery and Reinvestment Act (Recovery Act) 
[Footnote 1] spending in Massachusetts. The full report on all of our 
work, which covers 16 states and the District of Columbia, is available 
at [hyperlink, http://www.gao.gov/recovery/]. 

We reviewed three programs in Massachusetts funded under the Recovery 
Act--Highway Infrastructure Investment funds, Transit Capital 
Assistance funds, and the Workforce Investment Act (WIA) Youth Program. 
We selected these programs for different reasons: 

* Contracts for highway projects using Highway Infrastructure 
Investment funds have been under way in Massachusetts for several 
months and provided an opportunity to review financial controls, 
including oversight of contracts. 

* The Transit Capital Assistance funds had a September 1, 2009, 
deadline for obligating a portion of the funds and, further, provided 
an opportunity to review nonstate entities that receive Recovery Act 
funds. 

* The WIA Youth Program in Massachusetts is largely directed toward a 
summer employment program and, therefore, was in full operation. 

With all of these programs, we focused on how funds were being used; 
how safeguards were being implemented, including those related to 
procurement of goods and services; and how results were being assessed. 
We reviewed contracting procedures and examined two specific contracts 
under both the Recovery Act Highway Infrastructure Investment funds and 
the WIA Youth Program. In addition to these three programs, we also 
updated funding information on three Recovery Act education programs 
where significant funds are being disbursed--the U.S. Department of 
Education (Education) State Fiscal Stabilization Fund (SFSF) and 
Recovery Act funds under 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. Consistent with the 
purposes of the Recovery Act, funds from the programs we reviewed are 
being directed to help Massachusetts and local governments stabilize 
their budgets and to stimulate infrastructure development and expand 
existing programs--thereby providing needed services and potential 
jobs. 

Following are the highlights of our review of these funds: 

Highway Infrastructure Investment: 

* The U.S. Department of Transportation's (DOT) Federal Highway 
Administration (FHWA) apportioned $438 million in Recovery Act funds to 
Massachusetts. As of September 1, 2009, the federal government has 
obligated $203.2 million to Massachusetts and $4.8 million has been 
reimbursed by the federal government.[Footnote 2] As of September 12, 
2009, Massachusetts had awarded contracts or advertised for bids on 39 
projects. 

* Most of the projects involve road paving, but the state is beginning 
to advertise more complex projects, such as a project making safety and 
mobility improvements at four major intersections along the Dorchester 
Avenue corridor in Dorchester. 

* The commonwealth anticipates that the additional funds suballocated 
to urban areas will be obligated by the March 2, 2010, deadline. 

* State officials have some concerns about Massachusetts's ability to 
meet its transportation maintenance-of-effort requirement because of 
the commonwealth's difficult budget situation. 

Transit Capital Assistance Funds: 

* DOT's Federal Transit Administration (FTA) apportioned $290 million 
in Recovery Act funds to Massachusetts and urbanized areas located in 
the state. As of September 1, 2009, FTA has obligated $206 million. 

* The Massachusetts Bay Transportation Authority (MBTA), the largest 
transit provider in New England, will use the first round of funding 
for a series of projects worth $112.6 million that include facility 
improvements, fleet enhancements, and capital improvement projects, as 
well as an enhancement of the MBTA's Silver Line rapid transit service. 

* FTA found that the September 1, 2009, 50 percent obligation 
requirement was met. 

WIA Youth Program: 

* The U.S. Department of Labor allotted about $24.8 million to 
Massachusetts in WIA youth Recovery Act funds. The commonwealth 
allocated $21.1 million to local workforce boards, and as of September 
5, 2009, the local boards have drawn down about $11 million and served 
6,850 youth. 

* While the commonwealth met its goal of serving 6,500 youth, programs 
faced challenges in getting youth on board in the initial weeks of the 
summer. One reason for the delay was that youth had difficulty 
supplying suitable documentation of eligibility. 

Updated Funding Information on Education Programs: 

* Education has awarded Massachusetts about $726 million, or about 73 
percent of its total SFSF allocation. As of September 4, 2009, the 
commonwealth has distributed $412 million to local educational 
agencies, helping the state restore aid to school districts. 

* Additionally, Education has awarded Massachusetts all of its Recovery 
Act funds under Title I, Part A, of ESEA, as amended--about $164 
million. Based on information available as of September 4, 2009, the 
commonwealth has allocated $78 million to local educational agencies 
and about $2 million has been drawn down by local educational agencies 
(LEA). These funds are to be used to help improve teaching, learning, 
and academic achievement for students in families that live in poverty. 

* Education has also awarded Massachusetts all of its Recovery Act 
funds under the Individuals with Disabilities Education Act (IDEA), 
Part B--about $291 million. Massachusetts has allocated $145 million to 
LEAs, which have drawn down almost $10 million as of September 4, 2009. 
These funds are to be used to support special education and related 
services for children, as well as youth with disabilities. 

As Massachusetts Begins Its Fiscal Year 2010 Facing Fiscal Stress, 
Recovery Act Funds Continue to Provide Fiscal Relief: 

In our July 2009 report, we noted that the commonwealth of 
Massachusetts needed to close a significant budget gap (approximately 
$4 billion from its $28 billion budget) during fiscal year 2009, which 
ended on June 30, 2009. This gap was largely driven by lower-than- 
expected revenue collections and was addressed by a combination of 
budget cuts and use of funding sources, such as Recovery Act funds and 
state rainy-day funds.[Footnote 3] As fiscal year 2009 closed, revenue 
collections have continued to be less than anticipated, while 
supplemental funding was requested for some programs.[Footnote 4] For 
example, according to the state's budget director, the state's Medicaid 
program experienced higher-than-expected claims and utilization, and 
these additions to the budget gap require further state action heading 
into fiscal year 2010. The fiscal year 2010 budget was signed by the 
Governor on June 29, 2009, prior to the start of the new fiscal year. 
Fiscal year 2010 revenue estimates were lowered by more than $1.5 
billion after the Governor submitted his initial fiscal year 2010 
budget proposal. The spending level during fiscal year 2010 is 
projected to be lower than the past 2 fiscal years.[Footnote 5] The 
Executive Office for Administration and Finance is evaluating fiscal 
risks for the fiscal year 2010 budget and beyond by working with state 
agencies on spending plans. State officials noted that they will be 
closely monitoring revenues throughout fiscal year 2010. Another area 
requiring close attention is the state's Medicaid program, as 
enrollments and costs have risen during the past several years. 

The commonwealth plans to continue to use Recovery Act funds along with 
state rainy-day funds during state fiscal year 2010 to help balance its 
operating budget. The use of Recovery Act funds must comply with 
specific program requirements but also, in some cases, enables states 
to free up state funds to address their projected budget shortfalls. 
The state plans to use Recovery Act funds to a greater extent in fiscal 
year 2010 than it did in fiscal year 2009. In fiscal year 2009, the 
commonwealth used $1.4 billion in Recovery Act funds to stabilize its 
budget, while the commonwealth plans to use at least $1.7 billion in 
fiscal year 2010 for the same purpose.[Footnote 6] State rainy-day 
funds will also be used to help stabilize the state's budget but to a 
lesser extent than in fiscal year 2009. The commonwealth used $1.39 
billion in state rainy-day funds during fiscal year 2009, while the 
state budget for fiscal year 2010 assumes the use of $214 million in 
rainy-day funds. This leaves the state with a projected rainy-day fund 
balance of $571 million at the end of fiscal year 2010 compared with 
$2.1 billion at the beginning of fiscal year 2009. 

The state is preparing for when Recovery Act funds will no longer be 
available by trying to stabilize the state budget through a combination 
of spending reduction and revenue generating strategies. During its 
fiscal year 2010 spending plan process, the Executive Office for 
Administration and Finance issued spending caps for each state 
secretariat to help ensure that state spending levels are aligned with 
future revenue projections. The state has also capped the number of 
employees at each department to help prevent payroll increases or 
reduce payroll spending. In addition, state officials are encouraging 
state departments to minimize the need for forced layoffs by lowering 
personnel costs in creative ways, such as through reduced work hours, 
job sharing, and voluntary furloughs. Also, during the past fiscal 
year, the state instituted a policy that employees paid from Recovery 
Act funds would work only as long as those funds were available. 
Furthermore, state officials are preparing agencies for possible 
midyear budget reductions in the event that a new budget gap emerges 
during the course of the fiscal year.[Footnote 7] In addition to 
spending reductions, the appropriations act for fiscal year 2010 
increased a state sales tax from 5 percent to 6.25 percent, effective 
August 1, 2009, among other changes.[Footnote 8] 

Senior state officials have expressed concern about their ability, 
given the tight budget, to pay for extra oversight and reporting 
activities needed on Recovery Act funds. U.S. Office of Management and 
Budget (OMB) guidance discusses two options states have to recoup costs 
for central administrative services, such as oversight and reporting. 
[Footnote 9] The commonwealth plans to use the "billed services" 
option, which charges agencies for central services and allocates them 
to federal grants. Such services include both personnel and information 
technology system costs for central oversight and reporting, such as 
staff within the newly created Office of Infrastructure Investment and 
the Office of the State Auditor. However, for two reasons, state 
officials were concerned that this methodology, although preferred, 
would not enable the state to recoup additional administrative costs of 
Recovery Act implementation: 

* Small grants may require significant central resources, while larger 
grants may require proportionally fewer central resources, but this 
approach, which includes a 0.5 percent limit on the amount allowed to 
be recouped, may not adequately cover the state's costs if Recovery Act 
programs may not be combined. 

* The depreciation rules for information systems would require them to 
allocate costs over the 5-year life of the system created for tracking 
Recovery Act funds, yet the costs could be recovered only over the 
shorter period during which they will receive funds. 

As a result, the commonwealth submitted a proposal to the Division of 
Cost Allocation, Department of Health and Human Services (HHS), to try 
to improve flexibility in the formula to calculate and account for 
these central administrative costs.[Footnote 10] According to state 
officials, they received approval for their cost allocation proposal 
from the Division of Cost Allocation on August 10, 2009, although it 
included limitations on the depreciation methodology proposed.[Footnote 
11] In addition, the National Association of State Auditors, 
Comptrollers and Treasurers, representing all states, submitted a 
waiver proposal to OMB related to the depreciation methodology for cost 
recovery, among other issues. OMB approval for this waiver proposal is 
pending. 

Massachusetts Is Focusing on Developing Statewide Recovery Act 
Reporting Procedures: 

To report on Recovery Act funds as required under the Recovery Act, the 
commonwealth designed ways to collect data and review data quality for 
public reporting on both federal and state government Web sites. Senior 
officials noted that the commonwealth is committed not only to 
providing timely information on Recovery Act spending to meet federal 
reporting requirements as outlined in Recovery Act section 1512, 
[Footnote 12] but also to achieving the Governor's commitment to 
providing transparent information on the state's recovery Web site. 
Recovery Act reporting requirements include identifying the entities 
receiving Recovery Act dollars--and the dollar amounts--projects or 
activities being funded, projects' status, and an estimate of the 
number of jobs created and the number of jobs retained by the projects 
and activities. The lead state organization for developing reporting 
processes, the Office of Infrastructure Investment, is hiring a manager 
to develop reporting protocols and oversee Recovery Act reporting. The 
state also appointed a "reporting" lead within each secretariat to 
serve as a single point of contact on reporting issues. Information 
will be gathered from both prime funding recipients, such as state 
agencies, as well as subrecipients, such as private contractors. State 
officials expressed concerns that public reporting of Recovery Act 
funds will be challenging, especially reporting on funds going to 
private and nonprofit entities that lack experience with such reporting 
or that lack the administrative capacity to produce reports. Also, 
officials noted that the definition of a "project" still required 
clarification, and if not clarified, aggregating this information to 
meet federal reporting requirements will be difficult. 

One key required element in the Recovery Act is reporting an estimate 
of the number of jobs created and the number of jobs retained by 
projects and activities. Senior state officials noted that they awaited 
further federal guidance on job reporting methodologies. They said that 
for some federal agencies, guidance is clear, but facing an October 
deadline, they decided to move ahead with developing job counting 
methodologies across state agencies. The commonwealth's Executive 
Office of Labor and Workforce Development took the lead. State 
officials said the state may develop three or four different 
methodologies for job counting, depending on the program area. They 
also said that some entities, such as those familiar with Davis-Bacon 
Act job reporting requirements, will have an easier time reporting on 
jobs compared to entities in education or health care, for example, 
where they do not have certified payrolls from which to draw these 
data. 

Massachusetts Is Managing Highway Projects but Faces Challenges 
Regarding Funds Suballocated to Urbanized Areas: 

The Recovery Act provides funding to the states for restoration, 
repair, and construction of highways and other activities allowed under 
the 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 the states through federal-aid highway program 
mechanisms, and states must follow the requirements of the existing 
program, which include ensuring the project meets all environmental 
requirements associated with the National Environmental Policy Act 
paying a prevailing wage in accordance with federal Davis-Bacon Act 
requirements, complying with goals to ensure disadvantaged businesses 
are not discriminated against in the awarding of construction 
contracts, and using American-made iron and steel in accordance with 
Buy America 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. 

Massachusetts was apportioned $438 million in March 2009 for highway 
infrastructure and other eligible projects. As of September 1, 2009, 
$203.2 million has been obligated. The U.S. 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 
approves a project and a project agreement is executed. As of September 
1, 2009, $4.8 million has been reimbursed by FHWA. States request 
reimbursement from FHWA as the state makes payments to contractors 
working on approved projects. Almost 85 percent of Recovery Act highway 
obligations for Massachusetts have been for pavement improvement. As of 
September 1, 2009, $173.5 million of the $203.2 million obligated in 
Massachusetts is being used for pavement improvement. Figure 1 shows 
obligations by the types of road and bridge improvements being made. 

Figure 1: Percentage of Highway Obligations for Massachusetts by 
Project Type as of September 1, 2009: 

[Refer to PDF for image: pie-chart] 

Pavement projects total (85 percent, $173.5 million): Pavement 
improvement ($173.5 million): 84%. 

Bridge projects total (5 percent, $9.2 million): Bridge replacement 
($6.7 million): 3%; 
Bridge improvement ($2.5 million): 1%. 

Other (10 percent, $20.6 million): 
Other ($20.6 million): 10%. 

Source: GAO analysis of FHWA data. 

Note: "Other" includes safety projects, such as improving safety at 
railroad grade crossings, and transportation enhancement projects, such 
as pedestrian and bicycle facilities, engineering, and right-of-way 
purchases. Totals may not add due to rounding. 

[End of figure] 

Highway Infrastructure Investment funds appropriated under the Recovery 
Act continue to be obligated to projects, but the types of projects are 
increasing in both size and complexity. The first several projects were 
limited largely to paving, but more recent projects included 
intersection improvements and design and construction of a new 
interchange. In our July 2009 report, we stated that due to "use-it-or- 
lose-it" requirements, Recovery Act funds had initially been obligated 
for small, short-term projects that require little lead time for 
planning and design, such as repaving and resurfacing projects that can 
be completed within 2 years, and the majority of the cost estimates for 
first-round projects came in at less than $5 million per project. As 
the Massachusetts Executive Office of Transportation (EOT) continues to 
select projects, the projects have increased in terms of both funding 
amounts and complexity. New projects include the reconstruction of 
Dorchester Avenue in Dorchester and construction of the North Bank 
Bridge. The reconstruction of Dorchester Avenue in Dorchester, which 
FHWA has approved, is estimated to cost $15 million and will make 
safety and mobility improvements at four major intersections along the 
Dorchester Avenue corridor in Dorchester. The North Bank Bridge, a 
pedestrian bridge that will connect Cambridge and Charlestown, is 
estimated to cost $30 million to $36 million, according to an official 
at the EOT. Recovery Act funding for the North Bank Bridge project is 
currently under review by FHWA and is contingent upon the state's 
completion of the transfer of $30.5 million to the Massachusetts 
Department of Conservation and Recreation as part of its approximately 
$100 million mitigation commitment for enhancement projects for the 
Central Artery Tunnel, commonly known as the "Big Dig." According to an 
FHWA official, in order for the North Bank Bridge to be funded under 
Recovery Act funds, the transfer of $30.5 million must be made prior to 
March 2, 2010. 

Funds appropriated for highway infrastructure spending must be used as 
required by the Recovery Act. States are required to do the following: 

* Ensure that 50 percent of apportioned Recovery Act funds were 
obligated within 120 days of apportionment (before June 30, 2009). The 
50 percent rule applies only to funds apportioned to the state and not 
to the 30 percent of funds required by the Recovery Act to be 
suballocated, primarily based on population, for metropolitan, 
regional, and local use. In addition, states are required to ensure 
that all apportioned funds--including suballocated funds--are obligated 
within 1 year. The Secretary of DOT is to withdraw and redistribute to 
other states any amount that is not obligated within these time frames. 
[Footnote 13] 

* Give priority to projects that can be completed within 3 years and to 
projects located in economically distressed areas. Distressed areas are 
defined by the Public Works and Economic Development Act of 1965, as 
amended.[Footnote 14] According to this act, to qualify as an 
economically distressed area, the 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 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.[Footnote 15] 

* Certify that the state 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 funds the state plans to expend from state sources from 
February 17, 2009, through September 30, 2010.[Footnote 16] 

Massachusetts Is Working toward Having Funds Obligated to Suballocated 
Areas but Faces Capacity Challenges: 

As mentioned earlier, states were required to suballocate 30 percent of 
their apportionment to metropolitan and other areas of the state. As of 
September 1, 2009, $31 million for 7 projects have been obligated as 
part of Massachusetts's 30 percent suballocation. According to the 
Economic Stimulus Coordinator at the Massachusetts Executive Office of 
Transportation (EOT), which oversees highway projects, there were 
several reasons for obligating only 24 percent of these funds thus far. 
Massachusetts Highway Department (MassHighway) faces challenges with 
staffing and with the multistep nature of the process.[Footnote 17] 
MassHighway's existing project planning and design personnel have been 
strained by the increased workload associated with Recovery Act 
projects and the state's recently implemented Accelerated Bridge 
Program.[Footnote 18] Additionally, the state works collaboratively 
with the metropolitan planning organizations (MPO),[Footnote 19] who 
serve as regional transportation planning and programming agencies, to 
identify projects for urbanized areas. The state and MPOs are working 
to balance the preferences of individual cities and their broader 
region. According to one MPO staff member, all federally funded highway 
projects must be reviewed by MassHighway at various stages, and an MPO 
official stated that the state-MPO approval process does not lend 
itself to obligating new funds within a short time frame. Despite 
challenges, the state and MPO officials are in the process of 
identifying projects that are ready to go and predict they will have no 
difficulty meeting the March 2010 deadline for the obligation of these 
funds. 

The EOT Economic Stimulus Coordinator also said there was some initial 
confusion around obligating the 30 percent suballocation to urban areas 
and that EOT received instruction from FHWA. The FHWA Massachusetts 
Division Administrator said that to ensure continued progress in 
advancing the federally funded statewide road and bridge projects on 
the state's transportation improvement program while pursuing Recovery 
Act projects, FHWA encouraged EOT to first focus on obligating the 
state apportionment of the Recovery Act highway funds by the June 29, 
2009, deadline because these projects were more likely to be shovel 
ready. This strategy allowed the state to set priorities for obligating 
the 30 percent suballocation while fully addressing all federal 
requirements. According to this FHWA official MassHighway has made 
strides in improving the quality and completeness of their final 
project submissions for their regular federal aid program projects and 
improved their ability to cut the time from award to notice to proceed 
significantly. FHWA wanted to make sure that quality, timeliness and 
readiness of projects not be compromised while the state identified and 
vetted Recovery Act project priorities. 

State Concerns about Meeting the Maintenance-of-Effort Requirement: 

States were required to certify that the state will maintain the level 
of spending that it had planned on February 17, 2009, the day the 
Recovery Act was enacted. As part of the certification review, DOT will 
evaluate Massachusetts's method of calculating the amounts it planned 
to expend for the covered programs to determine if the state's 
calculation complies with DOT guidance. Massachusetts officials are 
awaiting the results of this review. Massachusetts state officials 
continue to express concern about the state's ability to maintain 
spending levels for transportation. According to the Governor's Deputy 
Chief Counsel, the requirement that the state commit to spend in the 
future what it planned to spend on February 17, 2009, puts the state in 
a difficult position since the state transportation spending plan in 
February 2009 was based on a 5-year capital plan that was developed 
before the state's revenues dropped significantly. The state would like 
to reserve the right to scale down its capital spending plan in line 
with debt affordability analysis updates, but DOT is continuing to 
enforce the Recovery Act requirement that states maintain their 
February 2009 level of effort. Although the state realizes it is too 
early to gauge whether it will be able to meet its maintenance-of- 
effort requirements, the Deputy Chief Counsel stated that the 
commonwealth would like to maintain a continuing dialogue with DOT 
officials to see if they can alter the maintenance-of-effort 
requirements given the significant change in the state's fiscal 
situation. According to DOT, no provision for a waiver or relief is 
provided in the Recovery Act. 

Massachusetts Is Using Existing Contracting and Oversight Procedures 
for Recovery Act Highway Funds: 

EOT has controls and processes in place for the use of Recovery Act 
funds. According to MassHighway documents and a MassHighway contracting 
official, the state uses an established competitive bid process for 
awarding all highway contracts, including the two Recovery Act highway 
projects we reviewed (see table 1), and all bidders must be 
prequalified by MassHighway. The annual prequalification process 
requires each contractor to submit a completed application, original 
bonding letter, and power of attorney from a surety company. According 
to a MassHighway contracting official, after tabulating all bids and 
analyzing their material soundness, MassHighway awards a unit price 
contract to the lowest bidder[Footnote 20]. The contracts we examined, 
and as confirmed by a MassHighway contracting official, contained 
additional language that was inserted to explain the Recovery Act 
requirements, notice of providing access to relevant federal inspectors 
general, and whistleblower protection. 

Table 1: Key Contract Information for Two Highway Projects: 

Characteristic: Description; 
Adams project: 1.5 miles of road resurfacing and sidewalk 
reconstruction on Route 116; 
Swansea project: Resurfacing of 5.7 miles of Route 6 from Somerset to 
Rehobeth. 

Characteristic: Estimated cost; 
Adams project: $2,199,456; 
Swansea project: $4,159,044. 

Characteristic: Project start; 
Adams project: April 2009; 
Swansea project: April 2009. 

Characteristic: Estimated completion; 
Adams project: July 2010; 
Swansea project: August 2010. 

Source: GAO analysis of Massachusetts Highway Department information. 

[End of table] 

EOT officials stated they have an online database that allows 
transportation officials to segregate, itemize, and track Recovery Act 
funds. A MassHighway contracting official stated that all safeguards 
and contract management are overseen by MassHighway engineers in 
MassHighway's district offices. District office engineers provide 
oversight based on an established Standards of Procedure guide and meet 
with officials from the MassHighway construction office every other 
month. Oversight personnel are assigned to a contract after the 
contract is awarded. A MassHighway contracting official said that the 
Resident Engineer, an employee of the MassHighway district office, 
directly oversees projects within the districts. As we observed, the 
Resident Engineer keeps a daily diary of each project to record the 
number of hours worked by employees, the number and type of equipment 
used, and the amount of building materials used that day. This 
information is then entered into an online system that tracks the daily 
expenditures of the job and prepares reports, which we also observed. 

Reporting on Recovery Act Results Continues to Evolve: 

Massachusetts continues to collect and report employment data and data 
related to project implementation and expenditures. Data relating to 
transportation projects is now available through the state's recovery 
Web site. As we reported in July 2009, Massachusetts transportation 
officials require contractors and subcontractors to submit monthly 
employment information, including the number of employees, hours 
worked, and payroll. However, it is unclear how this information will 
be used to identify new and existing employees and how to ensure that 
one employee working on two different projects is counted as one job 
created and not two. 

According to the Economic Stimulus Coordinator at EOT, EOT uses the 
Equitable Business Opportunity (EBO) system to track the number of jobs 
created through Recovery Act highway funds. EBO is a Web-based 
contractor payroll information system. Massachusetts has integrated the 
monthly employment data collection forms from the FHWA with the EBO 
system to calculate number of workers and hours worked per project. The 
FHWA form collects data from contractors, consultants, and the states. 
For any project or activity that receives FHWA Recovery Act funds, the 
state must complete the FHWA forms for any month where associated 
employment occurs. The EOT official said that EOT submits the 
employment data to FHWA on the 20th of each month, and that FHWA's 
format for reporting this data has changed four times since EOT began 
reporting after projects were approved. Additionally, the EOT official 
expressed concern that after submitting the monthly reports, there has 
been no feedback and little additional guidance from FHWA. 

FTA Found Key Recovery Act Obligation Deadline Was Met, and 
Massachusetts Will Use Funds for Fleet Improvements and Intermodal 
Enhancements: 

The Recovery Act appropriated $8.4 billion to fund public transit 
throughout the country through three existing Federal Transit 
Administration (FTA) grant programs, including the Transit Capital 
Assistance Program.[Footnote 21] The majority of the public transit 
funds--$6.9 billion (82 percent)--was apportioned for the Transit 
Capital Assistance Program, with $6.0 billion designated for the 
urbanized area formula grant program and $766 million designated for 
the nonurbanized area formula grant program.[Footnote 22] Under the 
urbanized area formula grant program, Recovery Act funds were 
apportioned to 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 under the nonurbanized area formula grant program 
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. Up to 10 percent of apportioned Recovery Act 
funds may also be used for operating expenses.[Footnote 23] Under the 
Recovery Act, the maximum federal fund share for projects under the 
Transit Capital Assistance Program is 100 percent.[Footnote 24] 

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 (MPO)-- 
develop a list of transit projects that project sponsors (typically 
transit agencies) submit to FTA for Recovery Act funding.[Footnote 25] 
FTA reviews the project sponsors' grant applications to ensure that 
projects meet eligibility requirements and then obligates Recovery Act 
funds by approving the grant application. Project sponsors must follow 
the requirements of the existing programs, which include ensuring the 
projects funded meet all regulations and guidance pertaining to the 
Americans with Disabilities Act (ADA), pay a prevailing wage in 
accordance with federal Davis-Bacon Act requirements, and comply with 
goals to ensure disadvantaged business are not discriminated against in 
the awarding of contracts. 

