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entitled 'Recovery Act: As Initial Implementation Unfolds in States and 
Localities, Continued Attention to Accountability Issues Is Essential' 
which was released on April 23, 2009. 

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Report to Congressional Committees: 

United States Government Accountability Office: 
GAO: 

April 2009: 

Recovery Act: 

As Initial Implementation Unfolds in States and Localities, Continued 
Attention to Accountability Issues Is Essential: 

GAO-09-580: 

GAO Highlights: 

Highlights of GAO-09-580, a report to Senate and House Committees on 
Appropriations, Senate Committee on Homeland Security and Governmental 
Affairs, and House Committee on Oversight and Government Reform. 

Why GAO Did This Study: 

The American Recovery and Reinvestment Act of 2009 (Recovery Act) is 
estimated to cost about $787 billion over the next several years, of 
which about $280 billion will be administered through states and 
localities. The Recovery Act requires GAO to do bimonthly reviews of 
the use of funds by selected states and localities. In this first 
report, GAO describes selected states’ and localities’ (1) uses of and 
planning of Recovery Act funds, (2) accountability approaches, and (3) 
plans to evaluate the impact of funds received. GAO’s work is focused 
on 16 states and the District of Columbia—representing about 65 percent 
of the U.S. population and two-thirds of the intergovernmental federal 
assistance available through the Recovery Act. GAO collected documents 
from and interviewed state and local officials, including Governors, “
Recovery Czars,” State Auditors, Controllers, and Treasurers. GAO also 
reviewed guidance from the Office of Management and Budget (OMB) and 
other federal agencies. 

What GAO Found: 

Uses and Planning for Recovery Act Funds: About 90 percent of the 
estimated $49 billion in Recovery Act funding to be provided to states 
and localities in FY2009 will be through health, transportation and 
education programs. Within these categories, the three largest programs 
are increased Medicaid Federal Medical Assistance Percentage (FMAP) 
grant awards, funds for highway infrastructure investment, and the 
State Fiscal Stabilization Fund (SFSF). The funding notifications for 
Recovery Act funds for the 16 selected states and the District of 
Columbia (the District) have been approximately $24.2 billion for 
Medicaid FMAP on April 3, $26.7 billion for highways on March 2, and 
$32.6 billion for SFSF on April 2. 

Increased Medicaid FMAP Funding: 
Fifteen of the 16 states and the District have drawn down approximately 
$7.96 billion in increased FMAP grant awards for the period October 1, 
2008 through April 1, 2009. The increased FMAP is for state 
expenditures for Medicaid services. The receipt of this increased FMAP 
may reduce the state share for their Medicaid programs. States have 
reported using funds made available as a result of the increased FMAP 
for a variety of purposes. For example, states and the District 
reported using these funds to maintain their current level of Medicaid 
eligibility and benefits, cover their increased Medicaid caseloads-
which are primarily populations that are sensitive to economic 
downturns, including children and families, and to offset their state 
general fund deficits thereby avoiding layoffs and other measures 
detrimental to economic recovery. 

Highway Infrastructure Investment: 
States are undertaking planning activities to identify projects, obtain 
approval at the state and federal level and move them to contracting 
and implementation. For the most part, states were focusing on 
construction and maintenance projects, such as road and bridge repairs. 
Before they can expend Recovery Act funds, states must reach agreement 
with the Department of Transportation on the specific projects; as of 
April 16, two of the 16 states had agreements covering more than 50 
percent of their states’ apportioned funds, and three states did not 
have agreement on any projects. While a few, including Mississippi and 
Iowa had already executed contracts, most of the 16 states were 
planning to solicit bids in April or May. Thus, states generally had 
not yet expended significant amounts of Recovery Act funds. 

State Fiscal Stabilization Fund: 
The states and D.C. must apply to the Department of Education for SFSF 
funds. Education will award funds once it determines that an 
application contains key assurances and information on how the state 
will use the funds. As of April 20, applications from three states had 
met that determination-South Dakota, and two of GAO’s sample states, 
California and Illinois. The applications from other states are being 
developed and submitted and have not yet been awarded. The states and 
the District report that SFSF funds will be used to hire and retain 
teachers, reduce the potential for layoffs, cover budget shortfalls, 
and restore funding cuts to programs. 

This report contains separate appendixes on each of the 16 states and 
the District that discuss the plans and uses of funds in these three 
major programs as well as selected other programs that are receiving 
Recovery Act funds. 

Planning continues for the use of Recovery Act funds. The figure below 
shows the projected timing of funds made available to states and 
localities. 

Figure: Projected Timing Of Funds Made Available To States And 
Localities: 

[Refer to PDF for image: vertical bar graph] 

Fiscal year: 2009; 
Amount: $48.9 billion. 

Fiscal year: 2010; 
Amount: $107.7 billion. 

Fiscal year: 2011; 
Amount: $63.4 billion. 

Fiscal year: 2012; 
Amount: $23.3 billion. 

Fiscal year: 2013; 
Amount: $14.4 billion. 

Fiscal year: 2014; 
Amount: $9.1 billion. 

Fiscal year: 2015; 
Amount: $5.7 billion. 

Fiscal year: 2016; 
Amount: $2.5 billion. 

Source: GAO analysis of CBO and FFIS data. 

[End of figure] 

State activities include appointing Recovery Czars; establishing task 
forces and other entities, and developing public websites to solicit 
input and publicize selected projects. In many states, legislative 
authorization is needed before the state can receive and/or expend 
funds or make changes to programs or eligibility requirements. 

Accountability Approaches
GAO found that the selected states and the District are taking various 
approaches to ensuring that internal controls to manage risk up-front; 
they are assessing known risks and developing plans to address those 
risks. However, officials in most of the states and the District 
expressed concerns regarding the lack of Recovery Act funding provided 
for accountability and oversight. Due to fiscal constraints, many 
states reported significant declines in the number of oversight staff—
limiting their ability to ensure proper implementation and management 
of Recovery Act funds. State auditors are also planning their work 
including conducting required single audits and testing compliance with 
federal requirements. The single audit process is important for 
effective oversight but can be modified to be a more timely and 
effective audit and oversight tool for the Recovery Act and OMB is 
weighing options on how to modify it. 

Nearly half of the estimated spending programs in the Recovery Act will 
be administered by non-federal entities. State officials suggested 
opportunities to improve communication in several areas. For example, 
they wish to be notified when Recovery Act funds are made available 
directly to prime recipients within their state that are not state 
agencies. 

Plans to Evaluate Impact: 
Two of the several objectives of the Recovery Act are to (1) preserve 
existing jobs and stimulate job creation and (2) promote economic 
recovery. Officials in nine of the 16 states and the District expressed 
concern about determining jobs created and retained under the Recovery 
Act, as well as methodologies that can be used for estimation of each. 

GAO’s Recommendations: 
OMB has moved out quickly to guide implementation of the Recovery Act. 
As OMB’s initiatives move forward, it has opportunities to build upon 
its efforts to date by addressing several important issues. 

Accountability and Transparency Requirements: The Director of OMB 
should: 

* adjust the single audit process to provide for review of the design 
of internal controls during 2009 over programs to receive Recovery Act 
funding, before significant expenditures in 2010. 

* continue efforts to identify methodologies that can be used to 
determine jobs created and retained from projects funded by the 
Recovery Act. 

* evaluate current requirements to determine whether sufficient, 
reliable and timely information is being collected before adding 
further data collection requirements. 

Administrative Support and Oversight: 
The Director of OMB should clarify what Recovery Act funds can be used 
to support state efforts to ensure accountability and oversight. 

Communications: 
The Director of OMB should provide timely and efficient notification to 
(1) prime recipients in states and localities when funds are made 
available for their use, (2) states, where the state is not the primary 
recipient of funds, but has a state-wide interest in this information, 
and (3) all recipients, on planned releases of federal agency guidance 
and whether additional guidance or modifications are expected. 

What GAO Recommends: 

GAO makes a number of recommendations, which are discussed on the next 
page. In general, OMB concurred with the overall objectives of our 
recommendations and plans to work with GAO to further accountability 
for these funds. 

View [hyperlink, http://www.gao.gov/products/GAO-09-580] or key 
components. For more information, contact J. Christopher Mihm at (202) 
512-6806 or mihmj@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

States' and Localities' Use of and Plans for Recovery Act Funds Focus 
on Purposes of the Act and States' Fiscal Stresses: 

Selected States' and Localities' Internal Controls and Safeguards to 
Manage and Mitigate the Risk of Mismanagement, Waste, Fraud, and Abuse 
of Recovery Act Funds: 

State Plans to Assess Recovery Act Spending Impact: 

Concluding Observations and Recommendations: Moving Forward to Clarify 
Recovery Act Roles and Responsibilities: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Localities Visited by GAO in Selected States: 

Appendix III: Arizona: 

Overview: 

Arizona Beginning to Use Recovery Act Funds: 

Recovery Act Funds Supporting Other Programs: 

State Agencies and Localities Are Expecting to Use Existing Internal 
Controls to Safeguard Recovery Act Funds, Although in Some Cases, 
Resource Constraints Could Affect Oversight: 

State Agencies and Localities Will Use Existing Performance Measures to 
Gauge the Impacts of Recovery Act Funding and Are Waiting for Federal 
Guidance on How to Implement New Measures the Act Requires, Especially 
on Jobs Created and Saved: 

Arizona's Comments on This Summary: 

GAO Contacts: 

Staff Acknowledgments: 

Appendix IV: California: 

Overview: 

California Beginning to Use Recovery Act Funds: 

Plans for Oversight and Control of Recovery Funds Are Still Evolving: 

State Officials Expressed Concerns about Lack of Guidance and Ability 
to Measure the Impacts of Recovery Act Funds: 

California's Comments on This Summary: 

GAO Contacts: 

Staff Acknowledgments: 

Appendix V: Colorado: 

Overview: 

Colorado Beginning to Use Recovery Act Funds: 

Colorado Officials Expressed Concerns Related to Tracking of, Internal 
Controls over, and Safeguards for Recovery Act Funds: 

Colorado Is Developing Plans to Assess the Effects of Recovery Act 
Funds: 

Colorado's Comments on This Summary: 

GAO Contacts: 

Staff Acknowledgments: 

Appendix VI: Florida: 

Overview: 

Florida Beginning to Use Recovery Act Funds: 

Florida's Planning Process Has Set the Stage for Decisions on Spending 
of Recovery Act Funds: 

Plans for Safeguards and Controls Being Developed at State Level: 

Plans to Assess Impact of Recovery Act Funds Are in Initial Stages: 

Florida's Comments on This Summary: 

GAO Contacts: 

Staff Acknowledgments: 

Appendix VII: Georgia: 

Overview: 

Georgia Beginning to Use Recovery Act Funds: 

Georgia Has Been Establishing Internal Controls for Recovery Act Funds: 

Plans to Assess Impact of Recovery Act Funds Are in Initial Stages: 

Georgia's Comments on This Summary: 

GAO Contacts: 

Staff Acknowledgments: 

Appendix VIII: Illinois: 

Overview: 

Illinois Beginning to Use Recovery Act Funds: 

Illinois Is Taking Steps to Assess Risk and Develop Plans for 
Safeguards Related to Recovery Act Funds: 

Agencies Are Considering Ways to Assess Impacts, but Additional 
Guidance Is Needed: 

Illinois's Comments on This Summary: 

GAO Contacts: 

Staff Acknowledgments: 

Appendix IX: Iowa: 

Overview: 

Iowa Beginning to Use Recovery Act Funds: 

Iowa Has a Foundation of Safeguards and Controls That Could Help Assure 
Proper Spending of Recovery Act Funds: 

State Agencies Are Considering How to Assess the Effects of Recovery 
Act Funds: 

Iowa's Comments on This Summary: 

GAO Contacts: 

Staff Acknowledgments: 

Appendix X: Massachusetts: 

Overview: 

Massachusetts Beginning to Use Recovery Funds: 

Plans for Safeguards and Controls Being Developed at State Level: 

Plans to Assess Impact of Recovery Act Funds Are in Initial Stages: 

Massachusetts's Comments on This Summary: 

GAO Contacts: 

Staff Acknowledgments: 

Appendix XI: Michigan: 

Overview: 

Michigan Beginning to Use Recovery Act Funds: 

Michigan Is Augmenting Its Approach to Safeguarding and Transparency of 
Recovery Act Funds but Gaps Exist: 

Michigan Using Existing Internal Controls: 

Plans to Assess Impact of the Recovery Act Are Preliminary: 

Michigan's Comments on This Summary: 

GAO Contacts: 

Staff Acknowledgments: 

Appendix XII: Mississippi: 

Overview: 

Mississippi Beginning to Use Recovery Act Funds: 

Mississippi's Comments on This Summary: 

GAO Contacts: 

Staff Acknowledgments: 

Appendix XIII: New Jersey: 

Overview: 

New Jersey Beginning to Use Recovery Act Funds: 

New Jersey's Comments on this Summary: 

GAO Contacts: 

Staff Acknowledgments: 

Appendix XIV: New York: 

Overview: 

New York Beginning to Use Recovery Act Funds: 

New York Plans to Oversee and Safeguard Recovery Act Funds Using 
Existing Control Mechanisms Where Possible: 

New York's Comments on This Summary: 

GAO Contacts: 

Staff Acknowledgments: 

Appendix XV: North Carolina: 

Overview: 

North Carolina Beginning to Use Recovery Act Funds: 

Plans for Safeguards and Controls Being Developed at the State Level 
and at State Agencies Administering Federal Programs: 

Plans to Assess Impact of Recovery Act Funds Are Just Being Developed: 

North Carolina's Comments on This Summary: 

GAO Contacts: 

Staff Acknowledgments: 

Appendix XVI: Ohio: 

Overview: 

Ohio Beginning to Use Recovery Act Funds: 

Ohio Is Planning to Use Existing Systems and Safeguards to Track 
Recovery Act Funds, But Reliance on Subrecipients to Provide Data for 
Enhanced Reporting Requirements Could Present Challenges: 

Ohio Is Exploring Ways to Assess Impact of Recovery Act Funds, but 
Officials Anticipate Challenges: 

Ohio's Comments on This Summary: 

GAO Contacts: 

Staff Acknowledgments: 

Appendix XVII: Pennsylvania: 

Overview: 

Pennsylvania Beginning to Use Recovery Act Funds: 

Pennsylvania Developing Plans for Safeguards and Controls: 

Plans to Assess Impact of Recovery Act Funds Depend on Federal 
Guidance: 

Pennsylvania's Comments on This Summary: 

GAO Contacts: 

Staff Acknowledgments: 

Appendix XVIII: Texas: 

Overview: 

Texas Beginning to Use Recovery Act Funds: 

Texas Is Taking Steps to Help Ensure Accountability and Transparency 
and Address Potential Areas of Vulnerability: 

Plans for Assessing the Impact of Recovery Act Funds Are Evolving: 

Texas's Comments on This Summary: 

GAO Contacts: 

Staff Acknowledgments: 

Appendix XIX: Washington, D.C. 

Overview: 

District of Columbia Beginning to Use Recovery Act Funds: 

The District Plans to Use Existing Systems to Track Recovery Act Funds: 

District Web site Used to Promote Transparent Use of Recovery Act 
Funds: 

District Plans for Ensuring that Adequate Safeguards and Internal 
Controls Are in Place: 

Plans to Assess Impact of Recovery Act Funds Have Not Yet Been 
Developed: 

District of Columbia's Comments on This Appendix: 

GAO Contacts: 

Staff Acknowledgments: 

Appendix XX: GAO Contacts and Staff Acknowledgments: 

Tables: 

Table 1: FMAP Changes from Fiscal Year 2008 to the First Two Quarters 
of Fiscal Year 2009, for 16 states and the District: 

Table 2: Notification of Recovery Act Funds for GAO Core States and the 
District of Columbia for Select Programs (Dollars in thousands): 

Table 3: FMAP Grant Awards and Funds Drawn Down, for 16 States and the 
District: 

Table 4: Highway Apportionments and Obligations as of April 16, 2009 
(Dollars in millions): 

Table 5: States and Localities Visited by GAO: 

Table 6: Planned Uses of Selected Recovery Act Funds: 

Table 7: Budget for Selected State Agencies in Georgia, Fiscal Years 
2008 and 2009: 

Table 8: Budget Reductions for Selected State Agencies in Mississippi 
for Fiscal Year 2009: 

Table 9: Estimated Allocations by Program Areas of Federal Recovery Act 
Funds in Texas (as of March 2009): 

Figures: 

Figure 1: State and Local Recovery Act Funding by Broad Functional 
Category, Fiscal Years 2009-2019: 

Figure 2: Projected Timing of Federal Recovery Act Funding Made 
Available to States and Localities by Fiscal Year: 

Figure 3: Composition of State and Local Recovery Act Funding, Fiscal 
Years 2009 and 2012: 

Figure 4: California State and Local Recovery Act Funding: 

Figure 5: Georgia's Estimated Recovery Act Funding, by Major Programs, 
as of April 17, 2009: 

Figure 6: Georgia Department of Transportation's Project Implementation 
Schedule: 

Figure 7: Organizational Chart of Georgia's Recovery Act Implementation 
Team: 

Figure 8: State of Georgia Review Process for Recovery Act Funds: 

Figure 9: Estimated Allocation of Mississippi's Recovery Act Funding by 
Major Programs: 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

April 23, 2009: 

Report to Congressional Committees: 

The Nation faces what is generally reported to be the most serious 
economic crisis since the Great Depression. In response, the American 
Recovery and Reinvestment Act of 2009 (Recovery Act)[Footnote 1] was 
enacted to promote economic recovery, make investments, and to minimize 
and avoid reductions in state and local government services. The 
Congressional Budget Office (CBO) estimated that the Recovery Act's 
combined spending and tax provisions will cost $787 billion over ten 
years, of which more than $580 billion will be in additional federal 
spending. The stated purposes of the Recovery Act are to: 

* preserve and create jobs and promote economic recovery; 

* assist those most impacted by the recession; 

* provide investments needed to increase economic efficiency by 
spurring technological advances in science and health; 

* invest in transportation, environmental protection, and other 
infrastructure that will provide long-term economic benefits; and: 

* stabilize state and local government budgets, in order to minimize 
and avoid reductions in essential services and counterproductive state 
and local tax increases. 

The Recovery Act specifies several roles for GAO including conducting 
bimonthly reviews of selected states' and localities' use of funds made 
available under the act.[Footnote 2] Accordingly, our objectives for 
this report were to describe (1) selected states' and localities' uses 
of and planning for Recovery Act funds, (2) the approaches taken by the 
selected states and localities to ensure accountability for Recovery 
Act funds, and (3) states' plans to evaluate the impact of the Recovery 
Act funds they received. 

To address these objectives, we selected a core group of 16 states and 
the District of Columbia (District) that we will follow over the next 
few years to provide an ongoing longitudinal analysis of the use of 
funds provided in conjunction with the Recovery Act. The states are 
Arizona, California, Colorado, Florida, Georgia, Iowa, Illinois, 
Massachusetts, Michigan, Mississippi, New Jersey, New York, North 
Carolina, Ohio, Pennsylvania, and Texas. These states contain about 65 
percent of the U.S. population and are estimated to receive 
collectively about two-thirds of the intergovernmental federal 
assistance funds available through the Recovery Act. We selected these 
states and the District on the basis of outlay projections, percentage 
of the U.S. population represented, unemployment rates and changes, and 
a mix of states' poverty levels, geographic coverage, and 
representation of both urban and rural areas. In addition, we visited a 
non-probability sample of about 60 localities within the 16 selected 
states.[Footnote 3] 

We collected documents from and conducted semi-structured interviews 
with executive-level state and local officials and staff from 
Governors' offices, "Recovery Czars," State Auditors, Controllers, and 
Treasurers. We also interviewed staff from state legislatures. In 
addition, our work focused on federal, state, and local agencies 
administering programs receiving Recovery Act funds. We analyzed data 
and interviewed officials from the federal Office of Management and 
Budget (OMB). We also analyzed other federal guidance on programs 
selected for this review and spoke with relevant program officials at 
the Centers for Medicare & Medicaid Services (CMS), the U.S. Department 
of Transportation and the U.S. Department of Education. We did not 
review state legal materials for this report, but relied on state 
officials and other state sources for description and interpretation of 
relevant state constitutions, statutes, legislative proposals, and 
other state legal materials. 

We based our selection of the programs to review for this initial 
report on Recovery Act funding and potential risks associated with 
receipt of additional funds for these programs. An estimated 90 percent 
of fiscal year 2009 Recovery Act funding provided to states and 
localities will be for health, transportation and education programs. 
The three largest programs in these categories are the Medicaid Federal 
Medical Assistance Percentage (FMAP) awards, the State Fiscal 
Stabilization Fund, and highways. These three programs are therefore 
highlighted throughout this report. The information obtained from this 
review cannot be generalized to all states and localities receiving 
Recovery Act funding. A detailed description of our scope and 
methodology can be found in Appendix I. 

We conducted this performance audit from February 17, to April 20, 2009 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

Background: 

Recovery Act funds are being distributed to states, localities, other 
entities, and individuals through a combination of formula and 
competitive grants and direct assistance. Nearly half of the 
approximately $580 billion associated with Recovery Act spending 
programs will flow to states and localities affecting about 50 state 
formula and discretionary grants as well as about 15 entitlement and 
other countercyclical programs. As noted above, three of the largest 
streams of funds flowing to states and localities are (1) the temporary 
increase in FMAP funding which will provide states with approximately 
$87 billion in assistance; (2) the State Fiscal Stabilization Fund, 
which will provide nearly $54 billion to help state and local 
governments avert budget cuts, primarily in education; and (3) highway 
infrastructure investment funds of approximately $27 billion. 

Medicaid FMAP: 

Medicaid is a joint federal-state program that finances health care for 
certain categories of low-income individuals, including children, 
families, persons with disabilities, and persons who are elderly. The 
federal government matches state spending for Medicaid services 
according to a formula based on each state's per capita income in 
relation to the national average per capita income. The amount of 
federal assistance states receive for Medicaid service expenditures is 
known as the FMAP. Across states, the FMAP may range from 50 to no more 
than 83 percent, with poorer states receiving a higher federal matching 
rate than wealthier states. 

Under the Recovery Act, states are eligible for an increased FMAP for 
expenditures that states make in providing services to their Medicaid 
populations.[Footnote 4] The Recovery Act provides eligible states with 
this increased FMAP for 27 months between October 1, 2008, and December 
31, 2010. On February 25, 2009, CMS made increased FMAP grant awards to 
states, and states may retroactively claim reimbursement for 
expenditures that occurred prior to the effective date of the Recovery 
Act.[Footnote 5] Generally, for fiscal year 2009 through the first 
quarter of fiscal year 2011, the increased FMAP, which is calculated on 
a quarterly basis, provides for: (1) the maintenance of states' prior 
year FMAPs; (2) a general across-the-board increase of 6.2 percentage 
points in states' FMAPs; and (3) a further increase to the FMAPs for 
those states that have a qualifying increase in unemployment rates. For 
the first two quarters of 2009, the increases in the FMAP for the 16 
states and the District ranged from 7.09 percentage points in Iowa to 
11.59 percentage points in California. (See table 1.) 

Table 1: FMAP Changes from Fiscal Year 2008 to the First Two Quarters 
of Fiscal Year 2009, for 16 states and the District: 

State: Arizona; 
Fiscal Year 2008 FMAP: 66.20; 
Fiscal Year 2009 FMAP, first two quarters: 75.01; 
Difference: 8.81. 

State: California; 
Fiscal Year 2008 FMAP: 50.00; 
Fiscal Year 2009 FMAP, first two quarters: 61.59; 
Difference: 11.59. 

State: Colorado; 
Fiscal Year 2008 FMAP: 50.00; 
Fiscal Year 2009 FMAP, first two quarters: 58.78; 
Difference: 8.78. 

State: District of Columbia; 
Fiscal Year 2008 FMAP: 70.00; 
Fiscal Year 2009 FMAP, first two quarters: 77.68; 
Difference: 7.68. 

State: Florida; 
Fiscal Year 2008 FMAP: 56.83; 
Fiscal Year 2009 FMAP, first two quarters: 67.64; 
Difference: 10.81. 

State: Georgia; 
Fiscal Year 2008 FMAP: 63.10; 
Fiscal Year 2009 FMAP, first two quarters: 73.44; 
Difference: 10.34. 

