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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 La