In March 2009, $290 million in Recovery Act Transit Capital Assistance 
funds was apportioned to Massachusetts and urbanized areas located in 
the state for transit projects.[Footnote 26] As of September 1, 2009, 
FTA concluded that the 50 percent obligation requirement had been met 
for Massachusetts and urbanized areas located in the state. Under the 
Recovery Act, Massachusetts's only large urbanized area was apportioned 
$199.8 million in Transit Capital Assistance funding. An additional 
$37.9 million was apportioned to medium-size urbanized areas with 
populations of 200,000 to 999,999, and $9.2 million was apportioned to 
small urbanized areas with populations of 50,000 to 199,999. In 
addition, the state was apportioned $5.2 million for transit projects 
in nonurbanized areas. Transit Capital Assistance funds are 
administered by transit agencies who are designated recipients of this 
funding. The transit agencies in the urbanized area meet to develop an 
agreement that spells out how the apportionment will be divided among 
the various transit agencies in the urbanized area.[Footnote 27] The 
state administers a smaller portion of the federal transit aid for 
projects in smaller communities and rural areas of the state. 

Massachusetts Transit Agencies Have Used Transit Capital Assistance 
Apportionments for Fleet Improvements and Intermodal Access 
Enhancements: 

Massachusetts transit agencies are using Recovery Act funding to 
finance a variety of fleet enhancement and capital improvement projects 
that include replacing aging bus fleets with hybrid vehicles, 
installing automatic vehicle locator systems on buses, adding solar 
panels to bus shelters, and developing plans for a regional 
interoperable rail fare system to allow transit users to transfer 
between several different transit agency systems using one fare card. 
According to the Executive Director of the Massachusetts Association of 
Regional Transit Authorities, Recovery Act funding has allowed 
Massachusetts transit agencies to fund projects that they otherwise 
would not have been able to afford. For example, according to the 
Massachusetts Bay Transportation Authority (MBTA), funds have been 
obligated for projects worth $112.6 million, including a series of 
smaller preventive maintenance projects, fleet enhancements, and 
capital improvements, as well as an enhancement of MBTA's Silver Line 
rapid transit service. MBTA officials told us they have received final 
approval from FTA and are preparing bid announcements and procurement 
packages[Footnote 28]. MBTA expects the first delivery of paratransit 
vans funded under the Recovery Act in September 2009, and transit 
construction projects are expected to be under way in the fall of 2009 
and completed by October 2011. According to an MBTA official, the 
federal transit capital funds are drawn down through the FTA's Web- 
based Electronic Clearing House Operations System. MBTA is required to 
reimburse vendors within 3 days of receiving the federal funds, but in 
practice, MBTA generally pays its vendors the same day it draws down 
the federal funds. 

According to another transit agency we spoke with--the Pioneer Valley 
Transit Authority (PVTA), which serves 24 communities in Hampden and 
Hampshire Counties--funding has been obligated for projects worth $16.3 
million, including purchasing 29 new buses, installing solar panels on 
rural bus shelters to provide security lighting, making improvements to 
transit facilities, and installing bicycle racks on buses (see table 
2). PVTA officials report they have awarded contracts for projects 
worth $10.7 million, including contracts for purchasing bicycle racks 
and repairing maintenance facilities. PVTA officials expect these 
projects to be completed by the first of the year and the remaining 
projects to be completed by the end of 2010. 

Table 2: Pioneer Valley Transit Authority Transit Capital Assistance 
Grant Application: 

Project description: Purchase bus shelters; Estimated cost: $25,000. 

Project description: Purchase bicycle access, facilities and equipment 
on buses; 
Estimated cost: $80,000. 

Project description: Buy 16 35-foot replacement buses; Estimated cost: 
$5,934,500. 

Project description: Buy 18 replacement vans; Estimated cost: $990,000. 

Project description: Buy 13 40-foot replacement buses; Estimated cost: 
$4,810,000. 

Project description: Acquire 130 mobile fare-collection units; 
Estimated cost: $2,600,000. 

Project description: Acquire 200 mobile survey and security units; 
Estimated cost: $740,000. 

Project description: Renovate administration and maintenance facility; 
Estimated cost: $847,953. 

Project description: Renovate storage facility; Estimated cost: 
$82,000. 

Project description: Renovate yards and shops; Estimated cost: 
$150,000. 

Project description: Estimated total cost; Estimated cost: $16,259,453. 

Source: GAO analysis of FTA data. 

[End of table] 

In addition, PVTA officials reported they have plans to purchase new 
buses through a pre-existing contract awarded by another public transit 
agency. Under this process, referred to by PVTA officials as piggyback 
procurement, one transit agency may assign some or all of its existing 
contract rights to another transit agency to purchase all or a portion 
of that contract's supplies, equipment, or services under the same 
contract terms and pricing as originally advertised, competed, 
evaluated, and awarded. PVTA officials told us that piggyback 
procurement is in the best interest of the agency because, they 
believe, it saves time and money by lowering per-unit costs and 
avoiding the lengthy procurement process. According to these officials, 
they obtain a copy of the contract from the originating transit agency 
and review it for compliance with FTA procurement regulations. 
According to the administrator for FTA Region I, piggyback procurement 
is a common practice among public transit agencies. 

State EOT and transit agency officials we spoke with told us they used 
several key criteria for selecting transit projects to be funded under 
the Recovery Act, including shovel readiness (project readiness), 
short- and long-term jobs creation, economic development, regional 
equity, and modal equity.[Footnote 29] According to transit officials, 
projects are placed on the Transportation Improvement Program after 
considerable input from EOT and the regional MPO. Furthermore, 
according to an EOT official, transit agencies, in conjunction with the 
regional MPO, conduct extensive outreach with key community 
stakeholders, including private bus companies, taxi companies, and 
advocates for disabled and elderly transit users, to gauge public 
opinion on proposed projects. 

FTA Found That Massachusetts and Its Urbanized Areas Have Met the 50 
Percent Obligation Requirement: 

Funds appropriated through the Transit Capital Assistance Program must 
be used as required by the Recovery Act; specific provisions include 
the following: 

* Fifty percent of Recovery Act funds apportioned to urbanized areas or 
states were to be obligated within 180 days of apportionment (before 
September 1, 2009) and the remaining apportioned funds are to be 
obligated within 1 year. The Secretary of Transportation must withdraw 
and redistribute to other urbanized areas or states any amount that is 
not obligated within these time frames.[Footnote 30] 

* Project sponsors must submit periodic reports, as required under the 
maintenance-of-effort for transportation projects section (§ 1201(c) of 
the Recovery Act) on the amount of federal funds appropriated, 
allocated, obligated, and outlayed; the number of projects put out to 
bid, awarded, or work has begun or completed; project status; and the 
number of jobs created or sustained. In addition, grantees must report 
detailed information on any subcontractors or subgrants awarded by the 
grantee. 

FTA found that the requirement to obligate 50 percent of the transit 
funds apportioned for Massachusetts transit projects within 180 days 
has been met.[Footnote 31] In order to get projects through the 
approval process quickly, the regional FTA administrator encouraged 
transit agencies to "bundle" multiple projects together under one grant 
application.[Footnote 32] For example, FTA provided informal guidance 
to MBTA to encourage the bundling of multiple projects for each 
Recovery Act program (see table 3). MBTA is expected to receive 
approximately $232 million in Recovery Act funds ($181 million of 
Transit Capital Assistance urbanized area funds and $52 million of 
Fixed Guideway Infrastructure Investment funds). According to the FTA 
Region I Administrator, without bundling, MBTA could have filed 18 
separate Recovery Act applications for 18 separate projects. According 
to this official, bundling projects reduces the number of grants that 
need to be managed and reported on and reduces the number of grants 
needing FTA approval and Department of Labor certification. Thus, 
bundling projects could reduce the time it takes to get an application 
through the approval process. In addition, bundling grants provides 
flexibility to transit agencies by providing them with the ability to 
shift grant funds among projects within the same grant. In instances 
where favorable bid conditions result in excess funds, bundling 
provides an opportunity to move funds to another project within the 
same grant that may cost more than the original estimate. According to 
this official, given the advantages of bundling, FTA tries to promote 
bundling projects to all transit agencies in Region I. 

Table 3: MBTA Transit Capital Assistance Grant Applications: 

First grant application: 

Project description: RIDE vehicles - procurement of 108 vans; Estimated 
cost: $5,500,000. 

Project description: MBTA - replace and repair fencing; Estimated cost: 
$3,800,000. 

Project description: Back Bay Station - improve ventilation and air 
quality in lobby area; 
Estimated cost: $3,000,000. 

Project description: Construction of enhanced bicycle parking 
facilities at up to 50 stations; 
Estimated cost: $4,803,250. 

Project description: Bus stop amenities (e.g., shelters, benches, 
signage, pavement markings, and amenities related to the Americans with 
Disabilities Act) between Ashmont and Ruggles Station; Estimated cost: 
$7,825,000. 

Project description: Silver Line and Dudley-South Station - new bus 
stops at Chinatown and South Station, queue jumper lanes, traffic 
signal priority, and real-time arrival system; Estimated cost: 
$1,700,000. 

Total first grant: 
Estimated cost: $26,628,250. 

Second grant application: 

Project description: MBTA - various bus facility improvements (e.g., 
bus washing equipment, pavement repairs, and heating, cooling, and 
lighting systems at five bus garages); 
Estimated cost: $14,636,188. 

Project description: Fitchburg double-tracking project between West 
Acton and Ayer, including Littleton Station work; Estimated cost: 
$39,810,000. 

Project description: Procurement of 25 articulated 60-foot hybrid buses 
to replace aging buses; 
Estimated cost: $30,700,000. 

Project description: Silver Line - reconstruct Essex Street ramps; 
Estimated cost: $800,000. 

Project description: Total second grant; Estimated cost: $85,946,188. 

Source: GAO analysis of MBTA data. 

[End of table] 

Massachusetts transferred $12.8 million in Recovery Act highway funding 
to fund a transit project in Franklin County. The EOT Economic Stimulus 
Coordinator told us the decision to transfer money from highway 
projects to transit projects was a joint decision between EOT and the 
Franklin Regional Transit Authority and was chosen because the 
community of Greenfield, in Franklin County, needed the funds to 
upgrade its maintenance facilities to address safety concerns and ease 
significant congestion. Because Greenfield lacks a transportation 
depot, riders assemble at city hall to catch the bus, causing traffic 
delays. According to an EOT official, this situation has caused 
significant congestion around city hall and raised concern for the 
safety of riders who stand by the side of the road in a busy section of 
the city. This official said that the planned intermodal facility that 
will be funded with the $12.8 million is expected to reduce the 
congestion and ease safety concerns by providing a central bus depot 
for riders that will be also be a staging point for eventually 
connecting the community to high-speed rail. 

MBTA and PVTA Have Developed New Accounting Procedures to Track 
Recovery Act Funds but Will Use Existing Procedures to Manage 
Contracts: 

MBTA and PVTA have developed budget codes to track Recovery Act funding 
to segregate it from funding for projects under their regular formula 
grants. PVTA maintains an internal tracking system that mirrors FTA's 
Transportation Electronic Award Management system that enables them to 
track expenditures in finer detail.[Footnote 33] MBTA has devised new 
"mode codes" within the MBTA accounting system for Recovery Act funding 
and has created a separate bank account for Recovery Act-funded 
projects, which enables them to write separate checks for these 
expenditures. 

Officials from MBTA and PVTA have stated they are using existing 
procedures to manage Recovery Act contracts and have engaged external 
consultants to provide additional oversight and project management. 
While both transit agencies are currently following existing contract 
management procedures specified by FTA, MBTA has hired a consultant to 
develop an oversight plan for Recovery Act-funded projects, and PVTA 
officials reported that they will be using an external consultant to 
provide off-site inspections of manufactured goods that are being 
procured with Recovery Act funding. In addition, MBTA will hire 
external management firms to provide oversight support for several 
rail, bus, and transit station projects. 

MBTA and PVTA Are Developing Plans for Reporting on Expenditures and 
Jobs Created: 

MBTA and PVTA reported they have received guidance from FTA on the 
Recovery Act reporting requirements and a separate request for 
information from the U.S. House of Representatives Transportation and 
Infrastructure Committee (the Oberstar Report). They are currently 
determining how to meet both sets of requirements. For example, PVTA 
has questions concerning how to calculate indirect jobs created from 
equipment purchases made with Recovery Act funding versus how to count 
jobs created from Recovery Act-funded construction projects. Hoping to 
get answers to these questions, officials from both MBTA and PVTA said 
they planned to attend one of FTA's upcoming webinars. Neither transit 
agency had job data for the U.S. House of Representatives 
Transportation and Infrastructure Committee July report because they 
did not have projects under way at that time, but both agencies expect 
to be able to report job data for the next reporting cycle. 

In addition to reporting job and spending data, transit agencies are 
required to submit quarterly reports to FTA on scheduled milestones for 
all projects funded under the Recovery Act. They are also required by 
FTA to include both the purpose and the rationale for federal 
investment in each grant application funded under the Recovery Act. 
Grant applicants are asked to explain how the infrastructure investment 
will contribute to one or more of the Recovery Act purposes, such as 
the preservation or creation of jobs, the long-term economic benefits, 
and whether the project addresses an immediate maintenance need. 
According to the Deputy Director of Financial Planning, in the future, 
MBTA may use these purpose and rationale indicators as performance 
measures to assess how well transit projects funded under the act are 
meeting their intended purpose, but the agency is not currently aware 
of any requirements that it report on these additional measures. 
According to this official, MBTA's ability to maintain schedule and 
stay within the budget are the primary performance measures tracked and 
reported to FTA for all grant-funded projects, including Recovery Act 
grant programs. MBTA also provides information to the state through EOT 
that includes information on Recovery Act project status and copies of 
reports submitted to the U.S. House of Representatives Transportation 
and Infrastructure Committee and FTA for Section 1201(c) reporting 
requirements. According to this official, this information will then be 
posted to the EOT Recovery Act Web site for public review. 

Massachusetts Faced Challenges in Reaching Its Target Number of Summer 
Youth Participants: 

The Recovery Act provides an additional $1.2 billion in funds for 
Workforce Investment Act (WIA) Youth Program, including summer 
employment. Administered by the Department of Labor (Labor), the WIA 
Youth Program is designed to provide low-income in-school and out-of- 
school youth 14 to 21 years old, who have additional barriers to 
success, with services that lead to educational achievement and 
successful employment, among other goals. Funds for the program are 
distributed to states based on a statutory formula; states, in turn, 
distribute at least 85 percent of the funds to local areas, reserving 
as much as 15 percent for statewide activities. The local areas, 
through their local workforce investment boards, have the flexibility 
to decide how they will use the funds to provide required services. 

While the Recovery Act does not require all funds to be used for summer 
employment, in the conference report accompanying the bill that became 
the Recovery Act,[Footnote 34] the conferees stated they were 
particularly interested in states using these funds to create summer 
employment opportunities for youth. While the WIA Youth Program 
requires a summer employment component to be included in its year-round 
program, Labor has issued guidance indicating that local areas have the 
flexibility to implement stand-alone summer youth employment activities 
with Recovery Act funds.[Footnote 35] Local areas may design summer 
employment opportunities to include any set of allowable WIA youth 
activities--such as tutoring and study skills training, occupational 
skills training, and supportive services--as long as it also includes a 
work experience component. A key goal of a summer employment program, 
according to Labor's guidance, is to provide participants with the 
opportunity to (1) experience the rigors, demands, rewards, and 
sanctions associated with holding a job (2) learn work readiness skills 
on the job, and (3) acquire measurable communication, interpersonal, 
decision-making, and learning skills. Labor has also encouraged states 
and local areas to develop work experiences that introduce youth to 
opportunities in "green" educational and career pathways. Work 
experience may be provided at public sector, private sector, or 
nonprofit work sites. The work sites must meet safety guidelines, as 
well as federal and state wage laws.[Footnote 36] Labor's guidance 
requires that each state and local area conduct regular oversight and 
monitoring of the program to determine compliance with programmatic, 
accountability, and transparency provisions of the Recovery Act and 
Labor's guidance. Each state's plan must discuss specific provisions 
for conducting its monitoring and oversight requirements. 

The Recovery Act made several changes to the WIA Youth Program when 
youth are served using these funds. It extended eligibility through age 
24 for youth receiving services funded by the act, and it made changes 
to the performance measures, requiring that only the measurement of 
work readiness gains will be required to assess the effectiveness of 
summer-only employment for youth served with Recovery Act funds. 
Labor's guidance allows states and local areas to determine the 
methodology for measuring work readiness gains within certain 
parameters. States are required to report to Labor monthly on the 
number of youth participating and on the services provided, including 
the work readiness attainment rate and the summer employment completion 
rate. States must also meet quarterly performance and financial 
reporting requirements. 

Massachusetts was allotted $24,838,038 in Recovery Act WIA youth funds. 
Labor stipulated that these funds be expended by June 30, 2011. The 
Massachusetts Executive Office of Labor and Workforce Development 
(EOLWD), the agency responsible for overseeing the commonwealth's WIA 
Youth Program, allocated $21,112,332 of the WIA youth Recovery Act 
funds to 16 workforce investment areas within the state. EOLWD 
developed its own spending guidelines and instructed local workforce 
investment boards (boards) to spend at least 60 percent of their 
Recovery Act funds by September 30, 2009, and the remainder by 
September 30, 2010. Although these are the formal deadlines, state 
officials verbally encouraged the boards to spend all of their funding 
as soon as possible to stimulate the economy. As of September 5, 2009, 
local boards had drawn down about $11 million or 53 percent of WIA 
youth Recovery Act funds. 

Fewer Youth Than Planned Have Been Served with WIA Youth Funds by Some 
Local Workforce Investment Boards: 

State officials planned to provide 6,500 youth[Footnote 37] with summer 
employment activities through the WIA Youth Program, but some local 
boards had problems identifying eligible youth.[Footnote 38] While 
EOLWD anticipated that the youth would participate throughout the 
summer, fewer than expected youth were served in the beginning. As of 
July 31, 2009, a few weeks into summer activities, Massachusetts 
reported to Labor that it had served 5,640 youth, but as of August 24, 
2009, it had met its goal and served over 6,750 youth. 

When we met with local board officials in July 2009, they said they 
were having difficulty recruiting eligible youth in some areas. The 
Central Massachusetts Regional Employment Board, as of July 23, 2009, 
had only about 65 of its goal of 100 participants in one of its areas. 
The Merrimack Valley Workforce Investment Board reported 304 
participants as of the week ending July 31, 2009, and was not sure it 
would be able to reach its goal of 700 participants. 

Local officials said they found it difficult to recruit eligible youth 
in the short time they had to ramp up their programs. Local officials 
said it was challenging for youth to provide all of the documents that 
were required to demonstrate WIA Youth Program eligibility, especially 
in such short time frames. Officials from the Central Massachusetts 
board said that on average, youth had to come back to the program 
office about two or three times to supply the proper documentation. 
According to local board officials, it was especially onerous for 
students to be required not only to demonstrate they were from families 
at or below the poverty level, but also to prove they were eligible for 
the program because of another barrier, such as being pregnant, a 
parent, or an offender. According to local officials, parents and 
community members were troubled to learn that low-income youth without 
employment barriers were not eligible to participate in the program. 
[Footnote 39] 

The state has received a waiver from Labor that allows them the 
flexibility to provide work experiences to out-of-school youth 18 to 24 
years old through March 31, 2010. This waiver allowed local boards to 
continue using only the work readiness indicator instead of all of the 
WIA indicators. Thus, the streamlined program operated in the summer 
will have additional time to serve other youth. Merrimack Valley 
officials told us they will attempt to recruit and begin serving more 
out-of-school youth and hope to meet their goal of serving 700 
participants. 

Challenges Still Exist with Implementing the Recovery Act WIA Youth 
Program: 

Local boards we met with faced additional challenges ramping up their 
summer programs and supporting and monitoring youth. As mentioned in 
our July 2009 report, both state and local officials commented that 
setting up WIA youth summer employment activities was time consuming 
and needed to be done within short time frames. State guidance required 
that local boards spend at least 60 percent of their Recovery Act WIA 
youth funds by September 30, 2009. Although these are formal deadlines, 
state officials verbally encouraged the boards to spend all of their 
funding as soon as possible. To achieve their goal of serving a large 
number of youth in a short time frame, officials from one board said 
that some staff were required to work extra hours and staff that 
normally performed other duties were also assigned WIA Youth Program- 
related work. 

Local board officials made use of existing relationships with 
community- based organizations, schools, and businesses to identify 
employers and youth quickly. The Merrimack Valley board hosted 
information sessions with local business organizations, like the 
Chamber of Commerce, and with school and municipal officials. According 
to local board officials, their relations with community-based 
organizations were strained as a result of the restrictive eligibility 
and documentation requirements of the WIA Youth Program. They noted 
that youth who were recruited through these organizations were 
subsequently not allowed to participate in the program because they 
either did not have any barriers to employment or did not provide full 
documentation to meet the requirements for additional barriers to 
employment. 

Local Workforce Boards Had Flexibility to Design and Administer Their 
WIA Youth Programs: 

While the state provided guidance on a number of issues, generally as 
long as the programs complied with the Recovery Act, Labor 
requirements, and state provisions, the local boards were provided with 
the flexibility to design and administer their WIA youth programs as 
they liked. The two boards we visited varied slightly in the 
opportunities they provided to program participants. Both the Central 
Massachusetts and the Merrimack Valley programs offered work 
experiences; the Merrimack Valley program also offered some work 
experience positions combined with academic instruction to their 
participants. For example, we visited a work learning site where youth 
were taught academic subjects such as reading and writing for part of 
their day and then worked in a warehouse setting for the rest of the 
day. 

WIA youth summer participants were employed in a range of jobs. (See 
table 4.) One of the local boards we spoke with placed some youth with 
what they characterized as either green employers or green jobs. 
According to local officials, some green jobs included work at an urban 
farm and a light bulb efficiency start-up and manufacturing company. 
Both state and local officials told us there is little guidance on what 
technically constitutes a green job. 

Table 4: Program Characteristics for Two Local WIA Youth Programs: 

Program characteristics: Areas served; 
Central Massachusetts Regional Employment Board: Greater Worcester, 
South County, Blackstone Valley; 
Merrimack Valley Workforce Investment Board: Area cities and towns, 
including Haverhill, Lawrence, and Newburyport. 

Program characteristics: Program design; Central Massachusetts Regional 
Employment Board: One 25-hour paid week of pre-employment training; Six 
or ten 25-hour weeks of paid employment; 
Merrimack Valley Workforce Investment Board: 2-hour orientation; Up to 
30-hour weeks of work and learning (work readiness employment and 
academic learning ), or; Up to 30-hour weeks of paid employment. 

Program characteristics: Compensation; Central Massachusetts Regional 
Employment Board: Youth are paid $8 to $12 per hour; Merrimack Valley 
Workforce Investment Board: Youth are paid $8 per hour for employment 
and stipends of $8 per hour for academic learning activities. 

Program characteristics: Length of program; Central Massachusetts 
Regional Employment Board: July 6 to September 18, 2009[A]; 
Merrimack Valley Workforce Investment Board: July 6 to September 31, 
2009. 

Program characteristics: Outreach; 
Central Massachusetts Regional Employment Board: Community 
organizations, youth council, state youth-serving agencies, media, and 
others; 
Merrimack Valley Workforce Investment Board: Chambers of Commerce, 
municipal and school officials, media, and others. 

Program characteristics: Target number of participants; Central 
Massachusetts Regional Employment Board: 500 youth; Merrimack Valley 
Workforce Investment Board: 700 youth. 

Program characteristics: Number of participants as of September 5, 
2009; 
Central Massachusetts Regional Employment Board: 537 youth; Merrimack 
Valley Workforce Investment Board: 535 youth. 

Program characteristics: Amount allocated to the board; Central 
Massachusetts Regional Employment Board: $1,942,576; Merrimack Valley 
Workforce Investment Board: $1,477,861. 

Program characteristics: Amount expended by the board as of September 
5, 2009; 
Central Massachusetts Regional Employment Board: $1,389,036; Merrimack 
Valley Workforce Investment Board: $706,587. 

Program characteristics: Examples of job types; Central Massachusetts 
Regional Employment Board: Camp counselors, Web design, landscaping, 
weatherization crew work; Merrimack Valley Workforce Investment Board: 
Cabinetmaker apprentice, museum docent, groundskeeper, laborers, 
clerical positions. 

Program characteristics: Work readiness measure; Central Massachusetts 
Regional Employment Board: Completion of pre- employment training (1 
week) and exit interview; Merrimack Valley Workforce Investment Board: 
Completion of a section of the Massachusetts Work-based Learning Plan. 

Source: GAO analysis of WIA Youth Program information. 

[A] The majority of youth completed the program on August 21, 2009; 
however, others were to complete the program on August 28 and September 
18, 2009. 

[End of table] 

Multiple Monitoring and Tracking Activities Are Performed on Recovery 
Act WIA Youth Funds: 

State officials, as well as officials from the boards we met with, are 
monitoring and tracking activities of Recovery Act WIA youth funds in 
myriad ways. The two boards chose different administrative structures 
for their programs--either administering funds internally and 
contracting with providers directly (as in the case of the Merrimack 
Valley board) or contracting with an external organization to 
administer various program functions (as in the case of the Central 
Massachusetts board). Our selection of two contracts to discuss in 
greater depth with relevant agency contracting officials reflects this 
distinction. According to officials, each contract we examined was 
awarded competitively on a cost-reimbursement basis with a not-to- 
exceed ceiling price. 

In the case of the Central Massachusetts board, we examined a contract 
awarded by the board to a community action agency for administration of 
the WIA Youth Program. This contract was awarded on May 18, 2009, at a 
total value of $873,362 with a project start date of April 24, 2009, 
and a projected completion date of September 30, 2009. It is intended 
to provide work readiness skills training for 300 WIA youth 
participants in the greater Worcester area. We noted, and officials 
confirmed, contract provisions requiring the submission of programmatic 
and fiscal reports; the contract also made clear that if this 
requirement and others are not met, program termination and withholding 
of funds can result. 

The Merrimack Valley board via its fiscal agent (the city of Lawrence's 
Division of Grants Administration) awarded a contract to provide WIA 
youth services. This contract was awarded on July 6, 2009, at a total 
value of $6,839 with a project start date of July 6, 2009, and a 
projected completion date of September 30, 2009. It is intended to 
provide 10 eligible youth 18 to 24 years old who are disabled with a 
combination of work and learning activities--e.g., manufacturing, 
leadership, employability, and other skills. We noted, and officials 
confirmed, provisions in the contract that require monthly contractor 
expense reports and specify consequences (such as revocation of funds 
and program termination) for failure to submit accurate and complete 
reports within designated time periods. 