State: Illinois; 
Fiscal Year 2008 FMAP: 50.00; 
Fiscal Year 2009 FMAP, first two quarters: 60.48; 
Difference: 10.48. 

State: Iowa; 
Fiscal Year 2008 FMAP: 61.73; 
Fiscal Year 2009 FMAP, first two quarters: 68.82; 
Difference: 7.09. 

State: Massachusetts; 
Fiscal Year 2008 FMAP: 50.00; 
Fiscal Year 2009 FMAP, first two quarters: 58.78; 
Difference: 8.78. 

State: Michigan; 
Fiscal Year 2008 FMAP: 58.10; 
Fiscal Year 2009 FMAP, first two quarters: 69.58; 
Difference: 11.48. 

State: Mississippi; 
Fiscal Year 2008 FMAP: 76.29; 
Fiscal Year 2009 FMAP, first two quarters: 83.62; 
Difference: 7.33. 

State: New Jersey; 
Fiscal Year 2008 FMAP: 50.00; 
Fiscal Year 2009 FMAP, first two quarters: 58.78; 
Difference: 8.78. 

State: New York; 
Fiscal Year 2008 FMAP: 50.00; 
Fiscal Year 2009 FMAP, first two quarters: 58.78; 
Difference: 8.78. 

State: North Carolina; 
Fiscal Year 2008 FMAP: 64.05; 
Fiscal Year 2009 FMAP, first two quarters: 73.55; 
Difference: 9.50. 

State: Ohio; 
Fiscal Year 2008 FMAP: 60.79; 
Fiscal Year 2009 FMAP, first two quarters: 70.25; 
Difference: 9.46. 

State: Pennsylvania; 
Fiscal Year 2008 FMAP: 54.08; 
Fiscal Year 2009 FMAP, first two quarters: 63.05; 
Difference: 8.97. 

State: Texas; 
Fiscal Year 2008 FMAP: 60.56; 
Fiscal Year 2009 FMAP, first two quarters: 68.76; 
Difference: 8.20. 

Source: GAO analysis of HHS data, as of April 16, 2009. 

[End of table] 

Highway Infrastructure Investment: 

The Recovery Act provides approximately $48 billion to fund grants to 
states, localities, regional authorities and others for transportation 
projects of which the largest piece is $27.5 billion for highway and 
related infrastructure investments. The Recovery Act largely provides 
for increased transportation funding through existing programs-such as 
the Federal-Aid Highway Surface Transportation Program--a federally 
funded, state-administered program. Under this program, funds are 
apportioned annually to each state department of transportation (or 
equivalent) to construct and maintain roadways and bridges on the 
federal-aid highway system. The Federal-Aid Highway Program refers to 
the separately funded grant programs mostly funded by formula, 
administered by the Federal Highway Administration (FHWA) in the U.S. 
Department of Transportation. 

State Fiscal Stabilization Fund: 

The Recovery Act provided $53.6 billion in appropriations for the State 
Fiscal Stabilization Fund (SFSF) to be administered by the U.S. 
Department of Education. The Recovery Act requires that the Secretary 
of Education set aside $5 billion for State Incentive Grants, referred 
to by the department as the Reach for the Top program, and the 
establishment of an Innovation Fund. After reserving these and certain 
other funds, the remaining funds are to be distributed to states by 
formula, with 61 percent of the state award based on the state's 
relative share of the population aged 5 to 24 and 39 percent based on 
the state's relative share of the total U.S. population. The Recovery 
Act specifies that 81.8 percent (about $39.5 billion) of these 
remaining funds are to be distributed to states for support of 
elementary, secondary, and postsecondary education, and early childhood 
education programs. The remaining 18.2 percent of SFSF (about $8.8 
billion) is available for public safety and other government services 
including for educational purposes. The Department of Education 
announced on April 1, 2009 that it will award the SFSF in two phases. 
The first phase--$32.6 billion--represents about two-thirds of the 
SFSF. 

Figure 1 shows the distribution of Recovery Act funds to states by 
broad functional categories over the next several years. 

Figure 1: State and Local Recovery Act Funding by Broad Functional 
Category, Fiscal Years 2009-2019: 

[Refer to PDF for image: pie-chart] 

Education and training: 31%; 
Health: 29%; 
Transportation: 16%; 
Income security: 10%; 
Community development: 7%; 
Energy and environment: 7%. 

Source: GAO analysis of CBO and FFIS data. 

[End of figure] 

The timeline of Recovery Act spending has been a key issue in the 
debate and design of the Recovery Act because of the elapsed time 
between when policy changes are first proposed and actual spending 
begins to flow from enacted changes. Figure 2 shows the projected 
timing of state and local-administered Recovery Act spending. 

Figure 2: Projected Timing of Federal Recovery Act Funding Made 
Available to States and Localities by Fiscal Year: 

[Refer to PDF for image: vertical bar graph] 

Fiscal year: 2009; 
Amount: $48.9 billion. 

Fiscal year: 2010; 
Amount: $107.7 billion. 

Fiscal year: 2011; 
Amount: $63.4 billion. 

Fiscal year: 2012; 
Amount: $23.3 billion. 

Fiscal year: 2013; 
Amount: $14.4 billion. 

Fiscal year: 2014; 
Amount: $9.1 billion. 

Fiscal year: 2015; 
Amount: $5.7 billion. 

Fiscal year: 2016; 
Amount: $2.5 billion. 

Source: GAO analysis of CBO and FFIS data. 

[End of figure] 

Over time, the programmatic focus of Recovery Act spending will change. 
As shown in figure 3, about two-thirds of Recovery Act funds expected 
to be spent by states in the current 2009 fiscal year will be health 
related, primarily temporary increases in Medicaid FMAP funding. 
Health, education, and transportation is estimated to account for 
approximately 90 percent of fiscal year 2009 Recovery Act funding for 
states and localities. However, by fiscal year 2012, transportation 
will be the largest share of state and local Recovery Act funding. 
Taken together, transportation spending, along with investments in the 
community development, energy, and environmental areas that are geared 
more toward creating long-run economic growth opportunities will 
represent approximately two-thirds of state and local Recovery Act 
funding in 2012. 

Figure 3: Composition of State and Local Recovery Act Funding, Fiscal 
Years 2009 and 2012: 

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

Fiscal year 2009: 
Health: 64%; 
Education and training: 18%; 
Transportation: 8%; 
Income security: 6%; 
Community development: 3%; 
Energy and environment: 1%. 

Fiscal year 2012: 
Health: 1%; 
Education and training: 19%; 
Transportation: 30%; 
Income security: 17%; 
Community development: 16%; 
Energy and environment: 17%. 

Source: GAO analysis of CBO and FFIS data. 

[End of figure] 

The administration has stipulated that every taxpayer dollar spent on 
economic recovery must be subject to unprecedented levels of 
transparency and accountability. To that end, the Recovery Act 
established the Recovery Accountability and Transparency Board to 
coordinate and conduct oversight of funds distributed under the Act in 
order to prevent fraud, waste and abuse. The Board includes a Chairman 
appointed by the President, and ten Inspectors General specified by the 
Act.[Footnote 6] The Board has a series of functions and powers to 
assist it in the mission of providing oversight and promoting 
transparency regarding expenditure of funds at all levels of 
government. The Board will report on the use of Recovery Act funds and 
may also make recommendations to agencies on measures to avoid problems 
and prevent fraud, waste and abuse. 

The Board is also charged under the Act with establishing and 
maintaining a web site, [hyperlink, http://www.recovery.gov], 
(Recovery.gov) to foster greater accountability and transparency in the 
use of covered funds. The website currently includes overview 
information about the Recovery Act, a timeline for implementation, a 
frequently asked questions page, and an announcement page that is to be 
regularly updated. The administration plans to develop the site to 
encompass information about available funding, distribution of funds, 
and major recipients. The website is required to include plans from 
federal agencies; information on federal awards of formula grants and 
awards of competitive grants; and information on federal allocations 
for mandatory and other entitlement programs by state, county, or other 
appropriate geographical unit.[Footnote 7] Eventually, prime recipients 
of Recovery Act funding will provide information on how they are using 
their federal funds. Currently, Recovery.gov features projections for 
how, when, and where the funds will be spent, as well as which states 
and sectors of the economy are due to receive what proportion of the 
funds. As money starts to flow, additional data will become available. 
In addition to Recovery.gov, OMB has also issued guidance directing 
executive branch agencies to develop a dedicated portion of their web 
sites for information related to the recovery. 

To ensure a high level of accountability, OMB has issued guidance to 
the heads of federal departments and agencies for implementing and 
managing activities enacted under the Recovery Act.[Footnote 8] OMB has 
also issued for comment detailed reporting requirements for Recovery 
Act fund recipients that include the number of jobs created and jobs 
retained as a result of Recovery Act funding.[Footnote 9] OMB's 
guidance documents are available on Recovery.gov. In addition, the 
Civilian Acquisition Council and the Defense Acquisition Regulations 
Council have issued an interim rule revising the Federal Acquisition 
Regulation (FAR) to require a contract clause that implements these 
reporting requirements for contracts funded with Recovery Act dollars. 
[Footnote 10] 

The Recovery Act also assigns GAO a range of responsibilities to help 
promote accountability and transparency. Some are recurring 
requirements such as providing bimonthly reviews of the use of funds 
made available under Division A of the Recovery Act by selected states 
and localities and reviews of quarterly reports on job creation and job 
retention as reported by Recovery Act fund recipients. Other 
requirements include targeted studies in several areas such as small 
business lending, education, and trade adjustment assistance. We 
completed the first of these mandates on April 3, 2009, by announcing 
the appointment of 13 members to the Health Information Technology 
Policy Committee, a new advisory body established by the Recovery Act. 
The committee will make recommendations on creating a policy framework 
for the development and adoption of a nationwide health information 
technology infrastructure, including standards for the exchange of 
patient medical information. On April 16, 2009, we issued a report 
completing a second mandate to report on the actions of the Small 
Business Administration (SBA) to, among other things, increase 
liquidity in the secondary market for SBA loans.[Footnote 11] 

States' and Localities' Use of and Plans for Recovery Act Funds Focus 
on Purposes of the Act and States' Fiscal Stresses: 

Officials in the 16 selected states and the District indicated they 
have used certain Recovery Act funds and continue planning for the use 
of additional funds they have not yet received. States' existing 
intergovernmental programs--such as Medicaid, transportation, and 
education--have been among the first programs to receive Recovery Act 
funds. Planning continues for the use of Recovery Act funds for these 
and other program areas. States' planning actions include appointing 
Recovery Czars; establishing task forces and other entities, and 
developing public web sites to solicit input and publicize selected 
projects. In some cases, according to state officials, state 
legislation will be required to receive and expend funds or to make 
required changes to programs for eligibility prior to using the funds. 
States' approaches to planning for Recovery Act funds also vary in 
response to state legislative and budget processes regarding the use of 
federal funds and states' fiscal situations. 

States' Use of Recovery Act Funds by Selected Program Areas: 

The three largest programs making funds available to the state and 
localities so far have been the Medicaid FMAP, highways funds, and the 
SFSF. Table 2 shows the breakout of funding available for these three 
programs in the 16 selected states and the District that GAO visited. 
Recovery Act funding for these 17 jurisdictions accounts for a little 
less than two-thirds of total Recovery Act funding for these three 
programs. 

Table 2: Notification of Recovery Act Funds for GAO Core States and the 
District of Columbia for Select Programs (Dollars in thousands): 

State: Arizona; 
Medicaid FMAP: $534,576; 
Highways: $521,958; States 
Fiscal Stabilization Fund: $681,360. 

State: California; 
Medicaid FMAP: $3,331,167; 
Highways: $2,569,568; 
States Fiscal Stabilization Fund: $3,993,379. 

State: Colorado; 
Medicaid FMAP: $226,959; 
Highways: $403,924; 
States Fiscal Stabilization Fund: $509,363. 

State: District of Columbia; 
Medicaid FMAP: $87,831; 
Highways: $123,508; 
States Fiscal Stabilization Fund: $59,883. 

State: Florida; 
Medicaid FMAP: $1,394,945; 
Highways: $1,346,735; 
States Fiscal Stabilization Fund: $1,809,196. 

State: Georgia; 
Medicaid FMAP: $521,251; 
Highways: $931,586; 
States Fiscal Stabilization Fund: $1,032,684. 

State: Illinois; 
Medicaid FMAP: $992,042; 
Highways: $935,593; 
States Fiscal Stabilization Fund: $1,376,965. 

State: Iowa; 
Medicaid FMAP: $136,023; 
Highways: $358,162; 
States Fiscal Stabilization Fund: $316,467. 

State: Massachusetts; 
Medicaid FMAP: $1,182,968; 
Highways: $437,865; 
States Fiscal Stabilization Fund: $666,153. 

State: Michigan; 
Medicaid FMAP: $700,522; 
Highways: $847,205; 
States Fiscal Stabilization Fund: $1,066,733. 

State: Mississippi; 
Medicaid FMAP: $225,471; 
Highways: $354,564; 
States Fiscal Stabilization Fund: $321,131. 

State: New Jersey; 
Medicaid FMAP: $549,847; 
Highways: $651,774; 
States Fiscal Stabilization Fund: $891,424. 

State: New York; 
Medicaid FMAP: $3,143,641; 
Highways: $1,120,685; 
States Fiscal Stabilization Fund: $2,021,924. 

State: North Carolina; 
Medicaid FMAP: $657,111; 
Highways: $735,527; 
States Fiscal Stabilization Fund: $951,704. 

State: Ohio; 
Medicaid FMAP: $760,647; 
Highways: $935,677; 
States Fiscal Stabilization Fund: $1,198,882. 

State: Pennsylvania; 
Medicaid FMAP: $1,043,920; 
Highways: $1,026,429; 
States Fiscal Stabilization Fund: $1,276,766. 

State: Texas; 
Medicaid FMAP: $1,448,824; 
Highways: $2,250,015; 
States Fiscal Stabilization Fund: $2,662,203. 

Total Case Study: 
Medicaid FMAP: $16,937,745; 
Highways: $15,550,776; 
States Fiscal Stabilization Fund: $20,836,218. 

Percent of National Total: 
Medicaid FMAP: 70; 
Highways: 58; 
States Fiscal Stabilization Fund: 64. 

National Total: 
Medicaid FMAP: $24,233,145; 
Highways: $26,660,000; 
States Fiscal Stabilization Fund: $32,552,620. 

Notifications as of: 
Medicaid FMAP: April 3, 2009; 
Highways: March 2, 2009; 
States Fiscal Stabilization Fund: April 2, 2009. 

Source: GAO analysis of agency data. 

Note: For Medicaid FMAP amounts shown are the increased Medicaid FMAP 
Grant Awards as of April 3, 2009. For Highways, the amounts shown are 
the full state apportionment. For the SFSF, the amounts shown are the 
initial release of the state allocation. 

[End of table] 

Medicaid FMAP: 

Under the Recovery Act, states are eligible for an increased FMAP for 
expenditures that states make in providing services to their Medicaid 
populations.[Footnote 12] The Recovery Act provides eligible states 
with an increased FMAP for 27 months between October 1, 2008 and 
December 31, 2010. Generally, for fiscal year 2009 through the first 
quarter of fiscal year 2011, the increased FMAP, which is calculated on 
a quarterly basis, provides for: (1) the maintenance of states' prior 
year FMAPs; (2) a general across-the-board increase of 6.2 percentage 
points in states' FMAPs; and (3) a further increase to the FMAPs for 
those states that have a qualifying increase in unemployment rates. 

In our sample of 16 states and the District, officials from 15 states 
and the District indicated that they had drawn down increased FMAP 
grant awards, totaling $7.96 billion for the period of October 1, 2008 
through April 1, 2009--47 percent of their increased FMAP grant awards. 
In our sample, the extent to which individual states and the District 
accessed these funds varied widely, ranging from 0 percent in Colorado 
to about 66 percent in New Jersey. Nationally, the 50 states and 
several territories combined have drawn down approximately $11 billion 
as of April 1, 2009, which represents almost 46 percent of the 
increased FMAP grants awarded for the first three quarters of federal 
fiscal year 2009 (Table 3).[Footnote 13] 

Table 3: FMAP Grant Awards and Funds Drawn Down, for 16 States and the 
District: (Dollars in thousands) 

State: Arizona; 
FMAP grant awards: $534,576; 
Funds drawn: $286,286; 
Percentage of funds drawn: 53.6. 

State: California; 
FMAP grant awards: $3,331,167; 
Funds drawn: $1,511,539; 
Percentage of funds drawn: 45.4. 

State: Colorado; 
FMAP grant awards: $226,959; 
Funds drawn: 0; 
Percentage of funds drawn: 0.0. 

State: District of Columbia; 
FMAP grant awards: $87,831; 
Funds drawn: $49,898; 
Percentage of funds drawn: 56.8. 

State: Florida; 
FMAP grant awards: $1,394,945; 
Funds drawn: $817,025; 
Percentage of funds drawn: 58.6. 

State: Georgia; 
FMAP grant awards: $521,251; 
Funds drawn: $311,515; 
Percentage of funds drawn: 59.8. 

State: Illinois; 
FMAP grant awards: $992,042; 
Funds drawn: $117,081; 
Percentage of funds drawn: 11.8. 

State: Iowa; 
FMAP grant awards: $136,023; 
Funds drawn: $81,663; 
Percentage of funds drawn: 60.0. 

State: Massachusetts; 
FMAP grant awards: $1,182,968; 
Funds drawn: $272,559; 
Percentage of funds drawn: 23.0. 

State: Michigan; 
FMAP grant awards: $700,522; 
Funds drawn: $462,982; 
Percentage of funds drawn: 66.1. 

State: Mississippi; 
FMAP grant awards: $225,471; 
Funds drawn: $114,112; 
Percentage of funds drawn: 50.6. 

State: New Jersey; 
FMAP grant awards: $549,847; 
Funds drawn: $362,235; 
Percentage of funds drawn: 65.9. 

State: New York; 
FMAP grant awards: $3,143,641; 
Funds drawn: $1,739,073; 
Percentage of funds drawn: 55.3. 

State: North Carolina; 
FMAP grant awards: $657,111; 
Funds drawn: $414,644; 
Percentage of funds drawn: 63.1. 

State: Ohio; 
FMAP grant awards: $760,647; 
Funds drawn: $420,630; 
Percentage of funds drawn: 55.3. 

State: Pennsylvania; 
FMAP grant awards: $1,043,920; 
Funds drawn: $330,811; 
Percentage of funds drawn: 31.7. 

State: Texas; 
FMAP grant awards: $1,448,824; 
Funds drawn: $665,665; 
Percentage of funds drawn: 45.9. 

Total: 
FMAP grant awards: $16,937,745; 
Funds drawn: $7,957,718; 
Percentage of funds drawn: 47.0. 

Source: GAO analysis of HHS data. 

Note: FMAP grant awards are those funds awarded as of April 3, 2009, 
and funds drawn down are as of April 1, 2009. 

[End of table] 

In order for states to qualify for the increased FMAP available under 
the Recovery Act, they must meet certain requirements. In particular: 

* Maintenance of Eligibility: In order to qualify for the increased 
FMAP, states generally may not apply eligibility standards, 
methodologies, or procedures that are more restrictive than those in 
effect under their state Medicaid programs on July 1, 2008.[Footnote 
14] In guidance to states, CMS noted that examples of restrictions of 
eligibility could include (1) the elimination of any eligibility groups 
since July 1, 2008 or (2) changes in an eligibility determination or 
redetermination process that is more stringent than what was in effect 
on July 1, 2008. States that fail to initially satisfy the maintenance 
of eligibility requirements have an opportunity to reinstate their 
eligibility standards, methodologies, and procedures before July 1, 
2009 and become retroactively eligible for the increased FMAP. 

* Compliance with Prompt Payment: Under federal law states are required 
to pay claims from health practitioners promptly.[Footnote 15] Under 
the Recovery Act, states are prohibited from receiving the increased 
FMAP for days during any period in which that state has failed to meet 
this requirement.[Footnote 16] Although the increased FMAP is not 
available for any claims received from a practitioner on each day the 
state is not in compliance with these prompt payment requirements, the 
state may receive the regular FMAP for practitioner claims received on 
days of non-compliance. CMS officials told us that states must attest 
that they are in compliance with the prompt payment requirement, but 
that enforcement is complicated due to differences across states in 
methods used to track this information. CMS officials plan to issue 
guidance on reporting compliance with the prompt payment requirement 
and are currently gathering information from states on the methods they 
use to determine compliance. 

* Rainy Day Funds: States are not eligible for an increased FMAP if any 
amounts attributable (either directly or indirectly) to the increased 
FMAP are deposited or credited into any reserve or rainy day fund of 
the state.[Footnote 17] 

* Percentage Contributions from Political Subdivisions: In some states, 
political subdivisions--such as cities and counties--may be required to 
help finance the state's share of Medicaid spending. States that have 
such financing arrangements are not eligible to receive the increased 
FMAP if the percentage contributions required to be made by a political 
subdivision are greater than what was in place on September 30, 2008. 
[Footnote 18] 

In addition to meeting the above requirements, states that receive the 
increased FMAP must submit a report to CMS no later than September 30, 
2011 that describes how the increased FMAP funds were expended, in a 
form and manner determined by CMS.[Footnote 19] In guidance to states, 
CMS has stated that further guidance will be developed for this 
reporting requirement. CMS guidance to states also indicates that, for 
federal reimbursement, increased FMAP funds must be drawn down 
separately, tracked separately, and reported to CMS separately. 
Officials from several states told us they require additional guidance 
from CMS on tracking receipt of increased FMAP funds and on reporting 
on the use of these funds. 

The increased FMAP available under the Recovery Act is for state 
expenditures for Medicaid services.[Footnote 20] However, the receipt 
of this increased FMAP may reduce the state share for their Medicaid 
programs. States have reported using these available funds for a 
variety of purposes. In our sample, individual states and the District 
reported that they would use the funds to maintain their current level 
of Medicaid eligibility and benefits, cover their increased Medicaid 
caseloads--which are primarily populations that are sensitive to 
economic downturns, including children and families, and to offset 
their state general fund deficits thereby avoiding layoffs and other 
measures detrimental to economic recovery. Ten states and the District 
reported using these funds to maintain program eligibility. Nine states 
and the District reported using these funds to maintain benefits. 
Specifically, Massachusetts reported that during a previous financial 
downturn, the state limited the number of individuals eligible for some 
services and reduced certain program benefits that were optional for 
the state to cover. However, with the funds made available as a result 
of the increased FMAP, the state did not have to make such reductions. 
Similarly, New Jersey reported that the state used these funds to 
eliminate premiums for certain children in its State Children's Health 
Insurance Program, allowing it to retain coverage for children whose 
enrollment in the program would otherwise have been terminated for non- 
payment of premiums. Nine states and the District reported using these 
funds to cover increases to their Medicaid caseloads, primarily to 
populations that are sensitive to economic downturns, such as children 
and families. For example, New Jersey indicated that these funds would 
help the state meet the increased demand for Medicaid services. 
According to a New Jersey official, due to significant job losses, the 
state's proposed 2010 budget would not have accommodated all the 
applicants newly eligible for Medicaid and that the funds available as 
a result of the increased FMAP have allowed the state to maintain a 
"safety net" of coverage for uninsured and unemployed people. In 
addition, 10 states and the District indicated that the increased funds 
made available would help offset deficits in their general funds. 
Pennsylvania reported that because funding for its Medicaid program is 
derived, in part, on state revenues, program funding levels fluctuate 
as the economy rises and falls. However, the state was able to use 
funds made available to offset the effects of lower state revenues. 
Arizona officials also reported that the state used funds made 
available as a result of the increased FMAP to pay down some of its 
debt and make payroll payments, thus allowing the state to avoid a 
serious cash flow problem. 

Finally, six states in our sample also reported that they used funds 
made available as a result of the increased FMAP to comply with prompt 
payment requirements. Specifically, Illinois reported that these funds 
will permit the state to move from a 90-day payment cycle to a 30-day 
payment cycle for all Medicaid providers. Three states also reported 
using these funds to restore or to increase provider payment rates. 