In addition to overseeing contracts, state and local officials 
discussed procedures in place to report on Recovery Act funds. Both 
state and local officials we spoke with stated they are using separate 
accounting codes to track Recovery Act funds, which will enable them to 
report on these funds separately. Also, short-term staff were hired to 
monitor the programs and funds. For example, on the state level, EOLWD 
created the Economic Recovery Project Coordinator position, with 
responsibilities for all Recovery Act monitoring and reporting 
requirements. At the local level, the boards we met with created staff 
positions to monitor work sites and keep abreast of each youth's work 
performance. 

Both the state and one of the boards we visited are conducting 
compliance assessments for each work site. According to state 
officials, staff from the Commonwealth Corporation, a quasi-public 
agency created by the State Legislature, planned to visit each board at 
least twice to monitor the boards' WIA youth summer programs. At the 
time of our interview, the first visits had already occurred. 
Commonwealth Corporation staff told us that during these monitoring 
visits, they perform file reviews and assess work sites. Both local 
boards we visited developed their own monitoring activities. For 
example, the Merrimack Valley board generated weekly reports that 
included enrollment, youth served, work-site data, and total 
expenditures. 

State and Local Officials Are Attempting to Measure Program Outcomes: 

In accordance with Labor's guidance, the state requires each local 
board to track and report the number of youth employed and program 
completion rates. In addition, for WIA Youth Program performance 
measures, only the work readiness measure (which focuses on skills like 
work ethics, professionalism, communication skills, and interpersonal 
skills) is required to assess the effectiveness of summer employment 
for youth served with Recovery Act funds. Local boards may determine 
the methodology they use to measure work readiness gains. EOLWD's 
guidance instructed local boards to choose from a variety of assessment 
tools, including work-site supervisor evaluations, work readiness skill 
checklists administered by program staff, portfolio assessments, and 
any other relevant forms of assessing work readiness skills. 

We found that the local areas we visited use different assessment 
instruments to determine work readiness skills upon beginning and 
completing the summer experience. The Merrimack Valley board is using a 
section of the Massachusetts Work-based Learning Plan, a goal-setting 
and assessment tool designed to drive learning and productivity on the 
job, to satisfy the work-readiness measure.[Footnote 40] Youth 
receiving a work experience are evaluated weekly on their time sheets 
by their supervisors according to such dimensions as work maturity 
skills--e.g., punctuality and dressing professionally; personal skills, 
such as teamwork and exercising leadership; and work-related skills, 
such as use of computers and the Internet and customer service. These 
evaluations will be used to evaluate the youth over time, identify 
trends, and assess their work readiness. The Central Massachusetts 
Regional Employment Board will use completion of the pre-employment 
training as its measure of work readiness. An evaluation of youth 
satisfaction will also be conducted. 

Results of assessments were not yet available at the time of our visits 
to local boards, although officials commented anecdotally that some 
immediate results are apparent from the WIA youth summer program. 
Officials from both boards we met with state that the youth they are 
serving have been positively impacted by the programs. For example, 
local officials stated that some youth expressed a sense of pride and 
completion when they completed their orientation or training or when 
they received their first paycheck. Some youth were also provided with 
skills for activities of daily living, such as how to write a check. 

At the time of our visit, the commonwealth had not yet decided how it 
will address the OMB reporting requirements on jobs created and 
retained, not only for the WIA Youth Program but also for other 
Recovery Act-funded activities. However, subsequent to our visit, on 
August 14, 2009, Labor issued guidance clarifying that participants in 
employment and training programs, such as the WIA Youth Program, are 
not to be reported in the jobs created and retained numbers. At the 
local level, boards are compiling data on the number of non-youth 
positions fully and partially funded with WIA youth funds. 

Recovery Act Education Funds Continue to Be Distributed and Help 
Address State Funding Shortfalls: 

As of September 4, 2009, Massachusetts was awarded funds for the 
following Recovery Act education programs: about $726 million through 
the State Fiscal Stabilization Fund (SFSF), $164 million in ESEA Title 
I, Part A, funds, and $291 million in funds through IDEA, Part B. Local 
educational agencies (LEA) have received $412 million in SFSF funds, 
$322 million in education stabilization funds, and $90 million, or 
about half, of its government services funds. According to state 
officials, Massachusetts, by the end of October, plans to restore 
public higher education funding for fiscal years 2009 and 2010 using a 
total of $54 million and $168 million, respectively of SFSF funds. Upon 
receipt of the $268 million remaining of the state's SFSF Recovery Act 
funds, the state plans to distribute an additional $168 million to LEAs 
in SFSF funds in fiscal year 2010. Similar to fiscal year 2009, LEAs 
and institutions of higher education will receive SFSF funds to offset 
cuts in state education funding for fiscal year 2010. Also, the 
Governor will use approximately $20 million of the $181 million 
available from the SFSF government services fund for public safety in 
fiscal year 2010 for grants to fire departments. Plans for use of the 
remaining SFSF education stabilization and government services funds 
have not been announced. 

As of September 4, 2009, 99 of the state's 258 LEAs that were allocated 
ESEA Title I funds have submitted and had approved by state officials 
their state-required program applications. These LEAs have received 
about $2 million in ESEA Title I Recovery Act funds. In addition, at 
least 227 of the state's LEAs that were allocated IDEA, Part B, 
Recovery Act funds have submitted their required application to the 
state to begin accessing funds. These LEAs have received almost $10 
million in IDEA, Part B, Recovery Act funds. (See figure 2 for funding 
information.) According to state officials, LEAs are spending non- 
Recovery Act ESEA Title I and IDEA, Part B, funds before spending 
Recovery Act funds. 

Figure 2: Financial Information on Three Recovery Act Education 
Programs as of September 4, 2009 (Dollars in millions): 

[Refer to PDF for image: vertical bar graph] 

Program: SFSF; 
Allocated by Education: $994; 
Awarded to State: $726; 
Received by LEAs: $412; 

Program: ESEA Title I; 
Allocated by Education: $164; 
Awarded to State: $164; 
Received by LEAs: $2. 

Program: IDEA Part B; 
Allocated by Education: $291; 
Awarded to State: $291; 
Received by LEAs: $10. 

Source: GAO analysis of state reported data. 

[End of figure] 

State Comments on This Summary: 

We provided the Governor of Massachusetts with a draft of this appendix 
on September 3, 2009, and representatives from the Governor's Office 
and the Office of the State Auditor responded on September 9 and 10, 
2009. Officials agreed with our draft and in some cases provided 
clarifying or technical suggestions that were incorporated, as 
appropriate. 

GAO Contacts: 

Stanley J. Czerwinski, (202) 512-6806 or czerwinskis@gao.gov: 

Laurie E. Ekstrand, (202) 512-6806 or ekstrandl@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Carol L. Patey, Assistant 
Director; Ramona L. Burton, analyst-in-charge; Nancy J. Donovan; 
Kathleen M. Drennan; Keith C. O'Brien; Salvatore F. Sorbello Jr.; and 
Robert D. Yetvin made major contributions to this report. 

[End of section] 

Footnotes for Appendix IX: 

[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[2] Transportation has interpreted "obligation of funds" to mean the 
federal government's commitment to pay for the federal share of the 
project. 

[3] Massachusetts officials refer to rainy-day funds--reserves built up 
during more favorable economic conditions to be used during difficult 
economic times--as stabilization funds. However, to avoid confusion 
with the Recovery Act's State Fiscal Stabilization Fund, we will use 
the term rainy-day funds. 

[4] State revenues for fiscal year 2009 were $177 million lower than 
the revised benchmark levels set in May, and the total fiscal year 2009 
revenue gap was more than $3.2 billion. 

[5] The projected budget for fiscal year 2010 is $27 billion compared 
to $27.5 billion in spending during fiscal year 2009 and $28 billion in 
spending in fiscal year 2008 (dollars are not adjusted for inflation). 

[6] Recovery Act funds used to stabilize the state's operating budget 
include funds made available as a result of the Federal Medical 
Assistance Percentage funds (discussed in detail in GAO-09-1016), State 
Fiscal Stabilization Fund funds, and Temporary Assistance for Needy 
Families contingency funds. 

[7] According to a state official, the Governor may invoke his power to 
make budget reductions if revenue collections are below levels assumed 
in the budget. 

[8] Mass. Gen. Laws ch. 64H, § 2. 

[9] OMB Memorandum M-09-18, Payments to State Grantees for 
Administrative Costs of Recovery Act Activities (May 11, 2009). 

[10] The Division of Cost Allocation within HHS administers state cost 
allocation plans, which provide a process whereby state central service 
costs can be identified and assigned to benefited activities. The 
Massachusetts submission proposes to amend the commonwealth's 2010 
statewide cost allocation plan. 

[11] The commonwealth submitted an amendment to its Statewide Cost 
Allocation Plan on June 8, 2009. The Division of Cost Allocation at HHS 
responded back to the state with a series of questions, to which the 
state responded. 

[12] Pub. L. No. 111-5, 123 Stat. 115, 287 (Feb. 17, 2009). 

[13] Pub. L. No. 111-5, 123 Stat. 115, 206 (Feb. 17, 2009). 

[14] 42 U.S.C. § 3161 

[15] 42 U.S.C. § 3161(a). Eligibility must be supported using the most 
recent federal data available or, in the absence of recent federal 
data, by the most recent data available through the government of the 
state in which the area is located. Federal data that may be used 
include data reported by the Bureau of Economic Analysis, the Bureau of 
Labor Statistics, the Census Bureau, the Bureau of Indian Affairs, or 
any other federal source determined by the Secretary of Commerce to be 
appropriate (42 U.S.C. § 3161(d)). As of August 29, 2009, Massachusetts 
obligated an estimated total of $80.6 million to three projects located 
in the state's only economically distressed area. 

[16] Pub. L. No. 111-5, § 1201(a) 123 Stat. 115, 212 (Feb. 17, 2009). 

[17] EOT oversees MassHighway, which is responsible for highway 
projects. 

[18] In May 2008, Governor Deval Patrick introduced the $3 billion 
Accelerated Bridge Program to reduce the commonwealth's growing backlog 
of structurally deficient bridges. 

[19] MPOs are federally mandated regional organizations, representing 
local governments and working in coordination with state departments of 
transportation, and 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. 

[20] According to an official at MassHighway, with unit price contracts 
at MassHighway, unit prices are fixed for quantities within 25 percent 
over or under the specified quantity. 

[21] The other two public transit programs receiving Recovery Act funds 
are the Fixed Guideway Infrastructure Investment program and the 
Capital Investment Grant program, each of which was apportioned $750 
million. The Transit Capital Assistance Program and the Fixed Guideway 
Infrastructure Investment program are formula grant programs, which 
allocate funds to states or their subdivisions by law. Grant recipients 
may then be reimbursed for expenditures for specific projects based on 
program eligibility guidelines. The Capital Investment Grant program is 
a discretionary grant program, which provides funds to recipients for 
projects based on eligibility and selection criteria. 

[22] Urbanized areas are areas encompassing a population of not less 
than 50,000 people that have been defined and designated in the most 
recent decennial census as an "urbanized area" by the Secretary of 
Commerce. Nonurbanized areas are areas encompassing a population of 
fewer then 50,000 people. 

[23] The 2009 Supplemental Appropriations Act authorizes the use of up 
to 10 percent of each apportionment for operating expenses. Pub. L. No. 
111-32, §1202, 123 Stat. 1859, 1908 (June 24, 2009). In contrast, under 
the existing program, operating assistance is generally not an eligible 
expense for transit agencies within urbanized areas with populations of 
200,000 or more. 

[24] The federal share under the existing formula grant program is 
generally 80 percent. 

[25] Designated recipients are entities designated by the chief 
executive officer of a state, responsible local officials, and publicly 
owned operators of public transportation to receive and apportion 
amounts that are attributable to transportation management areas. 
Transportation management areas are areas designated by the Secretary 
of DOT, having an urbanized area population of more than 200,000, or 
upon request from the Governor and MPO designated for the area. 
Metropolitan planning organizations 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 Program (TIP) and 
the approved State Transportation Improvement Program (STIP). 

[26] The total apportionment includes funds apportioned to other states 
because some urbanized areas cross state boundaries. For example, the 
Providence, RI-MA urbanized area includes the Rhode Island Public 
Transit Authority and two transit agencies located in southeastern 
Massachusetts--the Greater Attleboro Taunton Regional Transit Authority 
and the Southeast Regional Transit Authority. 

[27] In Massachusetts, transit agencies are independent, quasi-public 
authorities. 

[28] According to FTA officials, transit projects recommended for 
Recovery Act funding are initially submitted to FTA for review and 
comment. Once all comments are addressed by the transit agency, the 
project list is forwarded to the U.S. Department of Labor (Labor) for 
certification, a process that may take up to 60 days. Labor reviews 
transit grant applications to gauge the impact of the planned project 
on local transit workers. Once Labor certifies the application, FTA 
"approves" funding and the project is obligated. 

[29] Modal equity refers to the practice of ensuring that all modes of 
transportation are given equal consideration in deciding where to 
obligate federal funds. 

[30] Pub. L. No. 111-5, 123 Stat. 115, 209 (Feb. 17, 2009). 

[31] The U.S. 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 approves a project and a project agreement 
is executed. 

[32] Region I FTA officials encourage public transit agencies to 
combine several projects into one application to expedite the approval 
process and provide flexibility to grant recipients to move excess 
funds from one project to another. 

[33] The Transportation Electronic Award Management System is FTA's 
online grant application and project management system, which allows 
grant recipients to manage the grants awards, monitor project budgets 
and milestones, and make budget and scope revisions. 

[34] H.R. Rep. No. 111-16, at 448 (2009). 

[35] Department of Labor, Training and Employment Guidance Letter No. 
14-08 (Mar. 18, 2009). 

[36] Current federal wage law specifies a minimum wage of $7.25 per 
hour. Where federal and state laws have different minimum wage rates, 
the higher rate applies. 

[37] As stated in our July 2009 report, the Governor's office estimated 
that each of the 6,500 youth would work 30 hours per week for 8 weeks 
at the rate of $8 per hour. 

[38] In total, the Governor's office planned to create about 10,000 
summer jobs for youth across the state by leveraging and coordinating 
Recovery Act WIA youth funds, Recovery Act Edward Byrne Memorial 
Justice Assistance Grant funds provided to the state Executive Office 
of Public Safety and Security, and state-funded Youthworks funds. As of 
August 6, 2009, the state had surpassed its goal of serving 3,565 youth 
through the Youthworks program. The Recovery Act Edward Byrne Memorial 
Justice Assistance Grant program served 4 youth as of early September 
2009. 

[39] One or more of the following barriers to employment must be 
demonstrated for eligibility: (1) school dropout; (2) basic literacy 
skills deficiency; (3) homeless, runaway, or foster child; (4) pregnant 
or a parent; (5) an offender; or (6) needs help completing an 
educational program or securing and holding a job. 

[40] Youth will be assessed on attaining competencies in completing 
applications, resume development, interviewing skills, job search 
strategies, attendance and punctuality, workplace appearance, 
interaction with co-workers and supervisors, initiative, communication 
skills, money management, transportation, and workplace safety. 

[End of section] 

Appendix X: Michigan: 

Overview: 

The following summarizes GAO's work on the third of its bimonthly 
reviews of American Recovery and Reinvestment Act (Recovery Act) 
[Footnote 1] spending in Michigan. The full report on our work, which 
covers 16 states and the District of Columbia, is available at 
[hyperlink, http://www.gao.gov/recovery/]. 

This appendix focuses on how Michigan used Recovery Act funds; how it 
had implemented safeguards, such as controls over the procurement of 
goods and services; and how recipients were assessing results of the 
Recovery Act funding, such as the number of jobs created. In Michigan, 
we reviewed six Recovery Act programs. We selected these programs 
because they had a number of risk factors, including the receipt of 
significant amounts of Recovery Act funds or a substantial increase in 
funding from previous years' levels. Consistent with the purposes of 
the Recovery Act, funds from the programs we reviewed are being 
directed to help Michigan and local governments stabilize their budgets 
and to stimulate infrastructure development and expand existing 
programs--thereby providing needed services and jobs. Specifically, 
work on contracts for highway projects using Highway Infrastructure 
Investment funds had been under way in Michigan for several months, and 
provided an opportunity for us to review the use of the funds and the 
financial controls, including oversight of the contracts. Similarly, 
the three U.S. Department of Education (Education) programs we reviewed 
had also been under way in Michigan for several months and provided an 
opportunity to review the use of the additional Recovery Act funds and 
consider internal controls at the state and locality level, including 
controls and financial management reforms under way at the Detroit 
Public Schools (DPS). We also reviewed Michigan's weatherization 
program because it experienced significant growth due to Recovery Act 
funds. Finally, the WIA Youth Program in Michigan also experienced 
significant growth due to Recovery Act funds and was largely directed 
toward a summer employment program which was in full operation at the 
time of our review. Highlights of these programs are: 

Highway Infrastructure Investment Funds: 

* The U.S. Department of Transportation's Federal Highway 
Administration (FHWA) apportioned $847 million in Recovery Act funds to 
Michigan. As of September 1, 2009, the federal government had obligated 
$575 million to Michigan and $41 million had been reimbursed by the 
federal government. 

* As of September 1, 2009, Michigan had awarded 153 contracts for 
highway projects. Of these 153 contracts, work had begun on 94 
contracts and 1 had been completed. The majority of funds obligated in 
Michigan are for highway pavement projects. 

* According to transportation officials, because the contracts 
generally have been awarded for less than the original estimates, the 
state will be able to fund additional projects. The additional projects 
will primarily be pavement and bridge improvements in economically 
distressed areas. 

* We reviewed two transportation contracts and spoke with officials who 
stated that the Michigan Department of Transportation (MDOT) has 
contracting procedures and internal controls in place for awarding and 
overseeing highway infrastructure investment Recovery Act contracts. 

Weatherization Assistance Program: 

* The U.S. Department of Energy (DOE) allocated about $243 million in 
Recovery Act Weatherization funding to Michigan for a 3-year period 
ending in March 2012. Based on information available on August 31, 
2009, DOE provided about $121.7 million to Michigan representing 50 
percent of the amount allocated by DOE, and the state had obligated 
about $198.7 million to subrecipients, subject to limitation based on 
the availability of federal funds. 

* According to state officials, as of August 31, 2009, Michigan had 
awarded 32 weatherization contracts and had expended about $2 million. 

* The state's goal is to weatherize at least 33,000 units, a large 
increase over the 14,346 units weatherized during program years 2005 
through 2007. 

* To help monitor whether these funds are used appropriately, 
Michigan's Department of Human Services (DHS) hired additional staff to 
monitor the program and plans to hire several more. 

State Fiscal Stabilization Fund: 

* The U.S. Department of Education (Education) allocated $1.592 billion 
in State Fiscal Stabilization Fund (SFSF) moneys to Michigan, with 
$1.302 billion for education stabilization and $290 million to fund 
government services. 

* As of September 1, 2009, Education had made two-thirds of the total 
education stabilization funds available to the Michigan Department of 
Education (MDE)--$873 million. MDE officials told us that they 
allocated $600 million of these funds to local educational agencies 
(LEA). 

* As of September 1, 2009, MDE had approved LEAs' applications for $599 
million of the education stabilization funds and LEAs had drawn down 
$584 million. MDE officials told us that LEAs plan to use most of the 
funding for teacher salaries. 

* State officials told us they planned to use the government services 
portion of the SFSF to replace state general fund revenues and pay for 
other state services; none of the funds will be provided to MDE. 

Title I, Part A, of the Elementary and Secondary Education Act of 1965, 
as Amended: 

* As of August 18, 2009, Education made 50 percent of Michigan's total 
Title I, Elementary and Secondary Education Act of 1965 (ESEA) Recovery 
Act funds available to MDE--$195 million of the state's total 
allocation of $390 million. 

* According to MDE officials, they made a preliminary allocation of all 
of these funds to the LEAs and planned to make final allocations to the 
LEAs later in the fall of 2009 after reviewing their applications. 

* MDE officials said they have encouraged LEAs to use their ESEA Title 
I Recovery Act funds for programs such as professional development for 
teachers and professional staff and for supplemental reading programs. 

Individuals with Disabilities Education Act, Parts B and C: 

* On April 1, 2009, Education made the first half of Michigan's total 
$213 million in Individuals with Disabilities Education Act (IDEA) 
Recovery Act funds available to the state--$207 million for the Part B 
grants and about $6 million for Part C grants. 

* As of August 14, 2009, MDE had allocated all of the IDEA Part B funds 
for grants for school-aged children and youth, but it had not provided 
any of the funds because it had not yet approved the grant 
applications. 

* According to MDE officials, LEAs intend to use the Part B grants to, 
among other things, retain special education teachers; acquire new 
technologies, including automated data systems and electronic smart 
boards for use in classrooms; enhance professional development for 
teachers; and provide additional bus transportation services to 
students with disabilities. 

* The MDE officials also said the Part C grant funds will be used for 
early intervention services and, as of August 14, 2009, they had 
approved 42 applications for almost $5 million of these funds. 

Workforce Investment Act Youth Program: 

* The U.S. Department of Labor (Labor) allotted about $74 million in 
Workforce Investment Act (WIA) Youth Recovery Act funds to Michigan 
and, as of August 31, 2009, Michigan had drawn down about $20.2 
million. The state allocated $63 million to 25 Michigan Works! Agencies 
(MWA). 

* As of July 31, 2009, Michigan had enrolled 12,166 youth in summer 
jobs through its Recovery Act-funded WIA summer employment programs. 
The state Department of Energy, Labor and Economic Growth (DELEG) 
provides overall program guidance to the MWAs, but the design, 
implementation, monitoring, and reporting on the use of and accounting 
for WIA Recovery Act funds is the responsibility of the MWAs. 

* Although DELEG and MWA officials in Detroit initially said they did 
not foresee any difficulties, they later cited several challenges in 
running the program. Our work identified significant internal control 
issues with payroll preparation and distribution; the process for 
making eligibility determinations; and a lack of documentation 
supporting such decisions in the Detroit summer youth program. Progress 
is under way by state and local officials to address each of these 
issues, although more work remains. 

* Michigan officials continue to work towards developing a state-level 
centralized system that the state will use to report to the Office of 
Management and Budget (OMB) and satisfy Recovery Act reporting 
requirements. The Director of Michigan's Economic Recovery Office 
(Recovery Office) believes the state will be able to report centrally, 
but said that state agencies could report directly to the federal 
government if needed. 

As Michigan's Overall Economic Condition Creates Pressure on the 
State's Fiscal Position, Recovery Act Funds Will Continue to Provide 
Partial Relief: 

Michigan continues to face considerable economic difficulties and 
significant fiscal challenges in meeting its balanced budget 
obligations for fiscal years ending September 30, 2009, and beyond. The 
state's overall unemployment rate was 15 percent in July 2009, up from 
8.3 percent in July 2008. Michigan's manufacturing sector was 
particularly hard hit, losing about 108,900 jobs between July 2008 and 
July 2009, representing over 19 percent of all the manufacturing jobs 
in the state.[Footnote 2] Local communities that have historically 
relied on manufacturing jobs must deal with even higher unemployment 
rates. For example, in July 2009 the city of Detroit had an 
unemployment rate of 28.9 percent and the city of Flint's unemployment 
rate was 28.6 percent. 

This increase in unemployment has been accompanied by a continuing 
decline in state revenues. As noted in our July 2009 report, the 
state's May 2009 revenue estimate projected lower state revenues for 
fiscal year 2009 compared not only to fiscal year 2008 revenues, but 
also to revenue estimates published four months earlier.[Footnote 3] 
Despite lowered expectations, actual revenue collections have continued 
to fall short of projections. For example, according to the Senate 
Fiscal Agency's monthly revenue reports, revenues for June and July 
2009 totaled $110 million, which was 3.1 percent below what the May 
revenue estimate had projected for this 2-month period. This decline 
illustrates the rapid deterioration in the state's fiscal condition and 
the difficulty in projecting Michigan state revenues. State budget 
officials also reported that revenues that can only be used for 
specified purposes, such as fees from game and wildlife licenses and 
state parks, have also declined in recent months. 

Michigan is using a combination of Recovery Act funds and cost-cutting 
measures to balance the state's budget and is relying on Recovery Act 
funds to substantially, although not entirely, fill growing budget 
gaps. Over the 3 years ending September 30, 2011, Michigan expects $3.6 
billion to be available, as a result of the Recovery Act funds, for 
budget stabilization.[Footnote 4] For example, state officials expect 
Recovery Act funds, in addition to almost $400 million in spending cuts 
described below, to free up sufficient state revenue to address a $1.4 
billion revenue shortfall and allow the state to end fiscal year 2009 
with a balanced budget. As noted in our July 2009 report, for the 
fiscal year ending September 30, 2009, Michigan's cost-cutting actions 
included reducing revenue sharing to cities, villages, and townships by 
10 percent; mandating 6 unpaid furlough days for 38,000 of the state's 
52,000 state employees; laying off 400 employees (including 100 state 
troopers); closing three correctional facilities; and enacting a 4 
percent across-the-board cut for most state agencies. State Budget 
Office officials told us that, despite initial hopes to use Recovery 
Act funding for new projects, Michigan has used a large portion of 
these funds to free up state revenues for the maintenance of existing 
programs due to the state's ongoing fiscal challenges. 

Michigan's "rainy day fund"--the Counter-Cyclical Budget and Economic 
Stabilization Fund--does not offer assistance to meet the state's 
existing fiscal challenges. Since fiscal year 2005, the fund has had a 
balance of about $2 million, and the Senate Fiscal Agency did not 
anticipate that any transfers out of this fund would occur during 
fiscal years 2009 or 2010 because it would not adequately address 
Michigan's budget situation. 

State officials continued to express concerns about Michigan's fiscal 
outlook when the Recovery Act funds run out. Rather than spending all 
of its Recovery Act funds up front and creating the need for massive 
spending cuts in fiscal year 2011, Michigan is considering a range of 
options, including spending cuts and possibly tax increases, to balance 
the state's annual budgets. State officials also said they are working 
with state agencies to prioritize Recovery Act spending in ways that 
could be sustained in 2011 and going forward after the majority of 
Recovery Act funds expire. Officials from the House Fiscal Agency, 
Senate Fiscal Agency, and State Budget Office told us their strategy is 
to minimize the effects of the budget shortfall by using Recovery Act 
funds in fiscal years 2010 and 2011, primarily by using state funds 
that will be made available as the result of SFSF and the increased 
Federal Medical Assistance Percentage (FMAP). However, the exact 
allocation of Recovery Act funds remains uncertain as fiscal year 2010 
budget negotiations continue and the state, as of September 17, 2009, 
did not yet have an approved budget for fiscal year 2010. 

According to state budget officials, Michigan will seek reimbursement 
from the U.S. Department of Health and Human Services (HHS) for the 
cost of the state's Economic Recovery Office (Recovery Office), which 
is expected to be about $2 million for fiscal year 2009. On June 26, 
2009, the state formally identified Recovery Office-related costs in an 
amendment to its statewide cost allocation plan submitted to HHS. In 
this amendment, Michigan opted to use the "billed cost" option 
available for calculating administrative costs associated with the 
Recovery Office. Officials told us that the state chose this option to 
avoid any potential lag that might arise from trying to reconcile 
estimated costs with actual costs.[Footnote 5] Further, they informed 
us that HHS responded to Michigan's submission in August and the state 
is planning to submit a revised addendum by the end of September. 

Michigan Continues to Develop a Statewide Central Reporting System: 

The Michigan Economic Recovery Office Director told us that, as of 
September 1, 2009, the state plans to meet the October 10, 2009, due 
date for reporting to the federal government on Recovery Act spending 
through a centralized reporting process. The Recovery Office Director 
believes the state will be able to report centrally, but said that 
state agencies could report directly to the federal government if 
needed. If reporting under a centralized approach is not practical for 
the initial report due to the federal government in October 2009, then 
state agencies will report directly to their cognizant federal 
departments and to OMB. The Recovery Office Director said that the 
state agencies have been instructed to register with the OMB, a 
necessary procedure for direct reporting. 

Michigan officials continue to work toward developing a state-level 
centralized system that the state plans to use for reporting to OMB and 
complying with the reporting requirements under Section 1512 of the 
Recovery Act.[Footnote 6] These officials said they believe that a 
centralized reporting system will provide the best mechanism for 
reporting accurate and consistent data to the federal government and 
enhance the state's oversight and monitoring. Specifically, Recovery 
Office officials said they will be able to analyze the data they 
receive from all state agencies for consistency and reasonableness in 
relation to other state agency spending data. The officials also said 
they believe that this level of review will not be as effective if each 
state agency reports directly to the federal government under a 
decentralized model. The Michigan Recovery Office has recommended that 
state agencies not delegate reporting requirements to subrecipients of 
Recovery Act funds so the state can maintain better control over the 
reporting process. However, state agencies have the authority to 
delegate reporting requirements to subrecipients. 

Officials from the Michigan Department of Information Technology (MDIT) 
said they had been working to develop the state-level centralized 
reporting system and intended to begin testing the system in July 2009. 
However, after receiving the OMB guidance in June, they recognized that 
the system under development did not have provisions for all of the 
data elements specified in the OMB guidance.[Footnote 7] Officials told 
us they are working to include all required information in their 
system. 

Michigan Has Begun Several Highway Projects Using Recovery Act Funds: 

As we reported in July 2009, FHWA apportioned $847 million to Michigan 
in March 2009 for highway infrastructure and other eligible projects. 
As of September 1, 2009, the state had obligated $575 million, or 68 
percent, of these funds.[Footnote 8] In addition, as of September 1, 
2009, FHWA had reimbursed $41 million to the state.[Footnote 9] 

The Recovery Act provides funding to states for restoration, repair, 
and construction of highways and other activities allowed under the 
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, which 
include ensuring the project meets all environmental requirements 
associated with the National Environmental Policy Act, paying 
prevailing wages in accordance with federal Davis-Bacon Act 
requirements, complying with goals to ensure disadvantaged businesses 
are not discriminated against in the awarding of construction 
contracts, and using American-made iron and steel in accordance with 
Buy America 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. 

The Majority of Funds Obligated in Michigan Are for Highway Pavement 
Projects: 

About 77 percent of Recovery Act highway obligations for Michigan are 
for pavement projects. Specifically, $334 million of the $575 million 
obligated in Michigan as of September 1, 2009, is being used for 
projects such as pavement improvement, including $120 million for road 
resurfacing. MDOT officials told us that they selected mostly pavement 
projects because the primary focus of Michigan's capital improvement 
plan for highways has been maintaining existing roads and bridges and 
improving pavement conditions. In addition, pavement projects met one 
of the Recovery Act requirements that funds for highway infrastructure 
investments be obligated within 120 days of apportionment. Figure 1 
shows obligations by the types of road and bridge improvements being 
made. 

Figure 1: Highway Obligations for Michigan by Project Type as of 
September 1, 2009: 

[Refer to PDF for image: pie-chart] 

Pavement projects total (77 percent, $442.3 million): Pavement 
improvement ($334.3 million): 58%; Pavement widening ($108 million): 
19%; 

Bridge projects total (9 percent, $51 million): Bridge improvement 
($40.8 million): 7%; Bridge replacement ($10.2 million): 2%. 

Other (14 percent, $82.1 million): 
Other ($82.1 million): 14%. 

Source: GAO analysis of FHWA data. 

Notes: "Other" includes safety projects, such as improving safety at 
railroad grade crossings, and transportation enhancement projects, such 
as pedestrian and bicycle facilities, engineering, and right-of-way 
purchases. 

[End of figure] 

MDOT officials further told us that, as of September 1, 2009, Michigan 
had awarded 153 contracts for highway projects. Of these 153 contracts, 
work had begun on 94 contracts and 1 had been completed. According to 
MDOT officials, the completed project, which started in April 2009 and 
was completed in June 2009, involved preventive maintenance, including 
concrete pavement repairs to about 11 miles of Interstate 75 on the 
Ogemaw and Arenac County lines. The officials also said that the 
contract had a total value of about $854,000. As of September 1, 2009, 
38 contracts were pending award, 16 were out for bid, and MDOT planned 
to advertise another 53 contracts. Since our July 2009 report, MDOT 
officials stated that Michigan has continued to find that contracts for 
Recovery Act projects are being awarded for less than the amounts it 
had estimated when the funds were obligated for the projects, which 
will allow them to allocate funds to additional projects. Because MDOT 
initially identified more projects than it estimated could be funded 
with the $847 million apportioned to Michigan for highway 
infrastructure projects, officials plan to use the funds freed up by 
the lower bids for these additional projects, which are primarily for 
pavement and bridge improvements in economically distressed areas. 

Michigan Is Using Existing Contracting Procedures and Internal Controls 
for Awarding and Overseeing Recovery Act Contracts: 

MDOT has processes in place for the award and oversight of contracts 
using Recovery Act funds. We selected two contracts for pavement 
improvement projects to review--one for more and one for less than $20 
million. The first contract we reviewed was a state-administered 
contract in a rural, economically distressed area with a value of $21.7 
million--making it a large highway project for the state. MDOT awarded 
this contract to resurface about 7 miles of Interstate 196 (I-196) in 
Allegan County and building a new rest area. The project was scheduled 
to begin in May 2009 and be completed by November 2009. The second 
contract we reviewed was a locally-administered contract in an urban, 
economically distressed area. MDOT awarded this contract, which totals 
about $1.6 million, for concrete pavement and repair of about 1.2 miles 
of Pasadena Avenue in Flint. It was scheduled to start in August 2009 
and be completed by June 2010. 

According to MDOT officials, they awarded these two contracts 
competitively and followed the department's procurement procedures. 
Officials provided the following facts about the procurement 
procedures. Contactors seeking to bid on MDOT projects must be pre- 
qualified to perform tasks such as road and bridge construction and 
repair and concrete or hot mix asphalt paving. Only bidders who have 
been prequalified by MDOT are allowed to submit bids on projects. As a 
part of its review process, MDOT ensures that contractors that have 
either had their prequalification suspended or have been 
debarred[Footnote 10] are not allowed to bid. Contracts are then 
awarded to the lowest prequalified bidder for each project. MDOT 
received bids from four and six bidders for the I-196 and Pasadena 
Avenue projects, respectively, and all bidders were prequalified and 
had not been suspended or debarred, and the contracts were awarded to 
the lowest bidders. 

According to MDOT officials, these two contracts are fixed unit price 
contracts with estimated quantities. Specifically, the unit price for 
all construction material is fixed but the final price of the contract 
depends on the quantity of materials used. For example, according to 
state officials, the contractor for the Pasadena Avenue project is 
required to repair the concrete base after removing the old asphalt, 
but the quantity of concrete required for these repairs cannot be 
determined until the asphalt is removed, which will affect the final 
price of the contract. 

According to officials, to help the state meet its Recovery Act 
reporting requirements regarding job creation, the contracts require 
the contractors to report to MDOT every month on the total (1) number 
of employees who performed work on the contracts, (2) number of hours 
worked by those employees, and (2) wages of the employees working on 
the projects. In August 2009, MDOT began using a new Web-based system 
to allow contractors to input employment and wage data directly into a 
database rather than filling out a form to report these data. MDOT 
officials told us that this system should increase efficiency and 
reduce data entry errors. 

Since construction on the I-196 project began on June 1, 2009, 
contractors have submitted reports for June and July to MDOT. The July 
2009 report showed that 108 employees worked on the project. To check 
the accuracy and completeness of the data, MDOT field staff for this 
project compared the information provided in the contractor's reports 
with weekly payroll information and on-site inspection reports that the 
MDOT Project Manager prepared. 

MDOT officials intend to use the department's standard procedures to 
monitor whether Recovery Act construction contractors deliver quality 
goods and services in accordance with the contract terms. For example, 
for the two contracts we reviewed, we discussed procedures with agency 
officials who stated that all of the following monitoring activities 
have taken place. After contract award, MDOT assigned a project manager 
to oversee day-to-day construction activities and make sure the 
contractor met all contract requirements. The project manager and his 
oversight staff conducted routine inspections, reviewed testing and 
certifications of materials used in the project, and drafted daily 
inspection reports. The project manager also held regular on-site 
meetings with the contractor, which provide a vehicle for identifying 
issues that may arise so officials can take necessary actions to 
resolve them. 

MDOT uses a program/project management system that tracks the project 
schedule and resource needs based on information received from the 
project manager. A Project Steering Committee reviews the information 
in this system and information from the contractors' monthly reports to 
identify areas needing attention. MDOT uses separate accounting codes 
to track Recovery Act projects and generate reports for FHWA and 
Michigan's Economic Recovery Office.[Footnote 11] 

Officials told us that, at the end of each project, the project manager 
is required to reconcile and account for the work completed and the 
materials used before issuing the final payment. Officials explained 
that, before issuing final payment to a contractor, the project manager 
is also required to evaluate a contractor's performance. Officials 
stated that MDOT's Contractor Performance Evaluation Review team 
reviews the performance evaluations for all prime contractors and 
subcontractors. According to MDOT officials, this team's review is 
intended to determine whether the contractor's performance on the 
project has been satisfactory in meeting MDOT's performance standards 
and whether staff have followed MDOT's procedures and guidelines in 
rating contractors' performance. 

Michigan's Use of Recovery Act Funds for Weatherization Assistance Is 
Under Way: 

The Recovery Act appropriated $5 billion over a 3-year period for the 
Weatherization Assistance Program, which the DOE administers through 
each of the states, the District of Columbia, and seven territories and 
Indian tribes. The program 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 or air conditioning 
equipment. Over the past 32 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. 

As of September 14, 2009, DOE had approved all but two of the 
weatherization plans of the states, the District of Columbia, the 
territories, and Indian tribes--including all 16 states and the 
District of Columbia in our review. DOE has provided to the states $2.3 
billion of the $5 billion in weatherization funding under the Recovery 
Act. Use of the Recovery Act weatherization funds is subject to Section 
1606 of the act, which requires all laborers and mechanics employed by 
contractors and subcontractors on Recovery Act projects to be paid at 
least the prevailing wage, including fringe benefits, as determined 
under the Davis-Bacon Act.[Footnote 12] Because the Davis-Bacon Act had 
not previously applied to weatherization, Labor had not established a 
prevailing wage rate for weatherization work. In July 2009, DOE and 
Labor issued a joint memorandum to Weatherization Assistance Program 
grantees authorizing them to begin weatherizing homes using Recovery 
Act funds, provided they pay construction workers at least Labor's wage 
rates for residential construction, or an appropriate alternative 
category, and compensate workers for any differences if Labor 
establishes a higher local prevailing wage rate for weatherization 
activities. Labor then surveyed five types of "interested parties" 
[Footnote 13] about labor rates for weatherization work. The department 
completed establishing prevailing wage rates in all of the 50 states 
and the District of Columbia by September 3, 2009. 

Michigan's Weatherization Plan Provides Goals for Reducing Energy 
Usage: 

DOE allocated a total of $243 million in Recovery Act funds for a 3- 
year period to Michigan and approved Michigan's weatherization plan on 
July 6, 2009. As of August 31, 2009, DOE provided about $121.7 million 
of the funds representing about 50 percent of the amount allocated by 
DOE. Officials from Michigan's Department of Human Services (DHS), 
which administers the Weatherization Assistance Program and is the 
prime recipient of funds, stated that as of August 31, 2009, DHS had 
obligated $198.7 million and expended about $2 million. According to 
the officials, as of August 24, 2009, DHS had awarded contracts with 30 
community action agencies (CAA) and 2 limited purpose agencies for the 
total amount obligated.[Footnote 14] According to state officials, the 
amount obligated by the state is subject to limitation based on the 
availability of federal funds. DHS officials told us that each CAA that 
uses subcontractors has prepared a request for quotation (RFQ) to 
obtain vendors for weatherization materials and services and that they 
plan to review all the RFQs. As of August 31, 2009, DHS officials had 
reviewed almost 20 RFQs to ensure they met Recovery Act and state 
requirements. The state's goal is to weatherize at least 33,000 units 
with Recovery Act funds, a large increase over the 14,346 units 
weatherized in program years 2005 through 2007.[Footnote 15] DHS is 
also using Recovery Act funds to train weatherization workers, pre- 
inspect homes to determine eligibility for weatherization, and hire and 
train new DHS program staff. In addition, DHS has provided technical 
assistance to CAAs through a workshop. Further, some agencies have 
purchased specialized equipment that inspectors use to test for leaks 
and heat loss in houses as part of the pre-inspection process. DHS has 
established a statewide goal that 20 percent of those served will be 
elderly and 15 percent will be persons with disabilities. Although a 
CAA establishes individual goals, DHS must approve any goals that are 
below the statewide goals. 

Use of Recovery Act Weatherization Funds Was Slowed by the Need to 
Determine Prevailing Wages under the Davis-Bacon Act: 

According to agency officials, approval of expenditures for 
weatherization contracts using Recovery Act funds was slowed by the 
need for DHS to include prevailing wage rates for use in setting 
contract terms with CAAs. Although CAAs could have used Recovery Act 
funds to begin weatherizing homes (providing they paid construction at 
least Labor's wage rates for residential construction or an appropriate 
alternative category and compensate workers for any differences if 
appropriate), DHS officials told us that most CAAs preferred to wait 
for Labor to determine the prevailing wage rates. CAAs did not want to 
face the administrative difficulties of correcting wages already paid. 
In order to determine prevailing wages, Labor created a survey that DHS 
forwarded to the CAAs along with instructions for completing it. On 
August 12, 2009, Labor posted the prevailing wage rates for Michigan to 
be paid under the requirements of the Davis-Bacon Act. According to 
officials, DHS subsequently awarded contracts with all CAAs and two 
limited purpose agencies.[Footnote 16] 

Initial concerns that Michigan officials had before determining the 
prevailing wage rates for weatherization activities have diminished. In 
July 2009, DHS officials expressed concerns about determining the wage 
rates for weatherization activities. According to DHS officials, job 
classifications specific to weatherization had not been identified. 
Additionally, they said that the wage rates for employment related to 
weatherization work were inconsistent from one county to another. For 
example, one CAA in the Lansing area, which provides weatherization 
services in four counties, paid $18 an hour to workers in three of the 
four counties and $42 an hour to workers in the remaining county. 
However, Labor subsequently determined that the prevailing wage in this 
remaining county is $28 an hour, a rate in better alignment with the 
wage rates across the four counties. Additionally, in July 2009, DHS 
officials expressed concerns that certain areas of the state had 
prevailing wage rates that would be prohibitively high, which would 
negatively affect their ability to work within the state's funding 
limit of $6,500 per unit average for weatherization. However after 
Labor released the prevailing wage rates for Michigan, officials found 
the wage rates to be acceptable. 

DHS Has Increased Staff to Monitor the Use of Recovery Act 
Weatherization Funds: 

Since June 2009, DHS officials have used Recovery Act funds to hire 
five additional staff to monitor the use of Recovery Act funds related 
to the Weatherization Assistance Program. Specifically, they said they 
hired a manager to oversee the program, two staff to review 
weatherization projects, a technical supervisor, and a fiscal analyst. 
They also plan to hire 15 additional staff, including technical 
specialists and administrative support staff, and are considering 
hiring someone with expertise in the compliance and reporting 
requirements of the Davis-Bacon Act. 

DHS officials created a plan to monitor the Weatherization Assistance 
Program and said that they plan to monitor the use of weatherization 
funds by conducting annual visits to each CAA. These visits would 
alternate between comprehensive and shorter monitoring visits. The 
comprehensive visits would include a fiscal review, staff interviews, 
job site visits, and reviews of client files. DHS officials also plan 
to have their technical supervisors review at least 5 percent of all 
weatherized units. Michigan's State Auditor General told us that the 
Single Audit review of DHS for 2007 through 2008 is in process and 
includes consideration of the Weatherization Assistance Program. The 
most recent Single Audit report on DHS for the fiscal years 2005 
through 2006 did not include a review of the state's Weatherization 
Assistance Program. 

DHS Officials Remain Concerned about Recovery Act Reporting: 

On August 31, 2009, DHS officials told us that for the first Recovery 
Act reporting period, ending September 30, 2009, they were planning to 
report information directly to the federal government. DHS conducted a 
workshop for CAAs on the reporting requirements of the Recovery Act so 
that the CAAs could assist local subrecipients in understanding the 
requirements. DHS officials plan to use the data elements supplied by 
DOE and Labor to estimate job impact of the funds and noted they can 
use much of the information they already collect for these reports. 
However, DHS officials expressed concerns about the precision of the 
data that will be reported. They said that, although the Recovery Act 
requires them to report their use of the funds by October 10, 2009, 
agency data for Michigan's fiscal year 2009, which ends on September 
30, 2009, will not be finalized until October 24 or 25. 

SFSF Will Be Used to Maintain Education Programs and Replace General 
Fund Gaps Caused by Reductions in State Revenues: 

The Recovery Act created a state fiscal stabilization fund (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 be used to alleviate shortfalls 
in state support for education to school districts and public 
institutions of higher education (IHE). The initial award of SFSF 
funding required each state to submit an application to Education that 
provided several assurances, including that the state will meet 
maintenance-of-effort requirements (or will be able to comply with 
waiver provisions) and that it will implement strategies to meet 
certain educational requirements, such as increasing teacher 
effectiveness, addressing inequities in the distribution of highly 
qualified teachers, and improving the quality of state academic 
standards and assessments. In addition, states were required to make 
assurances concerning accountability, transparency, reporting, and 
compliance with certain federal laws and regulations. States must 
allocate 81.8 percent of their SFSF 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). After maintaining state support for 
education at fiscal year 2006 levels, states must use education 
stabilization funds to restore state funding to the greater of fiscal 
year 2008 or 2009 levels for state support to school districts or 
public IHEs. When distributing these funds to school districts, states 
must use their primary education funding formula, but they can 
determine how to allocate funds to public IHEs. In general, school 
districts 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. 

Education allocated $1.592 billion in SFSF moneys to Michigan on April 
1, 2009: $1.302 billion for education stabilization and $290 million in 
government services funds. As of September 1, 2009, Education had made 
$873 million (two-thirds of the total education stabilization funds) 
available to MDE. MDE officials told us that LEAs had to submit 
applications for the education stabilization funds to MDE. MDE 
officials told us that they allocated $600 million of these funds to 
LEAs and, as of September 1, 2009, had approved LEAs' applications for 
$599 million of the education stabilization funds. These officials told 
us that the states' LEAs had drawn down $584 million of the education 
stabilization funds after MDE approved their applications. Two of the 
state's LEAs--a charter school and a small district--did not apply for 
education stabilization funds because, according to MDE, those LEAs had 
decided not to accept Recovery Act funds. MDE officials also told us 
that although they did not allocate any of these funds to IHEs--the 
state's colleges and universities--for the 2008-2009 school year, they 
plan to allocate $68 million to IHEs for the 2009-2010 school year. 
According to the MDE officials, most LEAs plan to use the education 
stabilization funds to restore items deleted from their budgets as a 
result of cuts in state education funding made during the 2008-2009 
school year. Therefore, they anticipated that most of the funds would 
be applied to teacher salaries, which represents the bulk of the LEAs' 
budgets. 

Officials with Michigan's Office of the State Budget told us the state 
will use the state's total SFSF government services allocation of $290 
million to address areas where the state's general funds were cut as a 
result of reductions in state revenues. As of September 16, 2009, the 
state legislature had not yet specified the programs to be supported 
with the state's government services portion of SFSF funds. 

Michigan Has Made Preliminary Allocations of ESEA, Title I Recovery Act 
Funds: 

The Recovery Act provides $10 billion to help LEAs educate 
disadvantaged youth by making additional funds available beyond those 
regularly allocated through Title I, Part A of the Elementary and 
Secondary Education Act (ESEA) of 1965. The Recovery Act requires these 
additional funds to be 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 current 
statutory and regulatory requirements and must obligate 85 percent of 
the funds by September 30, 2010.[Footnote 17] 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. Education made the first half of 
states' Recovery Act ESEA Title I, Part A funding available on April 1, 
2009, and announced on September 4, 2009, that it had made the second 
half available. 

As of August 18, 2009, Michigan had made preliminary allocations of the 
$195 million in ESEA, Title I Recovery Act funds, which was about 50 
percent of the $390 million Education made available to the state on 
April 1, 2009. MDE officials told us they planned to make the final 
allocations of these funds to LEAs in the fall of 2009 after approving 
LEAs' applications. Applications from LEAs that had summer programs 
were due to MDE by the end of July 2009, but applications from LEAs 
without summer programs were not due until September 1, 2009. MDE 
officials expressed concern that the Recovery Act funds they are 
allowed to use for administrative support were not sufficient to cover 
the resources required to review the large number of additional 
applications for ESEA, Title I and other education-related Recovery Act 
funds and to monitor LEAs' uses of the funds. They also said that 
Education's proposal to adjust the statutory caps on administrative 
costs did not fully address their concerns because these costs would be 
capped at $1 million, which represents about .26 percent of their total 
Title I, ESEA Recovery Act funds. In addition, based on their reviews 
of the applications received to date, MDE officials said they expected 
many LEAs would be required to revise their applications to provide 
additional information on their planned use of the funds. 

According to MDE officials, the carryover waiver they received from 
Education for their ESEA Title I funds will be critical in allowing 
LEAs to use the funds after the September 30, 2010, cutoff date for 
obligating 85 percent of ESEA Title I funds. However, they also said 
that some LEAs have expressed concern about challenges in meeting the 
"supplement not supplant" provisions of ESEA Title I.[Footnote 18] 
Specifically, LEAs rely on education funding provided by the state 
through sales tax revenues, which have declined significantly in recent 
years. As a result, LEAs may find it difficult to only use Recovery Act 
funds to supplement their ESEA Title I programs rather than supplanting 
them because of the recent declines in state funding for these 
programs. 

MDE has encouraged LEAs to use their ESEA Title I Recovery Act funds 
for programs such as professional development for teachers and staff 
and for supplemental reading programs. MDE officials said that the 
applications they reviewed indicate that many LEAs also plan to 
purchase equipment such as "smart boards"--electronic boards linked to 
the Internet that can be used to display interactive educational 
materials in the classroom. According to MDE officials, the LEAs' 
applications for ESEA Title I Recovery Act funds describe a range of 
activities because Michigan has LEAs that vary greatly in size, 
including a few large urban districts and many that are small and 
rural. For example, one LEA has fewer than 100 students, at least five 
LEAs are made up entirely of one-room schools, and two LEAs are located 
on islands only accessible by boat or plane during much of the school 
year. In addition, 250 of the state's LEAs are public school academies 
(charter schools) with no defined geographic boundaries that overlap 
with those of the other LEAs. As a result, MDE must recalculate funds 
provided via formula grants in order to determine the funds to be 
allocated to the public school academies that are based on the income 
eligibility of their students using the number of students who receive 
free and reduced lunches rather than U.S. Census poverty data, which 
are based on geographic boundaries. 

Michigan Department of Education Has Not Approved All LEAs' 
Applications for IDEA Recovery Act Funds: 

The Recovery Act provided supplemental funding for programs authorized 
by Parts B and C of Individuals with Disabilities Act (IDEA), the major 
federal statute that supports the provisions of early intervention and 
special education and related services for infants, toddlers, children, 
and youth with disabilities. Part B funds programs that ensure 
preschool and school-aged children with disabilities have 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 (section 619). 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. Education made the first half of states' Recovery Act IDEA 
funding available to state agencies on April 1, 2009, and announced on 
September 4, 2009, that it had made the second half available. 