In our sample, many states and the District indicated that they need 
additional guidance from CMS regarding eligibility for the increased 
FMAP funds. Specifically, 5 states raised concerns about whether 
certain programmatic changes could jeopardize the state's eligibility 
for these funds. For example Texas officials indicated that guidance 
from CMS is needed regarding whether certain programmatic changes being 
considered by Texas, such as a possible extension of the program's 
eligibility period, would affect the state's eligibility for increased 
FMAP funds. Similarly, Massachusetts wanted clarification from CMS as 
to whether certain changes in the timeframe for the state to conduct 
eligibility re-determinations would be considered a more restrictive 
standard. Four states also reported that they wanted additional 
guidance from CMS regarding policies related to the prompt payment 
requirements or changes to the non-federal share of Medicaid 
expenditures. For example, California officials noted that the state 
reduced Medicaid payments for in-home support services, but that 
counties could voluntarily choose to increase these payments without 
altering the cost sharing arrangements between the counties and the 
state. The state wants clarification from CMS on whether such an 
arrangement would be allowable in light of the Recovery Act 
requirements regarding the percentage of contributions by political 
subdivisions within a state toward the non-federal share of 
expenditures. 

In response to states' concerns regarding the need for guidance, CMS 
told us that it is in the process of developing draft guidance on the 
prompt payment provisions in the Recovery Act. One official noted that 
this guidance will include defining the term practitioner, describing 
the types of claims applicable under the provision, and addressing the 
principles that are integral to determining a state's compliance with 
prompt payment requirements. Additionally, CMS plans to have a 
reporting mechanism in place through which states would report 
compliance under this provision. With regard to Recovery Act 
requirements regarding political subdivisions, CMS described their 
current activities for providing guidance to states. Due to the 
variability of state operations, funding processes, and political 
structures, CMS has been working with states on a case-by-case basis to 
discuss particular issues associated with this provision and to address 
the particular circumstances for each state. A CMS official told us 
that if there were an issue(s) or circumstance(s) that had 
applicability across the states, or if there were broader themes having 
national significance, CMS would consider issuing guidance. 

Highway Infrastructure Investment: 

Of the $27.5 billion provided in the Recovery Act for highway and 
related infrastructure investments, $26.7 billion is provided to the 50 
states for restoration, repair, construction and other activities 
allowed under the Federal-Aid Highway Surface Transportation Program 
and for other eligible surface transportation projects. Nearly one- 
third of these funds are required to be sub-allocated to metropolitan 
and other areas. States must follow the requirements for the existing 
program, and in addition, the Recovery Act requires that the Governor 
must certify that the state will maintain its current level of 
transportation spending, and the governor or other appropriate chief 
executive must certify that the state or local government to which 
funds have been made available has completed all necessary legal 
reviews and determined that the projects are an appropriate use of 
taxpayer funds. The certifications must include a statement of the 
amount of funds the state planned to expend from state sources as of 
the date of enactment, during the period beginning on the date of 
enactment through September 30, 2010, for the types of projects that 
are funded by the appropriation. 

The U.S. Department of Transportation is reviewing the Governors' 
certifications regarding maintaining their level of effort for 
highways. According to the Department, of the 16 states in our review 
and the District of Columbia, three states have submitted a 
certification free of explanatory or conditional language--Arizona, 
Michigan, and New York. Eight submitted "explanatory" certifications-- 
certifications that used language that articulated assumptions used or 
stated the certification was based on the "best information available 
at the time," but did not clearly qualify the expected maintenance of 
effort on the assumptions proving true or information not changing in 
the future. Six submitted a "conditional" certifications, which means 
that the certification was subject to conditions or assumptions, future 
legislative action, future revenues, or other conditions.[Footnote 21] 

Recovery Act funding for highway infrastructure investment differs from 
the usual practice in the Federal-aid Highway Program in a few 
important ways. Most significantly, for projects funded under the 
Recovery Act, the federal share is 100 percent; typically projects 
require a state match of 20 percent while the federal share is 
typically 80 percent. Under the Recovery Act, priority is also to be 
given to projects that are projected to be completed within three 
years. In addition, within 120 days after the apportionment by the 
Department of Transportation to the states (March 2, 2009), and 
specifically before June 30, 2009, 50 percent of the apportioned funds 
must be obligated.[Footnote 22] Any amount of this 50 percent of 
apportioned funding that is not obligated may be withdrawn by the 
Secretary of Transportation and redistributed to other states that have 
obligated their funds in a timely manner. Furthermore, one year after 
enactment the Secretary will withdraw any remaining unobligated funds 
and redistribute them based on states' need and ability to obligate 
additional funds. These provisions are applicable only to those funds 
apportioned to the state and not those funds required by the Recovery 
Act to be suballocated to metropolitan, regional and local 
organizations. 

Finally, states are required to give priority to projects that are 
located in economically distressed areas as defined by the Public Works 
and Economic Development Act of 1965, as amended. In March 2009, FHWA 
directed its field offices to provide oversight and take appropriate 
action to ensure that states gave adequate consideration to 
economically distressed areas in selecting projects. Specifically, 
field offices were directed to discuss this issue with the states and 
to document its review and oversight of this process. 

States are undertaking planning activities to identify projects, obtain 
approval at the state and federal level and move them to contracting 
and implementation. However, because of the steps necessary before 
implementation, states generally had not yet expended significant 
amounts of Recovery Act funds. States are required to reach agreement 
with the Department of Transportation (DOT) on a list of projects 
reimbursement from DOT for these projects. States will then request 
reimbursement from DOT as the state makes payments to contractors 
working on approved projects. 

As of April 16, 2009, the U.S Department of Transportation reported 
that nationally $6.4 billion of the $26.6 billion in Recovery Act 
highway infrastructure investment funding provided to the states had 
been obligated - meaning Transportation and the states had reached 
agreements on projects worth this amount. As shown in Table 4 below, 
for the locations that GAO reviewed, the extent to which the Department 
of Transportation had obligated funds apportioned to the states and 
Washington D.C. ranged from 0 to 65 percent. For two of the states, the 
Department of Transportation had obligated over 50 percent of the 
states' apportioned funds, for 4 it had obligated 30 to 50 percent of 
the states' funds, for 9 states it had obligated under 30 percent of 
funds, and for three it had not obligated any funds. 

Table 4: Highway Apportionments and Obligations as of April 16, 2009 
(Dollars in millions): 

State: Arizona; 
Amount apportioned: $522; 
Amount obligated: $148; 
Percent of apportionment obligated: 28; 
Number of projects: 26. 

State: California; 
Amount apportioned: $2,570; 
Amount obligated: $261; 
Percent of apportionment obligated: 10; 
Number of projects: 20. 

State: Colorado; 
Amount apportioned: $404; 
Amount obligated: $118; 
Percent of apportionment obligated: 29; 
Number of projects: 19. 

State: District of Columbia; 
Amount apportioned: $124; 
Amount obligated: $37; 
Percent of apportionment obligated: 30; 
Number of projects: 1. 

State: Florida; 
Amount apportioned: $1,347; 
Amount obligated: 0; 
Percent of apportionment obligated: 0; 
Number of projects: 0. 

State: Georgia; 
Amount apportioned: $932; 
Amount obligated: 0; 
Percent of apportionment obligated: 0; 
Number of projects: 0. 

State: Illinois; 
Amount apportioned: $936; 
Amount obligated: $606; 
Percent of apportionment obligated: 65; 
Number of projects: 214. 

State: Iowa; 
Amount apportioned: $358; 
Amount obligated: $221; 
Percent of apportionment obligated: 62; 
Number of projects: 107. 

State: Massachusetts; 
Amount apportioned: $425; 
Amount obligated: $64; 
Percent of apportionment obligated: 15; 
Number of projects: 19. 

State: Michigan; 
Amount apportioned: $847; 
Amount obligated: $111; 
Percent of apportionment obligated: 13; 
Number of projects: 27. 

State: Mississippi; 
Amount apportioned: $355; 
Amount obligated: $137; 
Percent of apportionment obligated: 39; 
Number of projects: 32. 

State: New Jersey; 
Amount apportioned: $652; 
Amount obligated: $281; 
Percent of apportionment obligated: 43; 
Number of projects: 12. 

State: New York; 
Amount apportioned: $1,121; 
Amount obligated: $277; 
Percent of apportionment obligated: 25; 
Number of projects: 108. 

State: North Carolina; 
Amount apportioned: $736; 
Amount obligated: $165; 
Percent of apportionment obligated: 22; 
Number of projects: 53. 

State: Ohio; 
Amount apportioned: $936; 
Amount obligated: 0; 
Percent of apportionment obligated: 0; 
Number of projects: 0. 

State: Pennsylvania; 
Amount apportioned: $1,026; 
Amount obligated: $309; 
Percent of apportionment obligated: 30; 
Number of projects: 108. 

State: Texas; 
Amount apportioned: $2,250; 
Amount obligated: $534; 
Percent of apportionment obligated: 24; 
Number of projects: 159. 

Total: 
Amount apportioned: $15,538; 
Amount obligated: $3,269; 
Percent of apportionment obligated: 21; 
Number of projects: 905. 

Source: FHWA. 

Note: Totals may not add due to rounding. 

[End of table] 

In most states we visited, while they had not yet expended significant 
funds, they were planning to solicit bids in April or May. They also 
stated that they planned to meet statutory deadlines for obligating the 
highway funds. A few states had already executed contracts. As of April 
1, 2009, the Mississippi Department of Transportation (MDOT), for 
example, had signed contracts for 10 projects totaling approximately 
$77 million.[Footnote 23] These projects include the expansion of State 
Route 19 in eastern Mississippi into a four-lane highway. This project 
fulfills part of MDOT's 1987 Four-Lane Highway Program which seeks to 
link every Mississippian to a four-lane highway within 30 miles or 30 
minutes. Similarly, as of April 15, 2009, the Iowa Department of 
Transportation had competitively awarded 25 contracts valued at $168 
million. Most often, however, we found that highway funds in the states 
and the District have not yet been spent because highway projects were 
at earlier stages of planning, approval, and competitive contracting. 
For example, in Florida, the Department of Transportation (FDOT) plans 
to use the Recovery Act funds to accelerate road construction programs 
in its preexisting 5-year plan which will result in some projects being 
reprioritized and selected for earlier completion. On April 15, 2009, 
the Florida Legislative Budget Commission approved the Recovery Act- 
funded projects that FDOT had submitted. 

For the most part, states were focusing their selection of Recovery Act-
funded highway projects on construction and maintenance, rather than 
planning and design, because they were seeking projects that would have 
employment impacts and could be implemented quickly. These included 
road repairs and resurfacing, bridge repairs and maintenance, safety 
improvements, and road widening. For example, in Illinois, the 
Department of Transportation is planning to spend a large share of its 
estimated $655 million in Recovery Act funds[Footnote 24] for highway 
and bridge construction and maintenance projects in economically 
distressed areas, those that are shovel-ready, and those that can be 
completed by February 2012. In Iowa, the contracts awarded have been 
for projects such as bridge replacements and highway resurfacing-- 
shovel-ready projects that could be initiated and completed quickly. 
Knowing that the Recovery Act would include opportunities for highway 
investment, states told us they worked in advance of the legislation to 
identify appropriate projects. For example, in New York, the state DOT 
began planning to manage anticipated federal stimulus money in November 
2008. A key part of New York's DOT's strategy was to build on existing 
planning and program systems to distribute and manage the funds. 

State Fiscal Stabilization Fund: 

The states and D.C. must apply to the Department of Education for SFSF 
funds. Education will award funds once it determines that an 
application contains key assurances and information on how the state 
will use the funds. As of April 20, applications from three states had 
met that determination-South Dakota, and two of GAO's sample states, 
California and Illinois. The applications from other states are being 
developed and submitted and have not yet been awarded. The states and 
the District report that SFSF funds will be used to hire and retain 
teachers, reduce the potential for layoffs, cover budget shortfalls, 
and restore funding cuts to programs. The applications to Education 
must contain certain assurances. For example, states must assure that, 
in each of fiscal years 2009, 2010, and 2011, they will maintain state 
support at fiscal year 2006 levels for elementary and secondary 
education and also for public institutions of higher education (IHEs). 
However, the Secretary of Education may waive maintenance of effort 
requirements if the state demonstrates that it will commit an equal or 
greater percentage of state revenues to education than in the previous 
applicable year. The state application must also contain (1) assurances 
that the state is committed to advancing education reform in increasing 
teacher effectiveness, establishing state-wide education longitudinal 
data systems, and improving the quality of state academic standards and 
assessments; (2) baseline data that demonstrates the state's current 
status in each of the education reform areas; and (3) a description of 
how the state intends to use its stabilization allocation. 

Within two weeks of receipt of an approvable SFSF application, 
Education will provide the state with 67 percent of its SFSF 
allocation. Under certain circumstances, Education will provide the 
state with up to 90 percent of its allocation. In the second phase, 
Education intends to conduct a full peer review of state applications 
before awarding the final allocations. 

After maintaining state support for education at fiscal year 2006 
levels, states are required to use the education portion of the SFSF to 
restore state support to the greater of fiscal year 2008 or 2009 levels 
for elementary and secondary education, public IHEs, and, if 
applicable, early childhood education programs. States must distribute 
these funds to school districts using the primary state education 
formula but maintain discretion in how funds are allocated to public 
IHEs. If, after restoring state support for education, additional funds 
remain, the state must allocate those funds to school districts 
according to the funding formula found in Title I, Part A, of the 
Elementary and Secondary Education Act of 1965 (ESEA), commonly known 
as the No Child Left Behind Act. However, if a state's education 
stabilization fund allocation is insufficient to restore state support 
for education, then a state must allocate funds in proportion to the 
relative shortfall in state support to public schools and IHEs. 
Education stabilization funds must be allocated to school districts and 
public IHEs and cannot be retained at the state level. 

Once stabilization funds are awarded to school districts and public 
IHEs, they have considerable flexibility over how they use those funds. 
School districts are allowed to use stabilization funds for any 
allowable purpose under the Elementary and Secondary Education Act 
(ESEA), (commonly known as the No Child Left Behind Act), the 
Individuals with Disabilities Education Act (IDEA), the Adult Education 
and Family Literacy Act, or the Perkins Act, subject to some 
prohibitions on using funds for, among other things, sports facilities 
and vehicles. In particular, because allowable uses under the Impact 
Aid provisions of ESEA are broad, school districts have discretion to 
use Recovery Act funding for things ranging from salaries of teachers, 
administrators, and support staff to purchases of textbooks, computers, 
and other equipment. The Recovery Act allows public IHEs to use SFSF 
funds in such a way as to mitigate the need to raise tuition and fees, 
as well as for the modernization, renovation, and repair of facilities, 
subject to certain limitations. However, the Recovery Act prohibits 
public IHEs from using stabilization funds for such things as 
increasing endowments, modernizing, renovating, or repairing sports 
facilities, or maintaining equipment. According to Education officials, 
there are no maintenance of effort requirements placed on local school 
districts. Consequently, as long as local districts use stabilization 
funds for allowable purposes, they are free to reduce spending on 
education from local-source funds, such as property tax revenues. 

States have broad discretion over how the $8.8 billion in SFSF funds 
designated for basic government services are used. The Recovery Act 
provides that these funds can be used for public safety and other 
government services and that these services may include assistance for 
education, as well as for modernization, renovation, and repairs of 
public schools or IHEs, subject to certain requirements. Education's 
guidance provides that the funds can also be used to cover state 
administrative expenses related to the Recovery Act. However, the Act 
also places several restrictions on the use of these funds. For 
example, these funds cannot be used to pay for casinos (a general 
prohibition that applies to all Recovery Act funds), financial 
assistance for students to attend private schools, or construction, 
modernization, renovation, or repair of stadiums or other sports 
facilities. 

States' expected that SFSF uses by school districts and public IHEs 
would include retaining current staff and spending on programmatic 
initiatives, among other uses. Some states' fiscal condition could 
affect their ability to meet maintenance of effort (MOE) requirements 
in order to receive SFSF monies, but they are awaiting final guidance 
from Education on procedures to obtain relief from these requirements. 
For example, due to substantial revenue shortages, Florida has cut 
their state budget in recent years and the state will not be able to 
meet the maintenance-of-effort requirement to readily qualify for these 
funds. The state will apply to Education for a waiver from this 
requirement; however, they are awaiting final instructions from 
Education on submission of the waiver. Florida plans to use SFSF funds 
to reduce the impact of any further cuts that may be needed in the 
state education budget. 

In Arizona, generally, state officials expect that SFSF recipients, 
such as local school districts, will use their allocations to improve 
the tools they use to assess student performance and determine to what 
extent performance meets federal academic standards, rehire teachers 
that were let go because of prior budget cuts, retain teachers, and 
meet the federal requirement that all schools have equal access to 
highly qualified teachers, among other things. Funds for the state 
universities will help them maintain services and staff as well as 
avoid tuition increases. Illinois officials stated that the state plans 
to use all of the $2 billion in State Fiscal Stabilization funds, 
including the 18.2 percent allowed for government services, for K-12 
and higher education activities and hopes to avert layoffs and other 
cutbacks many districts and public colleges and universities are facing 
in their fiscal year 2009 and 2010 budgets. State Board of Education 
officials also noted that U.S. Department of Education guidance allows 
school districts to use stabilization funds for education reforms, such 
as prolonging school days and school years, where possible. However, 
officials said that Illinois districts will focus these funds on 
filling budget gaps rather than implementing projects that will require 
long-term resource commitments. While planning is underway, most of the 
selected states reported that they have not yet fully decided how to 
use the 18.2 percent of the SFSF which is discretionary. 

Localities Report Limited Initial Use of Recovery Act Funds: 

In addition to funds for Medicaid, transportation, and SFSF which flow 
primarily directly to the states, the Recovery Act provided funds for 
other program areas ranging from housing to training to alternative 
energy. Localities' planning for the use of Recovery Act education 
funds varied according to both the status of federal guidance in place 
at the time of our review and individuals states' and localities' own 
planning process. New Jersey state education officials said they were 
initially limited in their ability to provide guidance to local 
institutions because they were awaiting guidance from the U.S. 
Department of Education. As a result, school district officials we 
interviewed in Newark and Trenton said they are waiting for state 
officials to tell them what their allocations are for each of the 
federal Recovery Act education programs. The timing of the federal and 
state guidelines for these funds are important as the local schools 
districts are planning their upcoming fiscal year budgets and would 
like to know how the Recovery Act funds would complement their upcoming 
school spending. According to the governor's chief of staff, the state 
already funds local school districts with $8.8 billion in state funds, 
so ensuring accountability for the use of state funds to so many school 
districts is not a new challenge to the state oversight agencies. On 
April 1, 2009, the U.S. Department of Education issued guidance to the 
states on how Recovery Act funds could be used for education. State 
officials are continuing to review the guidance, and on April 16, 2009, 
issued guidance to local school districts outlining each district's 
allocation of additional funds made available under the Recovery Act 
for programs authorized under Title I of the Elementary and Secondary 
Education Act (ESEA) and the Individuals with Disabilities Education 
Act. In Arizona, Tempe School District No. 3 plans to use the vast 
majority of the Recovery Act funding for ESEA Title I for existing 
programs, but it has tentative plans to use portions of it each year to 
hire two temporary regional facilitators and to fund five existing 
preschool programs, among other uses. 

Officials from the selected states and the District said there were 
plans in place to apply for and use Recovery Act funds. For example, 
Michigan plans to apply for $67 million in Recovery Act funds for crime 
control and prevention activities under the Department of Justice's 
Edward Byrne Memorial Justice Assistance Grants. Michigan Department of 
Community Health officials told us that about $41 million of these 
funds will support, among other things, state efforts to reduce the 
crime lab backlog, funding for multi-jurisdictional courts, and 
localities' efforts regarding law enforcement programs, community 
policing, and local correctional resources. An additional $26 million 
in Recovery Act funds will go directly to localities to support efforts 
against drug-related and violent crime. On April 13, 2009, Michigan 
began accepting grant applications for the Byrne program and will 
continue to accept them until May 11, 2009. In another example, 
officials in the District told us that as of April 3, 2009, the 
District Department of Employment Services had received about $1.5 
million for adult Workforce Investment Act (WIA) programs, about $3.8 
million for dislocated workers programs, and almost $4 million for 
youth programs. They said that D.C. plans to use these Recovery Act 
funds in accordance with the U.S. Department of Labor's guidance 
stating the intent of the Recovery Act to use WIA Adult funds to 
provide the necessary services to substantially increased numbers of 
adults to support their entry or reentry into the job market, and that 
WIA Dislocated Worker funds be used to provide the necessary services 
to dislocated workers to support their reentry into the job market. 

Recovery Act Funds Expected to Alleviate Some State Fiscal Pressures As 
States Continue to Adjust Budget Plans to Address Current and Emerging 
Challenges: 

Officials in all of the selected states indicated they were able to 
reduce or eliminate expected budget shortfalls through the inclusion of 
Recovery Act funds in their budget projections. In Texas, some 
representatives told us that absent the availability of Recovery Act 
funds, state agencies likely would have been asked to make cuts of 
about 10 percent for the state's fiscal year 2010-2011 biennial budget, 
in addition to the state drawing upon the rainy day fund. However, 
other officials representing the Texas Office of the Governor said that 
budget deficit situations do not necessarily result in the state using 
its rainy day fund. The officials stressed that--to meet the 
requirement to pass a balanced budget--a variety of other solutions 
could be considered, such as budget reallocations among state agencies 
and programs, as well as spending cuts. Colorado officials said 
Recovery Act funds will help prevent cuts to state programs such as 
transportation. Illinois officials said the state hopes to avert 
layoffs and create new jobs with Recovery Act funds. 

Officials in Massachusetts also said that federal Recovery Act funds 
are critical to addressing the Commonwealth's immediate fiscal 
pressures. State officials expect to use a significant portion of funds 
made available as a result of their state-projected $8.7 billion in 
Recovery Act funds (over 2 years) for budget stabilization. As of April 
2009, the Commonwealth is addressing a budget shortfall of 
approximately $3.0 billion, driven largely by lower-than-anticipated 
revenues. The combination of funds made available as a result of the 
increased FMAP and state rainy day funds--a reserve fund built up 
during more favorable economic conditions to be used during difficult 
economic times--will help the state avoid cuts in several areas, 
including health care, education, and public safety. Faced with 
declining revenue projections since fiscal year 2008, Pennsylvania 
officials believe that funds made available as a result of the Recovery 
Act are critical to help alleviate the immediate fiscal pressure and 
help balance the state budget. Based on February 2009 projections, 
Pennsylvania faces a $2.3 billion shortfall in fiscal year 2009, 
largely because of lower-than-expected revenues. 

Despite the infusion of Recovery Act funds into state budgets, some 
state officials reported that the current fiscal situation still 
requires action to maintain balanced budgets. These actions include 
budget reductions, fee increases and scaling back of state rebates of 
local property taxes. In Georgia, officials amended the state budget by 
reducing revenue estimates, using reserves, and cutting program 
funding. These actions were necessary despite the inclusion of 
additional Medicaid funds made available as a result of the Recovery 
Act. The largest budget cuts in New Jersey come from scaling back of 
state rebates of local property taxes by $500 million, and reducing 
state payments to the pension funds by $895 million. 

Officials in the selected states acknowledged the Recovery Act's 
contributions to easing immediate fiscal pressures but remain wary of 
continued fiscal pressures likely to remain after federal assistance 
ends. Officials in several states reported that their planning efforts 
focused on maintaining existing services rather than creating new 
programs or staff positions which could extend their state's financial 
liabilities beyond the end date for Recovery Act funds. Officials 
generally expected to use Recovery Act funds to fill gaps in existing 
programs rather than funding new initiatives. In the midst of program 
budget cuts, state officials acknowledged the challenge of ensuring 
that, where required to do so, they use Recovery Act funds to 
supplement and not supplant current state program funds.[Footnote 25] 
For example, in Arizona, programs receiving Recovery Act funds may have 
a share of the state general fund reduced to help balance the fiscal 
year 2010 budget, thus demonstrating the state has met the prohibition 
on supplanting state funds could be a challenge. The Arizona 
Treasurer's Office estimated that even with Recovery Act funding, 
Arizona's expenditures were expected to exceed revenues through about 
2014, and the state's "rainy day" fund has been depleted.[Footnote 26] 

In California, even when the state Legislative Analyst's Office factors 
in the state's anticipated Recovery Act funding and a package of state 
budget solutions that will be voted on in a May 19, 2009 special 
election, it estimates an $8 billion deficit in fiscal year 2009-10. 
Further, since the release of the governor's budget in January 2009, 
the state's economic condition continues to deteriorate, and the state 
legislature and governor may need to develop additional budgetary 
solutions to rebalance the 2009-10 budget following an update of the 
budget in May.[Footnote 27] 

States' Actions to Plan for Use of Recovery Act Funds Include New and 
Existing Entities and Processes: 

All of the 16 selected states and the District reported taking action 
to plan for and monitor the use of Recovery Act funding. Some states 
reported that Recovery Act planning activities for funds received by 
the state are directed primarily by the governor's office. In New York, 
for example, the governor provides program direction to the state's 
departments and offices, and he established a Recovery Act Cabinet 
comprised of representatives from all state agencies and many state 
authorities to coordinate and manage Recovery Act funding throughout 
the state. In North Carolina, Recovery Act planning efforts are led by 
the newly created Office of Economic Recovery and Investment, which was 
established by the governor to oversee the state's economic recovery 
initiatives. 