On April 1, 2009, Education made the first half of Michigan's IDEA 
Recovery Act funds available to the state--a total of $207 million for 
both types of Part B grants and $6.2 million for Part C grants. As of 
August 14, 2009, MDE had allocated all of the Part B funds for grants 
for school-aged children and youth--$200.3 million--to LEAs through the 
state's intermediate school districts (ISD) but none of the funds had 
been provided because their applications had not been approved. 
[Footnote 19] As of September 1, 2009, MDE officials said that they 
were in the process of reviewing the applications but had not yet 
approved any of them. As of August 14, 2009, MDE had allocated all of 
the $6.7 million in Part B IDEA preschool grant funds to ISDs and LEAs 
had drawn down $2.3 million of these funds. According to MDE officials, 
as of August 14, 2009, they allocated all of the $6.2 million in Part C 
IDEA grant funds to the ISDs and had approved 42 applications for $4.9 
million of these funds.[Footnote 20] 

MDE officials said that according to the applications they had 
reviewed, LEAs intend to use the $200.3 million in IDEA Part B grants 
for school-aged children and youth to, among other things, retain 
special education teachers; acquire new technologies, including 
automated data systems and electronic smart boards for use in 
classrooms; enhance professional development for teachers; and provide 
additional bus transportation services to students with disabilities. 
According to MDE officials, $2.3 million in the applications for Part B 
grants for preschool students approved by MDE will be used for salaries 
and to purchase services. According to MDE officials, most of the Part 
C grant funds will be provided to ISDs to purchase home-based early 
intervention services, but some LEAs plan to use the Part C funds for 
training programs in which the objective is to increase families' 
understanding of how to meet the needs of their children with 
disabilities. They also told us that about 10 LEAs plan to use their 
IDEA Part C funds for new construction. 

MDE Will Use Existing Systems for Tracking and Reporting on Recovery 
Act Education Funds, but Challenges Remain: 

MDE officials said that they will use their existing cash management 
and grants management systems to track Recovery Act funds and meet the 
reporting requirements. LEAs will input data on the use of Recovery Act 
funds and on jobs created and retained into these systems. MDE 
officials said they will test these data to help ensure that they are 
timely, complete, and accurate. MDE has provided some guidance on the 
reporting requirements to LEAs and plans to train them on how to comply 
with the requirements. However, MDE officials said that LEAs vary 
significantly in their capacity to accurately track the use of the 
Recovery Act funds and the requirements present some challenges to 
LEAs. For example, generally LEAs have not reported data on the use of 
grant funds on a quarterly basis as required by the Recovery Act--they 
have only reported on the use of the funds at the end of each grant. In 
addition, some of the adjustments needed in the state's grants 
management system to distinguish Recovery Act grant funds from regular 
federal education grants and produce reports on the use of these funds 
had not been completed, according to MDE officials. This may hinder 
MDE's ability to track and report on the uses of Recovery Act funds. 

MDE staff are responsible for reviewing and approving LEAs' 
applications for Recovery Act funds and their use of the funds. As part 
of the oversight and monitoring process, MDE officials said that they 
plan to conduct on-site visits of schools to review their use of 
Recovery Act funds. These visits, which will each take about 3 days, 
will consist of MDE's internal auditors reviewing selected districts' 
financial statements, improvement in the district's student achievement 
on standardized tests, progress in implementing corrective action 
plans, and compliance with federal regulations. To increase 
accountability for Recovery Act funds, MDE also chairs a weekly 
meeting, called the ARRA Education Core Team meeting, to facilitate 
working with external partners, school boards, and public school 
academies (also known as charter schools) to identify issues regarding 
the use of Recovery Act funds. According to MDE officials, these 
meetings have provided valuable feedback on the use of Recovery Act 
funds. 

The State Auditor General reported in a previous audit that MDE needs 
to improve the completeness and accuracy of the education data reported 
in the state's cash management and grants management systems.[Footnote 
21] In addition, in its Single Audits reports on MDE, the State Auditor 
General reported significant deficiencies in MDE's internal controls. 
For example, in its 2005 through 2007 Single Audit report, the State 
Auditor General found that the agency's internal controls over special 
education programs did not ensure compliance with federal laws and 
regulations regarding reporting and subrecipient monitoring.[Footnote 
22] In April 2009, MDE issued its plan for corrective action to the 
State Auditor General. MDE officials told us that they were 
implementing their corrective action plan to improve the completeness 
and accuracy of data reported through the department's cash management 
and grants management systems. 

MDE's Oversight of Detroit Public Schools Has Focused on Correcting 
Weaknesses in Financial Management and Eliminating the District's 
Budget Deficit: 

The Detroit Public Schools (DPS) has faced many challenges in recent 
years, including serious financial weaknesses, sizeable budget 
deficits, and large reductions in its student population. Single Audit 
reports on DPS identified several material weaknesses, including lax, 
system-wide oversight and controls in DPS contracting.[Footnote 23] The 
2008 Single Audit report contained 84 findings that identified 
deficiencies in five areas: (1) internal controls, (2) financial 
reporting, (3) policies and procedures, (4) training, and (5) 
information technology. DPS developed a corrective action plan for 70 
of the findings and has contracted with a consulting firm to review the 
adequacy of its plan. The DPS Office of the Auditor General, an 
internal audit operation, is responsible for audits and reviews of 
district operations, including internal controls. The DPS Office of the 
Auditor General recently completed reviews of all the district's 194 
schools and found that 189 schools (97 percent) had inadequate 
bookkeeping. The DPS Single Audit report dated December 10, 2008, 
reported that material audit adjustments were necessary for the 
financial statements to be fairly stated. Financial statements were not 
available in a timely manner to meet statutory and other deadlines. 

In addition, as a result of the July 2008 Education Office of Inspector 
General audit of DPS's use of ESEA Title I funds, Education designated 
DPS a high-risk district, requiring that all federal funds provided to 
DPS receive additional Education and MDE oversight. To comply, DPS must 
follow a checklist of required actions and develop strong internal 
controls. Education and MDE are working with DPS to address the 
district's financial management challenges. DPS officials said that 
they meet weekly with MDE officials and monthly with officials from 
Education's Office of Risk Management to discuss financial management 
issues. 

As a result of financial management weaknesses and DPS's budget 
deficits, Michigan's Governor appointed an Emergency Financial Manager 
for the district in March 2009. The Emergency Financial Manager also 
appointed two oversight officials for the district to help improve its 
financial oversight. Since the Emergency Financial Manager has been in 
place, DPS has begun developing and implementing new policies and 
procedures to address the district's financial management challenges. 

DPS's Deficit Elimination Plan Outlines Many Actions to Be Taken: 

For fiscal year 2008, DPS reported in its audited financial statements 
an excess of expenditures over revenues of $154 million.[Footnote 24] 
Further, in April 2009, DPS officials projected an excess of 
expenditures over revenues of $166 million for fiscal year 2009. 
Officials explained that in light of DPS's ongoing operating deficits 
it was required by law to submit a deficit elimination plan to MDE. MDE 
returned the district's first plan because it did not contain a long- 
range plan for eliminating the entire cumulative deficit--it only 
addressed the current year's deficit. DPS recently submitted a revised 
deficit elimination plan to MDE for its review. 

DPS has significantly reduced the number of teachers by eliminating 
2,400 positions and reduced its central office staff by 72 percent. 
However, according to DPS officials, further reductions will be 
required because 80 to 85 percent of its budget consists of teacher 
salaries and benefits. Over the past several years, DPS's budget 
problems have been compounded by declines in student enrollment as many 
former DPS students have moved or chosen to attend charter or private 
schools. Six years ago, DPS had about 167,000 students; by the 2008- 
2009 school year, its enrollment had declined to 93,000; and the 
estimate for the 2009-2010 school year is 88,000. This is a significant 
problem because the district's funding is based, in large part, on its 
enrollment. This decrease in enrollment has resulted in the district 
having many buildings with unused capacity; it recently closed 61 
buildings. One of DPS's primary goals is to improve its academic 
standards and performance to bring students back to the district and 
increase its enrollment. DPS officials noted that establishing and 
sustaining Recovery Act-funded initiatives will be difficult given the 
challenges the district faces. In addition to reducing its cumulative 
budget deficit under the direction of its Emergency Financial Manager 
and with the approval of MDE, DPS must continue its operations in order 
to meet the educational needs of students. 

MDE Has Allocated Significant Recovery Act Funds to DPS: 

MDE allocated $80 million in SFSF funding to DPS through fiscal year 
2010. DPS plans to use most of its SFSF Recovery Act funds to backfill 
state aid cuts and support teacher salaries. Specifically, DPS 
officials said that they plan to pay the salaries of about 187 teachers 
with a portion of the district's $80 million in SFSF Recovery Act 
funds. DPS's SFSF application stated that it also intends to use the 
funds to purchase a new information system that will track data such as 
students' demographic characteristics, schedules, registration dates, 
daily attendance, grades, and test scores. 

MDE allocated $148 million in ESEA Title I Recovery Act funds to DPS 
through fiscal year 2010. However, DPS had not received any of these 
funds because MDE had not approved its Title I application. As of 
September 10, 2009, DPS had been informed by MDE that its application 
has been substantially approved and that final approval of the 
application is pending. DPS officials plan to use the funds to develop 
a system for assessing the academic performance of children in 
kindergarten through third grade and a "Learning Village"--an 
electronic compilation of model curricula that can be used as a 
resource for enhancing student education and DPS's management of its 
education programs. 

MDE allocated $11.3 million in Recovery Act funds to DPS for IDEA Part 
B grants and $700,000 for IDEA Part C grants. MDE provided the IDEA 
funds to the Wayne Regional Educational Service Agency (Wayne RESA), an 
intermediate school district. The Wayne RESA covers all LEAs in Wayne 
County, Michigan, including DPS and 33 other school districts, and 82 
public school academies in the Detroit area. None of the IDEA funds, 
however, had been provided to DPS because MDE had not approved the 
ISD's application for IDEA funds. DPS officials said that they did not 
have an estimated date as to when the district will receive its IDEA 
Recovery Act funds. DPS officials said that they planned to use these 
funds to develop electronic individual development plans for students 
with disabilities and to support an initiative to enhance teachers' 
professional development. 

DPS officials said that they will report information on the use of 
SFSF, ESEA Title I, and IDEA Recovery Act funds using the state's cash 
management and grants management systems. They also said that they are 
not sure whether MDE will add any requirements for tracking and 
reporting of Recovery Act funds. 

Questions Remain about MDE's Ability to Accurately and Timely Report on 
Recovery Act Funds: 

Based on prior audit reports, questions remain about MDE's ability to 
report accurately and timely on the use of Recovery Act funds 
consistent with the accountability and transparency requirements of the 
act. A strong system of internal controls provides checks and balances 
against waste, fraud, abuse, and mismanagement and is an important 
component of an organization's ability to operate efficiently and 
effectively. GAO's guidance on internal controls may be useful in 
assisting MDE officials in implementing effective internal control over 
Recovery Act funds and determining what, where, and how improvement can 
be implemented.[Footnote 25] 

MDE and the state's largest LEA--DPS--do not have strong systems of 
internal controls and will need to compensate for existing systems and 
processes in order to meet the timing and other accountability 
requirements of the Recovery Act. Given that the first comprehensive 
report on the use of Recovery Act funds used through September 30, 
2009, is due to the federal government by October 10, 2009, the risks 
and challenges that MDE faces include timely accounting for the 
significant amount of Recovery Act funds provided for education as well 
as the use of Recovery Act funds by LEAs. In June 2008, the State 
Auditor General reported significant deficiencies in MDE's internal 
controls. Also, LEAs vary significantly in their capacity to accurately 
track and report on the use of Recovery Act education funds. The poor 
internal controls of MDE and LEAs and the large amount of Recovery Act 
education funds allocated to the state result in increased risk that 
Recovery Act funds will not be used and accounted for in accordance 
with provisions of the act. According to MDE and DPS officials, the 
LEAs plan to use existing systems and processes to track funds. DPS 
will receive significant Recovery Act funds and plans to use its 
existing systems and processes to account for and report on the use of 
Recovery Act funds. The independent auditor for DPS reported as 
recently as December 2008 that material weaknesses existed, including 
weaknesses in systemwide oversight and controls. Further, the auditor 
reported that material adjustments were necessary for DPS's financial 
statements to be fairly stated and that financial information was not 
available in a timely manner to meet statutory and other deadlines. 

According to state and DPS officials, the district has a number of 
initiatives under way to address its accountability challenges. For 
example, in March 2009, Michigan's Governor appointed DPS's Emergency 
Financial Manager who has initiated a number of important actions, such 
as developing a strategic approach to address long-standing and often 
repeated audit findings. However, as of September 2009, improvements in 
the controls and processes for DPS remain a work in process. Many 
identified control deficiencies are still in need of attention despite 
numerous special efforts to transform accountability at DPS. Questions 
remain about the reliability of DPS financial information and the 
capacity of DPS to produce timely and accurate financial information. 
Further, change actions implemented and those under way at DPS are 
designed to address long-standing deficiencies through deliberate 
processes; however, they are not aimed at short-term actions that may 
be necessary to provide reasonable assurance that Recovery Act funds 
used through September 30, 2009, are properly accounted for and 
reported in October 2009, and that quarterly reports thereafter are 
accurate and timely. Further, the results of change actions have not 
yet been validated through external audit processes. 

To provide accurate and timely Recovery Act reporting, MDE, in 
coordination with DPS, will need to consider implementing policies and 
procedures in the near term to provide reasonable assurance that 
education-related Recovery Act funds, including those provided to DPS, 
are reported accurately and timely, that jobs retained and created are 
accurately and timely reported, and that funds are used only for 
allowable purposes. It will also be important to implement targeted 
accountability practices--internal and external--with timely validation 
processes for reports on the use of education-related Recovery Act 
funds, including those submitted by DPS in accordance with the act's 
requirements. 

WIA Recovery Act Funds Provided Summer Employment to Many of Michigan's 
Low-Income Youth, but Significant Internal Control and Program 
Challenges Exist: 

The Recovery Act provides an additional $1.2 billion in funds for WIA 
Youth program activities, including summer employment. Administered by 
Labor, the WIA Youth program is designed to provide low-income in- 
school and out-of-school youth 14 to 21 years of age, who have 
additional barriers to success, with services that lead to educational 
achievement and successful employment, among other goals. Funds for the 
program are distributed to states based on a statutory formula; states, 
in turn, distribute at least 85 percent of the funds to local areas, 
reserving as much as 15 percent for statewide activities. The local 
areas, through their local workforce investment boards, have the 
flexibility to decide how they will use the funds to provide required 
services. 

While the Recovery Act does not require all funds to be used for summer 
employment, in the conference report accompanying the bill that became 
the Recovery Act,[Footnote 26] the conferees stated that they were 
particularly interested in states using these funds to create summer 
employment opportunities for youth. While the WIA Youth program 
requires a summer employment component to be included in its year-round 
program, Labor issued guidance indicating that local areas have the 
flexibility to implement stand-alone summer youth employment activities 
with Recovery Act funds.[Footnote 27] Local areas may design summer 
employment opportunities including any set of allowable WIA Youth 
activities--such as tutoring and study skills training, occupational 
skills training, and supportive services--as long as they also include 
a work experience component. A key goal of a summer employment program, 
according to Labor's guidance, is to provide participants with the 
opportunity to (1) experience the rigors, demands, rewards, and 
sanctions associated with holding a job; (2) learn work readiness 
skills on the job; and (3) acquire measurable communication, 
interpersonal, decision-making, and learning skills. Labor has also 
encouraged states and local areas to develop work experiences that 
introduce youth to opportunities in "green" educational and career 
pathways. Work experience may be provided at public sector, private 
sector, or nonprofit work sites. The work sites must meet safety 
guidelines, as well as federal and state wage laws.[Footnote 28] 
Labor's guidance requires that each state and local area conduct 
regular oversight and monitoring of the program to determine compliance 
with programmatic, accountability, and transparency provisions of the 
Recovery Act and Labor's guidance. Each state's plan must discuss 
specific provisions for conducting its monitoring and oversight 
requirements. 

The Recovery Act made several changes to the WIA Youth program when 
youth are served using these funds. It extended eligibility through age 
24 for youth receiving services funded by the act, and it made changes 
to the performance measures, requiring that only the measurement of 
work readiness gains will be required to assess the effectiveness of 
summer-only employment for youth served with Recovery Act funds. 
Labor's guidance allows states and local areas to determine the 
methodology for measuring work readiness gains within certain 
parameters. States are required to report to Labor monthly on the 
number of youth participating and on the services provided, including 
the work readiness attainment rate and the summer employment completion 
rate. States must also meet quarterly performance and financial 
reporting requirements. 

Michigan received $74 million in Recovery funds for the WIA Youth 
program and, as of August 31, 2009, had drawn down $20.2 million. After 
reserving 15 percent for statewide activities, the state allocated 
$62.9 million to the 25 local Michigan Works! Agencies (MWA) to provide 
services to youth. The Michigan's Department of Energy, Labor and 
Economic Growth (DELEG)--the state agency that administers the program-
-set a goal to spend the majority of its allocation during the summer 
of 2009. DELEG officials expected to serve 21,000 youth with Recovery 
Act funds compared to about 4,000 youth served in the summer of 2008 in 
the WIA year-round program.[Footnote 29] The 25 MWAs have local 
flexibility in planning Recovery Act funded summer youth employment 
activities. For example, local areas have discretion to determine 
whether it is appropriate to link academic learning to summer 
employment opportunities. 

Characteristics of WIA Summer Youth Employment Activities: 

We visited the MWAs in Detroit and Lansing. According to officials, 
both locations contracted out all their summer youth employment 
activities to other organizations. In Lansing, the MWA had contracts 
for youth services with nine entities, including two faith-based 
organizations. Jobs for summer youth in Lansing included positions with 
Michigan State University and Lansing's Board of Water and Light. 
Detroit Workforce Development Department (Detroit MWA) contracted with 
an organization to recruit youth for employment in its 2009 summer 
youth program. As of August 31, 2009, the contractor had filled 6,774 
summer jobs at 221 worksites, including a retail pharmacy chain, Henry 
Ford Hospital, the Detroit City Council, Detroit's police and fire 
departments and Wayne County Community College District. Table 1 
contains selected program features of the Detroit and Lansing local 
workforce development agencies as well as for all programs in the 
state. 

Table 1: Program Characteristics of Two Local WIA Youth Programs and 
for the State: 

Program features: Michigan Works! Agency (MWA); Detroit MWA: Detroit 
Workforce Development Department; Lansing MWA: Capital Area Michigan 
Works!; Total for Michigan: 25 local workforce agencies of DELEG. 

Program features: Areas served; 
Detroit MWA: City of Detroit; 
Lansing MWA: Ingham, Eaton, and Clinton Counties; Total for Michigan: 
Statewide. 

Program features: Program design; 
Detroit MWA: Six 20-hour weeks, maximum 120 hours, of paid employment; 
Lansing MWA: Under 18: Up to 40 hours per week, including remediation; 
Over 18: Up to 40 hours per week, plus remediation if needed; Total for 
Michigan: Determined by each MWA. 

Program features: Length of program; 
Detroit MWA: May 18 to September 30, 2009[A]; Lansing MWA: June 22 to 
September 30, 2009[B]; Total for Michigan: Determined by each MWA. 

Program features: Outreach; 
Detroit MWA: Local schools, nonprofit organizations, neighborhood 
initiatives, and word of mouth; 
Lansing MWA: Public service announcements and schools; Total for 
Michigan: Determined by each MWA. 

Program features: Target number of participants; Detroit MWA: 7,000; 
Lansing MWA: 600; 
Total for Michigan: 21,000. 

Program features: Actual number of participants; Detroit MWA: 6,774[C]; 
Lansing MWA: 725[C]; 
Total for Michigan: 12,166[D]. 

Program features: Amount allocated; 
Detroit MWA: $14.5 million[E]; 
Lansing MWA: $3.3 million; 
Total for Michigan: $73.9 million. 

Program features: Amount expended; 
Detroit MWA: $7.8 million[F]; 
Lansing MWA: $2.6 million[G]; 
Total for Michigan: $3.3 million[H]. 

Program features: Range of jobs; 
Detroit MWA: Office assistant, senior citizens assistant, childcare 
assistant, teacher assistant, forestry apprentice, and "green" 
education coordinator; 
Lansing MWA: Animal care, office assistant, environmental services, and 
legislative aide; 
Total for Michigan: Determined by each MWA. 

Program features: Work readiness measure; Detroit MWA: Employability 
skills, job search and workplace readiness; Measured at the completion 
of the program by an assessment instrument; Lansing MWA: Interpersonal 
and professional measures including punctuality, attendance, quality of 
work, grooming, operation of tools and equipment, and personal 
behavior; Measured at the beginning, middle and end of the program by 
an assessment instrument; Total for Michigan: Determined by each MWA. 

Source: GAO analysis of local and state information for the WIA Youth 
program. 

[A] According to a Detroit MWA official, out-of-school youth over 18 
years old may continue participating in the program until March 31, 
2010, or until program funds are exhausted, whichever occurs first. 

[B] All participants were to receive a week of leadership training 
before beginning work on June 22, 2009. 

[C] As of August 31, 2009. 

[D] As July 31, 2009. 

[E] Of the $14.5 million awarded, of which $11.4 million is from 
Recovery Act funds, Detroit MWA contracted with a contractor for $6.2 
million and retained $8.3 million for participant payroll and 
administration. 

[F] As of September 3, 2009. Of the $7.8 million expended, Detroit MWA 
paid approximately $2.1 million to the prime contractor and spent 
approximately $5.7 million for youth payroll and administrative 
expenses. 

[G] As of August 14, 2009. 

[H] Amount expended through June 30, 2009, the latest data available, 
by Michigan's 25 MWAs according to DELEG was $3.3 million. DELEG 
obtains expenditure information from the 25 MWAs through quarterly 
expenditure reports. According to a DELEG official information through 
the quarter ended September 30, 2009, is expected to be available on 
October 20, 2009. 

[End of table] 

Detroit and Lansing Experienced Program Challenges for WIA Youth Summer 
Employment and Detroit Has Significant Internal Control Issues: 

Detroit and Lansing experienced challenges in implementing their WIA 
youth summer employment program--including managing a significant 
funding increase, the fact that the contractor for Detroit was new to 
the program, few program monitors for both Detroit and Lansing, the 
organizational complexity of the program delivery arrangement for 
Detroit, and no written policies and procedures for Detroit's payroll 
and its process for determining eligibility and a lack of documentation 
supporting such decisions. Further, Detroit had significant internal 
control problems with paying youth and weaknesses in its process for 
making program eligibility determinations. Effective internal control 
is a major part of managing any organization to achieve desired 
outcomes and manage risk.[Footnote 30] 

GAO guidance on internal controls describes challenges to the efficient 
and effective achievement of organizational goals and objectives as 
risk.[Footnote 31] GAO's Standards for Internal Control in the Federal 
Government includes risk assessment as part of an overall framework for 
establishing and maintaining internal control and for identifying and 
addressing major performance challenges and areas at greatest risk for 
fraud, waste, abuse, and mismanagement.[Footnote 32] 

Further, the Recovery Act requires recipients of funds to comply with 
federal internal control standards. The Office of Management and Budget 
has stated that it will use its Circular No. A-133 Compliance 
Supplement to notify auditors of program requirements that should be 
tested for Recovery Act programs, and will issue interim updates as 
necessary.[Footnote 33] 

In May 2009, DELEG and MWA officials in Lansing and Detroit told us 
that they did not foresee any difficulties in implementing their 
Recovery Act funded WIA summer youth employment activities. State 
officials initially said they expected a smooth transition in using 
Recovery Act funds because of their experience running programs for 
displaced workers combined with the experiences of local MWA directors. 
However, in discussions throughout July and August 2009, officials 
cited several challenges as the much larger program got under way. 

In accordance with Labor's requirements, DELEG's overall guidance 
states that MWA directors must conduct regular oversight and monitoring 
of Recovery Act funds in order to monitor whether expenditures are made 
against the appropriate cost categories and within cost limitations. 
[Footnote 34] The guidance further states that oversight and monitoring 
should determine compliance with programmatic, accountability, and 
transparency requirements of the Recovery Act. To this end, DELEG set 
up separate accounting codes to track Recovery Act funds. The agency 
also holds monthly meetings with all 25 MWA directors to encourage 
reporting of consistent information. State program officials said they 
planned to conduct on-site monitoring visits of WIA worksites as well 
as three site visits each year at each of their MWAs. As of September 
9, 2009, DELEG officials said that they had not begun their review of 
any of the MWAs. 

Officials in both Detroit and Lansing told us that it was challenging 
to implement a larger program than they had in the prior year in a 
short time frame. Both Detroit and Lansing had more applicants than 
available jobs, necessitating much more screening of applications than 
in previous years. Detroit's summer youth program in 2009 had over two 
times the number of youth participants than in the prior year. Detroit 
MWA officials told us that they received 25,000 applications for 7,000 
jobs. In August 2009, Detroit MWA officials told us that with 6,774 
participants on August 31, 2009, they expect to reach their goal of 
7,000 jobs before the end of the program. Lansing served over 100 more 
youth than expected and exceeded its goal of employing 600 youth during 
the summer of 2009. On September 16, 2009, DELEG officials told us that 
the state has not met its target but expects to meet its target to 
employ 21,000 youth. 

In addition, Detroit MWA officials stated that they encountered several 
challenges working with the prime contactor. The contractor and its 
subcontractor were both new to the WIA program and one challenge was 
obtaining approval to use them from the City Council, a process which 
took several months. Detroit awarded the contract on May 4, 2009. 
Officials told us that the new contractor, however, did not have 
written policies or procedures or other related controls for payroll 
processing and distribution of the payroll. According to Detroit MWA 
officials, the previous contractor--that was not eligible to compete 
for the summer 2009 contract--had been in place for several years and 
had established policies and procedures for processing and distribution 
of the payroll. 

Detroit fell short of its initial staffing goals for monitoring the 
program. Detroit MWA officials told us that the contractor's initial 
plans were to hire up to 150 additional staff, including 50 worksite 
monitors, by June 30, 2009. As of September 9, 2009, the contractor had 
21 worksite monitors on staff. Detroit MWA and contractor officials 
told us final contract negotiations resulted in reducing total staffing 
to 140, including 21 worksite monitors. Lansing MWA officials told us 
that finding staff to monitor program activities was a challenge 
because of the limited amount of time available to recruit and employ 
youths for the summer. Lansing MWA officials told us that they met 
their goal and hired 3 staff to monitor over 200 worksites. Also, 
Lansing officials indicated that they relied on their nine contractors 
to provide monitoring assistance through periodic reports on monitoring 
activities and results. 

The design and delivery of WIA Youth summer employment activities was 
complex and involved many parties. According to state and local program 
officials this has proven to be challenging. For example, Detroit's 
summer youth program involved roles and responsibilities spread among 
multiple parties including the Michigan Works! Agency--the Detroit MWA, 
the contractor and its subcontractor, an external payroll service 
provider, as well as approximately 221 worksites, and nearly 7,000 
youth. 

Detroit Had Significant Internal Control Problems with Paying Youth 
Participants on Time and in the Correct Amounts: 

Some of the youth in Detroit's WIA summer youth program were not paid 
for their employment in a timely manner and checks had incorrect 
amounts, payee names, and addresses. The lack of written policies or 
procedures for the preparation and distribution of payroll affected 
Detroit's ability to ensure accountability for Recovery Act funds. 
Progress is under way by Detroit MWA officials and the contractor to 
document the process flow for the preparation and distribution of 
payroll, identify problem areas, and develop written policies and 
procedures, and they expect to complete the initial phase (documenting 
the payroll process flow) by September 30, 2009. 

As shown in table 2, 4 percent to 20 percent of youth in Detroit's 
summer youth program were owed a paycheck but were not paid on time. 

Table 2: Summary of Payroll Preparation Results for the First Three Pay 
Periods: 

Number of youths due a paycheck; 
July 25, 2009: 2,614; 
August 8, 2009: 4,686; 
August 22, 2009: 5,617. 

Number of checks printed; 
July 25, 2009: 2,080; 
August 8, 2009: 4,259; 
August 22, 2009: 5,371. 

Amount of checks printed; 
July 25, 2009: $449,122; 
August 8, 2009: $1,335,227; 
August 22, 2009: $1,707,907. 

Number of youth owed paychecks but not paid when due; July 25, 2009: 
534; 
August 8, 2009: 427; 
August 22, 2009: 246. 

Percentage of youth not paid when due; 
July 25, 2009: 20.4; 
August 8, 2009: 9.1; 
August 22, 2009: 4.4. 

Unclaimed checks; 
July 25, 2009: Information not available; August 8, 2009: 459; 
August 22, 2009: 977. 

Source: Detroit summer youth program contractor data, unaudited. 

[End of table] 

In August 2009, contractor officials told us that they were exercising 
due diligence in following up on providing all youth with checks in the 
correct amounts and that they were seeking to resolve all issues with 
paychecks as quickly as possible. At one of the worksites we visited 
where 25 youth were employed, the site manager told us that 10 of the 
youth were not paid the funds they were owed when they were due on 
August 8, 2009. We followed up with the manager at this worksite who 
said that, by the following week, all of the youth had been paid. There 
has been improvement in performance, such as the percentage of youths 
not paid when due, from the date of the first payroll on July 25, 2009, 
to the payroll that we observed on August 22, 2009. However, issues 
with payroll, such as youth owed paychecks but not paid when due, 
remain and additional work is necessary to correct the internal control 
problems with payroll processing and distribution. 

There was also confusion as to where youth were to pick up their 
paychecks at the first payroll distribution on July 25, 2009. The 
logistics at the distribution site were not transparent and youth 
reported to the contractors that they did not know which line to use or 
whom to talk to in order to discuss problems with or questions about 
their paychecks. 

Youths were also working at worksites that had not completed the 
registration process, and officials told us that as a result no checks 
were prepared for these youths. There were also issues in resolving 
problems, according to Detroit MWA officials, because youth initially 
did not have a place to go to ask questions regarding errors in their 
paychecks, including incorrect amounts, payee names and addresses, or 
when they did not receive their paychecks. 

Although payroll distributions had improved over the summer, some 
problems remain. We observed the payroll distributions on August 8, 
2009, and August 22, 2009, and found that the contractor had made some 
improvements. For example, the contractor had established a customer 
care unit to address the youth's concerns. The contractor also modified 
the payroll distribution process and distributed checks alphabetically, 
which decreased some of the confusion over the former worksite-based 
distribution process that it had used. However, there were problems 
during these two payroll distributions with the checks having the 
incorrect amount, payee name or address, and with youths not receiving 
their checks when due. In addition, we found that there were still 
problems with long lines. At the August 22, 2009, distribution, we 
observed that youth had to wait in lines as long as 4 hours while 
standing in the rain to receive their paychecks. Detroit MWA officials 
confirmed that the amount of time youths had to stand in line to 
receive their paychecks was, on average, 3 to 4 hours. Further, we 
observed on several occasions on August 22, 2009, local police were 
called to assist with crowd control. Contractor officials told us that 
the use of a larger venue for the September 4, 2009, payroll 
distribution reduced the waiting time. 

It will be important that DELEG work with the Detroit MWA and 
contractors for the City of Detroit WIA Summer Youth Program to 
continue to address the internal control issues with youth not being 
paid on time and checks being prepared with incorrect amounts, payee 
names, and addresses, as well as to resolve past payroll issues and 
distribution challenges. 

Detroit's Process for Determining Participation in Its WIA Summer Youth 
Program Needs Improvement: 

We found weaknesses in Detroit's process for making WIA Youth summer 
program eligibility determinations and a lack of documentation 
supporting such decisions. The federal requirements for WIA eligibility 
are meeting (1) the income test (limit on family income), (2) the age 
test (from 14 to 21),[Footnote 35] and (3) having any one of six 
barriers to success.[Footnote 36] Labor authorized the states to 
delegate the definition of the sixth barrier to local agencies. 
[Footnote 37] Detroit MWA officials provided us with the City of 
Detroit's Comprehensive 5-year Local Plan (Plan) which included the 
definition for the sixth barrier. State officials told us that they had 
approved the 2008 program year plan that contained the same definition 
for the sixth barrier as in the plan currently under review as of 
September 9, 2009. The applicable section of the Plan provides the 
following definition:[Footnote 38] 

"The Detroit WDB[Footnote 39] has defined "youth residing in high 
poverty neighborhoods"[Footnote 40] as its locally developed sixth 
criterion for eligibility. A high poverty neighborhood is one in which 
30 percent[Footnote 41] or more of all households are beneath the 
poverty line as defined by the U.S. Department of Health and Human 
Services, Office of Management and Budget." 

Although this definition was used in the Plan, neither Detroit MWA 
officials nor contractor officials could explain how they used the 
sixth criterion when making eligibility determinations. Further, these 
officials provided no explanation about how staff made eligibility 
determinations using this category absent guidance on how to interpret 
this category in reviewing applications. Moreover, the local contractor 
and subcontractor, told us they did not receive any instructions from 
the Detroit MWA on required documentation for this eligibility 
category. Therefore, the basis used for determining whether an 
applicant was eligible for the program or not is unclear. 

During our fieldwork, we selected a nonprobability sample of 11 
participant files.[Footnote 42] Our review of these participant files 
revealed inadequate or nonexistent support of WIA eligibility 
determinations. One participant file's registration form did not claim 
any barrier to success. While the other 10 participant's eligibility 
determinations were based on the sixth criteria, we found that none of 
these files had documentation to support eligibility for this program. 
We discussed these issues with Detroit MWA officials and they told us 
that based on their review of the 11 files we reviewed, it would not be 
possible to determine eligibility based on the documentation in the 
files. Progress is under way by Detroit MWA to assess the process for 
determining eligibility and the documentation of eligibility 
determinations. Officials told us that they are reviewing 100 case 
files but as of September 8, 2009, this analysis had not been 
completed. We did not review the Detroit MWAs methodology for selection 
of the case files or for its review of the files. 

On September 2, 2009, DELEG officials told us they are considering the 
information that we brought to their attention over the course of our 
work regarding the Detroit WIA program's eligibility process and the 
absence of documentation to support decisions on eligibility. It will 
be important for DELEG and Detroit officials to identify program risks 
and implement the appropriate internal controls to address issues 
involving eligibility determinations, and the lack of documentation 
supporting eligibility decisions. 

State and Local Officials Are Attempting to Measure the Outcomes of the 
WIA Summer Youth Employment Activities: 

In accordance with Labor requirements, the state requires each MWA to 
track and report items such as the number of youth employed and program 
completion rates. Although the Recovery Act requires states to report 
the number of jobs created and retained through any activity supported 
by Recovery Act funds, Labor has issued guidance stating that states 
should not include WIA program participants in that number. In 
addition, the Recovery Act provided that only the measurement of work 
readiness gains is required to assess the effectiveness of summer-only 
employment for youth served with Recovery Act funds. States and local 
areas may decide the particular assessment tool to use to gauge work 
readiness gains. 

The local areas we visited used different assessment instruments to 
determine work readiness skills. Youth participating in Lansing's 
program are evaluated by their supervisors on dimensions such as 
punctuality, grooming, quality of work, operation of tools and 
equipment, and personal behavior. Youth in Detroit's program were 
evaluated on employability skills and workplace readiness. Lansing 
evaluated participants at the beginning, middle, and upon completion of 
the program. Detroit evaluates participants using an external party 
upon their completion of the program. Officials from Lansing and 
Detroit said that the youth they are serving have been positively 
affected by the program (see fig. 2). For example, local officials 
stated that some youth expressed a sense of pride when they completed 
their orientation training or when they received their first paycheck. 
Other youth were provided with skills for independent activities of 
daily living, such as how to write a check. 

Figure 2: WIA Summer Youth Participant: 

[Refer to PDF for image: photograph] 

The picture depicts a female youth assisting in food preparation at a 
Lansing, Michigan hospital. 

Source: GAO. 

[End of figure] 

Officials at both MWAs that we visited were aware of the Recovery Act's 
emphasis on "green" jobs. Detroit defined green jobs as those that 
build awareness and understanding of the natural environment and 
encourage careers in environmental sciences and industry. According to 
Detroit MWA officials, their contractor's definition of a green job is 
one that "builds awareness and understanding of the natural environment 
and encourages careers in environmental sciences and industry." For 
example, green sector jobs in Detroit are those where youth are engaged 
in education as well as hands-on experience in activities such as 
recycling, reducing waste or carbon emissions and reusing products in a 
new and creative way. MWA officials in Detroit told us that they had 
developed a task force to address this issue and planned to place 600 
youths in green jobs. As of August 31, 2009, 446 of Detroit's 6,774 WIA 
summer jobs (7 percent) were defined by city officials as "green" jobs. 
Detroit MWA officials told us they expect to meet their goal by the end 
of the program. Lansing officials told us that they had difficulty 
identifying significant numbers of green jobs suitable for youths, 
although they created 42 green jobs for youths at worksites such as the 
Lansing Board of Water and Light and the School of Agriculture at 
Michigan State University. 

Michigan Used Existing Contracting Procedures for Recovery Act WIA 
Funds: 

According to DELEG officials, existing state policies and procedures 
are intended to help safeguard the use of Recovery Act funds for the 25 
MWA WIA Youth summer programs. We selected the Detroit MWA summer youth 
contract for review because this contract was for the largest WIA 
program in the state. According to the Detroit's MWA officials, they 
follow city procurement practices and guidelines in awarding contracts, 
including those for the WIA program. In addition, officials told us 
that the Detroit MWA contract for the WIA program was competed. 
Officials explained that after selection of the winning bidder, a 
contract is drafted and reviewed by the city's purchasing, budget, 
finance, and law departments before obtaining City Council approval. 
DELEG allocated $14.5 million to the Detroit MWA for the WIA Youth 
program of which $11.4 million is from Recovery Act funds.[Footnote 43] 
According to officials, Detroit MWA awarded a cost reimbursement 
contract not to exceed $6.2 million to a contractor for its WIA summer 
youth program for the period May 1, 2009, to June 30, 2010, and 
retained $8.3 million for payroll and administrative costs.[Footnote 
44] This contract is funded by the Recovery Act and regular WIA 
funding. According to officials, the contractor issued a cost 
reimbursement subcontract not to exceed $3.7 million for program 
delivery including payroll processing and worksite development and 
monitoring from May 15, 2009, to June 30, 2010. We discussed the 
contract with Detroit MWA procurement officials who told us that the 
award process was generally consistent with that described to us. 

State Comments on This Summary: 

We provided the Governor of Michigan with a draft of this appendix, and 
staff in the Michigan Governor's office and the Michigan Economic 
Recovery Office reviewed the draft appendix and responded on September 
15, 2009. In general, they agreed with its overview of the state's 
activities in the six programs selected for analysis. Further they 
stated that they believe that the report identifies several critical 
challenges that all states, including Michigan, must address to ensure 
timely, accurate and effective implementation of the Recovery Act. They 
also stated that they remain committed to our efforts to work with 
state agencies and local recipients to ensure that all implementation 
challenges are identified and addressed. The officials also provided 
technical suggestions that we incorporated, as appropriate. 

GAO Contacts: 

Susan Ragland, (202) 512-8486 or raglands@gao.gov: 

Revae Moran, (202) 512-3863 or moranr@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Robert Owens, Assistant 
Director; Jeffrey Isaacs, analyst-in-charge; Manuel Buentello; Leland 
Cogliani; Ranya Elias; Kevin Finnerty; Henry Malone; Melanie Swift; and 
Mark Ward made major contributions to this report. 

[End of section] 

Footnotes for Appendix X: 

[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[2] Within manufacturing, the automotive industry--including automotive 
parts producers--declined by more than 42,000 jobs (28 percent) from 
July 2008 to July 2009. 

[3] The Michigan Department of the Treasury, House Fiscal Agency, and 
Senate Fiscal Agency prepare the Consensus Revenue Estimate in January 
and May of each year to help legislators prepare the state's budget. 

[4] The state is expecting just over $2 billion in state funds to be 
made available as a result of the enhanced Federal Medical Assistance 
Percentage (FMAP) (discussed in detail in GAO-09-1016); $1.3 billion 
through SFSF education stabilization funds and $290 million through 
SFSF government services funds. 

[5] The State Budget Office said it reviewed Office of Management and 
Budget (OMB) Memorandum M-09-18, Payments to Grantees for 
Administrative Costs of Recovery Act Activities (May 11, 2009) that 
provides guidance to the states regarding the use of either "estimated 
cost" or "billed cost" options for determining the amount of 
administrative costs to be recovered. Because of the narrow scope of 
administrative costs the state is pursuing, M-09-18 did not affect the 
decision to use the "billed cost" option for Recovery Office costs. 

[6] Recovery Act reporting requirements include identifying the 
entities receiving Recovery Act dollars, the amounts, which projects or 
activities are being funded, projects' completion status, and an 
estimate of the number of jobs created and the number of jobs retained 
by projects and activities. 

[7] OMB Memorandum M-09-21, Implementing Guidance for the Reports on 
Use of Funds Pursuant to the American Recovery and Reinvestment Act of 
2009 (June 22, 2009). 

[8] For the Highway Infrastructure Investment Program, DOT has 
interpreted the term obligation of funds to mean the federal 
government's contractual commitment to pay for the federal share of the 
project. This commitment occurs at the time the federal government 
signs a project agreement. 

[9] States request reimbursement from FHWA on an ongoing basis as the 
state makes payments to contractors working on approved projects. 

[10] According to officials, MDOT can debar a contractor if (1) the 
contractor has been debarred by the federal government and is on the 
debarment list posted on a federal website maintained by the General 
Services Administration [hyperlink, https://www.epls.gov] that lists 
contractors that are excluded from receiving federal contracts and 
certain subcontracts or (2) the contractor has serious performance 
issues, such as felony convictions, work performance and safety issues, 
or contract violations. 

[11] MDOT also provides project status updates to FHWA area engineers 
and conducts site reviews on an as-needed basis. 

[12] The Weatherization Assistance Program funded through annual 
appropriations is not subject to the Davis-Bacon Act. 

[13] The five types of "interested parties" are state weatherization 
agencies, local community action agencies, unions, contractors, and 
congressional offices. 

[14] CAAs are agencies that support low-income residents' efforts to 
achieve self-sufficiency primarily in the areas of housing, employment, 
education, energy, nutrition, healthcare and transportation. Limited 
purpose agencies are non-CAAs that perform weatherization for the state 
of Michigan. 

[15] This number includes units that may have been weatherized 
previously. 

[16] The only DOE weatherization projects to which Davis-Bacon applies 
are those receiving Recovery Act funding. 

[17] 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 
requirement is referred to as a carryover limitation. 

[18] In general, ESEA Title I requires states and LEAs to use federal 
funds to supplement and not supplant the funds that would, in the 
absence of federal funds, be made available from nonfederal sources. 

[19] Unlike most other states, Michigan's IDEA funds are provided to 
and managed by the state's 57 ISDs. IDEA funds provided to schools go 
through the ISDs to the LEAs and then to individual schools. Some IDEA 
funds, however, are provided directly by the ISDs to service providers 
rather than LEAs and schools. Except for ISDs in the upper portion of 
the state (the Upper Peninsula), an ISD generally corresponds to a 
county. For example, the ISD in which Detroit's LEA is located covers 
all 34 LEAs in Wayne County, Michigan and 82 public school academies. 

[20] MDE provides the Part C IDEA funds to Michigan's ISDs, which 
contract with public and private service providers such as public 
health departments, mental health agencies, and private organizations 
to provide home-based early intervention services to children with 
disabilities. Some Part C funds are provided via the ISDs to LEAs, but 
most funds are used by the ISDs to purchase services directly from 
service providers. 

[21] Michigan State Auditor General, Performance Audit of Selected 
Payment and Related Systems, Michigan Department of Education and 
Michigan Department of Information Technology, November 2008. 

[22] Michigan State Auditor General, Financial Audit Including the 
Provisions of the Single Audit Act of the Michigan Department of 
Education, October 1, 2005 though September 30, 2007, June 2008. 

[23] Independent Public Accountants: Detroit Public Schools, Single 
Audit, For the Year Ended June 30, 2008 (December 10, 2008); Detroit 
Public Schools, Single Audit Report, Fiscal Year Ended June 30, 2007 
(February 13, 2008); The School District of the City of Detroit Public 
Schools, Single Audit Report, Fiscal Year Ended June 30, 2006 (November 
30, 2006). 

[24] Detroit Public Schools, Comprehensive Annual Financial Report for 
the Fiscal Year Ended June 30, 2008, Detroit Public Schools Division of 
Financial Services, December 10, 2008. 

[25] GAO, Internal Control and Management Tool, [hyperlink, 
http://www.gao.gov/products/GAO-01-1008G] (Washington, D.C.: Aug. 1, 
2001). 

[26] H.R. Rep. No. 111-16, at 448 (2009). 

[27] Department of Labor, Training and Employment Guidance Letter No. 
14-08 (Mar. 18, 2009). 

[28] Current federal wage law specifies a minimum wage of $7.25 per 
hour. Where federal and state laws have different minimum wage rates, 
the higher rate applies. 

[29] Revised from preliminary estimate of 25,500 as of July 2009 to 
21,000 as of September 2009 based on updated operational and wage data. 

[30] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1] 
(Washington, D.C.: November 1999). 

[31] [hyperlink, http://www.gao.gov/products/GAO-01-1008G]. 

[32] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. See 
also [hyperlink, http://www.gao.gov/products/GAO-01-1008G]. 

[33] The Office of Management and Budget's Circular No. A-133 sets out 
implementing guidelines for the single audit and defines roles and 
responsibilities related to the implementation of the Single Audit Act, 
including detailed instructions to auditors on how to determine which 
federal programs are to be audited for compliance with program 
requirements in a particular year at a given grantee. 

[34] Michigan State Workforce Investment Plan Modification, 
Implementation of the American Recovery and Reinvestment Act of 2009, 
July 1, 2009 through June 30, 2010 [hyperlink, 
http://www.michigan.gov/mdcd/0,1607,7-122--217944--,00.html] (accessed 
September 15, 2009). 

[35] The Recovery Act extended eligibility to age 24. 

[36] The six barriers to success are: (1) limited English language 
proficiency, (2) school dropout, (3) foster child, homeless, or runaway 
youth, (4) single parent, pregnant, or parenting youth, (5) offender, 
or (6) is an individual (including a youth with a disability) who 
requires additional assistance to complete an education program or to 
secure and hold employment. 

[37] 29 C.F.R. § 664.210. 

[39] City of Detroit, "Revised Comprehensive Five-Year Local Plan July 
1, 2000 - June 30, 2005 with an Extension From July 1, 2005 - June 30, 
2010, Detroit Workforce Development Department [hyperlink, 
http://www.ci.detroit.mi.us/Departments/DetroitWorkforceDevelopmentDepar
 tment/CurrentRFPs/tabid/1665/] Default.aspx (accessed September 15, 
2009). 

[39] Workforce Development Board (WDB) is a policy unit in the Detroit 
Michigan Works! Agency. 

[40] Detroit MWA officials told us that they define the entire city of 
Detroit as a high poverty neighborhood. 

[41] The U.S. Census Bureau reported that the percentage of all 
households in Detroit that were beneath the poverty level in 2007 was 
estimated to exceed 30 percent. 

[42] Because our selection was not statistical, our results may not be 
projected to the population. 

[43] Of the $11.4 million of Recovery Act funding allocated to Detroit 
MWA, Detroit MWA contracted with a contractor for $3.1 million and 
retained $8.3 million for participant payroll and administration. 

[44] According to the Detroit officials, the prime contractor was 
awarded the WIA summer youth program contract under the City's 
procurement process on May 4, 2009. The contract with the prime 
contractor was executed on July 8, 2009, following approval by city 
council. 

[End of section] 

Appendix XI: Mississippi: 

Overview: 

The following summarizes GAO's work on the third of its bimonthly 
reviews of the American Recovery and Reinvestment Act (Recovery Act) 
[Footnote 1] spending in Mississippi. The full report on all of our 
work, which covers 16 states and the District of Columbia, is available 
at [hyperlink, http://www.gao.gov/recovery/]. 

Our work in Mississippi focused on specific programs funded under the 
Recovery Act and included reviewing three Recovery Act programs in 
detail, collecting summary data on two education programs, and updating 
the state's fiscal condition since our July report. The programs we 
reviewed in detail were the state's highway program, the Weatherization 
Assistance Program, and Recovery Act funds being provided under Title 
I, Part A of the Elementary and Secondary Education Act (ESEA) of 1965. 
We selected the highway program because the state's full allocation of 
Recovery Act funds was available for use and the state had work 
underway, the weatherization program because the Recovery Act 
significantly increased the program's funding, and the ESEA Title I 
program because the state was expected to make the first release of 
Recovery Act funds to schools during the time frame of our review. In 
addition to these programs, we also updated funding information on the 
U.S. Department of Education's (Education) State Fiscal Stabilization 
Fund (SFSF) and the Individuals with Disabilities Education Act (IDEA). 
Consistent with the purposes of the Recovery Act, funds from the 
programs we reviewed are being directed to help Mississippi and local 
governments stabilize their budgets and expand existing programs-- 
thereby providing needed services. We focused on how funds were being 
used; how safeguards were being implemented, including those related to 
procurement of goods and services; and how results were being assessed. 
The funds include the following: 

Highway Infrastructure Investment: 

* The U.S. Department of Transportation's Federal Highway 
Administration (FHWA) apportioned $355 million in Recovery Act funds to 
Mississippi. 

* As of September 1, 2009, the federal government has obligated $289 
million to Mississippi and $21 million has been reimbursed by the 
federal government.[Footnote 2] 

* Almost 76 percent of Recovery Act highway obligations for Mississippi 
have been for pavement projects, including roadway repaving, widening, 
and new construction projects. Specifically, $154 million of the $289 
million obligated for Mississippi's use as of September 1, 2009, is 
being used for roadway repaving projects, including $4 million for 
approximately 18 miles of repaving at a site we visited in the south 
central region of the state. 

Weatherization Assistance Program: 

* The Department of Energy (DOE) allocated $49.4 million in Recovery 
Act funding to Mississippi for the Weatherization Assistance Program. 
As of September 1, 2009, DOE had provided the Mississippi Department of 
Human Services (MDHS), the prime recipient of the funds, with $24.7 
million. 

* MDHS is contracting with Mississippi's 10 community action agencies 
to perform weatherization work. These agencies are responsible for 
purchasing materials and awarding labor contracts to make homes more 
energy efficient. As of July 31, 2009, three community action agencies 
that we visited had completed the weatherization of 134 homes. 

* As of September 1, MDHS had disbursed $3.37 million to community 
action agencies for home weatherization. MDHS plans to provide 
community action agencies with a total of about $35.5 million from the 
state's allocation of $49.4 million. With this the agencies are 
expected to weatherize a total of at least 5,468 homes. 

* MDHS expects to use the remaining $13.9 million, or 28 percent, for 
administrative costs, technical and training assistance, and audit fees 
for community action agencies' year-end audits by private accounting 
firms. 

ESEA Title I, Part A Funds: 

* Education has awarded Mississippi $132.9 million in Recovery Act 
funds under ESEA Title I, Part A. 

* As of September 8, Mississippi had released no Recovery Act ESEA 
Title I, Part A funds to local education agencies (LEA). Each agency is 
required to submit an application to the state, outlining its planned 
uses of these funds. According to MDE, it will review applications 
through the end of September. 

* Once funds are released, the agencies plan to use them for technology 
upgrades and supplemental reading and math programs. 

Updated Funding Information on Other Education Programs: 

* As of September 4, 2009, the Governor of Mississippi had not released 
any of the $262.7 million that Education allocated under the SFSF for 
education stabilization. The Governor plans to release the education 
stabilization funds after the state has resubmitted its application for 
the funds to Education and after reviewing applications submitted by 
LEAs that detail each agency's planned use of the funds. 

* Education has also awarded Mississippi about $127 million in Recovery 
Act funds under IDEA, Parts B and C, as of September 4, 2009. None of 
these funds have been released to LEAs. 

Mississippi Continues to Face Fiscal Challenges: 

In the face of declining tax revenues, Mississippi continues to 
experience significant fiscal challenges. Revenue collections for July 
and August 2009, the first 2 months of fiscal year 2010, were $26.2 
million and $5.5 million below expectations, respectively. As shown in 
figure 1, total tax collections through fiscal year 2010 are down $31.7 
million, which is nearly 6 percent below projections. The State Fiscal 
Officer estimates that the budget shortfall for the fiscal year could 
be more than $800 million, but is more likely to range from $175 
million to $350 million. The major causes for decreasing tax revenue 
are declines in sales taxes, individual income taxes, and other tax 
commissions. 

On September 3, the Governor ordered reductions in state agencies' 
budgets totaling $171.9 million. The Governor took this action after 
reviewing August tax revenues and determining that tax revenue 
collections did not meet estimates for the first 2 months of fiscal 
year 2010. The budget cuts reduce nearly all agencies' budgets to at 
least 5 percent below fiscal year 2009 appropriation levels. According 
to the Governor, he is statutorily prohibited from cutting an agency by 
more than 5 percent until he has cut spending for all agencies by 5 
percent. The Governor exempted only a few agencies and programs, such 
as the Department of Corrections and Medicaid, from the budget 
reductions. 