Other states reported that their Recovery Act planning efforts were 
less centralized. In Mississippi, the governor has little influence 
over the state Departments of Education and Transportation, as they are 
led by independent entities. In Texas, oversight of federal Recovery 
Act funds involves various stakeholders, including the Office of the 
Governor, the Office of the Comptroller of Public Accounts, and the 
State Auditor's Office as well as two entities established within the 
Texas legislature specifically for this purpose--the House Select 
Committee on Federal Economic Stabilization Funding and the House 
Appropriations' Subcommittee on Stimulus.[Footnote 28] 

Several states reported that they have appointed "Recovery Czars" or 
identified a similar key official and established special offices, task 
forces or other entities to oversee the planning and monitor the use of 
Recovery Act funds within their states. In Michigan, the governor 
appointed a recovery czar to lead a new Michigan Economic Recovery 
Office, which is responsible for coordinating Recovery Act programs 
across all state departments and with external stakeholders such as 
GAO, the federal OMB, and others. 

Some states began planning efforts before Congress passed the Recovery 
Act. For example, the state of Georgia recognized the importance of 
accounting for and monitoring Recovery Act funds and directed state 
agencies to take a number of steps to safeguard Recovery Act funds and 
mitigate identified risks. Georgia established a small core team in 
December 2008 to begin planning for the state's implementation of the 
Recovery Act. Within 1 day of enactment, the governor appointed a 
Recovery Act Accountability Officer, and she formed a Recovery Act 
implementation team shortly thereafter. The implementation team 
includes a senior management team, officials from 31 state agencies, an 
accountability and transparency support group comprised of officials 
from the state's budget, accounting, and procurement offices, and five 
cross-agency implementation teams. At one of the first implementation 
team meetings, the Recovery Act Accountability Officer disseminated an 
implementation manual to agencies, which included multiple types of 
guidance on how to use and account for Recovery Act funds, and new and 
updated guidance is disseminated at the weekly implementation team 
meetings. 

In contrast, officials in some states are using existing mechanisms 
rather than creating new offices or positions to lead Recovery Act 
efforts. For example, a District official stated that the District 
would not appoint a Recovery Czar, and instead would use its existing 
administrative structures to distribute and monitor Recovery Act funds 
to ensure quick disbursement of funds. In Mississippi, officials from 
the Governor's Office said that the state did not establish a new 
office to provide statewide oversight of Recovery Act funding, in part 
because they did not believe that the act provided states with funds 
for administrative expenses--including additional staff. The Governor 
did designate a member of his staff to act as a stimulus coordinator 
for Recovery Act activities. 

All 16 states we visited and the District have established Recovery Act 
web sites to provide information on state plans for using Recovery 
funding, uses of funds to date, and, in some instances, to allow 
citizens to submit project proposals. For example, Ohio has created 
[hyperlink, http://www.recovery.Ohio.gov], which represents the state's 
efforts to create an open, transparent, and equitable process for using 
Recovery Act funds. The state has encouraged citizens to submit 
proposals for use of Recovery Act funds, and as of April 8, 2009, 
individuals and organizations from across Ohio submitted more than 
23,000 proposals. Iowa officials indicated they want to use the state's 
recovery web site [hyperlink, http://www.recovery.Iowa.gov] to host a 
"dashboard" function to report updated information on Recovery Act 
spending that is easily searchable by the public. Also in Colorado, the 
state plans to create a web-based map of projects receiving Recovery 
Act funds to help inform the public about the results of Recovery Act 
spending in Colorado. 

States' Legislatures Approve Use of Recovery Act Funds: 

In many states we spoke to, officials reported that their planning 
efforts were affected by the need for the state legislature to approve 
state agencies' use of Recovery Act funds.[Footnote 29] For example, in 
Florida, the state legislature must authorize the use of all Recovery 
Act funds received by the state; including those passed on to local 
governments. In Colorado, some Recovery Act funds, including those 
going to Child Care Development Block Grants (CDBG) and the Temporary 
Assistance to Needy Families (TANF) Emergency Contingency Fund, must be 
allocated by the Colorado General Assembly, which is in session only 
through early May. Mississippi officials also plan to use Recovery Act 
funds to address the state's fiscal challenges. Mississippi legislative 
officials we met with told us that the state legislature was 
considering adding escalation language to the current fiscal year's 
appropriations bills that would authorize state agencies to spend any 
Recovery Act funds received. The legislature normally conducts its 
regular session between the beginning of January and the end of March. 
However, the legislature recessed early during the 2009 regular session 
in part because of uncertainty regarding how Recovery Act funds that 
the state will receive should be spent. The legislature plans to 
reconvene in early May 2009 to complete its work on the state's fiscal 
year 2010 budget. 

Selected States' and the District's Plans to Track Recovery Act Funds: 

The selected states' and localities' tracking and accounting systems 
are critical to the proper execution and accurate and timely recording 
of transactions associated with the Recovery Act. OMB has issued 
guidance to the states and localities that provides for separate 
"tagging" of Recovery Act funds so that specific reports can be created 
and transactions can be traced. Officials from all 16 of the selected 
states and the District told us they have established or were 
establishing methods and processes to separately identify (i.e., tag), 
monitor, track, and report on the use of the Recovery Act funds they 
receive. The states and localities generally plan on using their 
current accounting system for recording Recovery Act funds, but many 
are adding identifiers to account codes to track recovery act funds 
separately. Many said this involved adding digits to the end of 
existing accounting codes for federal programs. In California for 
instance, officials told us that while their plans for tracking, 
control, and oversight are still evolving, they intend to rely on 
existing accountability mechanisms and accounting systems, enhanced 
with newly created codes, to separately track and monitor Recovery Act 
funds that are received by and pass through the state. Several 
officials told us that the state's accounting system should be able to 
track Recovery Act funds separately. 

In one state, Arizona, officials told us that state agencies will 
primarily be responsible for administering, tracking, reporting on and 
overseeing Recovery Act funds for their respective programs because the 
state government is highly decentralized. The state's existing 
accounting system will have new accounting codes added in order to 
segregate and track the Recovery Act funds separately from other funds 
that will flow through the state government. Under Arizona's 
decentralized government, some larger agencies, and program offices 
within them, have their own accounting systems that will need to code 
and track Recover Act funds as well. The Arizona General Accounting 
Office has issued guidance to state agencies on their responsibilities, 
including how they were to receive, disburse, tag or code in their 
accounting systems, track separately, and to some extent report on 
these federal resources. 

A concern expressed by state officials is that agencies within the 
state often use different accounting software making it difficult to 
ensure consistent and timely reporting. For example, Georgia officials 
stated that the majority of state agencies use the same software; 
however, some agencies do not use this software and others have greatly 
customized the software. Similarly, officials from the Illinois Office 
of the Internal Auditor said that the state is assessing an issue that 
could affect reporting --specifically that there are currently more 
than 100 separate financial systems used throughout the Illinois state 
government. Furthermore, Colorado state officials are concerned that 
their accounting system is outdated and said they faced challenges in 
meeting federal reporting requirements. Some state departments do not 
use the state financial system grant module and therefore manually post 
aggregate revenue and expenditure data. As a result, they may have to 
compile a list of Recovery Act funding received outside of their 
central financial management system. State officials are determining 
what approach they will use in tracking funds, and told us they plan to 
create an accounting fund and a centrally defined budget coding 
structure through which to track state agencies' use of Recovery Act 
funds. 

State Concerns Over Accountability of Recovery Act Funds Going to Sub- 
Recipients or Directly to Localities and Other Non-State Entities: 

State officials reported a range of concerns regarding the federal 
requirements to identify and track Recovery Act funds going to sub- 
recipients, localities and other non-state entities. These concerns 
include their inability to track these funds with existing systems, 
uncertainty regarding state officials' accountability for the use of 
funds which do not pass through state government entities, and their 
desire for additional federal guidance to establish specific 
expectations on sub-recipient reporting requirements. 

Officials from many of the 16 selected states and the District told us 
that they had concerns about the ability of sub-recipients, localities, 
and other non-state entities to separately tag, monitor, track, and 
report on the Recovery Act funds they receive. For example, in New 
Jersey officials noted that certain towns and cities, as well as 
regional planning organizations, can apply for and directly receive 
federal funds under the terms of the Recovery Act. According to the 
state Inspector General, the risk for waste, fraud and abuse increases 
the farther removed an organization is from state government controls. 
While some state officials said that they have statewide investigative 
authority, they would not be able to readily track the funding going 
directly to local and regional government organizations and nonprofits 
as a result of the funding delivery and reporting requirements set up 
in the Recovery Act. In addition, staff from the State Auditor's office 
noted that some smaller cities and towns in New Jersey are not used to 
implementing guidance from the state or federal government on how they 
are using program funds and this could result in the localities 
reporting using funds for ineligible purposes. 

Officials in many states expressed concern about being held accountable 
for funds flowing directly from federal agencies to localities or other 
recipients. For example, officials in Colorado expressed concern that 
they will be held accountable for all Recovery Act funds flowing to the 
state, including those funds for which they do not have oversight or 
even information about, because some funds flow directly to non-state 
entities within Colorado (such as school districts and transportation 
districts). 

Officials in some states said they would like to at least be informed 
about funds provided to non-state entities in order to facilitate 
planning for the use of these funds and so they can coordinate Recovery 
Act activities. For example, Georgia officials do not expect to track 
and report on funds going directly to localities, but would like to be 
informed about these funds so that the state can coordinate with 
localities. They cited Recovery Act-funded broadband initiatives and 
health funding to nonprofit hospitals as areas where a lack of 
coordination could result in a duplication of services or missed 
opportunities to leverage resources. Officials at the Colorado 
Department of Public Safety told us that, because Colorado and other 
states expressed interest in receiving data on localities' grant 
funding, the federal Bureau of Justice Assistance in the U.S. 
Department of Justice began providing data to the states on localities' 
funding. 

In another example, officials told us that the Ohio Administrative 
Knowledge System (OAKS) will allow the state to tag Recovery Act 
funding. However, they said in many cases state agencies will rely on 
grantees and contractors to track the funds to their end use. Because 
the state intends to code each Recovery Act funding stream separately 
and recipients typically manage more than one funding stream at a time, 
state officials said recipients should be able to track Recovery Act 
funds separately from other funding sources. However, state and local 
officials we interviewed raised concerns about the capacity of grantees 
and contractors to track funds spent by sub-recipients. For example, 
officials with the Ohio Department of Education said they can track 
Recovery Act funds to school districts and charter schools, but they 
have to rely on the recipients' financial systems to be able to track 
funds beyond that. An official with the Columbus City Schools said that 
while they could provide assurances that Recovery Act funds were spent 
in accordance with program rules; they could not report back 
systematically how each federal Recovery Act dollar was spent. 
Officials with the Columbus Metropolitan Housing Authority also noted 
limitations in how far they could reasonably be expected to track 
Recovery Act funds. They said they could track Recovery Act dollars to 
specific projects but could not systematically track funds spent by 
subcontractors on materials and labor. These officials added, however, 
that if they required the contractors to collect this information from 
their subcontractors, they would be able to report back with great 
detail. Still, they said, without additional guidance from the federal 
government on specific reporting requirements, they were hesitant to 
specify requirements for their contractors to collect the data. 

Pennsylvania officials said that the state will rely on sub-recipients 
to meet reporting requirements at the local level. Recipients and sub- 
recipients can be local governments or other entities such as transit 
agencies. For example, about $367 million in Recovery Act money for 
transit capital assistance and fixed guideway (such as commuter rails 
and trolleys) modernization was allocated directly to areas such as 
Philadelphia, Pittsburgh, and Allentown. State officials also told us 
that the state would not track or report Recovery Act funds that go 
straight from the federal government to localities and other entities, 
such as public housing authorities. 

Officials in several states indicated that either their states would 
not be tracking Recovery Act funds going to the local levels or that 
they were unsure how much data would be available on the use of these 
funds. For example, Massachusetts officials told us that the portion of 
recovery funds going directly to recipients other than Massachusetts 
state government agencies, such as independent state authorities, local 
governments, or other entities, will not be tracked through the Office 
of the Comptroller. While state officials acknowledged that the 
Commonwealth lacks authority to ensure adequate tracking of these 
funds, they also are concerned about the ability of smaller entities to 
manage Recovery Act funds, particularly smaller municipalities that 
traditionally do not receive federal funds and who are not familiar 
with Massachusetts tracking and procurement procedures, and recipients 
receiving significant increases in federal funds. In order to address 
this concern, the state administration introduced emergency legislation 
that, according to state officials, includes a provision requiring all 
entities within Massachusetts that receive Recovery Act money to 
provide information to the state on their use of Recovery Act funds. 
Nevertheless, two large non-state government entities we spoke with-- 
the city of Boston and the Massachusetts Bay Transportation Authority 
(an independent authority responsible for the metropolitan Boston's 
transit system)--believe that their current systems, with some 
modifications, will allow them to meet Recovery Act requirements. For 
example, the city of Boston hosted the Democratic National Convention 
in 2004 and officials said that their system was then capable of 
segregating and tracking a sudden influx of temporary funds. 

This response was common among the selected states. For example, 
officials in Florida told us that the state's accounting system will 
not track the portion of Recovery Act funds that flow directly to local 
entities from federal agencies. Officials in Michigan's Auditor 
General's Office told us that their oversight responsibilities do not 
include most sub-recipients that receive direct federal funding, so any 
upfront safeguards to track or ensure accountability have not been 
determined.[Footnote 30] Mississippi officials also said that although 
special accounting codes will be added to the Statewide Automated 
Accounting System in order to track the expenditure of Recovery Act 
funds, the system would not track Recovery Act funds allocated directly 
to local and regional government organizations and nonprofit 
organizations. 

In Arizona, the portion of recovery funds going directly to recipients 
other than Arizona government agencies, such as independent state 
authorities, local governments, or other entities, may not be tracked 
by the state. State officials expressed concern that they may not be 
able to attest to localities' ability to tag, track, and report on 
Recovery Act funds when these entities receive the moneys directly from 
federal agencies rather than through state agencies. Department heads 
and program officials generally expected that they could require sub- 
recipients receiving funds from the state, through agreements, grant 
applications, and revised contract provisions, to separately track and 
report Recovery Act funding. For example, unemployment program managers 
said they were issuing new intergovernmental agreements with localities 
to cover new reporting requirements. However, several of the state 
officials did raise questions about the ability of some local 
organizations to do this, such as small, rural entities, boards or 
commissions, or private entities not used to doing business with the 
federal government. Furthermore, several of the state department 
officials acknowledged that either some state agency information 
systems have data reliability problems, which will have to be resolved, 
or they had sub-recipients who in the past had problems providing 
timely and accurate reporting, but said that they would work with these 
entities to comply, and also had sanctions to use as a last resort. 

Officials in Arizona, Florida, Georgia, and New York, also expressed 
concern that the new requirement to provide reports on use of Recovery 
Act funds within 10 days after a quarter ends may be challenging to 
meet by both state and local entities. In some program areas, some 
state officials raised concerns that the Recovery Act requirement will 
create much shorter deadlines for processing financial data that local 
areas will have difficultly meeting. 

Selected States' and Localities' Internal Controls and Safeguards to 
Manage and Mitigate the Risk of Mismanagement, Waste, Fraud, and Abuse 
of Recovery Act Funds: 

The selected states and the District are taking various approaches to 
ensure that internal controls are in place to manage risk up-front, 
rather than after problems develop and deficiencies are identified 
after the fact, and have different capacities to manage and oversee the 
use of Recovery Act funds. Many of these differences result from the 
underlying differences in approaches to governance, organizational 
structures, and related systems and processes that are unique to each 
jurisdiction. A robust system of internal control specifically designed 
to deal with the unique and complex aspects of the Recovery Act funds 
will be key to helping management of the states and localities achieve 
the desired results. Effective internal control can be achieved through 
numerous different approaches, and, in fact, we found significant 
variation in planned approaches by state. For example, 

* New York's Recovery Act cabinet plans to establish a working group on 
internal controls; the Governor's office plans to hire a consultant to 
review the state's management infrastructure and capabilities to 
achieve accountability, effective internal controls, compliance and 
reliable reporting under the act; and, the state plans to coordinate 
fraud prevention training sessions. 

* Michigan's Recovery Office is developing strategies for effective 
oversight and tracking of the use of Recovery Act funds to ensure 
compliance with accountability and transparency requirements. 

* Ohio's Office of Internal Audit plans to assess the adequacy and 
effectiveness of the current internal control framework and test 
whether state agencies adhere to the framework. 

* Florida's Chief Inspector General established an enterprise-wide 
working group of agency program Inspectors General who are updating 
their annual work plans by including the Recovery Act funds in their 
risk assessments and will leave flexibility in their plans to address 
issues related to funds. 

* Massachusetts's Joint Committee on Federal Recovery Act Oversight 
will hold hearings regarding the oversight of Recovery Act spending. 

* Georgia's State Auditor plans to provide internal control training to 
state agency personnel in late April. The training will discuss basic 
internal controls, designing and implementing internal controls for 
Recovery Act programs, best practices in contract monitoring, and 
reporting on Recovery Act funds. 

States' and Localities' Internal Controls Will Be Critical to Ensuring 
That Recovery Act Funds Are Used Appropriately: 

Internal controls include management and program policies, procedures, 
and guidance that help ensure effective and efficient use of resources; 
compliance with laws and regulations; prevention and detection of 
fraud, waste, and abuse; and the reliability of financial reporting. 
Because Recovery Act funds are to be distributed as quickly as 
possible, controls are evolving as various aspects of the program 
become operational. Effective internal control is a major part of 
managing any organization to achieve desired outcomes and manage risk. 
GAO's Standards for Internal Control include five key elements: control 
environment, risk assessment, control activities, information and 
communication, and monitoring.[Footnote 31] 

Control Environment: 

The control environment should create a culture of accountability by 
establishing a positive and supportive attitude toward improvement and 
the achievement of established program outcomes. Control environment 
includes the integrity and ethical values maintained and demonstrated 
by management, the organizational structure, and management's 
philosophy and operating style. As detailed earlier in this report, 
although the implementation has varied, many locations we reviewed have 
attempted to enhance their control environment through the appointment 
of a Recovery czar or the establishment of boards or working groups 
that focus on the Recovery Act. Also, as noted earlier, state officials 
expressed concerns about the reliability and accuracy of data coming 
from localities. 

Risk Assessments: 

The second feature of strong internal controls is risk assessment--that 
is, performing comprehensive reviews and analyses of program operations 
to determine if risks exist and the nature and extent of risks have 
been identified. Some states told us that they are conducting such risk 
assessments and the existing body of work by state auditors and others 
provide a good roadmap for states to use to pinpoint key areas of 
concern and to strengthen internal controls and subsequent oversight. 
For example, the Illinois Office of Internal Audit is performing a risk 
assessment of all programs related to the Recovery Act, and North 
Carolina's Office of Internal Audit is assessing the risk of the state 
department's financial management system and internal controls. 
Michigan's major state departments are conducting self assessments of 
controls, including identification of internal control and programmatic 
weaknesses. In Georgia, the budget office is requiring state agencies 
to complete a tool that assesses risk as part of the budget process for 
the Recovery Act funds. Selected states have thus far identified 
various risks that the Recovery Act funds and programs face, including 
Georgia officials identifying three state departments with increased 
risk--the Georgia Department of Labor that is on a different accounting 
system than other state departments, the Georgia Department of 
Transportation which had previously identified accounting problems and 
is currently being reorganized, and the Georgia Department of Human 
Resources, which is currently being divided into three parts, which 
increases risk. Additionally, Massachusetts' fiscal year 2007 Single 
Audit report also identified deficiencies, especially in the Department 
of Education's sub-recipient monitoring. 

Officials in several of the selected states told us that risk 
assessment is being conducted to look at programs receiving Recovery 
Act funds. Officials in Texas' State Auditor's Office noted that 
relatively high risks generally can be anticipated with certain types 
of programs such as new programs with completely new processes and 
internal controls; programs that distribute significant amounts of 
funds to local governments or boards, and programs that rely on sub- 
recipients for internal controls and monitoring. Officials from New 
York, North Carolina, and Pennsylvania commented that the 
weatherization program was an example of a program at increased risk. 

The results of recent audits are a readily available source of 
information to use in the risk assessment process. Material weaknesses 
and other conditions identified in an audit represent potential risks 
that can be analyzed for their significance and occurrence that will 
allow management and others to decide how to manage the risk and what 
actions should be taken. A readily available source of information on 
internal control weaknesses and other risks present in the states and 
other jurisdictions receiving Recovery Act funding is the Single Audit 
report, prepared to meet the requirements of the Single Audit Act, as 
amended (Single Audit Act) and OMB's implementing guidance in OMB 
Circular No. A-133, Audits of States, Local Governments, and Non-Profit 
Organizations. The Single Audit Act adopted a single audit concept to 
help meet the needs of federal agencies for grantee oversight and 
accountability as well as grantees' needs for single, uniformly 
structured audits. The Single Audit Act requires states, local 
governments and nonprofit organizations expending over $500,000 in 
federal awards in a year to obtain an audit in accordance with 
requirements set forth in the Act. [Footnote 32] A single audit 
consists of (1) an audit and opinions on the fair presentation of the 
financial statements and the Schedule of Expenditures of Federal Awards 
(SEFA); (2) gaining an understanding of and testing internal control 
over financial reporting and the entity's compliance with laws, 
regulations, and contract or grant provisions that have a direct and 
material effect on certain federal programs (i.e., the program 
requirements),[Footnote 33] and (3) an audit and an opinion on 
compliance with applicable program requirements for certain federal 
programs. The audit report also includes the auditor's schedule of 
findings and questioned costs, and the auditee's corrective action 
plans and a summary of prior audit findings that includes planned and 
completed corrective actions. Auditors are also required to report on 
significant deficiencies in internal control and on compliance 
associated with the audit of the financial statements. 

For example, in California, the most recent single audit conducted by 
the State Auditor for fiscal year 2007 identified 81 material 
weaknesses, 27 of which were associated with programs we reviewed for 
purposes of this report.[Footnote 34] The State Auditor plans to use 
past audit results to target state agencies and programs with a high 
number and history of problems, including data reliability concerns, 
and is closely coordinating with us on these efforts. For example, the 
fiscal year 2007 State Single Audit Report identified 8 material 
weaknesses pertaining to the ESEA Title I program and the Individuals 
with Disabilities Education Act programs. The audit findings included a 
material weakness in the California Department of Education's 
management of cash because it disbursed funds without assurances from 
LEAs that the time between the receipt and disbursement of federal 
funds was minimized, contrary to federal guidelines. Education 
officials told us that they have addressed some of these material 
weaknesses and, in other cases, they are still working to correct them. 
If these and other material weaknesses are not corrected, they may 
affect the state's ability to appropriately manage certain Recovery Act 
funds. The State Auditor's Office told us that it is in the process of 
finalizing the fiscal year 2007 State Single Audit Report and plans to 
issue the report within the next 30 days. In addition, the State 
Auditor's Office is summarizing the results of the single audit to 
identify those programs that continue to have material weaknesses. 
Finally, the State Auditor's Office plans to use the results of other 
audits it has conducted in conjunction with the single audit to develop 
its approach for determining the state's readiness to receive the large 
influx of federal funds and comply with the requirement regarding the 
use of those funds under the Recovery Act. 

Arizona's fiscal year 2007 Single Audit report identified a number of 
material weaknesses related to the state Department of Education. The 
report identified a material weakness involving IDEA where the state 
department had not reviewed sub-recipients to ensure that federal 
awards were used for authorized purposes in compliance with laws, 
regulations, and the provisions of contracts or grant agreements. The 
Audit report also identified one financial reporting material 
weaknesses related to the state Department of Administration's ability 
to prepare timely financial statements, including its Comprehensive 
Annual Financial Report (CAFR). In fiscal year 2007, the CAFR was 
issued in June 2008, approximately 6 months after the scheduled 
deadline. According to the Auditor General's Office, the fiscal year 
2008 CAFR will also be completed late as the last agency submitted its 
financial statement on March 9, 2008. According to the Auditor 
General's Office, this control deficiency affects the timeliness of 
financial reporting which affects the needs of users. It is especially 
important that Arizona try to address the timeliness issue with regard 
to financial statements given the number and strict reporting timelines 
that are imposed on states under the Recovery Act. 

Control Activities: 

The third element of a comprehensive system of internal controls is 
that of control activities, which involve taking actions to address 
identified risk areas and help ensure that management's decisions, 
directives, and plans are carried out and program objectives met. 
Various control activities already exist and are also being put in 
place in the states related to the Recovery Act. Control activities for 
states and localities consist of the policies, procedures, and guidance 
that enforce management's directives and achieve effective internal 
control over specific program activities. Examples of such policies and 
procedures particularly relevant to the Recovery Act spending are (1) 
proper execution and accurate and timely recording of transactions and 
events, (2) controls to help ensure compliance with program 
requirements, (3) establishment and review of performance measures and 
indicators, and (4) appropriate documentation of transactions and 
internal control. 

Documented policies, procedures and guidance that are effectively 
implemented will be critical tools for states and localities management 
and staff as well as program recipients for achieving good management 
of Recovery Act programs. Control activities are also key in helping to 
achieve accurate, reliable reporting of information and results. 

Effective control activities and monitoring are key to achieving this 
objective. Pennsylvania's Auditor General also found potential 
weaknesses and vulnerabilities in programs expected to receive Recovery 
Act funds.[Footnote 35] For example, a recent Auditor General report 
found, among other things, weak internal controls, weaknesses in 
contracting, and inconsistent verification and inspection of 
subcontractor work in the state's Weatherization Assistance Program. 
States and localities that receive and administer the Recovery Act 
funds will be expected to minimize fraud, waste, and abuse in 
contracting. 

According to Florida state officials, the state completed an initiative 
to strengthen contracting requirements several years ago. For example, 
the majority of state contracts greater than $1 million are required to 
be reviewed for certain criteria by the Department of Financial 
Services' Division of Accounting and Auditing before the first payment 
is processed. The contract must also be negotiated by a contract 
manager certified by the Florida Department of Management Services, 
Division of State Purchasing Training and Certification Program. In 
another example of efforts to enhancing contracting processes and 
oversight, officials in New Jersey told us that the controls and 
reports will be put into place by the state's centralized purchasing 
department, the Division of Purchase and Property (DPP). The current 
accounting system will be able to account for and control the use of 
Recovery Act funds used for procurement because DPP will create special 
accounting codes for these funds. New Jersey officials stated that 
their accounting systems had the capability to track funds using 
special accounting codes and that they were confident no special 
enhancements were needed to their accounting software, although they 
would monitor the accounting system to ensure it was functioning 
properly. DPP will also publicly advertise bids for projects funded 
with Recovery Act funds, include terms and conditions in each request 
for proposals and contract for these projects stating detailed reports 
required by the Act, and will post contract award notices for Recovery 
Act-funded projects. 

Information and Communication: 

Information should be communicated to management and within the entity 
to enable accountable officials and others throughout the entity to 
carry out their responsibilities and determine whether they are meeting 
their goals of accountability and efficient use of resources. The 
states have undertaken a variety of information and communication 
methods. For the Recovery Act, internal state communication is being 
conducted through newly created task forces or working groups such as 
those in California and the District, implementation teams such as in 
Florida and Georgia, and state offices such as in North Carolina. Texas 
also uses a periodic forum of the internal audit staff of Texas state 
agencies for another statewide communication method. Various officials 
are developing guidance related to the Recovery Act and dispensing the 
information to state agencies. 

Monitoring: 

Monitoring activities include the systemic process of reviewing the 
effectiveness of the operation of the internal control system. These 
activities are conducted by management, oversight boards and entities, 
and internal and external auditors. Monitoring enables stakeholders to 
determine whether the internal control system continues to operate 
effectively over time. It also improves the organization's overall 
effectiveness and efficiency by providing timely evidence of changes 
that have occurred, or might need to occur, in the way the internal 
control system addresses evolving or changing risks. 

Many of the boards or offices discussed in the control environment 
above have responsibilities related to monitoring the Recovery Act 
funds. States have undertaken various other activities to monitor 
Recovery Act funds, including Arizona's budget director meeting with 
the heads of programs potentially receiving Recovery Act funds to gauge 
each programs' preparedness; Arizona's Comptroller conducting a survey 
to inventory current internal controls at state agencies to help ensure 
controls are in place to limit the risk of fraud, waste, abuse and 
mismanagement of Recovery Act funds; California's Governor appointing 
the state's first Inspector General specifically to oversee Recovery 
Act funds as they are disbursed in the state; Massachusetts' 
legislature creating the Joint Committee on federal Recovery Act 
Oversight with the goals of ensuring compliance with federal 
regulations and reviewing current state laws, regulations and policies 
to ensure they allow access to Recovery Act funds and streamline the 
processes to quickly stimulate the economy; and Texas State Auditor's 
Office plans to hire 10 additional staff. 

An important aspect of monitoring Recovery Act funding includes sub- 
recipient monitoring. As noted, significant concerns exist regarding 
sub-recipient monitoring, as this is an area where limited experience 
and known vulnerabilities exist. Some state auditors do not have 
authority to monitor local operations of internal controls. For 
example, in Pennsylvania, officials from the Auditor General's office 
have different views about what authority they have to audit federal 
money that flows directly to localities, such as housing authorities 
and municipalities. 

In Texas, the State Auditor's Office made a recommendation regarding 
the monitoring of sub-recipients in its most recent audit of the Texas 
Education Agency.[Footnote 36] The audit report did not find that sub- 
recipients were improperly spending federal funds or were not meeting 
federal requirements, however the report did note that the agency had 
"a limited number of resources available to monitor fiscal compliance." 
The audit report recommended that the Texas Education Agency continue 
to add resources, within its budget constraints, to increase the amount 
of federal fiscal compliance performed. According to the State Auditor, 
following the audit in February 2009, the Texas Education Agency 
created a comprehensive correction plan to address this resource issue, 
which the agency is implementing. 

Current Single Audit Focus May Not Provide Timely Oversight Information 
for Recovery Act Funds: 

OMB's Circular No. A-133 sets out implementing guidelines for the 
single audit and defines roles and responsibilities related to the 
implementation of the Single Audit Act, including detailed instructions 
to auditors on how to determine which federal programs are to be 
audited for compliance with program requirements in a particular year 
at a given grantee. The Circular No. A-133 Compliance Supplement is 
issued annually to guide auditors on what program requirements should 
be tested for programs audited as part of the single audit. OMB has 
stated that it will use its Circular No. A-133 Compliance Supplement to 
notify auditors of program requirements that should be tested for 
Recovery Act programs, and will issue interim updates as necessary. 

Both the Single Audit Act and OMB Circular No. A-133 call for a "risk- 
based" approach to determine which programs will be audited for 
compliance with program requirements as part of a single audit. In 
general, the prescribed approach relies heavily on the amount of 
federal expenditures during a fiscal year and whether findings were 
reported in the previous period to determine whether detailed 
compliance testing is required for a given program that year.[Footnote 
37] Under the current approach for risk determination in accordance 
with Circular No. A-133, certain risks unique to the Recovery Act 
programs may not receive full consideration. Recovery Act funding 
carries with it some unique challenges. The most significant of these 
challenges are associated with (1) new government programs (2), the 
sudden increase in funds or programs that are new for the recipient 
entity, and (3) the expectation that some programs and projects will be 
delivered faster so as to inject funds into the economy. This makes 
timely and efficient evaluations in response to the Recovery Act's 
accountability requirements critical. Specifically, 

* new programs and recipients participating in a program for the first 
time may not have the management controls and accounting systems in 
place to help ensure that funds are distributed and used in accordance 
with program regulations and objectives; 

* Recovery Act funding that applies to programs already in operation 
may cause total funding to exceed the capacity of management controls 
and accounting systems that have been effective in past years; 

* the more extensive accountability and transparency requirements for 
Recovery Act funds will require the implementation of new controls and 
procedures; and: 

* risk may be increased due to the pressures of spending funds quickly. 

In response to the risks associated with Recovery Act funding, the 
single audit process needs adjustment to put appropriate focus on 
Recovery Act programs to provide the necessary level of accountability 
over these funds in a timely manner. The single audit process could be 
adjusted to require the auditor to perform procedures such as the 
following as part of the routine single audit: 

* provide for review of the design and implementation of internal 
control over compliance and financial reporting for programs under the 
Recovery Act; 

* consider risks related to Recovery Act-related programs in 
determining which federal programs are major programs; and: 

* specifically, test Recovery Act programs to determine whether the 
auditee complied with laws and regulations.[Footnote 38] 

The first two items above should preferably be accomplished during 2009 
before significant expenditures of funds in 2010 so that the design of 
internal control can be strengthened prior to the majority of those 
expenditures. We further believe that OMB Circular No. A-133 and/or the 
Circular No. A-133 Compliance Supplement could be adjusted to provide 
some relief on current audit requirements for low-risk programs to 
offset additional workload demands associated with Recovery Act funds. 

OMB told us that it is developing audit guidance that would address the 
above audit objectives. OMB also said that it is considering 
reevaluating potential options for providing relief from certain 
existing audit requirements in order to provide some balance to the 
increased requirements for Recovery Act program auditing. 

State and Local Capacity to Manage Risks: 

Officials in several states expressed concerns regarding the lack of 
funding provided to state oversight entities in the Recovery Act given 
the additional federal requirements placed on states to provide proper 
accounting, and ensure transparency. Due to fiscal constraints, many 
states reported significant declines in the number of management and 
oversight staff--limiting states' ability to ensure proper 
implementation and management of Recovery Act funds. To the extent that 
states' management infrastructures were already strained due to 
resource issues, risks will be exacerbated by increased workloads and 
new program implementation. While the majority of states indicated that 
they lack the necessary resources to conduct additional management and 
oversight related to the Recovery Act, some states indicated that they 
are taking measures to either hire new staff or reallocate existing 
staff to ensure adequate oversight of Recovery Act funds. 

Officials we interviewed in several states said the lack of funding for 
state oversight entities in the Recovery Act presents them with a 
challenge, given the increased need for oversight and accountability. 
According to state officials, state budget and staffing cuts have 
limited the ability of state and local oversight entities to ensure 
adequate management and implementation of the Recovery Act. For 
example, Colorado's state auditor reported that state oversight 
capacity is limited, noting that the Department of Health Care Policy 
and Financing has had 3 controllers in the past 4 years and the state 
legislature's Joint Budget Committee recently cut field audit staff for 
the Department of Human Services in half. In addition, the Colorado 
Department of Transportation's deputy controller position is vacant, as 
is the Department of Personnel & Administration's internal auditor 
position. Colorado officials noted that these actions are, in part, due 
to administrative cuts during a past economic downturn in an attempt to 
maintain program delivery levels. 

In Massachusetts, the task forces the Governor convened in December 
2008 concluded that it is critical the Inspector General and State 
Auditor have resources to audit Recovery Act contracts and management 
of Recovery Act funds, as well as recommended that the Attorney 
General's office be provided with the resources to promptly and 
effectively pursue fraud and abuse. Massachusetts officials explained 
that the oversight community is facing budget cuts of about 10 percent 
at a time when increased oversight and accountability is critically 
needed. To illustrate the impact of the impending budget situation, the 
Inspector General stated that his department does not have the 
resources to conduct any additional oversight related to Recovery Act 
funds. This significantly affects the Inspector General's capacity to 
conduct oversight since the budget is almost entirely comprised of 
salaries, and any cuts in funding would result in fewer staff available 
to conduct oversight. In addition, the Massachusetts State Auditor 
described how their department has had to resort to staff being 
furloughed already for 6 days and is anticipating further layoffs 
before the end of fiscal year 2009. Similarly, 94 percent of their 
department's budget is labor and any cuts in funding generally result 
in cuts in staff. Much like Colorado and Massachusetts, Arizona and 
Florida state officials report significant declines in oversight staff. 
The Florida Auditor General told us that the office has not been hiring 
new staff for over a year and has about 10 percent of the office's 
positions unfilled. In addition, the Office of Policy Analysis and 
Government Accountability officials also told us their respective 
staffs have decreased by 10 percent in the past two years. State 
officials stated that these staff resource constraints may lead them to 
reassesses priorities and reallocate staff to ensure adequate oversight 
of Recovery Act funds. 

Officials within Arizona state executive offices that are coordinating 
oversight activities--such as the Office of Strategic Planning and 
Budgeting, the Office of Economic Recovery, and the Comptroller's 
Office--stated that they will need additional people to help ensure 
compliance with Recovery Act funding requirements, but that the state 
has a hiring freeze to help address budget deficits. For example, the 
General Accounting Office within the state Department of Administration 
has experienced a reduction from 74 to 50 staff, posing challenges to 
its increased oversight responsibilities, and the state Department of 
Economic Security that manages workforce investment programs had 8,214 
staff on furloughs of five or nine days, depending on pay grade, and 
has laid off about 800 staff members as well. Similarly, a state 
Department of Housing official stated that the office currently has a 
vacancy rate of about 15 percent because of the hiring freeze. 
Furthermore, the state Auditor General reported that its staffing 
levels are nearly 25 percent below the authorized staffing level of 229 
full time equivalents. 

Although most states indicated that they lack the resources needed to 
provide effective monitoring and oversight, some states indicated they 
will hire additional staff to help ensure the prudent use of Recovery 
Act funds. For example, according to officials with North Carolina's 
Governor's Crime Commission, the current management capacity in place 
is not sufficient to implement the Recovery Act. Officials explained 
that the Recovery Act funds for the Edward Byrne Memorial Justice 
Assistance Grant program have created an increase in workload that the 
department will have to hire additional staff to handle over the next 3 
years. Officials explained that these staff will be hired for the short 
term since the money will run out in 3 years. Additionally, officials 
explained that they are able to use 10 percent of the Justice 
Assistance Grants funding to pay for the administrative positions that 
are needed. 

In addition, officials from Ohio's Office of Budget and Management 
(OBM) stated that its Office of Internal Audit plans to increase its 
internal audit staff from 9 (current) to 33 by transferring internal 
audit personnel from other state agencies and hiring new staff by July 
2009. OBM officials say that the increase in Office of Internal Audit 
staff will provide the needed resources to implement its objectives and 
ensure that current safeguards are in place and followed as the state 
manages its Recovery Act funded programs. Additionally, some Georgia 
state officials that directly administer programs stated that 
overseeing the influx of funds could be a challenge, given the state's 
current budget constraints and hiring freeze. For example, the State 
Auditor, whose fiscal year 2009 budget was cut by 11 percent, expressed 
concerns about the lack of additional funds for Recovery Act oversight. 
The Georgia State Auditor noted that, if state fiscal conditions do not 
improve or federal funding does not become available for audit 
purposes, additional budget and staffing cuts may occur within the 
department. In some cases, state officials told us that they planned to 
use Recovery Act funds to cover their administrative costs. Meanwhile, 
other state officials want additional clarity on when they could use 
program funds to cover such costs. 

Hiring Freezes May Limit Some States' Capacity to Provide Effective 
Management and Oversight: 

A number of states expressed concerns regarding the ability to track 
Recovery Act funds due to state hiring freezes, resulting from budget 
shortfalls. For instance, New Jersey has not increased its number of 
state auditors or investigators, nor has there been an increase in 
funding specifically for Recovery Act oversight. In addition, the state 
hiring freeze has not allowed many state agencies to increase their 
Recovery Act oversight efforts. For example, despite an increase of 
$469 million in Recovery Act funds for state highway projects, no 
additional staff will be hired to help with those tasks or those 
directly associated with the Recovery Act, such as reporting on the 
number of jobs created. While the state's Department of Transportation 
has committed to shift resources to meet any expanded need for internal 
Recovery Act oversight, one person is currently responsible for 
reviewing contractor-reported payroll information for disadvantaged 
business enterprises, ensuring compliance with Davis-Bacon wage 
requirements, and development of the job creation figures. State 
education officials in North Carolina also said that greater oversight 
capacity is needed to manage the increase in federal funding. However, 
due to the state's hiring freeze, the agency will be unable to use 
state funds to hire the additional staff needed to oversee Recovery Act 
funds. The North Carolina Recovery Czar said that his office will work 
with state agencies to authorize hiring additional staff when directly 
related to Recovery Act oversight. 

Michigan officials reported that the state's hiring freeze may not 
allow state and local agencies to hire the additional staff needed to 
increase Recovery Act oversight efforts. For example, an official with 
the state's Department of Community Health said that because it has 
been downsizing for several years through attrition and early 
retirement, it does not have sufficient staff to cover its current 
responsibilities and that further reductions are planned for fiscal 
year 2010. However, state officials told us that they will take the 
actions necessary to ensure that state departments have the capacity to 
provide proper oversight and accountability for Recovery Act funds. 

In contrast, two states indicated that they have or will have 
sufficient levels of existing personnel to track funds. Texas state 
officials noted that state agencies plan on using existing staff to 
manage the stimulus funds. Agency officials will monitor the situations 
and, as need arises, will determine whether additional staff should be 
hired to ensure adequate oversight of the state Recovery Act funds. 
Additionally, in preparation of the infusion of Recovery Act funds, the 
Illinois Governor is seeking approximately 350 additional positions 
state-wide in the fiscal year 2010 budget to help implement Recovery 
Act programs, according to officials from the Governor's Office of 
Management and Budget. 

Local Oversight Capacity: 

With respect to oversight of Recovery Act funding at the local level, 
varying degrees of preparedness were reported by state and local 
officials. While the California Department of Transportation (Caltrans) 
officials stated that extensive internal controls exist at the state 
level, there may be control weaknesses at the local level. Caltrans is 
collaborating with local entities to identify and address these 
weaknesses. Likewise, Colorado officials expressed concerns that 
effective oversight of funds provided to Jefferson County may be 
limited due to the recent termination of its internal auditor and the 
elimination of its internal control audit function. Arizona state 
officials expressed some concerns about the ability of rural, tribal, 
and some private entities such as; boards, commissions, and nonprofit 
organizations to manage, especially if the Recovery Act does not 
provide administrative funding for some programs. 

State Plans to Assess Recovery Act Spending Impact: 

As recipients of Recovery Act funds and as partners with the federal 
government in achieving Recovery Act goals, states and local units of 
government are expected to invest Recovery Act funds with a high level 
of transparency and to be held accountable for results under the 
Recovery Act. As a means of implementing that goal, guidance has been 
issued and will continue to be issued to federal agencies, as well as 
to direct recipients of funding. To date, OMB has issued two broad sets 
of guidance to the heads of federal departments and agencies for 
implementing and managing activities enacted under the Recovery Act. 
[Footnote 39] OMB has also issued for public comment detailed proposed 
standard data elements that federal agencies will require from all 
(except individuals) recipients of Recovery Act funding.[Footnote 40] 
When reporting on the use of funds, recipients must show the total 
amount of recovery funds received from a federal agency, the amount 
expended or obligated to the project, project specific information 
including the name and description of the project, an evaluation of its 
completion status, the estimated number of jobs created and retained by 
the project, and information on any subcontracts awarded by the 
recipient, as specified in the Recovery Act. In addition, the Civilian 
Acquisition Council and Defense Acquisition Regulations Council have 
issued an interim rule revising the Federal Acquisition Regulation 
(FAR) to require a contract clause that implements these reporting 
requirements for contracts funded with Recovery Act dollars.[Footnote 
41] 

State reactions vary widely and often include a mixture of responses to 
the reporting requirements. Some states will use existing federal 
program guidance or performance measures to evaluate impact, 
particularly for on-going programs. Other states are waiting for 
additional guidance from federal departments or from OMB on how and 
what to measure to assess impact. While Georgia is waiting on further 
federal guidance, the state is adapting an existing system (used by the 
State Auditor to fulfill its Single Audit Act responsibilities) to help 
the state report on Recovery Act funds. The statewide web-based system 
will be used to track expenditures, project status, and job creation 
and retention. The Georgia governor is requiring all state agencies and 
programs receiving Recovery Act funds to use this system. Some states 
indicated that they have not yet determined how they will assess 
impact. 

Preserving existing jobs and stimulating job creation and promoting 
economic recovery are among the Recovery Act's key objectives.[Footnote 
42] Officials in 9 of the 16 states and the District expressed concern 
about the definitions of jobs retained and jobs created under the 
Recovery Act, as well as methodologies that can be used for estimation 
of each. Officials from several of the states we met with expressed a 
need for clearer definitions of "jobs retained" and "jobs created." 
Officials from a few states expressed the need for clarification on how 
to track indirect jobs,[Footnote 43] while others expressed concern 
about how to measure the impact of funding that is not designed to 
create jobs. Mississippi state officials suggested the need for a 
clearly defined distinction for time-limited, part-time, full-time, and 
permanent jobs; since each state may have differing definitions of 
these two categories. Officials from Massachusetts expressed concern 
that contractors may overestimate the number of jobs retained and 
created. Some existing programs, such as highway construction, have 
methodologies for estimating job creation. But other programs, existing 
and new, do not have job estimation methodologies. 

State officials that we spoke with are pursuing a number of different 
approaches for measuring the effects of Recovery Act funding. For 
example, Florida's state workforce agency is encouraging recipients of 
Recovery Act funds throughout the state to list jobs created with the 
funds in the state's existing online job bank. The Iowa Department of 
Transportation tracks the number of worker hours by highway project on 
the basis of contractor reports and will use these reports to estimate 
jobs created. In New Jersey, state and local agencies will collect or 
estimate data on the number of jobs created or retained as a result of 
Recovery Act funds in different ways. For example, the Newark Housing 
Authority will use payroll data to keep track of the exact number of 
union tradesmen and housing authority residents employed to turn 
damaged vacant units into rentable ones. In contrast, New Jersey 
Transit is using an academic study that examined job creation from 
transportation investment to estimate the number of jobs that are 
created by contractors on its Recovery Act-funded construction 
projects.[Footnote 44] Beyond employment issues, some Michigan state 
universities and the state's economic development department are 
expected to participate in analyses of the potential impact of Recovery 
Act funds. 

Some of the questions that states and localities have about Recovery 
Act implementation may have been answered in part via the guidance 
provided by OMB for the data elements and in the Federal Acquisition 
Regulation, as well as by guidance issued by federal departments. For 
example, OMB provided definitions for employment, as well as for jobs 
retained and jobs created via Recovery Act funding. However, OMB did 
not specify methodologies for estimating jobs retained and jobs 
created, which has been a concern for some states. Data elements were 
presented in the form of templates with section by section data 
requirements and instructions. OMB provided a comment period during 
which it is likely to receive many questions and requests for 
clarifications from states, localities, and other direct recipients of 
Recovery Act funding. OMB plans to update this guidance again within 30 
to 60 days of its April 3, 2009 issuance. Some federal agencies have 
also provided guidance to the states. The U.S. Departments of 
Education, Housing and Urban Development, Justice, Labor, 
Transportation, the Corporation for National and Community Service, the 
National Institutes of Health, and the Centers for Medicare & Medicaid 
Services have provided guidance for program implementation, 
particularly for established programs. Although guidance is expected, 
some new programs, such as the Broadband Deployment Grants, are 
awaiting issuance of implementation instructions. 

Concluding Observations and Recommendations: Moving Forward to Clarify 
Recovery Act Roles and Responsibilities: 

It has been a little over two months since enactment of the Recovery 
Act and OMB has moved out quickly. In this period, OMB has issued two 
sets of guidance, first on February 18 and next on April 3, with 
another round to be issued within 60 days. OMB has sought formal public 
comment on its April 3 guidance update and before this, according to 
OMB, reached out informally to Congress, federal, state, and local 
government officials, and grant and contract recipients to get a broad 
perspective on what is needed to meet the high expectations set by 
Congress and the Administration. In addition, OMB is standing up two 
new reporting vehicles, Recovery.gov, which will be turned over to the 
Recovery Accountability and Transparency Board and is expected to 
provide unprecedented public disclosure on the use of Recovery Act 
funds, and a second system to capture centrally information on the 
number of jobs created or retained. As OMB's initiatives move forward 
and it continues to guide the implementation of the Recovery Act, OMB 
has opportunities to build upon its efforts to date by addressing 
several important issues. 