The budget cuts reduce fiscal year 2010 funding for education agencies 
by approximately $158.3 million while reducing funding for noneducation 
agencies by about $13.7 million. According to the Governor, because 
education spending makes up more than 60 percent of the state budget, 
Mississippi cannot control spending without addressing the largest line 
item in the state budget. 

Figure 1: Mississippi July/August 2009 Tax Revenue: 

[Refer to PDF for image: horizontal bar graph] 

Figures in millions of dollars above or below the estimate: 

Sales tax: -$13.2; 
Individual income: -$8.5; 
Corporate income: $1.3; 
Use tax: -$2.9; 
Insurance premium: $0.9; 
Tobacco, ABC, and beer: $-2.0; 
Gaming: $0.9; 
Other tax commission: -$8.9; 
Other than tax commission: $0.7; 
All other transfers: $0.0; 
Total collections: -$31.7. 

Source: Mississippi Legislative Budget Office. 

[End of figure] 

The Legislature Took Various Actions to Stabilize the Fiscal Year 2010 
Budget: 

The use of Recovery Act funds must comply with specific program 
requirements but also, in some cases, enables states to free-up state 
funds to address their projected budget shortfalls. Mississippi was 
able to use Recovery Act funds in this manner. On June 30, 2009, the 
legislature approved the fiscal year 2010 Mississippi state budget 
using more than $519 million of Recovery Act funds to bring it into 
balance. The legislature appropriated $111.5 million and $19.6 million 
of education stabilization funds to K-12 education and institutions of 
higher education (IHE), respectively. This amount, plus $74.6 million 
of Recovery Act funds appropriated in fiscal year 2009 that will carry 
forward into fiscal year 2010, freed up $205.7 million in General Funds 
that had been planned for K-12 education, IHEs, and community colleges. 
In addition, a provision of the Recovery Act that increased the Federal 
Medical Assistance Percentage[Footnote 3] requirement made another $313 
million available by lowering the portion of Medicaid costs that 
Mississippi must pay, thereby freeing up a like amount of state funds. 
According to a state budget official, these state funds were redirected 
to other programs. 

To further balance the budget, the legislature transferred $65.2 
million of "Rainy Day Funds"[Footnote 4] to the Budget Contingency Fund 
[Footnote 5] to help cover projected shortfalls that appear likely to 
occur in the General Fund. Officials explained that the legislature 
also authorized an assessment on hospitals, amounting to $60 million, 
to offset the costs of Medicaid. In addition, the legislature increased 
General Fund revenues by raising the tax on each pack of cigarettes, 
which is expected to raise $106.1 million in additional tax revenue. 

Mississippi Continues to Develop Recovery Act Highway Projects, but Is 
Challenged by Evolving Reporting Requirements and Tight Time Frames: 

Figure 4: The Recovery Act provides funding to states for restoration, 
repair, and construction of highways and other activities allowed under 
the 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 the states through federal-aid highway program 
mechanisms, and states must follow existing program requirements, which 
include ensuring the project meets all environmental requirements 
associated with the National Environmental Policy Act, paying a 
prevailing wage in accordance with federal Davis-Bacon requirements, 
complying with goals to ensure disadvantaged businesses are not 
discriminated against in the awarding of construction contracts, and 
using American-made iron and steel in accordance with Buy America 
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. 

As we previously reported, $355 million was apportioned to Mississippi 
in March 2009 for highway infrastructure and other eligible projects. 
As of September 1, 2009, FHWA had obligated $289 million for 
Mississippi highway projects and had reimbursed the state $21 million. 

A little more than 75 percent of all Recovery Act highway obligations 
for Mississippi have been for pavement projects, including roadway 
repaving, widening, and new construction projects. Specifically, $154 
million of the $289 million obligated for Mississippi's use as of 
September 1, 2009, is being used for roadway repaving projects, 
including $4 million for approximately 18 miles of repaving at a site 
we visited in the south central region of the state. Figure 2 shows the 
types of road and bridge improvements for which funds have been 
obligated. 

Figure 2: Highway Obligations for Mississippi by Project Improvement 
Type as of September 1, 2009: 

[Refer to PDF for image: pie-chart] 

Pavement projects total (75 percent, $218.4 million): Pavement 
improvement ($154.2 million): 53%; Pavement widening ($41.7 million): 
14%; New road construction ($22.5 million): 8%. 

Bridge projects total (17 percent, $49.1 million): Bridge improvement 
($25.3 million): 9%; Bridge replacement ($23.8 million): 8%. 

Other (8 percent, $21.9 million): 
Other ($21.9 million): 8%. 

Source: GAO analysis of FHWA data. 

Note: "Other" includes safety projects, such as improving safety at 
railroad grade crossings, and transportation enhancement projects, such 
as pedestrian and bicycle facilities, engineering, and right-of-way 
purchases. 

[End of figure] 

Two Agencies Administer Mississippi Transportation Projects: 

As we reported in July, Mississippi has two agencies administering 
Recovery Act funding for transportation projects. These two agencies 
are MDOT and the Office of State Aid Road Construction (OSARC). MDOT is 
responsible for operating and maintaining 14,300 miles of roadway 
statewide, including interstate highways, U.S. highways, and state 
routes. Furthermore, MDOT oversees all road construction projects that 
fall under the jurisdiction of any of the state's four metropolitan 
planning organizations (MPO), which select and approve transportation 
projects for cities and counties known as local public agencies (LPA). 
[Footnote 6] MDOT also oversees projects carried out by LPAs that are 
not part of MPOs. OSARC assists Mississippi's 82 counties in the 
construction and maintenance of 19,019 miles of secondary, nonstate 
roads, and bridges. The Governor appoints the State Aid Engineer; in 
contrast, an elected commission, independent of the Governor, controls 
MDOT. Since FHWA only recognizes one transportation agency in each 
state, all federal funding must flow from FHWA through MDOT. Although 
OSARC determines how Recovery Act funds will be allocated to 
Mississippi counties for the improvement of eligible county roads and 
then administers the funding, the agency must seek MDOT's approval for 
each of the projects. After awarding contracts for federal projects, 
OSARC pays all contractor bills and then submits a request for 
reimbursement to MDOT. 

The Majority of MDOT and OSARC Recovery Act Projects Are Under Way: 

Of the approximately $355 million in Recovery Act funds that FHWA 
allocated to Mississippi, MDOT is responsible for administering $343 
million and OSARC has responsibility for $11.7 million. As of September 
1, FHWA had obligated approximately $279 million of MDOT's $343 
million, and MDOT had awarded contracts for 45 projects.[Footnote 7] By 
that same date, FHWA had obligated approximately $10.1 million of 
OSARC's $11.7 million and OSARC had awarded contracts for 10 projects. 

Both MDOT and OSARC have awarded contracts for less than estimated. 
MDOT awarded Recovery Act contracts for nearly 12 percent less than the 
state's estimate. Officials mentioned one project in Jackson County 
where increased competition resulted in the winning bid coming in 25 
percent under the state estimate, something the officials had not 
witnessed in years. Of the 45 projects, for which MDOT has awarded 
contracts, contractors have begun construction on 39 and have completed 
6. Similarly, OSARC awarded projects for nearly 15 percent less than 
originally estimated. Of the 10 projects for which OSARC has awarded 
contracts, 9 are under construction and 1 has been completed. 

We examined three Recovery Act contracts awarded prior to September 1. 
[Footnote 8] We reviewed the contracts and discussed them with MDOT and 
OSARC officials, who told us that the contracts were awarded to the 
lowest responsive bidder.[Footnote 9] Furthermore, according to MDOT 
and OSARC officials, each MDOT and OSARC Recovery Act request for 
proposal and contract includes the act's reporting requirements as well 
as the U.S. Department of Labor's (Labor) Davis-Bacon requirements. 

MDOT Implements an Internal Obligation Deadline to Prevent the State 
from Losing Funds: 

Included in the $343 million of Recovery Act funds that MDOT 
administers is $94.7 million that is set aside for LPA projects. 
Although the Recovery Act requires that these funds be obligated within 
1 year of apportionment, MDOT chose to implement an internal deadline 
of September 3, 2009. MDOT established this deadline to encourage the 
LPAs to take action in advance of the final deadline, which reduces the 
risk that the state will lose any of its Recovery Act funding. 

As of September 1, FHWA had obligated $1.6 million of the $94.7 million 
set aside for LPA projects. In late August, the MDOT engineer 
responsible for LPAs told us that MDOT intended to ask LPAs to develop 
alternate projects if, by the September 3 deadline, funds for their 
projects were not close to being obligated or if the projects were 
facing substantial challenges, such as acquiring right-of-way. However, 
despite the fact that only 1 LPA project had funds obligated as of 
September 9, 6 days after the deadline, the engineer said that MDOT had 
reviewed the status of the LPA Recovery Act projects and determined 
that the projects were progressing well. 

LPAs Experience Challenges in Developing Projects: 

In response to a 2006 national FHWA review that examined state 
oversight of locally administered projects, FHWA-Mississippi Division 
directed MDOT to enhance its oversight of LPA projects and update its 
Project Development Manual for LPAs to document the new oversight 
procedures. The updates include additional steps that LPAs must follow 
to activate a project. For example, MDOT previously allowed LPAs to 
certify that a project followed MDOT's project activation protocol. 
LPAs now submit a written request to MDOT for project activation, along 
with documentation detailing the purpose and need of the proposed 
improvements, and LPA board meeting minutes. MDOT made the changes in 
the project activation process because the department is ultimately 
responsible for ensuring that the state's LPAs are in compliance with 
applicable state and federal requirements. However, as a result of 
these changes, LPAs undergo a much longer and more demanding protocol 
to activate their projects. This caused some MPO officials, who select 
and approve projects for the LPAs under their jurisdiction, to question 
whether the September 3, 2009, obligation deadline was achievable. 

Furthermore, officials at one MPO explained that MDOT's new project 
activation process and the September 3 obligation deadline have 
affected the types of projects that are being approved in Mississippi. 
Officials from the Central Mississippi Planning and Development 
District (CMPDD) stated that most of its LPAs would have preferred to 
develop other projects with Recovery Act funds, such as new 
construction projects. But the officials told us that CMPDD ended up 
selecting more modest repaving and signal projects because of tight 
deadlines. According to those officials, over 90 percent of the 
Recovery Act projects that their MPO approved were repaving projects. 

In contrast, officials from the Gulf Regional Planning Commission 
(GRPC) told us that they chose to focus on safety improvement projects 
such as pedestrian walkways, intersection improvements, and bridge 
replacements rather than street-repaving projects because they felt 
these projects better reflected the goals of the Recovery Act. But, 
according to the officials, because projects were planned quickly to 
meet tight time frames, some projects have run into unanticipated 
issues that in some cases have caused costs to exceed the LPA 
engineers' estimates. For instance, one locality had to deal with 
unanticipated drainage problems before it could begin constructing a 
planned sidewalk. According to GRPC officials, some LPAs had to come 
back to GRPC to ask for additional funding. GRPC officials initially 
told LPAs that if their engineers' estimates were low, the LPA would 
have to pay the excess costs. However, GRPC officials stated that 
because some localities did not have funds to cover the additional 
costs, GRPC officials amended the transportation improvement program 
[Footnote 10] and added funds from other sources to fully fund the 
projects. 

Finally, MDOT and MPO officials informed us that some LPAs' limited 
project administration experience might affect their ability to handle 
Recovery Act projects. According to CMPDD officials, two member LPAs 
that were behind in the planning process have never managed a 
transportation project. Furthermore, MDOT's State LPA Engineer also 
stated that some LPAs were dealing with mayoral changes, and that some 
new mayors simply did not know how to move projects forward. Officials 
from the GRPC also told us that one of its member localities did not 
receive funding because the town was in the midst of a mayoral change 
and did not have any staff to develop a suitable project. 

Reporting Requirements Present Challenges for FHWA, MDOT, and OSARC: 

Officials from FHWA-Mississippi Division said that their counterparts 
at FHWA headquarters proactively developed a two-part system to collect 
and analyze Recovery Act project data on a monthly basis. This two-part 
system was made-up of prime recipient and subrecipient hard copy 
reporting forms as well as a computerized data base system, known as 
the Recovery Act Data System (RADS). Officials from FHWA-Mississippi 
Division told us that MDOT is experiencing challenges in meeting the 
reporting requirements set out in Section 1512 of the Recovery Act 
[Footnote 11] because FHWA developed RADS and the associated hard copy 
reporting forms before June 22, 2009, when the Office of Management and 
Budget (OMB) released Section 1512 reporting guidance. For example, 
FHWA-Mississippi Division officials cited one challenge as being that 
the original versions of RADS and prime recipient and subrecipient 
reporting forms were not formatted to collect all of the Section 1512 
reporting elements. Therefore, FHWA-Mississippi Division officials 
explained that their counterparts at headquarters have been reworking 
RADS and the hard copy reporting forms so that each is formatted to 
collect all required information. FHWA wanted to complete the task by 
August 31, 2009, so that it could conduct a test run during the 
September monthly reporting cycle. The test run would help ensure that 
RADS is ready before the states must submit their reporting information 
for OMB's first quarterly report, which is set for release in October. 
However, as of September 9, an FHWA-Mississippi Division official told 
us that FHWA had not completed its work. 

Officials from FHWA-Mississippi Division also explained that the 
changes being made to RADS and the hard copy reporting forms may result 
in prime recipients and subrecipients having to collect additional 
information. The officials told us that prime recipients and 
subrecipients may not have collected all information needed to comply 
with Section 1512 reporting requirements because the original reporting 
forms did not require the information. According to the officials, both 
groups may find that they must retroactively collect data elements that 
were not collected prior to the changes in FHWA's data collection 
system. 

For MDOT and OSARC officials tasked with compiling prime recipient and 
subrecipient Section 1512 reporting elements, the implementation of an 
evolving FHWA reporting system has constrained limited resources while 
causing confusion. MDOT and OSARC officials are most concerned about an 
ever-increasing workload as they are now required to carry out their 
normal work duties as well as complete the monthly FHWA reporting 
requirements. For example, MDOT officials explained that the MDOT 
Contract Administration Department employs about 13 to 14 staff members 
who typically oversee construction contracts with a total value of $300 
to $400 million annually. MDOT officials stated that with the enactment 
of the Recovery Act, the department now has an additional $355 million 
worth of construction contracts to monitor, and the added reporting 
requirements that come with the state's acceptance of this money. In 
addition, MDOT cited another challenge in that it only has 10 calendar 
days, from the 11th through the 20th of each month, to verify the 
accuracy of the reporting elements provided to it from its own 
subrecipients as well as the data provided by OSARC. MDOT officials 
responsible for verifying these data said that 10 calendar days often 
only gives them enough time to identify very noticeable irregularities 
in the data, such as data fields that have been left completely blank 
or reported numbers that do not make sense for the element being 
reported. 

Our Spot Checks of Three Construction Sites Found That Internal 
Controls Were Being Implemented: 

Given that Recovery Act funds are to be distributed quickly, effective 
internal controls over the use of funds are critical to help ensure 
effective and efficient use of resources, compliance with laws and 
regulations, and accountability over Recovery Act programs. Internal 
controls include management and program policies, procedures, and 
guidance that help ensure effective and efficient use of resources; 
compliance with laws and regulations; prevention and detection of 
fraud, waste, and abuse; and the reliability of financial reporting. 
During visits to three projects being funded under the Recovery Act, we 
examined some of the internal controls that MDOT and OSARC have 
adopted.[Footnote 12] 

On Tuesday, August 11 and Wednesday, August 12, 2009, we conducted 
three site visits at one MDOT and two OSARC Recovery Act construction 
projects. Each of these site visits was conducted in association with 
the FHWA-Mississippi Division; MDOT and OSARC management were not aware 
that we planned to visit.[Footnote 13] The two OSARC site visits were 
bridge reconstruction projects located in the northwest region of the 
state, whereas the MDOT site visit was a repaving project located in 
the south central region of the state.[Footnote 14] In table 1, the 
findings of these site visits are summarized. 

Table 1: Site Visit Findings with Regard to Certain MDOT and OSARC 
Internal Controls: 

Site visited: OSARC #1; 
Was work being conducted which involved a pay item?: Yes; Was a 
technician on-site?: Yes; 
Was the daily diary/inspection report completed?: Yes; Were the Davis-
Bacon questionnaires completed?: Yes. 

Site visited: OSARC #2; 
Was work being conducted which involved a pay item?: No; Was a 
technician on-site?: Yes; 
Was the daily diary/inspection report completed?: Yes; Were the Davis-
Bacon questionnaires completed?: Yes. 

Site visited: MDOT; 
Was work being conducted which involved a pay item?: Yes; Was a 
technician on-site?: Yes; 
Was the daily diary/inspection report completed?: Yes; Were the Davis-
Bacon questionnaires completed?: Yes. 

Source: GAO analysis. 

[End of table] 

During each of the three site visits we conducted, MDOT and OSARC 
officials were following procedures at the required level or above. 
According to MDOT and OSARC officials, both MDOT and OSARC require that 
a technician be on-site whenever work is being conducted that involves 
a contract pay item.[Footnote 15] Furthermore, MDOT and OSARC officials 
stated that they require that the technician be certified in the line 
of work involving that particular pay item. The contractor at the first 
OSARC site explained to us that he was scheduled to pour concrete, and 
the technician at that site was a certified concrete technician. At the 
MDOT site, the division assistant construction engineer told us he was 
there to fill the technician requirement by checking the density of the 
asphalt being poured. However, at the second OSARC site, a technician 
was on-site even though he specifically told us that no pay item work 
was being completed. 

Further, we verified that the MDOT and OSARC on-site technicians were 
either in the process of completing or had completed the daily diary, 
which is an MDOT and OSARC internal control requirement. The daily 
diary includes information such as type(s) of work performed, location 
of work, daily quantities of pay items, major pieces of equipment 
located on-site, contractor's labor force, specific instructions given 
to the contractor's foreman, and visitors to the project site. Each 
technician at the two OSARC projects was able to verify that they were 
required to complete a daily diary and each technician submitted a 
completed daily diary to us for the day that the site visit was 
conducted. At the MDOT site, we spoke with an engineer, who also 
confirmed the required completion of a daily diary, and we reviewed the 
form for the day that we visited. 

We also asked the on-site technicians or, in the case of the MDOT 
project, an engineer, for documentation showing that required Davis- 
Bacon Labor questionnaires were being completed. These questionnaires 
ask contractor employees to provide such information as their job 
classification, their hourly pay rate, whether they received overtime 
pay for time worked in excess of 40 hours during a work week, as well 
as other information pertaining to whether they had filed a complaint 
for being underpaid. MDOT officials stated that they require their 
inspectors to complete at least one questionnaire every 2 weeks until 
all contractor and subcontractor employees have been interviewed or 
construction at the site is finished, while OSARC requires that its 
inspectors complete at least one questionnaire every month until all 
contractor and subcontractor employees have been interviewed or 
construction at the site is finished. Both OSARC technicians and the 
MDOT engineer were able to provide us with copies of questionnaires 
they had recently completed. From the provided questionnaires, we were 
able to verify that MDOT officials conducted interviews, at the site we 
visited, every two weeks during June, as required. Also, for the OSARC 
sites we visited, documentation showed that during the months of July 
and August, officials conducted the interviews once per month as 
required. 

Weatherization Assistance Program Providing Assistance to Low-Income 
Families: 

The Recovery Act appropriated $5 billion over a 3-year period for the 
Weatherization Assistance Program, which the U.S. Department of Energy 
(DOE) administers through each of the states, the District of Columbia, 
and seven territories and Indian tribes. The program 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, or air conditioning equipment. Over the past 32 
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. 

As of September 14, 2009, DOE had approved all but two of the 
weatherization plans of the states, the District of Columbia, the 
territories, and Indian tribes--including all 16 states and the 
District of Columbia in our review. DOE has provided to the states $2.3 
billion of the $5 billion in weatherization funding under the Recovery 
Act. Use of the Recovery Act weatherization funds is subject to Section 
1606 of the act, which requires all laborers and mechanics employed by 
contractors and subcontractors on Recovery Act projects to be paid at 
least the prevailing wage, including fringe benefits, as determined 
under the Davis Bacon Act.[Footnote 16] Because the Davis-Bacon Act had 
not previously applied to weatherization, Labor had not established a 
prevailing wage rate for weatherization work. In July 2009, DOE and 
Labor issued a joint memorandum to Weatherization Assistance Program 
grantees authorizing them to begin weatherizing homes using Recovery 
Act funds, provided they pay construction workers at least Labor's wage 
rates for residential construction, or an appropriate alternative 
category, and compensate workers for any differences if Labor 
establishes a higher local prevailing wage rate for weatherization 
activities. Labor then surveyed five types of "interested parties" 
about labor rates for weatherization work.[Footnote 17] The department 
completed establishing prevailing wage rates in all of the 50 states 
and the District of Columbia by September 3, 2009. 

Mississippi Receives Large Increase in Weatherization Funding: 

DOE allocated $49.4 million in Recovery Act funding to Mississippi for 
the Weatherization Assistance Program. This represents a large increase 
over prior years when DOE's allocation to Mississippi typically ranged 
from $1.5 million to $2 million. MDHS, the state agency responsible for 
administering the Weatherization Assistance Program, contracts with 10 
community action agencies across the state to provide weatherization 
services to households at or below 200 percent of the poverty 
level.[Footnote 18] MDHS is giving priority to income-eligible 
households with elderly members, disabled individuals, or young 
children by allocating 90 percent of its Recovery Act weatherization 
funds to these groups. The department intends to use the remaining 10 
percent of the Recovery Act weatherization funds for income-eligible 
customers with high levels of energy usage. 

To receive weatherization funds from the Recovery Act, DOE required 
each state to submit a preliminary plan laying out how weatherization 
funds would be spent. MDHS submitted this plan on March 18, 2009, and 
on April 3, 2009, DOE released a 10 percent allocation ($4.9 million) 
to cover administrative costs, such as hiring and training new staff. 
On May 11, 2009, MDHS submitted a comprehensive plan and certification 
to DOE. This was followed by DOE's release of an additional 40 percent 
of allocated funds, or $19.7 million. With this release, MDHS has 
received 50 percent of its total allocation, or $24.7 million. DOE 
expects to make the remaining 50 percent of the Recovery Act 
weatherization funds available when the current award has been 
successfully expended. As of September 1, 2009, MDHS had disbursed 
$3.37 million to the community action agencies. 

Of the total $49.4 million in Recovery Act weatherization funds that 
MDHS is to receive, $35.5 million will be allocated to community action 
agencies that purchase materials and contract for weatherization 
services. MDHS expects to use the remaining $13.9 million, or 28 
percent, for administrative costs, technical and training assistance, 
and audit fees for community action agencies' year-end audits by 
private accounting firms. According to information provided by MDHS, of 
the $13.9 million, the department will expend approximately $8.6 
million for training and technical assistance; $4.9 million, shared 
equally by MDHS and the community action agencies, for administrative 
costs; and $255,000 for the audits performed by the accounting firms. 

The Recovery Act has allowed states to increase the amount of funds 
that may be used to weatherize a home. Formerly, DOE allowed $2,500 to 
weatherize a home, but the Recovery Act increased this to a maximum of 
$6,500. MDHS has directed community action agencies to spend no more 
than $4,500 of that amount to purchase labor and materials for each 
home. The remaining $2,000 per home may be spent on overhead costs, 
such as program staff salaries, travel, supplies, rent, and utilities. 
[Footnote 19] 

MDHS determined that it can weatherize a total of 5,468 homes with 
Recovery Act funds ($35.5 million allocated to community action 
agencies divided by $6,500). An agency official stated that the 5,468 
homes are a minimum goal and are based on projected costs per home. 
Should weatherization cost per home be less than $6,500, the agency 
official told us that additional homes will be weatherized. 

MDHS employed two formulas to determine the amount of funds that should 
be allocated to each agency and the number of homes each community 
action agency could need to weatherize. First, to determine how much 
funding should be allocated to each community action agency, MDHS 
multiplied the total programmatic funds ($35.5 million) by the 
percentage of the state's impoverished population living within the 
area. MDHS then determined the number of homes within each community 
action agency's coverage area that could be weatherized by dividing 
each agency's allocation of funds by the Recovery Act allowance per 
home ($6,500). Table 2 shows the allocation of weatherization funds by 
community action agency. 

Table 2: Allocation of Weatherization Funds and Estimated Number of 
Homes to Be Weatherized, by Community Action Agency: 

Community action agency: Bolivar County; Allocation[A]: $1,524,867; 
Estimated number of homes to be weatherized: 235. 

Community action agency: Central Mississippi, Inc.; Allocation[A]: 
$2,417,038; 
Estimated number of homes to be weatherized: 372. 

Community action agency: Lift, Inc.; 
Allocation[A]: $2,601,871; 
Estimated number of homes to be weatherized: 401. 

Community action agency: Multi-County; 
Allocation[A]: $3,255,893; 
Estimated number of homes to be weatherized: 501. 

Community action agency: Northeast; 
Allocation[A]: $1,613,729; 
Estimated number of homes to be weatherized: 248. 

Community action agency: Pearl River Valley Opportunity; Allocation[A]: 
$7,663,433; 
Estimated number of homes to be weatherized: 1,179. 

Community action agency: Prairie Opportunity; Allocation[A]: 
$2,996,417; 
Estimated number of homes to be weatherized: 462. 

Community action agency: South Central; Allocation[A]: $4,837,631; 
Estimated number of homes to be weatherized: 744. 

Community action agency: Southwest Mississippi; Allocation[A]: 
$3,298,546; 
Estimated number of homes to be weatherized: 507. 

Community action agency: Warren Washington Issaquena Sharkey; 
Allocation[A]: $5,324,593; 
Estimated number of homes to be weatherized: 819. 

Community action agency: Total; 
Allocation[A]: $35,534,018; 
Estimated number of homes to be weatherized: 5,468. 

Source: Mississippi Department of Human Services/Division of Community 
Services. 

Note: These figures are through March 12, 2012. 

[A] This column refers to the programmatic allocation for each 
community action agency, as opposed to the total allocation, which 
includes funds for equipment, audit, and technical and training 
assistance. 