These issues can be characterized broadly in three categories: (1) 
Accountability and Transparency Requirements, (2) Administrative 
Support and Oversight, and (3) Communications. 

Accountability and Transparency Requirements: 

Recipients of Recovery Act funding face a number of implementation 
challenges in this area. The Act includes many programs that are new or 
new to the recipient and, even for existing programs; the sudden 
increase in funds is out of normal cycles and processes. Add to this 
the expectation that many programs and projects will be delivered 
faster so as to inject funds into the economy and it becomes apparent 
that timely and efficient evaluations are needed. The following are our 
recommendations to help strengthen ongoing efforts to ensure 
accountability and transparency. 

Single Audit: 

The single audit process is a major accountability vehicle but should 
be adjusted to provide appropriate focus and the necessary level of 
accountability over Recovery Act funds in a timelier manner than the 
current schedule. OMB has been reaching out to stakeholders to obtain 
input and is considering a number of options related to the single 
audit process and related issues. 

We Would Recommend: To provide additional leverage as an oversight tool 
for Recovery Act programs, the Director of OMB should adjust the 
current audit process to: 

* focus the risk assessment auditors use to select programs to test for 
compliance with 2009 federal program requirements on Recovery Act 
funding; 

* provide for review of the design of internal controls during 2009 
over programs to receive Recovery Act funding, before significant 
expenditures in 2010; and: 

* evaluate options for providing relief related to audit requirements 
for low-risk programs to balance new audit responsibilities associated 
with the Recovery Act. 

Reporting on Impact: 

Responsibility for reporting on jobs created and retained falls to non- 
federal recipients of Recovery Act funds. As such, states and 
localities have a critical role in determining the degree to which 
Recovery Act goals are achieved. Senior Administration officials and 
OMB have been soliciting views and developing options for recipient 
reporting. In its April 3 guidance, OMB took an important step by 
issuing definitions, standard award terms and conditions, and clarified 
tracking and documenting Recovery Act expenditures. Furthermore, OMB 
and the Recovery Accountability and Transparency Board are developing 
the data architecture for the new federal reporting system that will be 
used to collect recipient reporting information. According to OMB, 
state chief information officers commented on an early draft and OMB 
expects to provide an update for further state review. 

We Would Recommend: Given questions raised by many state and local 
officials about how best to determine both direct and indirect jobs 
created and retained under the Recovery Act, the Director of OMB should 
continue OMB's efforts to identify appropriate methodologies that can 
be used to: 

* assess jobs created and retained from projects funded by the Recovery 
Act; 

* determine the impact of Recovery Act spending when job creation is 
indirect; 

* identify those types of programs, projects, or activities that in the 
past have demonstrated substantial job creation or are considered 
likely to do so in the future. Consider whether the approaches taken to 
estimate jobs created and jobs retained in these cases can be 
replicated or adapted to other programs. 

There are a number of ways that the needed methodologies could be 
developed. One option would be to establish a working group of federal, 
state and local officials and subject matter experts. 

State and Federal Data Collection: 

Given that governors have certified to the use of funds in their 
states, state officials are uncertain about their reporting 
responsibilities when Recovery Act funding goes directly to localities. 
Additionally, they have concerns about the capacity of reporting 
systems within their states, specifically, whether these systems will 
be capable of aggregating data from multiple sources for posting on 
Recovery.gov. Some state officials are concerned that too many federal 
requirements will slow distribution and use of funds and others have 
expressed reservations about the capacity of smaller jurisdictions and 
non-profits to report data. Even those who are confident about their 
own systems are uncertain about the cost and speed of making any 
required modifications for Recovery.gov reporting or further data 
collection. 

Problems also have been identified with federal systems that support 
the Recovery Act as well. For example, questions have been raised about 
the reliability of [hyperlink, http://www.USAspending.gov] 
(USAspending.gov) and the ability of Grants.gov to handle the increased 
volume of grant applications. OMB is taking concerted actions to 
address these concerns. It plans to reissue USAspending guidance 
shortly to include changes in operations that are expected to improve 
data quality. In a memorandum dated March 9, OMB said that it is 
working closely with federal agencies to identify system risks that 
could disrupt effective Recovery Act implementation and acknowledged 
that Grants.gov is one such system. A subsequent memorandum on April 8, 
offered a short-term solution to the significant increase in Grants.gov 
usage while longer-term alternative approaches are being explored. GAO 
has work underway to review differences in agency policies and methods 
for submitting grant applications using Grants.gov and will issue a 
report shortly. 

OMB addressed earlier questions about reporting coverage in its April 3 
guidance. According to OMB there are limited circumstances in which 
prime and sub recipient reporting will not be sufficient to capture 
information at the project level. OMB stated that it will expand its 
current model in future guidance. OMB guidance described recipient 
reporting requirements under the Recovery Act's section 1512 as the 
minimum which must be collected, leaving it to federal agencies to 
determine whether additional information would be required for program 
oversight. 

We Would Recommend: In consultation with the Recovery Accountability 
and Transparency Board and States, the Director of OMB should evaluate 
current information and data collection requirements to determine 
whether sufficient, reliable and timely information is being collected 
before adding further data collection requirements. As part of this 
evaluation, OMB should consider the cost and burden of additional 
reporting on states and localities against expected benefits. 

Administrative Support and Oversight: 

At a time when states are experiencing cutbacks, state officials expect 
the Recovery Act to incur new regulations, increase accounting and 
management workloads, change agency operating procedures, require 
modifications to information systems, and strain staff capacity, 
particularly for contract management. Although federal program 
guidelines can include a percentage of grants funding available for 
administrative or overhead costs, the percentage varies by program. In 
considering other sources, states have asked whether the portion of the 
State Fiscal Stabilization Fund that is available for government 
services could be used for this purpose. Others have suggested a global 
approach to increase the percentage for all Recovery Act grants funding 
that can be applied to administrative costs. As noted earlier, state 
auditors also are concerned with meeting increased audit requirements 
for Recovery Act funding with a reduced number of staff and without a 
commensurate reduction in other audit responsibilities or increase in 
funding. OMB and senior administration officials are aware of the 
states' concerns and have a number of options under consideration. 

We Would Recommend: The Director of OMB should timely clarify what 
Recovery Act funds can be used to support state efforts to ensure 
accountability and oversight, especially in light of enhanced oversight 
and coordination requirements. 

Communications: 

State officials expressed concerns regarding communication on the 
release of Recovery Act funds and their inability to determine when to 
expect federal agency program guidance. Once funds are released, there 
is no consistent procedure for ensuring that the appropriate officials 
in states and localities are notified. According to OMB, agencies must 
immediately post guidance to the Recovery Act web site and inform to 
the "maximum extent practical, a broad array of external stakeholders." 
In addition, since nearly half of the estimated spending programs in 
the Recovery Act will be administered by non-federal entities, state 
officials have suggested opportunities to improve communication in 
several areas. For example, they wish to be notified when funds are 
made available to prime recipients that are not state agencies. 

Some of the uncertainty can be attributed to evolving reports and 
timing of these reports at the federal level as well as the recognition 
that different terms used by federal assistance programs add to the 
confusion. A reconsideration of how best to publicly report on federal 
agency plans and actions led to OMB's decision to continue the existing 
requirement to report on the federal status of funds in the Weekly 
Financial and Activity Reports and eliminate a planned Monthly 
Financial Report. The Formula and Block Grant Allocation Report has 
been replaced and renamed the Funding Notification Report. This 
expanded report includes all types of awards, not just formula and 
block grants, and is expected to better capture the point in the 
federal process when funds are made available. 

We Would Recommend: To foster timely and efficient communications, the 
Director of OMB should develop an approach that provides dependable 
notification to (1) prime recipients in states and localities when 
funds are made available for their use, (2) states, where the state is 
not the primary recipient of funds, but has a state-wide interest in 
this information, and (3) all non-federal recipients, on planned 
releases of federal agency guidance and, if known, whether additional 
guidance or modifications are expected. 

Agency Comments and Our Evaluation: 

We provided the Director of the Office of Management and Budget with a 
draft of this report for comment on April 20, 2009. OMB staff responded 
the next day, noting that in its initial review, OMB concurred with the 
overall objectives of our recommendations. OMB staff also provided some 
clarifying information, adding that OMB will complete a more thorough 
review in a few days. We have incorporated OMB's clarifying information 
as appropriate. In addition, OMB said it plans to work with us to 
define the best path forward on our recommendations and to further the 
accountability and transparency of the Recovery Act. The Governors of 
each of the 16 states and the Mayor of the District were provided 
drafts for comment on each of their respective appendixes in this 
report. Those comments are included in the appendixes. 

We are sending copies of this report to the Office of Management and 
Budget and relevant sections to the selected states and the District. 

The report will also be available at no charge on the GAO Web site at 
[hyperlink, http://www.gao.gov]. 

If you or your staffs have any questions about this report, please 
contact me at (202) 512-5500. Contact points for our offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. GAO staff who made major contributions to this 
report are listed in appendix III-XX. 

Sincerely, 

Signed by: 

Gene L. Dodaro: 
Acting Comptroller General of the United States: 

List of Congressional Committees: 

The Honorable Daniel K. Inouye: 
Chairman: 
The Honorable Thad Cochran: 
Ranking Member: 
Committee on Appropriations: 
United States Senate: 

The Honorable Joseph I. Lieberman: 
Chairman: 
The Honorable Susan M. Collins: 
Ranking Member: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

The Honorable David R. Obey: 
Chairman: 
The Honorable Jerry Lewis: 
Ranking Member: 
Committee on Appropriations: 
House of Representatives: 

The Honorable Edolphus Towns: 
Chairman: 
The Honorable Darrell Issa: 
Ranking Member: 
Committee on Oversight and Government Reform: 
House of Representatives: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

The Recovery Act specifies several roles for GAO, including conducting 
bimonthly reviews of selected states' and localities' use of funds made 
available under the act. As a result, our objectives for this report 
were to describe (1) selected states' and localities' uses of and 
planning for Recovery Act funds, (2) approaches taken by the selected 
states and localities to ensure accountability for Recovery Act funds, 
and (3) states' plans to evaluate the impact of the Recovery Act funds 
they have received to date. 

Selection of States: 

To address our objectives, we selected a core group of 16 states and 
the District that we will follow over the next few years to provide an 
ongoing longitudinal analysis of the use of funds provided in 
conjunction with the Recovery Act. The selected states are Arizona, 
California, Colorado, Florida, Georgia, Iowa, Illinois, Massachusetts, 
Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, 
Pennsylvania, and Texas. We selected these states and the District on 
the basis of outlay projections, percentage of the U.S. population 
represented, unemployment rates and changes, and a mix of states' 
poverty levels, geographic coverage, and representation of both urban 
and rural areas. These states and D.C. contain about 65 percent of the 
U.S. population and are estimated to receive about two-thirds of the 
intergovernmental grant funds available through the Recovery Act. 
Furthermore, they strike a balance between covering a significant 
portion of Recovery Act funding and obtaining a mix that reflects the 
breadth of circumstances facing states and localities throughout the 
country. 

Selection of Programs: 

To focus our analysis, we examined a set of programs receiving Recovery 
Act funding that are administered by states and localities. To do this, 
we reviewed analysis and estimates of Recovery Act funds flowing to 
states and localities that were done by state and local associations 
including the National Governors Association, the National Conference 
of State Legislatures, and the Federal Funds Information for States 
(FFIS). We also analyzed data from congressional appropriations 
committees and the Congressional Budget Office (CBO) on the 
distribution, allocation, and spend out rates of Recovery Act funding. 

The programs we selected were streams of Recovery Act funding flowing 
to states and localities through increased Medicaid Federal Medical 
Assistance Percentage (FMAP) grant awards, funding for highway 
infrastructure investment, and the State Fiscal Stabilization Fund 
(SFSF). Together, they are expected to account for about 91 percent of 
fiscal year 2009 Recovery Act spending by states and localities. For 
the FMAP grant awards, we conducted a web-based inquiry, asking the 16 
states and D.C. to provide data and information on enrollment, 
expenditures, and changes to their Medicaid programs and to report 
their plans to use state funds made available as a result of the 
increased FMAP. We reviewed states' responses for internal consistency 
and conducted follow-up with the states as needed. We also spoke with 
individuals from the U.S. Department of Health and Human Services 
regarding the changes to the FMAP and the disbursement of increased 
FMAP funds. In addition, we spoke with individuals from the Centers for 
Medicare & Medicaid regarding their oversight and guidance to states. 
For highways infrastructure investment, we reviewed status reports and 
guidance to the states and discussed these with the U.S. Department of 
Transportation (DOT) and Federal Highways Administration (FHWA) 
officials. To understand how the U.S. Department of Education is 
implementing the SFSF, we reviewed relevant laws, guidance, and 
communications to the states and interviewed Education officials. Our 
review of related documents and interviews with federal agency 
officials focused on determining and clarifying how states, school 
districts, and public Institutions of Higher Education would be 
expected to implement various provisions of the SFSF. 

We considered programs with large amounts of funding, programs 
receiving significant increases in funding, new programs, and those 
with known risks. For example, the Medicaid program is on the GAO high 
risk list. In addition, we consulted with our internal program experts 
and outside experts including federal agency inspectors general, state 
and local auditors, and state and local government associations. 

Approach in States and Localities on Uses and Plans for Recovery Act 
Funds: 

Our teams visited the 16 selected states, localities within those 
states, and D.C. during March and April 2009 to collect documentation 
on the plans, uses, and tracking of Recovery Act funds and to conduct 
interviews with state and local officials. The teams met with a variety 
of state and local officials from executive-level offices including 
Governors and their key staff, Comptrollers' Offices, Treasurers' 
Offices, State Auditors' Offices, Recovery Czars, Inspectors Generals, 
senior finance and budget officials, and local officials such as from 
housing authorities, school districts, police departments, and other 
key audit community stakeholders to determine how they planned to 
conduct oversight of Recovery Act funds. The teams also met with state 
and local agencies administering programs receiving Recovery Act funds, 
including state Departments of Education, Transportation, and Health 
and Human Services, and with selected legislative offices in the 
states. In support of these interviews, we developed a series of 
program review and semi-structured interview guides that addressed 
state plans for management, tracking, and reporting of Recovery Act 
funds and activities. These guides focused on identification of risk, 
risk mitigation, contracting, the internal control environment and 
safeguards against fraud, waste, and abuse. While in the 16 states and 
D.C., the teams also met with and interviewed a number of local 
government officials, whose offices are identified in Appendix 2. 

Assessing Safeguards and Internal Controls: 

To determine how states and localities plan to track the receipt of, 
planning for, and use of Recovery Act funds, the state and D.C. teams 
asked cognizant officials to describe the accounting systems and 
conventions that would be used to execute transactions and to monitor 
and report on expenditures. In addition, to assist in the planning of 
the audit work and for inclusion in their risk assessment framework, we 
provided the state and D.C. teams with fiscal year 2007 single audit 
summary information, which was the most recent single audit information 
available. Single audit information was obtained from the Federal Audit 
Clearinghouse (FAC) single audit data collection forms and the single 
audit reports. The single audit summary information provided included : 
(1) total federal awards expended; (2) whether there were questioned 
costs; (3) the financial statement audit opinion, number of material 
weaknesses, and a brief description of each material weakness; and (4) 
major federal program audit opinion, number of material weaknesses, and 
a brief description of each material weakness. We examined the Single 
Audit reports to identify these issues and used that information when 
interviewing state officials in order to ascertain how they have 
addressed or plan to address the weaknesses. We also asked auditors to 
address how they planned to monitor and oversee the Recovery Act funds 
and whether or not they felt their offices had sufficient capacity to 
handle any new or increased responsibilities related to the Recovery 
Act. 

Recovery Act Reporting Requirements: 

To understand the reporting requirements of the Recovery Act, we 
reviewed the guidance issued by OMB on February 18 and April 3, 2009 
and selective federal agency guidance related to grants and to states 
and localities. We also reviewed an interim rule amending the Federal 
Acquisition Regulation containing interim reporting requirements for 
the Recovery Act, issued March 31, 2009.[Footnote 45] Additionally we 
studied the OMB issued Information Collection Requirements: Proposed 
Collection (April 1, 2009) that contains the data elements for the 
quarterly recipient reports specified in Section 1512 of the Recovery 
Act. Each of the states and D.C. provided information on its plans to 
provide assessment data required by Section 1512. 

We conducted this performance audit from February 17, 2009, through 
April 20, 2009, in accordance with generally accepted government 
auditing standards. Those standards require that we plan and perform 
the audit to obtain sufficient, appropriate evidence to provide a 
reasonable basis for our findings and conclusions based on our audit 
objectives. We believe that the evidence obtained provides a reasonable 
basis for our findings and conclusions based on our audit objectives. 
Data on states' and localities' plans, uses, and tracking of Recovery 
Act funds was provided during interviews and follow-up meetings with 
state and local officials. Given that much of the Recovery Act funding 
had not yet reached the states and localities, we could not validate 
nor test the accuracy of the statements made by these officials 
regarding their accounting and tracking systems. Overall, we determined 
that the data were sufficiently reliable for the purposes of providing 
the background information on Recovery Act funding for this report. Our 
sample of selected states is not a random selection and therefore 
cannot be generalized to the total population of state and local 
governments. 

[End of section] 

Appendix II: Localities Visited by GAO in Selected States: 

Table 5: States and Localities Visited by GAO: 

State: Arizona; 
Localities (or Associations Representing Localities): Regional Public 
Transportation Authority, Maricopa Association of Governments, City of 
Phoenix Public Transit Department, City of Phoenix Housing Department, 
City of Glendale Housing Department, Tempe School District, Peoira 
Accelerated High School, Maricopa Workforce Connections, City of 
Phoenix Workforce Connection Division. 

State: California; 
Localities (or Associations Representing Localities): Sacramento 
Housing and Redevelopment Agency. 

State: Colorado; 
Localities (or Associations Representing Localities): Denver Mayor's 
Office, Denver City Auditor, Denver Housing Authority, Denver Office of 
Economic Development. 

State: District of Columbia; 
Localities (or Associations Representing Localities): District of 
Columbia Housing Authority, Washington Metropolitan Area Transportation 
Authority. 

State: Florida; 
Localities (or Associations Representing Localities): Florida 
Association of Counties, Workforce Plus (a regional workforce board for 
Leon, Gadsden, and Wakulla Counties), Tallahassee Housing Authority, 
Florida Association of School District Superintendents. 

State: Georgia; 
Localities (or Associations Representing Localities): Atlanta Housing 
Authority, Atlanta Regional Workforce Board. 

State: Iowa; 
Localities (or Associations Representing Localities): City of Des 
Moines. 

State: Illinois; 
Localities (or Associations Representing Localities): Chicago Transit 
Authority. 

State: Massachusetts; 
Localities (or Associations Representing Localities): City of Boston, 
Massachusetts Bay Transportation Authority. 

State: Michigan; 
Localities (or Associations Representing Localities): City of Detroit 
Mayor's Office, City of Lansing Mayor's Office, City of Detroit Office 
of Auditor General, Detroit Public Schools, Lansing School District. 

State: Mississippi; 
Localities (or Associations Representing Localities): Central 
Mississippi Planning and Development District, The Housing Authority of 
the City of Jackson. 

State: New Jersey; 
Localities (or Associations Representing Localities): Newark Mayor's 
Office, New Jersey Transit in Newark, Newark Housing Authority, Newark 
Public Schools, Trenton Mayor's Office, Trenton Police Department, 
Trenton Housing Authority, Trenton Board of Education. 

State: New York; 
Localities (or Associations Representing Localities): New York City's 
Mayor's Office, New York City Budget Director, New York City 
Comptroller. 

State: North Carolina; 
Localities (or Associations Representing Localities): City of Raleigh, 
Wake County, North Carolina Association of County Commissioners, North 
Carolina League of Municipalities. 

State: Ohio; 
Localities (or Associations Representing Localities): Columbus 
Metropolitan Housing Authority, Franklin County Government, City of 
Columbus, Columbus City Schools, Local WIA. 

State: Pennsylvania; 
Localities (or Associations Representing Localities): Harrisburg 
Housing Authority, South Central Workforce Investment Board. 

State: Texas; 
Localities (or Associations Representing Localities): City of Austin 
Office of the City Auditor, City of Austin-Financial & Administrative 
Services Department, The Housing Authority of the City of Austin. 

Source: GAO. 

[End of table] 

[End of section] 

Appendix III: Arizona: 

Overview: 

Use of funds: An estimated 90 percent of fiscal year 2009 Recovery Act 
funding provided to states and localities will be for health, 
transportation and education programs. The three largest programs in 
these categories are the Medicaid Federal Medical Assistance Percentage 
(FMAP) awards, the State Fiscal Stabilization Fund, and highways. 

Medicaid Federal Medical Assistance Percentage (FMAP) Funds: 

* As of April 3, 2009, the Centers for Medicare & Medicaid Services 
(CMS) have made about $534.6 million in Medicaid FMAP grant awards to 
Arizona; 

* As of April 1, 2009, the state has drawn down about $286.3 million, 
or almost 54 percent of its initial increased FMAP grant awards; 

* Officials plan to use a significant portion of funds made available 
as a result of the increased FMAP to offset statewide general fund 
shortfalls. 

Transportation--Highway Infrastructure Investment: 

* Arizona was apportioned about $522 million for highway infrastructure 
investment on March 2, 2009, by the U.S. Department of Transportation; 

* As of April 16, 2009, the U.S. Department of Transportation had 
obligated $148.1 million for 26 Arizona projects; 

* As of April 20, 2009, the Arizona Department of Transportation (ADOT) 
had selected 41 highway transportation projects worth almost $350 
million and had advertised competitive bids on 27 of these projects 
totaling about $190 million. The earliest bids will close on April 24, 
2009, with projects expected to begin work later this spring; 

* These projects include activities such as preserving pavement, 
widening lanes and adding shoulders, and repairing bridges and 
interchanges; 

* Arizona will request reimbursement from the Federal Highway 
Administration as the state makes payments to contractors. 

U.S. Department of Education State Fiscal Stabilization Fund (Initial 
Release): 

* Arizona was allocated about $681.4 million from the initial release 
of these funds on April 2, 2009, by the U.S. Department of Education; 

* Before receiving the funds, states are required to submit an 
application that provides several assurances to the Department of 
Education. These include assurances that they will meet maintenance of 
effort requirements (or that they will be able to comply with waiver 
provisions) and that they will implement strategies to meet certain 
educational requirements, including increasing teacher effectiveness, 
addressing inequities in the distribution of highly qualified teachers, 
and improving the quality of state academic standards and assessments. 
The state plans to submit its application by April 24, 2009, once 
officials review the latest estimates for the state's fiscal year 2010 
budget situation; 

* The state expects funds to be used to improve student assessments, 
obtain more teachers, and meet federal standards, among other things, 
in compliance with federal requirements. 

Arizona is also receiving additional Recovery Act funds under other 
programs, such as programs under Title I, Part A of the Elementary and 
Secondary Education Act (ESEA), (commonly known as No Child Left 
Behind); programs under the Individuals with Disabilities Education Act 
(IDEA); several housing programs such as the Low-Income Housing Tax 
Credit (LIHTC) Assistance program; and programs under the Workforce 
Investment Act to help provide employment-related services, among other 
things. Plans to use these funds are discussed throughout this 
appendix. 

Safeguarding and transparency: The state government created a new 
Office of Economic Recovery within the Office of the Governor, the 
purpose of which is to coordinate the use of Recovery Act funds across 
state agencies and to ensure accountability for and transparency in the 
use of these funds. In addition, to meet Recovery Act requirements, the 
state comptroller noted that Arizona intends to add new codes to its 
central accounting system to track Recovery Act funds separately and 
work with state agencies that have their own accounting systems to 
ensure that they can also track funds separately. The state has issued 
guidance on managing the funds, and has plans to publicly report its 
Recovery Act spending, although officials have said that the state may 
not be aware of all funds sent directly by federal agencies to other 
entities, such as municipalities and independent authorities. The 
officials also identified other challenges, such as ensuring that 
recipients can report on their use of funds and that, where applicable, 
funds are used to supplement and not supplant state funds that support 
relevant affected programs. State and local officials noted that they 
expect to use existing internal controls and monitoring techniques to 
safeguard Recovery Act funds, but are concerned about having enough 
resources to do so. State departments were in the early stages of 
addressing some of these challenges, and are awaiting further guidance 
from the federal government on these issues. 

Assessing the effects of spending: Arizona state agencies and select 
localities that we met with expect to use or enhance existing 
performance metrics to assess the results achieved through Recovery Act 
funding, unless the federal government requires new metrics that will 
need to be developed. State officials were unclear, however, on how to 
determine the number of jobs created and saved by certain Recovery Act 
funds and were awaiting further guidance from the federal government. 

Arizona Beginning to Use Recovery Act Funds: 

Arizona has begun to use some of its Recovery Act funds as follows: 

Increased Federal Medical Assistance Percentage Funds: Medicaid is a 
joint federal-state program that finances health care for certain 
categories of low-income individuals, including children, families, 
persons with disabilities, and persons who are elderly. The federal 
government matches state spending for Medicaid services according to a 
formula based on each state's per capita income in relation to the 
national average per capita income. The amount of federal assistance 
states receive for Medicaid service expenditures is known as the 
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP 
may range from 50 to no more than 83 percent, with poorer states 
receiving a higher federal matching rate than wealthier states. The 
Recovery Act provides eligible states with an increased FMAP for 27 
months between October 1, 2008, and December 31, 2010.[Footnote 46] On 
February 25, 2009, the Centers for Medicare & Medicaid Services (CMS) 
made increased FMAP grant awards to states, and states may 
retroactively claim reimbursement for expenditures that occurred prior 
to the effective date of the Recovery Act.[Footnote 47] Generally, for 
federal fiscal year 2009 through the first quarter of federal fiscal 
year 2011, the increased FMAP, which is calculated on a quarterly 
basis, provides for (1) the maintenance of states' prior year FMAPs; 
(2) a general across-the-board increase of 6.2 percentage points in 
states' FMAPs; and (3) a further increase to the FMAPs for those states 
that have a qualifying increase in unemployment rates. The increased 
FMAP available under the Recovery Act is for state expenditures for 
Medicaid services. However, the receipt of the increased FMAP may 
reduce the funds that states must use for their Medicaid programs, and 
states have reported using these available funds for a variety of 
purposes. 

As of April 1, 2009, Arizona has drawn down $286.3 million in increased 
FMAP grant awards, which is almost 54 percent of its total awards of 
$534.5 million. Officials plan to use a significant portion of funds 
made available as a result of the increased FMAP to offset shortfalls 
created by reductions implemented to balance the budget. The state used 
the initial funds made available as a result of the increased FMAP to 
meet payroll and to avoid serious cash-flow problems. 

Transportation--Highway Infrastructure Investment: The Recovery Act 
provides additional funds for highway infrastructure investment using 
the rules and structure of the existing Federal-Aid Highway Surface 
Transportation Program, which apportions money to states to construct 
and maintain eligible highways and to undertake other surface 
transportation projects. States must follow the requirements for the 
existing programs, and in addition, the governor must certify that the 
state will maintain its current level of transportation spending, and 
the governor or other appropriate chief executive must certify that the 
state or local government to which funds have been made available has 
completed all necessary legal reviews and determined that the projects 
are an appropriate use of taxpayer funds. Arizona has provided this 
certification. 

As of April 20, 2009, the Arizona Department of Transportation (ADOT) 
had selected 41 highway transportation projects to be funded with 
Recovery Act dollars.[Footnote 48] These projects are worth 
approximately $350 million of the state's total $521.9 million 
apportionment. These include projects such as pavement preservation, 
widening lanes and adding shoulders, and bridge and interchange repair. 
As of April 20, 2009, the state had advertised 27 projects worth about 
$190 million with the earliest bids to close on April 24, 2009, and 
projects expected to begin work this spring. Among the projects that 
have been advertised for bid are the widening of Interstate 10 in 
Maricopa County, repaving of state routes, making safety improvements 
to a state route, and improving intersections. Among the first 
advertisements to close will be the widening of a shoulder within the 
Tonto National Forest, on State Route 87. The cost of this project is 
estimated at approximately $6.8 million, and is estimated to take 150 
days to complete. Bids will close on April 24, 2009. 

U.S. Department of Education State Fiscal Stabilization Fund: The 
Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be 
administered by the U.S. Department of Education (Education). The SFSF 
provides funds to states to help avoid reductions in education and 
other essential public services. The initial award of SFSF funding 
requires each state to submit an application to Education that assures 
it will take action to meet certain educational requirements, such as 
increasing teacher effectiveness and addressing inequities in the 
distribution of highly qualified teachers. 

Arizona's initial SFSF allocation is $681.4 million. The state plans to 
submit its application for funds by May 4, 2009, but according to state 
education officials, they are waiting for the legislature to propose a 
2010 budget for their programs before they can definitely decide how 
they will spend the funds. Generally, the state expects that 
recipients, such as local school boards, will use their allocations to 
improve the tools they use to assess student performance and determine 
to what extent performance meets federal academic standards, rehire 
teachers that were let go because of prior budget cuts, retain 
teachers, and meet the federal requirement that all schools have equal 
access to highly qualified teachers, among other things. Funds for the 
state universities will help them maintain services and staff as well 
as avoid tuition increases. 

Recovery Act Funds Supporting Other Programs: 

In addition to stabilization funding to support education through the 
state fiscal stabilization fund, a senior official from the Arizona 
Department of Education noted that, as of April 3, 2009, Arizona had 
received $97.5 million for programs under Title I, Part A of ESEA. The 
funds will be used to improve assessments to meet federal standards, 
enrich teacher qualifications, avoid more teacher layoffs, improve 
poorer performing schools, and ultimately improve student performance, 
among other things. The state had also received about $89.2 million for 
programs under IDEA, Part B, which provides funds for public education 
to children with disabilities. According to state Department of 
Education officials, these funds will be used to hire more teachers to 
serve students with special needs, among other things. se programs, The 
state education officials said that they had prepared estimated 
allocations for the No Child Left Behind Recovery Act funds to the 
local school districts, which in turn will prepare and submit 
applications before they can use the funds. 

Arizona is also eligible to receive Recovery Act funds for several 
housing programs including the Low-Income Housing Tax Credit (LIHTC) 
Assistance program. The Arizona Department of Housing received notice 
that it will receive approximately $32 million to provide gap financing 
for LIHTC projects which provide funding for development of low income 
housing. Finally, the state Department of Economic Security had 
received approximately $43 million in Recovery Act funding anticipated 
for Workforce Investment Act programs to be used for adult, youth 
(including a summer youth program), and dislocated worker services. 

State Agencies and Select Localities Will Use Recovery Act Funds to 
Restore Programs That Suffered Past Budget Cuts and Will Track These 
Funds Separately, but Expect Some Challenges: 

Faced with deteriorating revenue projections, declining consumer 
confidence, a depressed real estate market, and a requirement to 
balance its budget, Arizona officials believe that much of the money 
the state will receive in Recovery Act funds will relieve some of the 
state's immediate fiscal pressures. State officials envision that funds 
made available as a result of the Recovery Act will be used to support 
program budgets that had been reduced in the state's efforts to balance 
the budget. Arizona has about $7 billion in its General Fund with a 
current budget of about $10 billion. State officials are working to 
close a budget gap of about $1.3 billion for fiscal year 2008, an 
estimated budget gap of about $2.1 billion for state fiscal year 2009 
and about $2.8 billion for fiscal year 2010 through reductions and 
other strategies. These strategies were limited to some extent, because 
voter propositions protect major programs from significant cuts, 
including Medicaid, education, and corrections, meaning other programs 
must absorb the cuts. The state's budget imbalance has been complicated 
by lower-than-anticipated revenues. For example, state fiscal year 2009 
revenue is significantly lower than estimated and has left the state 
unable to support previously approved spending levels. Arizona's Budget 
Office has estimated its future revenues and expenditures for each 
fiscal year through 2014. It projects an increasing deficit in each 
fiscal year, from $2.1 billion in 2009 to $4.1 billion in 2014, a 
situation which most likely would mean continued cuts. The state's 
Budget Stabilization Fund, known as its "rainy day" fund--a reserve 
fund built up during more favorable economic conditions to be used 
during difficult economic times--has been depleted. 

As of April 13, 2009, decisions about finalizing the fiscal year 2010 
budget were still in flux in part because Governor Brewer--only in 
office since January after the former Governor, Janet Napolitano, 
became Secretary of the U.S. Department of Homeland Security--has not 
issued a formal budget proposal. The Governor recognized that further 
reductions in government services may be necessary to help close the 
significant deficit between state revenues and expenditures. Given 
this, in early March, the Governor certified that the state would 
accept the funds made available by the Recovery Act and use certain 
funds to create jobs and promote economic growth within the state. 
Because of the state's economic and budgetary challenges, some state 
agency and local officials we met with expected to use the funds as 
they had been using them under their existing programs and did not 
expect to use Recovery Act funding on new initiatives. They also were 
confident recipients had sufficient critical uses for the funds and 
could use them immediately. 

However, state officials expressed concerns that using Recovery Act 
funds to make longer term operational and program commitments would 
mean higher future state spending that would not be sustainable once 
Recovery Act funds were no longer available, given the state of the 
economy. As a result, officials from one state agency explained that 
they are advising subrecipients to spend their funds on shorter term 
projects. Furthermore, with program budgets being cut to help relieve 
fiscal pressures, some state officials have said it may be challenging 
to ensure compliance with provisions requiring certain Recovery Act 
funds to be used to supplement and not supplant FY 2010 program funds. 
Officials with the state Department of Education, however, had one 
concern about passing the supplanting test. They said that it was 
unclear whether states could treat Recovery Act funds provided under 
the fiscal stabilization program as "state" funds versus "federal" 
funds. If they could use the funds as state resources, they would be 
able to meet the supplanting restrictions, but if not, they would have 
serious challenges in complying, jeopardizing the use of the funds. On 
the other hand, some state officials and program managers did not think 
it would be difficult to demonstrate they were not supplanting state 
funds in part because state funding for the programs had already been 
cut so significantly--in other words, there were few state funds to 
supplant. For example, they did not think it would be difficult to show 
that activities supported with Recovery Act resources, such as keeping 
teachers, could only be accomplished with federal support. 

One issue raised by officials in the Office of the Governor and within 
some state and local program offices was covering the costs to oversee 
and track the use of the Recovery Act funds, given past budget cuts, 
staff reductions, and increasing workloads--for example, increasing 
numbers of unemployed individuals who want services. These officials 
noted that their service delivery capacity will be challenged to 
administer funds flowing into eligible programs. Some of the officials 
wondered what flexibility they had to use some of the Recovery Act 
funds to cover administrative costs. On the other hand, some state 
agency officials said that they expected to be able to oversee and 
track Recovery Act funds with existing resources because funding to 
current programs that had administrative processes in place would be 
increased. In still other cases, Recovery Act funds will be disbursed 
through existing grant programs that may provide for a certain 
percentage of funds to be used for administration. 

The State Has a System to Track How It Is Using Recovery Act Funds but 
Cannot Ensure Localities Will Be Able to Meet the Act's Reporting 
Requirements: 

The state comptroller told us that the state's existing accounting 
system will have new accounting codes added in order to segregate and 
track the Recovery Act funds separately from other funds that will flow 
through the state government. Because some larger agencies and program 
offices maintain their own accounting systems, the Arizona General 
Accounting Office has issued guidance to state agencies on their 
responsibilities, including how they are to receive, disburse, tag, or 
code funds in their accounting systems; track funds separately; and, to 
some extent, report on these federal resources. State officials we 
spoke with noted that they do not foresee that it will be difficult to 
track Recovery Act funds separately from other funds. However, an 
official in the state Department of Economic Security noted that the 
Recovery Act funds will stress the tracking and reporting capacity of 
the financial management systems they use because the systems are old, 
are not very flexible, and were not designed for these purposes. The 
official said that the systems must be enhanced to provide the capacity 
needed for Recovery Act funds and that they are working to design a 
solution for this problem. 

Department heads and program officials generally expect that they will 
require subrecipients, through agreements, grant applications, and 
revised contract provisions, to track and report Recovery Act funding 
separately. For example, unemployment program managers said they were 
issuing new intergovernmental agreements with localities to cover new 
reporting requirements. However, several of the state officials raised 
questions about the tracking and reporting abilities of some local 
organizations, such as small, rural entities, boards or commissions, or 
private entities not used to doing business with the federal 
government. Furthermore, several of the state department officials 
acknowledged that either some state agency information systems have 
data reliability problems that will have to be resolved, or they had 
subrecipients that in the past had problems providing timely and 
accurate reporting, but said that they would work with these entities 
to comply, and also had sanctions to use as a last resort. Furthermore, 
state officials expressed some concern that the new requirement to 
provide financial reports on subrecipients' use of funds within 10 days 
after a quarter ends may be challenging to meet by both state and local 
entities, because they may not have actual data in time to meet this 
reporting time frame. 

Finally, the state may lack the ability to track the portion of 
Recovery Act funds going directly to recipients other than Arizona 
government agencies, such as independent state authorities, local 
governments, or other entities. State officials expressed concern that 
they may not be able to track and report Recovery Act funds when these 
entities receive the monies directly from federal agencies rather than 
through state agencies. 

State Agencies and Localities Are Expecting to Use Existing Internal 
Controls to Safeguard Recovery Act Funds, Although in Some Cases, 
Resource Constraints Could Affect Oversight: 

Overall, the state agency and local officials that we spoke with expect 
that their existing internal controls and techniques to manage any 
potential risks posed to Recovery Act funding will be sufficient and 
effective to safeguard Recovery Act funds, unless additional 
requirements are mandated by the federal government that generate the 
need to change business processes. These controls and techniques 
include submitting financial and performance reports for review, as 
well as conducting supervisory and compliance reviews, on-site 
inspections, external audits, and audits by the state Auditor General. 
Although Arizona is largely decentralized--state agencies and 
localities have responsibility for monitoring and are accountable for 
their respective Recovery Act funds--the state executives are reaching 
out to the state agencies to help ensure they are ready. For example, 
the state budget director met with the heads of the programs 
potentially receiving Recovery Act funds to gauge each program's 
preparedness. In addition, a number of state agencies were conducting 
or had plans to conduct meetings, training, and outreach to funding 
recipients to help them understand the goals and objectives of the act 
and their responsibilities for managing the funding it would provide. 
Similarly, in early April 2009, the state's General Accounting Office 
released a technical bulletin, the purpose of which was to establish 
consistent policies and procedures that all state agencies receiving 
Recovery Act funds must "immediately implement in order to effectively 
manage activities under the act." A senior official in the state 
comptroller's office said that office plans to conduct a survey to 
inventory current internal controls at state agencies to help ensure 
controls are in place to limit the risk of fraud, waste, abuse, and 
mismanagement of Recovery Act funds. 

Several risks still to be addressed have been identified as a result of 
using audits as an internal control. For example, Arizona's fiscal year 
2007 Single Audit report[Footnote 49] identified a number of material 
weaknesses related to the state Department of Education. The report 
identified a material weakness involving IDEA in which the state 
department had not reviewed subrecipients to ensure that federal awards 
were used for authorized purposes in compliance with laws, regulations, 
and the provisions of contracts or grant agreements. The audit report 
also identified one financial reporting material weakness related to 
the state Department of Administration's ability to prepare timely 
financial statements, including its Comprehensive Annual Financial 
Report (CAFR). This is mostly because many of the larger state agencies 
maintain separate accounting systems and submit financial data to the 
Department of Administration for inclusion in its consolidated 
financial statements. In fiscal year 2007, the CAFR was issued in June 
2008, approximately 6 months after the scheduled deadline. According to 
the Auditor General's Office, the fiscal year 2008 CAFR will also be 
completed late, as the last agency submitted its financial statement on 
March 9, 2008. According to the Auditor General's Office, this control 
deficiency affects the timeliness of financial reporting, which affects 
the needs of users. It is especially important that Arizona try to 
address the timeliness issue with regard to financial statements given 
the number and strict reporting timelines that are imposed on the state 
under the Recovery Act. For most of the other programs, managers stated 
that they had no outstanding material weaknesses and that any past 
weaknesses had been brought into compliance. 

According to state officials, another area of risk that the state 
agency is trying to manage is that some Recovery Act funds, 
particularly in the transportation area, are reimbursable, meaning that 
either ADOT or localities will have to spend funds from their own 
budgets until they are reimbursed by Recovery Act funds. Because of the 
state's challenging financial situation, it may be a challenge for some 
state and local government entities to spend the funds up front with 
the limited cash they have on hand. This is particularly true for rural 
transit projects. According to an ADOT official, to address this risk, 
they are vetting applications for rural transit funds closely, with an 
eye toward granting funds only to those localities that have shown they 
have the cash on hand to pay up front for the costs of the rural 
transit projects. 

State Agencies and Localities Will Continue or Enhance Current 
Monitoring Techniques to Oversee Recovery Act Funds, but in Some Cases, 
Reduced Resources Could Pose Challenges: 

Representatives of a number of state executive offices, state agencies, 
and select localities reported that they would at a minimum continue to 
monitor Recovery Act funding as they had monitored federal funding 
provided to these same programs in the past. They expected to meet the 
financial monitoring, performance measurement, and accountability 
requirements using existing systems and reports, unless the federal 
government institutes any new requirements that would require changes 
to their systems and processes. The entities were still waiting for 
further guidance from the federal government to determine any needed 
changes. In some cases, agencies had plans to increase monitoring. For 
example, according to officials for the Arizona Division of the Federal 
Highway Administration (FHWA), they plan on increasing the number of 
site visits on projects that use Recovery Act funds. Similarly, state 
transportation officials will require that contractors report the 
Recovery Act dollars spent and the jobs they created as part of their 
regular reports to the state. 

To some extent, Arizona is providing the public an opportunity to 
monitor how the state is using Recovery Act funding and what it is 
achieving with these funds through a Web site, [hyperlink, 
http://www.azrecovery.gov], where the state has posted links to program 
funding levels, guidance, and intended uses of Recovery Act money, and 
intends to post reports on the use of funds, among other things. 

However, several state officials expressed concern that the Recovery 
Act did not provide funding specifically for state oversight 
activities, despite their importance in ensuring that the Recovery Act 
funds are used appropriately and effectively. Officials within state 
executive offices that are coordinating oversight activities--such as 
the Office of Economic Recovery and the Comptroller's Office--stated 
that they will be challenged to oversee compliance with Recovery Act 
funding requirements within their existing staffing levels, given that 
the state currently has a hiring freeze to help relieve its budget 
deficits. For example, the Arizona General Accounting Office within the 
state Department of Administration has experienced a reduction of staff 
from 74 to 50, posing challenges to its increased oversight 
responsibilities. The Department of Economic Security, which manages 
workforce investment programs and human services programs, among other 
responsibilities, has an estimated 8,214 staff on furloughs and has 
laid off about 800 staff members as well. Similarly, a Department of 
Housing official stated that the office currently has a vacancy rate of 
about 15 percent because of the hiring freeze. Furthermore, the state 
Auditor General reported that its staffing levels are nearly 25 percent 
below the authorized staffing level of 229 full time equivalents. 

State Agencies and Localities Will Use Existing Performance Measures to 
Gauge the Impacts of Recovery Act Funding and Are Waiting for Federal 
Guidance on How to Implement New Measures the Act Requires, Especially 
on Jobs Created and Saved: 

State agencies and the select localities that we spoke with expected to 
use existing performance metrics to assess results achieved through 
Recovery Act funding, but were also looking for more guidance from the 
federal government on how to comply with new assessment requirements 
under the act. Agency officials generally stated that because the 
Recovery Act funds are for pre-existing programs, they will continue to 
use their existing performance metrics to assess impacts. For example, 
the Arizona Criminal Justice Commission, which oversees among other 
things the Edward Byrne Memorial Justice Assistance Grants, tracks a 
wide list of both short-term and long-term performance measures that 
assess the effectiveness of law enforcement projects funded by the 
grants. Short-term measures include increasing the number of units that 
report high program quality, while long-term measures include changing 
crime rate percentages in communities. Commission officials stated that 
they will continue to track these measures for Recovery Act funding, in 
addition to any new measures required under the act. Likewise, 
administrators at a local school district we visited stated that they 
have a department that uses a system to track the performance for every 
school and every student in the school district. The officials stated 
that they will use the same measures to track school and student 
performance improvements using Recovery Act funds. 

However, officials were unclear as to how to determine the number of 
jobs created and saved by certain Recovery Act funds, new measures 
required by the act. State education officials noted that the act is 
vague about determining the number of teachers who would have been laid 
off in the absence of Recovery Act funding. Although a state housing 
official expected that her office would have the capabilities to assess 
results, such as job creation and economic output, local housing 
officials stated they may have difficulty doing so. State and local 
officials were waiting for additional guidance from the federal 
government on how to implement measures for jobs created and saved, as 
well as any new measures required under the act. 

Arizona's Comments on This Summary: 

We provided the Governor of Arizona with a draft of this appendix on 
April 17, 2009. The Director of the Office of Economic Recovery 
responded for the Governor on April 20, 2009. In general, the state 
agreed with our draft and provided some clarifying information which we 
incorporated. The state also provided technical suggestions that were 
incorporated, as appropriate. 

GAO Contacts: 

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

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

Staff Acknowledgments: 

In addition to the contacts named above, Kirk Kiester, Assistant 
Director; Joseph Dewechter, analyst-in-charge; Lisa Brownson; Aisha 
Cabrer; Alberto Leff; Jeff Schmerling; and Margaret Vo made major 
contributions to this report. 

[End of section] 

Appendix IV: California: 

Overview: 

Use of funds: An estimated 90 percent of fiscal year 2009 Recovery Act 
funding provided to states and localities will be for health, 
transportation and education programs. The three largest programs in 
these categories are the Medicaid Federal Medical Assistance Percentage 
(FMAP) awards, the State Fiscal Stabilization Fund, and highways. 

Medicaid Federal Medical Assistance Percentage (FMAP) Funds: 

* As of April 3, 2009, Centers for Medicare & Medicaid Services (CMS) 
had made about $3.331 billion in increased Federal Medical Assistance 
Percentage (FMAP) grant awards to California; 

* As of April 1, 2009, the state has drawn down about $1.5 billion, or 
45.4 percent of its initial increased FMAP grant awards; 

* Funds made available as a result of increased FMAP will help offset 
the state's general fund budget deficit, according to California 
officials. 

Transportation--Highway Infrastructure Investment: 

* California was apportioned about $2.570 billion for highway 
infrastructure investment on March 2, 2009 by the U.S. Department of 
Transportation; 

* Under a state law enacted in late March 2009, 62.5 percent of funds 
($1.606 billion) will go to local governments for projects of their 
selection; 

* Of the remaining 37.5 percent ($964 million), $625 million will go to 
State Highway Operation and Protection Program (SHOPP) projects for 
highway rehabilitation, eligible maintenance and repair; $29 million 
will fund Transportation Enhancement projects; and $310 million will be 
loaned to fund stalled capacity expansion projects; 

* As of April 16, 2009, the U.S. Department of Transportation had 
obligated $261.4 million for 20 California projects; 

* California will request reimbursement from the U.S. Department of 
Transportation as the state makes payments to contractors. 

U.S. Department of Education State Fiscal Stabilization Fund (Initial 
Release): 

* California was allocated about $3.993 billion from the initial 
release of these funds on April 2, 2009 by the U.S. Department of 
Education; 

* Before receiving the funds, states are required to submit an 
application that provides several assurances to the Department of 
Education. These include assurances that they will meet maintenance of 
effort requirements (or that they will be able to comply with waiver 
provisions) and they will implement strategies to meet certain 
educational requirements, including teacher effectiveness, addressing 
inequities in the distribution of highly qualified teachers, and 
improving the quality of state academic standards and assessments. 
California's application was approved by the U.S. Department of 
Education on April 17, 2009 and the state is now eligible to draw funds 
for local school districts and universities; 

* Approximately $3.266 billion of the $3.993 billion (81.8 percent) 
must be spent on education. The remaining $727 million (18.2 percent) 
can be spent at the Governor's discretion and is expected to be 
directed to public safety. Of the funds devoted to education, the 
majority will be spent on primary and secondary education. 