[End of table] 

According to MDHS, a community action agency may weatherize a home if 
it is occupied by a family unit that is qualified to participate in the 
Weatherization Assistance Program.[Footnote 20] The local community 
action agency must ensure eligibility of the family unit by verifying, 
among other things, household income level, Social Security 
information, and household energy expenses. Community action agency 
personnel then perform a pre-weatherization audit to determine the 
amount of weatherization that the home should receive. MDHS has 
directed that improvements be made in the following order, with the 
first three typically installed as a package. The remaining 
improvements are then made (also in order) if needed and if funding is 
available. 

* Air sealing: 

* Attic insulation: 

* Dense-pack sidewalls: 

* Floor insulation: 

* Sealing and insulation of ducts: 

* Smart thermostat: 

* Compact fluorescent lamps: 

* Replacing of refrigerator: 

In addition, the following low-cost improvements may be made where 
applicable: 

* Weather stripping, caulking, glass patching: 

* Water heater tank wrap: 

* Pipe insulation: 

* Installation of faucet aerators: 

* Installation of low-flow showerheads: 

* Installation of furnace filter: 

* Reglazing of windows (as needed): 

* Installation of carbon monoxide detectors, smoke alarms, and fire 
extinguishers: 

GAO Visited Three Community Action Agencies: 

We visited three community action agencies in August 2009 to collect 
information on weatherization contracts, including data on contractor 
certifications, the costs incurred to weatherize a home, and how 
community action agencies plan to measure program performance. We also 
gathered information from the three agencies regarding compliance with 
the Davis-Bacon Act, job creation, reporting requirements, and 
oversight procedures. 

We chose to visit the Multi-County Community Service Agency (Multi- 
County), the South Central Community Action Agency (South Central), and 
the Warren Washington Issaquena Sharkey Community Action Agency 
(WWISCAA). We visited Multi-County because it had extensive experience 
weatherizing homes, South Central because it had no previous experience 
weatherizing homes, and WWISCAA because it received the second largest 
allocation of funding, $5.78 million. 

Agencies Have Awarded Contracts and Homes Have Been Weatherized: 

An official at one of the community action agencies told us that 
weatherization work on homes began in June 2009. Further, the official 
explained that the agency had to hire and train staff and purchase 
equipment before the work could begin. As of July 31, 2009, Multi- 
County had completed 31 homes; South Central had completed 47; and 
WWISCAA had completed 56 using Recovery Act funds. 

To identify contractors to perform weatherization work, all of the 
community action agencies we visited told us that they advertised 
opportunities to bid for contracts through local media sources, the 
Mississippi Department of Employment Security, and Mississippi job 
centers. According to agency officials at the sites we visited, the 
agencies selected contractors through a competitive bid process and 
awarded contracts for labor only. The community action agencies 
purchase materials that meet DOE standards for weatherization and 
provide them to the contractors as needed.[Footnote 21] Agency 
officials also told us that they procure materials competitively by 
obtaining prices on a list of materials from vendors and then selecting 
the lowest-cost materials. 

DOE and the State of Mississippi both impose requirements on 
contractors selected to weatherize homes. DOE requires the contractors 
to purchase liability insurance and it strongly recommends that the 
contractors also obtain special pollution insurance. (All three 
community action agencies told us that they require both general 
liability and the special pollution insurance.) In addition, MDHS 
requires that contractors carry workers' compensation insurance and 
obtain adequate bonding. The state also requires that all contractors 
and laborers complete a minimum of 80 hours of annual training. 
Training includes but is not limited to classes in gas leak detection, 
DOE lead safe work practices, DOE energy-related mold and moisture 
practices, and whole-house weatherization practices for both site-built 
homes and mobile homes. 

The average cost to weatherize a home using Recovery Act funds varied 
among the three agencies, with costs ranging from $3,000 to $4,500 per 
home.[Footnote 22] The differences in weatherization costs result from 
differences in calculating contractor labor costs, the amount of 
weatherization work performed, and, thus, the amount of materials used. 
One agency estimates labor using a fixed labor cost of $2,100 per 
house, a figure it arrived at when the labor rate for all bidders was 
at or near $87.50 per hour and the agency estimated that each home 
would require 24 hours of weatherization work.[Footnote 23] After 
establishing the labor rate competitively, this community action agency 
awards contracts to qualified contractors based on their availability. 
The other two agencies base labor rates on material costs, with one 
agency pricing labor at 125 percent of materials and another agency 
pricing labor at 100 or 110 percent of materials, depending on the 
distance the contractor has to travel to the work site. Officials at 
each of the latter two agencies told us that the contractor for each 
house is selected competitively based on the number of hours bid to 
complete the work, but that the labor rates are a set percentage of 
material costs. 

The effect of weatherization on individual homes, and therefore regions 
and the state as a whole, will take time to realize. MDHS requires the 
community action agencies to measure program outcomes by collecting 
residents' utility bills for the 12 months before a home is weatherized 
and for 12 months afterwards. By comparing pre-and postweatherization 
utility bills, the agencies will determine the savings resulting from 
weatherization. MDHS has a goal of reducing energy usage by 17,000 MBtu 
[Footnote 24] across the 5,468 homes it plans to weatherize. 

Davis-Bacon Not a Concern for Community Action Agencies: 

The Davis-Bacon Act requires that contractors and subcontractors pay 
prevailing wage rates to laborers who are employed on construction 
projects that receive federal assistance. The Weatherization Assistance 
Program has not been previously subject to Davis Bacon wage 
requirements. However, the Recovery Act requires all laborers and 
mechanics employed by contractors and subcontractors on projects funded 
directly by or assisted in whole or in part by and through the federal 
government with Recovery Act funds be paid wages at rates that are not 
less than those paid on local projects of a similar character as 
determined by the Secretary of Labor.[Footnote 25] To that end, Labor 
recently conducted a nationwide survey to determine wages for 
weatherization contractors and laborers. MDHS required all agencies 
receiving the survey to complete and return the survey to MDHS by July 
31, 2009. MDHS submitted the surveys to Labor before August 14, 2009 
and Labor posted prevailing wage rates for Mississippi on August 24, 
2009. 

When we visited the three community action agencies in August, none 
were concerned with the outcome of the survey. Each of the three 
agencies stated that the labor rates being paid by the agencies and 
their contractors were at or above similar prevailing labor rates for 
their respective areas. MDHS officials told us that they did not expect 
Labor to release prevailing wage data that indicated a higher 
prevailing wage rate than the agencies were paying weatherization 
contractors and laborers. However, should this occur, a community 
action agency official told us that contractors would receive back pay 
from the community action agency, using Recovery Act funds. 

Community Action Agencies Hired Additional Staff to Support 
Weatherization Program: 

The three community action agencies have each hired new staff as a 
result of the increase in weatherization work because of Recovery Act 
funding. Officials at each of the agencies visited could clearly 
identify the number of internal jobs created as a result of the 
funding. According to respective agency officials, Multi-County hired 
seven weatherization coordinators and two administrative staff; South 
Central hired four weatherization coordinators and two case managers; 
and WWISCAA hired a bookkeeper, three weatherization coordinators, and 
three case managers. In addition, officials at two of the three 
agencies wanted to hire additional staff with Recovery Act funding and 
would like to retain the new staff even after Recovery Act funds are no 
longer available. 

MDHS Working to Mitigate Potential Reporting Problems on the Use of 
Funds: 

The Recovery Act imposes upon states an extended level of 
accountability and transparency in the use of federal funds. All prime 
recipients of Recovery Act funding must submit their first report to 
[hyperlink, http://www.FederalReporting.gov] by October 10, 2009. 

MDHS officials told us that to prepare for Section 1512 reporting 
requirements, MDHS plans to conduct two "trial runs" of data gathering 
and report preparation before the October 10, 2009 reporting deadline. 
In addition, MDHS requires the community action agencies to provide 
monthly submissions of all data required under Section 1512, including 
job creation/sustainment data. According to the officials, this will 
help them understand what information is needed to comply with the 
reporting requirements and give MDHS an opportunity to verify the 
accuracy of data the agencies report. One of the community action 
agencies we visited had limited data regarding jobs created by 
contractors and had no data regarding jobs created by vendors. MDHS 
officials stated that the community action agencies will collect both 
sets of data and report the information to MDHS by the deadline. An 
MDHS official stated that the department has registered as required in 
preparation for Section 1512 reporting. 

Oversight Is Carried Out at Multiple Levels: 

State and local agencies are monitoring the Recovery Act Weatherization 
Assistance Program in Mississippi. At the state level, MDHS provides 
three levels of oversight. The first level is conducted by an 
independent division of MDHS, the Division of Program Integrity, who 
told us that they monitor 10 percent of the total number of homes 
weatherized. The division monitors fiscal and programmatic records to 
determine, for example, whether community action agencies are meeting 
Davis-Bacon requirements and whether activities performed by 
contractors relate to the appropriate funding source. The second level 
of review is conducted by MDHS regional weatherization coordinators, 
and includes monitoring an additional 20 percent of the total number of 
homes. The Division of Community Services weatherization staff is 
responsible for the third level review, which includes monitoring 10 
percent of the homes that were monitored by the regional coordinators, 
as well as an additional 10 percent of homes not reviewed by the 
regional coordinators. The second and third level reviews will include 
examining subgrantee files and monitoring contractor performance. 

At the local level, MDHS requires all community action agencies to 
conduct both pre-and postwork energy audits on homes. According to a 
community action agency official, the purpose of a pre-audit is to 
determine the most cost-effective measures for reducing energy costs 
associated with inefficiencies in the home, whereas the purpose of a 
postaudit is to determine whether appropriate improvements have been 
made and whether further work is needed. The official also stated that 
work on a particular home is not considered complete, nor is the 
contractor paid for the job, until the postweatherization audit is 
performed and the house passes the necessary criteria set out in the 
preweatherization audit. 

Mississippi Has Not Yet Distributed Recovery Act Education Funds to 
LEAs: 

The Recovery Act provides education funds to the State of Mississippi 
through ESEA Title I, Part A; SFSF; and IDEA. Recovery Act funds 
provided through ESEA Title I, Part A help local school districts 
educate disadvantaged youth and are in addition to those funds 
regularly allocated through the ESEA Title I program. The SFSF provides 
funds to states to help avoid reductions in education and other 
essential public services. Finally, the Recovery Act provides 
supplemental funding for programs authorized by IDEA, the major federal 
statute that supports special education and related services for 
infants, toddlers, children, and youth with disabilities. We conducted 
a detailed review of the Title I program and collected summary data for 
the SFSF and IDEA, Part B programs. 

MDE Providing Guidance and Reviewing LEAs' Applications for ESEA Title 
I, Part A Recovery Act Allocations: 

The Recovery Act provides $10 billion to help LEAs educate 
disadvantaged youth by making additional funds available beyond those 
regularly allocated through ESEA Title I, Part A. The Recovery Act 
requires these additional funds be 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 current 
statutory and regulatory requirements and must obligate 85 percent of 
these funds by September 30, 2010.[Footnote 26] 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. Education made the first half of 
states' Recovery Act ESEA Title I, Part A funding available on April 1, 
2009, and announced on September 4, 2009, that it had made the second 
half available. 

As of September 4, Mississippi has received $132.9 million in ESEA 
Title I, Part A Recovery Act funds. The state had released none of 
these funds to LEAs as of September 8. MDE officials told us that each 
LEA is required to submit an application to the state, outlining its 
planned uses of these funds. These applications were due to the MDE at 
the end of July. As of September 8, 2009, several LEAs had not yet 
submitted their applications. According to MDE, it will review 
applications through the end of September. 

Along with ESEA Title I Recovery Act application packets, MDE released 
a guidance package to LEAs outlining the application process and 
suggesting uses of ESEA Title I Recovery Act funds. In addition to 
considering the guiding principles of the Recovery Act, MDE encouraged 
the LEAs to use the funds in ways that would allow for increased 
capacity, extended school days, professional development, instructional 
supplies and materials, transparency and accountability, school reform, 
and parental involvement. Included in the ESEA Title I, Part A Recovery 
Act application package is an additional requirement that MDE normally 
does not place on ESEA Title I, Part A funds. MDE is requiring that 
each LEA address at least two of five ESEA performance goals and 
indicators. One goal is to help all students attain high standards in 
reading/language arts and mathematics, as indicated by the percentage 
of students who perform at an acceptable level on state assessments. 
Another goal is to enable all students with limited English skills to 
achieve high academic standards, as indicated by state assessments. 
Goals also include having "highly qualified" teachers teach all 
students in safe, drug free environments that are conducive to 
learning. Finally, ESEA performance goals include all students 
graduating from high school. In the application, an LEA must provide 
narrative on how they will achieve these goals, as well as a budget 
narrative detailing how the ESEA Title I, Part A Recovery Act funds 
will be used. 

MDE Could Pursue ESEA Title I Waivers: 

MDE officials told us that they are concerned about the LEAs' ability 
to obligate Recovery Act ESEA Title I funds in addition to regular ESEA 
Title I, Part A funds within the ESEA spending timeframes. That is, MDE 
is concerned that the LEAs cannot obligate 85 percent of the funds by 
September 30, 2010, and the full amount by September 30, 2011. MDE is 
considering applying to Education for a waiver that would allow MDE to 
waive the carryover limitation for individual LEAs. If granted, a LEA 
could carry over more than 15 percent of its Recovery Act allocation 
into the next fiscal year. Under ESEA, state education agencies 
currently have authority to waive carryover limitations only once every 
three years if the requests are reasonable and necessary. The waiver 
MDE wishes to apply for would allow it to grant waivers to LEAs more 
frequently if the LEAs needed additional time to expend their Recovery 
Act allocations. MDE officials said that they are currently assessing 
the guidance from Education on this issue, as well as surveying the 
LEAs in the state to determine if there is concern and interest among 
the LEAs in applying for such a waiver. In addition, MDE officials told 
us that they are interested in applying for permission to use the SFSF 
funds to satisfy maintenance-of-effort requirements for ESEA Title I. 
[Footnote 27] According to MDE officials, they have asked for, but not 
yet received, clarification on this issue from Education. 

Visited LEAs Intend to Use ESEA Title I, Part A Recovery Act Funds for 
Upgraded Technology in Classrooms and Supplemental Reading and Math 
Programs: 

We visited three LEAs in Mississippi to discuss their planned uses of 
ESEA Title I, Part A Recovery Act funds: Jackson Public School 
District, Rankin County School District, and Greenville Public Schools. 
We chose to visit Jackson Public School District because it has a 
number of schools that are categorized under ESEA Title I as needing 
improvement, is an urban school district, and is receiving the largest 
ESEA Title I Recovery Act allocation in the state. Jackson Public 
School District is the largest LEA in the state in terms of student 
enrollment. We visited Greenville Public Schools because it is located 
in a rural town and is receiving the second largest ESEA Title I 
Recovery Act allocation in the state. Greenville Public Schools is the 
12th largest school district in student enrollment. Finally, we visited 
Rankin County School District at the recommendation of Mississippi's 
Office of State Auditor (OSA) and Office of the Governor, which cited 
this LEA as one of several in the state that follows "best practices" 
related to internal controls, compliance, and management. Rankin County 
School District is the third largest district in the state in terms of 
student population and is receiving the 15th largest ESEA Title I, Part 
A allocation in the state. 

Jackson Public School District is expected to receive a total 
allocation of $15,683,083. In determining how to apply the district's 
ESEA Title I, Part A Recovery Act funds, Jackson Public School District 
officials solicited recommendations from district and school 
administrators, private school administrators, and parents. In 
addition, the district's test scores indicated a critical need to 
address language arts and mathematics. In its application to the state, 
Jackson Public School District indicated that it wishes to use the 
additional ESEA Title I, Part A funds for supplemental instruction, 
particularly in those subjects with low student test scores. For 
example, officials told us that they plan to purchase math software 
programs, as well as the associated technologies that will be needed to 
use the software, such as computers and graphing calculators. Jackson 
Public School District will also use some of the funds for professional 
development for teachers. 

Rankin County School District is expected to receive an ESEA Title I, 
Part A Recovery Act allocation of $1,680,397. Rankin County School 
District officials told us that they plan to use these funds for 
technology upgrades in the classroom in order to create "21st century 
learning centers" for students and teachers. District officials plan to 
bring new technologies into classrooms, such as laptop computers, 
interactive whiteboards, projectors, document cameras, digital video 
cameras, and printers. The district made the decision to use the ESEA 
Title I, Part A Recovery Act allocation in this way following a 
comprehensive needs assessment and conversations and focus groups with 
principals and teachers. District officials told us that efforts to 
modernize and upgrade classroom technology were already under way, but 
the additional Recovery Act funds will help the school district achieve 
these goals. Additionally, the district wants to use the funds for 
professional development of teachers, including instructing them on the 
use of the new equipment purchased, as well as improving the teachers' 
instructional practices. 

Greenville Public Schools expect to receive an ESEA Title I, Part A 
Recovery Act allocation of $4,329,295. School officials told us that 
they plan to use the additional funds to purchase technology upgrades 
for the classroom in order to create "model classrooms" at each grade 
level. According to district officials, a model classroom is built 
around a set of best practice methodologies for instruction and 
motivation. Creating such a classroom involves purchasing upgraded 
technologies, such as modern computers that are compatible with current 
software, and providing corresponding instruction for teachers. With 
upgraded technologies, Greenville Public Schools can invest in 
supplemental instructional software in mathematics and language arts. 
Based on statewide testing programs, the school district identified 
these subjects as in need of intensive support and effective 
interventions. Additionally, Greenville Public School officials want to 
hire 15 additional teachers to offset teacher reductions caused by 
previous budget cuts. This will change student-to-teacher ratio from 
27: 1 to 22: 1. In determining how the additional allocation will be 
used, Greenville Public Schools officials told us that they took into 
account the opinions of stakeholders, such as parents, local 
businesses, advocacy groups, teachers and administrators. Greenville 
Public Schools held a public community meeting and then a central 
office meeting to determine the best uses of the additional Recovery 
Act funding before submitting its application to MDE for approval. 

ESEA requires each LEA to use ESEA Title I, Part A funds for the 
participation of children in private schools, as well as for homeless 
and neglected children. The act also allows ESEA Title I, Part A funds 
to be used for children living in local institutions for delinquent 
children, as appropriate. For example, Jackson Public School District 
officials told us that there are 11 private schools and 3 institutions 
for delinquent children in their district that will receive Recovery 
Act ESEA Title I, Part A Recovery Act funds. 

In addition to the set-asides required for ESEA Title I, a 1996 policy 
passed by the Mississippi State Board of Education permits LEAs in 
Mississippi to reserve up to 20 percent of their regular Title I, Part 
A allocation for administrative purposes.[Footnote 28] MDE has 
instructed LEAs that the same policy applies to the Title I, Part A 
Recovery Act allocation. MDE did not require LEAs to discuss in detail 
their plans for the administrative set-asides. However, according to 
state school board policy, such costs can include salaries, benefits, 
travel, and office costs of ESEA Title I bookkeepers; cost of audits; 
and indirect costs. As part of its review process, MDE will ensure that 
set-asides do not exceed 20 percent of the total allocation. Rankin 
County School District and Jackson Public School District officials 
stated that they would consider using administrative funds to hire 
additional bookkeeping staff to handle the additional workload of 
tracking and monitoring the funds. 

MDE Developing Internal Control Plans: 

Mississippi's Department of Finance and Administration (DFA) has 
required each state agency to develop and submit a written internal 
control plan that covers safeguarding of agency assets, segregation of 
duties by function, and execution of transactions in accordance with 
laws of the State of Mississippi. The internal control plan will apply 
to all state and federal funding received by the agencies. The plan for 
MDE was still in draft as of September 4, 2009. 

To monitor the LEAs' use of Recovery Act funds, MDE officials said that 
they have an Educational Accountability Office with an Internal 
Accountability division. MDE officials told us that this office is 
responsible for reviewing each LEA's financial audit, following up on 
findings with the LEAs, and assisting them in taking corrective action. 
The audits are conducted annually by a private firm in conjunction with 
OSA. The Internal Accountability Office has three staff to cover 152 
LEAs. 

MDE's Office of Federal Financial Management also monitors LEAs' use of 
federal funds for proper use and compliance with appropriate laws. MDE 
officials stated that LEAs are monitored on a 3-year cycle. At this 
time, there are no definite plans for additional monitoring of Recovery 
Act funds. 

LEAs Plan to Use Existing Policies and Procedures to Control Recovery 
Act Funds: 

The three LEAs we visited said that they are not planning to make 
significant changes to their current policies and procedures for 
tracking federal funds in order to track the Recovery Act funds. The 
LEAs will use their current systems but will use unique identifying 
codes for the Recovery Act funds, as required by DFA. The LEAs we 
visited have not completed written internal control plans or risk 
assessments of internal control weaknesses. 

Officials with Jackson Public School District told us that they will 
set up a budget for each of the district's schools that is based on the 
information the school provided to the district regarding how it plans 
to use its Recovery Act funds. These budgets are subject to school 
board approval to ensure that the uses fit within the district's goals 
for improving instruction and comply with state guidelines. 
Requisitions for Recovery Act funds first must be approved by each 
school's principal. Requests for expenditures will then be checked 
against these written budgets by Jackson Public School District's 
federal programs and purchasing offices. At monthly grant review 
meetings, the Executive Director of Finance and others will review 
Recovery Act expenditures that were initiated centrally or at the 
school level. Jackson Public School District officials stated that they 
intend to be transparent with their uses of the Recovery Act funds. 
They will update parents and the community via newsletters and public 
access television programming. 

Officials with Rankin County School District told us that each employee 
is trained on accounting and purchasing rules. They plan to follow the 
same set of procedures for tracking Recovery Act funds as they do for 
all federal funds. An official in Rankin County Public Schools' Federal 
Programs Department will be primarily responsible for tracking Recovery 
Act funds. This person will develop a budget, enter and track purchase 
orders, file invoices, and compile monthly reports to ensure that funds 
are being properly utilized. Requisitions for Recovery Act funding will 
be subject to approval by the Assistant Superintendent before being 
turned into purchase orders. A purchase order will be subject to 
approval by the accounting department at Rankin County School District, 
and may be additionally reviewed by the Business Manager or Purchasing 
Director. The accounting department will not approve a payment until 
services or materials are received, an invoice is filed, and the school 
board has approved the expenditure. School board meetings are open to 
the public, and uses of Recovery Act funds will also be made public via 
parent newsletters and email communications. 

Greenville Public Schools officials said that they would not make any 
significant changes to their plans for tracking federal funds, other 
than that the Recovery Act funding would be coded and tracked 
separately in the system. The Business Manager said that all staff are 
trained in accounting, and he would update their training to deal with 
the Recovery Act funds. Regarding the flow of funds to the individual 
schools, the business manager said that a requisition will be approved 
by the principal before being submitted to the district. The Greenville 
Public Schools Federal Programs Director will review the requisition to 
ensure that it addressed the district's instructional goals, and the 
Business Office will ensure that the requisition complies with 
applicable purchasing laws and that there is an adequate budget for it. 
All funds will also be checked against the school's monthly budget. The 
requisition will then become a purchase order. Purchase orders over a 
$5,000 threshold will require additional approval from the 
Superintendent. Also, computer purchases will require approval from the 
Information Technology Department. Once a purchase is made and items 
are delivered, the items are to be matched with the invoice and the 
purchase order and tagged for delivery. Physical inventories are 
conducted twice annually. The business manager said that the office is 
probably adequately staffed to handle the additional workload, but once 
the funds begin flowing, he will reevaluate the staffing needs. 

MDE Concerned about Timing of Reporting Requirements, and LEAs Request 
More Guidance: 

MDE told us that it plans to use a centralized reporting approach, 
collecting information for the required quarterly reports from the LEAs 
and posting the data collectively rather than having each LEA do this 
individually. However, MDE is concerned that the 10-day data quality 
review period will not be sufficient to thoroughly review and validate 
152 LEA submissions and correct any deficiencies before the reports are 
released to federal agencies on [hyperlink, 
http://www.FederalReporting.gov]. MDE is also unsure about how the 
information is to be presented. Officials noted that they are working 
to develop a template that will detail the information required so that 
it can share this with the LEAs. MDE officials said that they requested 
additional guidance on this issue from Education and were told that it 
would be available in mid-September. Once additional guidance is 
received, the Governor's office will advise state agencies on how to 
fulfill the reporting requirements. Without the guidance they have 
requested, MDE is concerned about meeting the reporting deadline of 
October 10. The three LEAs we visited stated that they are unsure of 
the specifics of reporting requirements and the format in which they 
will be required to report the data. School officials said that they 
would like for MDE to provide some clarity on this issue. 

Mississippi Has Not Yet Released SFSF or IDEA Funds: 

In addition to collecting detailed information on the ESEA Title I, 
Part A program, we collected summary funding information on SFSF and 
IDEA funds provided to Mississippi through the Recovery Act. We found 
that none of these funds have been released. 

The Recovery Act created 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 be used to alleviate shortfalls in state support for 
education to school districts and IHEs. The initial award of SFSF 
funding required each state to submit an application to Education that 
provides several assurances, including that the state will meet 
maintenance-of-effort requirements (or it will be able to comply with 
waiver provisions) and that it will implement strategies to meet 
certain educational requirements, such as increasing teacher 
effectiveness, addressing inequities in the distribution of highly 
qualified teachers, and improving the quality of state academic 
standards and assessments. In addition, states were required to make 
assurances concerning accountability, transparency, reporting, and 
compliance with certain federal laws and regulations. States must 
allocate 81.8 percent of their SFSF 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). After maintaining state support for 
education at fiscal year 2006 levels, states must use education 
stabilization funds to restore state funding to the greater of fiscal 
year 2008 or 2009 levels for state support to school districts or 
public IHEs. When distributing these funds to school districts, states 
must use their primary education funding formula, but they can 
determine how to allocate funds to public IHEs. In general, school 
districts maintain broad discretion in how they can use stabilization 
funds, but states have some ability to direct IHEs in how to use these 
funds. 

As of September 4, LEAs in Mississippi had drawn down none of the 
$262.7 million of education stabilization funds allocated to the state 
by Education. According to MDE officials, the Governor is requiring all 
LEAs to submit applications for these funds. The SFSF application is in 
draft and currently being reviewed by the Governor's office, but it has 
not yet been sent to LEAs for completion. Additionally, the Governor is 
in the process of resubmitting his application to Education. When the 
initial application wa