California is receiving additional Recovery Act funds under other 
programs, such as Title I, Part A of the Elementary and Secondary 
Education Act of 1965 (ESEA), (commonly known as No Child Left Behind); 
the Individuals with Disabilities Education Act, Part B, and workforce 
training programs under the Workforce Investment Act (WIA). 

Safeguarding and transparency: The Governor established the California 
Federal Economic Stimulus Task Force to ensure both accountability and 
transparency in how funds are spent, consistent with the Recovery Act 
and the state's own goals. The Task Force will also manage California's 
recovery Web site [hyperlink, http://www.recovery.ca.gov], the state's 
principal vehicle for reporting on the use and status of Recovery Act 
funds. In addition, on April 3, 2009, California appointed a Recovery 
Act Inspector General to make sure Recovery Act funds are used as 
intended and to identify instances of waste, fraud, and abuse. 
California intends to use its existing accounting system to track funds 
flowing through the state government. Although California will publicly 
report its Recovery Act spending, officials have said that the state 
may not be aware of all federal funds sent directly to other entities, 
such as municipalities and independent authorities. The California 
State Auditor has raised concerns about internal controls at various 
state agencies that could affect accountability for Recovery Act funds, 
and will take this into account when assessing risk during her current 
audit planning efforts. 

Assessing the effects of spending: According to state officials, 
California has begun to develop plans to assess the effects of Recovery 
Act spending. However, they are waiting for further guidance from the 
federal government, particularly related to measuring job creation. 

California Beginning to Use Recovery Act Funds: 

California has begun to use some of its Recovery Act funds, as follows: 

Increased Federal Medical Assistance Percentage Funds: Medicaid is a 
joint federal-state program that finances health care for certain 
categories of low-income individuals, including children, families, 
persons with disabilities, and persons who are elderly. The federal 
government matches state spending for Medicaid services according to a 
formula based on each state's per capita income in relation to the 
national average per capita income. The amount of federal assistance 
states receive for Medicaid service expenditures is known as the 
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP 
may range from 50 to no more than 83 percent, with poorer states 
receiving a higher federal matching rate than wealthier states. The 
Recovery Act provides eligible states with an increased FMAP for 27 
months between October 1, 2008, and December 31, 2010.[Footnote 50] On 
February 25, 2009, the Centers for Medicare & Medicaid Services (CMS) 
made increased FMAP grant awards to states, and states may 
retroactively claim reimbursement for expenditures that occurred prior 
to the effective date of the Recovery Act.[Footnote 51] 

Generally, for federal fiscal year 2009 through the first quarter of 
federal fiscal year 2011, the increased FMAP, which is calculated on a 
quarterly basis, provides for (1) the maintenance of states' prior year 
FMAPs; (2) a general across-the-board increase of 6.2 percentage points 
in states' FMAPs; and (3) a further increase to the FMAPs for those 
states that have a qualifying increase in unemployment rates. The 
increased FMAP available under the Recovery Act is for state 
expenditures for Medicaid services. However, the receipt of the 
increased FMAP may reduce the funds that states must use for their 
Medicaid programs, and states have reported using these available funds 
for a variety of purposes. 

Under the Recovery Act, California will receive increased FMAP grant 
awards of at least 61.6 percent, up from 50 percent. As of April 1, 
2009, California has drawn down $1.5 billion, or 45.4 percent of its 
initial FMAP grant awards. Initially, the state could not obtain 
increased FMAP funds because the state reduced its eligibility period 
for children from 12 months of continuous eligibility to 6 months, 
effective January 1, 2009. However, because this change was suspended 
on March 27, 2009 and eligibility was restored to any children 
affected, the state has been able to draw down increased FMAP funds. 
Officials plan to use funds made available as a result of the increased 
FMAP to offset the state's general fund budget deficit. 

Transportation--Highway Infrastructure Investment: The Recovery Act 
provides funds for highway infrastructure investment using the rules 
and structure of the existing Federal-Aid Highway Surface 
Transportation Program, which apportions money to states to construct 
and maintain eligible highways and for other surface transportation 
projects. States must follow the requirements for the existing 
programs, and in addition, the governor must certify that the state 
will maintain its current level of transportation spending, and the 
governor or other appropriate chief executive must certify that the 
state or local government to which the funds have been made available 
has completed all necessary legal reviews and determined that the 
projects are an appropriate use of taxpayer funds. California provided 
these certifications but noted that the state's level of funding was 
based on the best information available at the time of the state's 
certification.[Footnote 52] 

According to state sources, under a state law enacted in late March 
2009, 62.5 percent of funds ($1.606 billion) will go to local 
governments for projects of their selection. Of the remaining 37.5 
percent ($964 million), $625 million will go to State Highway Operation 
and Protection Program (SHOPP) projects for highway rehabilitation, 
eligible maintenance and repair; $29 million will fund transportation 
enhancement projects; and $310 million will be loaned to fund stalled 
capacity expansion projects.[Footnote 53] As of April 16, 2009, the 
U.S. Department of Transportation had obligated $261.4 million for 20 
California projects.[Footnote 54] These projects consist of 
rehabilitating roadways, pavement, and rest areas as well as upgrading 
median barriers and guardrails. For example, a $33 million project is 
being funded to rehabilitate a road in San Jose. 

U.S. Department of Education State Fiscal Stabilization Fund: The 
Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be 
administered by the U.S. Department of Education (Education). The SFSF 
provides funds to states to help avoid reductions in education and 
other essential public services. The initial award of SFSF funding 
requires each state to submit an application to Education that assures 
it will take action to meet certain educational requirements, such as 
increasing teacher effectiveness and addressing inequities in the 
distribution of highly qualified teachers. 

California's initial SFSF allocation is $3.993 billion. Approximately 
$3.266 billion of this money (81.8 percent) must be spent on education. 
The remaining $727 million (18.2 percent) can be spent on public safety 
and other government services (including education). California 
officials told us that the Governor plans to recommend to the State 
Legislature that the funds be spent on the Department of 
Corrections.[Footnote 55] Like other states, California will receive 
its SFSF funds in two phases. California's application was approved by 
the U.S. Department of Education on April 17, 2009, and the state is 
now eligible to draw funds for local school districts and universities. 
Of the $3.266 billion for education, the state plans to spend the 
maximum amount possible under Recovery Act formulas--approximately 
$2.57 billion on primary and secondary education and $537 million on 
higher education, for the purpose of restoring funding to 2008-2009 
levels. The remaining $164 million will be used to restore education 
funding in future years. These funds will help ensure that primary and 
secondary schools and institutions of higher education have the 
resources they need to avert cuts and retain teachers and professors. 

Overall Management and Reporting of Recovery Act Funds Are Being 
Centrally Coordinated: 

The Governor and his administration are setting the overall policy for 
coordination of and accountability for Recovery Act funds. Prior to the 
enactment of the Recovery Act, the Governor's office formed nine 
working groups organized around broad program areas (e.g., 
transportation, environment, etc.) and comprising representatives of 
the Department of Finance, program departments, the legislative branch, 
and California's Washington, D.C. office. The working groups worked 
with the California congressional delegation to estimate the effects of 
the Recovery Act and to lobby for changes helpful to the state. The 
Recovery Act was enacted on February 17, 2009, and California signed a 
state certification letter on March 5 stating that the state would 
request and use certain Recovery Act funds to create jobs and promote 
economic growth (California was the first state to do so). 

Initially, the Department of Finance, the Director of which is 
appointed by the Governor, was the focal point for working with state 
agencies to prepare to meet Recovery Act accountability and reporting 
requirements. In late March 2009, the Governor's office established the 
California Federal Economic Stimulus Task Force, which is responsible 
both for tracking Recovery Act funds that come into the state and 
ensuring that those funds are spent efficiently and effectively. The 
task force is chaired by the Deputy Chief of Staff to the Governor and 
Director of the Governor's Office of Planning and Research, and will 
include one representative from the administration for each of the main 
program areas that will receive funds. The Chief Deputy Director of 
Finance will serve as deputy coordinator of the task force and will be 
responsible for, among other things, tracking the funds coming into the 
state. The Chief Operating Officer of the Department of Finance will 
oversee the accountability and auditing functions of the task force. 

State Agencies and Localities Are Developing Spending Plans, but in 
Some Cases Are Awaiting Further Guidance and Final Determination of 
Amounts to Be Received: 

In total, as of March 27, 2009, the state of California estimates that 
the state and its localities will receive approximately $48.3 billion 
for various programs, including health, education, and infrastructure. 
(see figure 4.) Of this, about $14 billion will go directly to local 
governments and the other $34 billion will go to the state. 

Figure 4: California State and Local Recovery Act Funding (dollars in 
millions): 

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

Health and human services: 
State: $11,565.4; 
Local: $3,293. 

Education: 
State: $8,300.7; 
Local: $3,307.6. 

Labor: 
State: $8,360.9; 
Local: $0. 

Infrastructure: 
State: $3,814.2; 
Local: $3,483.5. 

Energy and climate: 
State: $317.7; 
Local: $3,055. 

Public safety: 
State: $1,084.8; 
Local: $433.2. 

Science and technology: 
State: $0; 
Local: $880. 

Housing: 
State: $167.4; 
Local: $276.2. 

Source: Department of Finance @ [hyperlink, http://www.recovery.ca.gov] 
(March 27, 2009). 

[End of figure] 

The extent to which spending decisions have been made varies by program 
in California, with some uses determined while others are still 
unknown. For example, for some funding, like the $10 billion made 
available as a result of the increased FMAP, all or most is formula 
driven, and the application of funds is already determined. Likewise, 
for public transit investment grants and fixed-guideway infrastructure 
programs (due to receive approximately $1.019 billion in Recovery Act 
funds, according to Federal Transit Administration officials), all or 
most of the funding is formula driven, but local priority-setting 
processes will determine which projects will be funded. For education 
(receiving about $11.8 billion in Recovery Act funds), while the 
majority of allocations to school districts are based on formulas, 
education officials told us that spending decisions will largely be 
made at the local level.[Footnote 56] Officials from the Sacramento 
Housing and Redevelopment Agency (SHRA)--one of the state's 55 public 
housing authorities hoping to receive a portion of Recovery Act funding 
from the formula-based Public Housing Capital Fund--stated that they 
have begun to prioritize how funds will be used. Contracts will be 
awarded by SHRA for bids received within 120 days on projects listed in 
its 5-year Capital Fund Plan. State officials from the Department of 
Housing and Community Development are not sure how much funding another 
program, the Neighborhood Stabilization Program, will receive. 
Officials told us that their plans for spending the money will be 
determined by the amount received. 

In some instances, state officials have sought federal guidance on the 
use of certain funds. For example, California Employment Development 
Department (EDD) officials told us that they hoped to receive 
additional federal guidance clarifying whether California, through its 
legislative budget process, can use all discretionary Workforce 
Investment Act funding through Recovery Act funds to offset employment 
and training program general fund costs in either the California 
Department of Corrections and Rehabilitation or the California 
Conservation Corps. EDD officials noted that using the discretionary 
funds in this way might contradict recent U.S. Department of Labor 
guidance, which only allows funds to be used for new programs and not 
to replace state or local funding for existing programs. State 
officials are also seeking guidance from CMS regarding policies on 
payments for in home support services funded by Medicaid. State 
officials are also uncertain whether Recovery Act funds can help pay 
for the increased costs of administering, overseeing, and auditing 
Recovery Act program funds and stated that federal guidance, thus far, 
has not addressed these questions. 

In some cases, state agencies face deadlines for using their funds. 
Caltrans must obligate at least half of certain Recovery Act funds 
within 120 days of when the funds were apportioned by the Department of 
Transportation or the funds will be redistributed to other states. 
[Footnote 57] Caltrans did not foresee problems meeting this deadline. 
Caltrans officials further stated that most projects could be completed 
within 1 year; however, project completion time lines and specific 
project funding outlays by year have not been finalized. Caltrans 
officials stated that some project construction may begin by early-May 
2009. In another case, the Tax Credit Allocation Committee (TCAC) must 
commit at least 75 percent of the $325.9 million in Recovery Act's Tax 
Credit Assistance Program funds by February 17, 2010. TCAC did not 
foresee problems meeting this deadline. TCAC officials told us that 
they have a system in place to quickly identify recipients and that 
they are planning to make sure to comply with the timeline as reflected 
in regulations. 

Recovery Act Funds Will Help but Not Resolve California State Budgetary 
Pressures: 

The state's economy and California state revenues have been severely 
affected by the national recession and financial market credit crunch. 
In March 2009, California's unemployment rate rose to 11.2 percent, 2.7 
percentage points higher than the national average. In February, 
according to RealtyTrac, California posted the nation's third highest 
state foreclosure rate, behind Nevada and Arizona, with 1 in every 165 
housing units in foreclosure. On March 19, Fitch Investor Services 
downgraded California General Obligation bonds to an "A" rating, the 
lowest current rating of any state. 

State general fund revenues are projected to fall in state fiscal year 
2008-2009 by $15.1 billion, or 14.7 percent, from fiscal year 2007- 
2008.[Footnote 58] In January 2009, the fiscal year 2009-2010 
Governor's Budget projected that the state would end the state fiscal 
year with a $41.6 billion deficit if no corrective actions were taken. 
In response, the State Legislature and the Governor agreed to a $42 
billion package of solutions. As described by state sources, this 
package includes reducing spending, temporarily increasing taxes, using 
funds made available as a result of the Recovery Act, and borrowing 
from future lottery profits.[Footnote 59] The budget package depends, 
in part, on voter approval of six different propositions at a May 19, 
2009, special election. If three of these propositions are approved, 
the state Legislative Analyst's Office (LAO) estimates the package will 
reduce the state's budget deficit by $6 billion. 

Unfortunately, the state's economic condition since the release of the 
Governor's budget in January 2009 has continued to deteriorate. Even if 
the May 19, 2009, propositions pass, and the state uses $8.2 billion in 
funds made available as a result of the Recovery Act, the LAO estimates 
an $8 billion deficit in 2009-2010. Consequently, the State Legislature 
and the Governor may need to work on additional budgetary solutions to 
rebalance the 2009-2010 budget following the May 2009 budget update. On 
February 3, 2009, the California State Auditor added the state's budget 
condition to its list of high-risk issues facing the state. 

Plans for Oversight and Control of Recovery Funds Are Still Evolving: 

State officials are working to get the necessary guidance and systems 
up and running that will allow for a comprehensive and accurate 
accounting of California Recovery Act funds. As previously mentioned, 
the California Federal Economic Stimulus Task Force is responsible for 
tracking Recovery Act funds and ensuring that they are spent 
efficiently and effectively. The state's new recovery Web site 
[hyperlink, http://www.recovery.ca.gov] will serve as the primary tool 
to fulfill federal reporting and accountability requirements 
consistently throughout the state. A representative from each state 
agency is tasked with ensuring that data required by federal Recovery 
Act reporting requirements are available on the state Web site. 
Development of the related processes and procedures to accumulate and 
consolidate the spending data is underway. State officials also plan to 
use the Web site to provide the public with up-to-date information 
about federal funds received by the state, how those dollars are being 
spent, and, through the use of digital mapping, the geographic 
distribution of expenditures. 

Internal Control and Tracking Is Expected to Be Achievable for State- 
Level Funds, but Concerns Exist Over Funds Provided to Localities: 

The state intends to rely heavily on existing systems to track and 
account for Recovery Act funds. State agency officials generally told 
us that their existing accounting systems, enhanced with newly created 
codes for Recovery Act funds, will enable them to separately track and 
monitor how state and local agencies spend Recovery Act funds that pass 
through the state. For example, California Department of Education 
officials told us that the department already has a consistent 
accounting structure in place for tracking and reporting on how federal 
funds are used. The department plans to create separate accounting 
codes within that structure to track and report how the different 
programmatic funds received through the Recovery Act are used. 
According to the officials, the department will provide those codes to 
the local education agencies (LEA), as well as instruct them on what 
the codes mean. However, some officials still expressed concerns about 
the ability of LEAs to consistently maintain accountability for funds. 
For example, a Department of Finance official with responsibility for 
education program budgets stated that there are over 1,000 school 
districts in California, and they possess varying levels of 
sophistication in their accounting systems. While the state will be 
providing guidance to help ensure proper accountability, this official 
expects some districts may face challenges complying. 

Most state program officials told us that they will apply the same 
controls and oversight processes that they currently apply to other 
program funds. For example, the California Employment and Development 
Department has an independent division that conducts monitoring, 
audits, and evaluations to guard against mismanagement, waste, fraud, 
and abuse. The effectiveness of internal controls at the local level, 
however, is unknown for some programs. Caltrans officials, for example, 
stated that while extensive internal controls exist at the state level, 
there may be control weaknesses at the local level.[Footnote 60] 
Caltrans is collaborating with local entities to identify and address 
these weaknesses. Additionally, Caltrans has conducted workshops and 
other outreach activities to ensure that regions and localities are 
fully informed regarding requirements for the tracking and expenditure 
of Recovery Act funds, and would like to increase its capacity to 
provide oversight, particularly at the local level. 

Various Audit Functions Will Provide Oversight: 

California intends to use existing internal and independent audit 
functions and a new inspector general to oversee Recovery Act funds 
received by the state. The Office of State Audits and Evaluations 
(OSAE) is an internal audit function within the Department of Finance 
which performs audits of various state funds and programs, including 
those receiving Recovery Act funds. According to state officials, OSAE 
is also responsible for ensuring compliance with the state's Financial 
Integrity and State Manager's Accountability Act of 1983 (FISMA) and 
oversees the activities of internal audit functions within most state 
agencies. According to state sources, FISMA requires each state agency 
to maintain effective systems of internal accounting and administrative 
control, to evaluate the effectiveness of these controls on an ongoing 
basis, and to review and report biennially on the adequacy of the 
agency's systems of internal accounting and administrative control. 
OSAE has not yet determined the scope or approach for its review of 
Recovery Act funds or the extent to which it can utilize FISMA in 
assessing compliance with Recovery Act requirements. In addition, the 
State Controller audits claims for payment submitted by state agencies 
and provides internal audit services to some state agencies, such as 
Caltrans, for Recovery Act funds. 

The State Auditor, California's independent audit and evaluation 
office, conducts financial and performance audits as authorized or 
required by law and requested by the State Legislature. The State 
Auditor is also annually responsible for conducting California's 
statewide single audit of numerous federal programs administered in 
California.[Footnote 61] Based on the State Auditor's initial analysis 
of Recovery Act funds the state expects to receive and the formula for 
determining which programs require an audit, the State Auditor 
anticipates it will likely need to expand single audit coverage to 
capture additional programs receiving Recovery Act funds. Finally, on 
April 3, 2009, the Governor appointed the nation's first Recovery Act 
Inspector General, whose role is to make sure Recovery Act funds are 
used as intended and to identify instances of waste, fraud, and abuse. 

Prior Work of State Auditor Indicates Areas Requiring Additional 
Oversight: 

The most recent single audit, conducted by the State Auditor for fiscal 
year 2007, identified 81 material weaknesses, 27 of which were 
associated with programs we reviewed for purposes of this report. 
[Footnote 62] The State Auditor plans to use past audit results to 
target state agencies and programs with a high number and history of 
problems, including data reliability concerns, and is closely 
coordinating with us on these efforts. For example, the fiscal year 
2007 State Single Audit Report identified eight material weaknesses 
pertaining to the ESEA Title I program and the Individuals with 
Disabilities Education Act programs. The audit findings included a 
material weakness in the California Department of Education's 
management of cash because it disbursed funds without assurances from 
LEAs that the time between the receipt and disbursement of federal 
funds was minimized, contrary to federal guidelines. Education 
officials told us that they have addressed some of these material 
weaknesses and, in other cases, they are still working to correct them. 
If these and other material weaknesses are not corrected, they may 
affect the state's ability to appropriately manage certain Recovery Act 
funds. The State Auditor's Office told us that it is in the process of 
finalizing the fiscal year 2008 State Single Audit Report and plans to 
issue the report within the next 30 days. In addition, the State 
Auditor's Office is summarizing the results of the single audit to 
identify those programs that continue to have material weaknesses. 
Finally, the State Auditor's Office plans to use the results of other 
audits it has conducted in conjunction with the single audit to assess 
risk and develop its approach for determining the state's readiness to 
receive the large influx of federal funds and comply with the 
requirement regarding the use of those funds under the Recovery Act. 

State Officials Expressed Concerns about Lack of Guidance and Ability 
to Measure the Impacts of Recovery Act Funds: 

State officials with whom we spoke have not yet established plans or 
processes for assessing the impacts of Recovery Act funds. According to 
Department of Finance officials, the newly created California Federal 
Economic Stimulus Task Force will assume this responsibility. Several 
state agency officials and a local public housing authority believe 
that additional guidance is needed from the U.S. Office of Management 
and Budget (OMB) before they can fully address the issue of impact 
assessments. State officials told us that assessing the impact of 
Recovery Act funds on job creation in particular will be difficult. 
That is, while they believe that tracking the impact for contracts, 
grants, or discrete projects is possible, it is extremely difficult to 
separate out the specific impact of Recovery Act funds when they are 
combined with other federal, state, or local funds, as they will be in 
many situations. 

The state program officials with whom we spoke raised a number of 
specific concerns about their ability to measure the impact of Recovery 
Act funds. For example, 

* California education officials told us they did not yet know how the 
state will measure the impact of the Recovery Act funds spent on 
education. The officials said that, although it should be possible to 
track Recovery Act education spending separately from non-Recovery Act 
money, this does not mean that they will be able to report on specific 
outcomes that result from this spending. One concern mentioned by 
several officials is that it may not be possible to link the spending 
categories used in the accounting system to specific outcomes. 
Furthermore, even if such links could be made, another difficulty would 
be determining the extent to which an outcome was the result of the 
Recovery Act funds received in April 2009 versus the non-Recovery Act 
funds received earlier in the year for the same program. Finally, 
officials expressed concern about the incompatibility between desired 
Recovery Act outcomes and Recovery Act funding. One of the Recovery 
Act's desired outcomes is job creation and preservation, which requires 
ongoing funds, but the Recovery Act provides only temporary funds. 

* According to Caltrans officials, measuring the full economic impact 
of highway funds presents challenges. Caltrans officials told us that 
since Recovery Act funds may be combined with other funds to complete 
projects, isolating the number of jobs created using just the Recovery 
Act funds may be difficult. In addition, Caltrans officials told us 
that guidance on measuring and reporting the effect of Recovery Act 
funds for transit and fixed-guideway investments has not yet been 
issued, however they anticipate it will be difficult to report on jobs 
preserved or created. 

* California Employment Development Department officials told us that 
its existing accounting system can report output, such as how many more 
participants are registered and enrolled in Workforce Investment Act 
programs and the level of program services increased due to the 
Recovery Act. They also said that the existing system can track certain 
performance indicators for program participants, such as successful 
employment, wage increases, and job retention. However, these officials 
noted that they anticipate challenges determining whether such outcomes 
are specifically due to services supported by the additional Recovery 
Act funds versus services previously or currently provided to program 
participants through existing Workforce Investment Act funds. 

California's Comments on This Summary: 

We provided the Governor of California with a draft of this appendix on 
April 17, 2009. Members of the California Federal Economic Stimulus 
Task Force responded for the Governor on April 20, 2009. These 
officials provided clarifying and technical comments that we 
incorporated where appropriate. 

GAO Contacts: 

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

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

Staff Acknowledgments: 

In addition to the contacts named above, Paul Aussendorf, Candace 
Carpenter, Joonho Choi, Brian Chung, Nancy Cosentino, Kerry Dunn, 
Michelle Everett, Chad Gorman, Richard Griswold, Bonnie Hall, Delwen 
Jones, Brooke Leary, Jeff Schmerling, Steve Secrist, and Eddie Uyekawa 
made major contributions to this report. 

[End of section] 

Appendix V: Colorado: 

Overview: 

Use of funds: An estimated 90 percent of Recovery Act funding provided 
to states and localities nationwide in fiscal year 2009 (through Sept. 
30, 2009) will be for health, transportation and education programs. 
The three largest programs in these categories are the Medicaid Federal 
Medical Assistance Percentage awards, the State Fiscal Stabilization 
Fund, and highways. 

Medicaid Federal Medical Assistance Percentage (FMAP) Funds: 

* As of April 3, 2009, the Centers for Medicare & Medicaid Services had 
made about $227 million in increased FMAP grant awards to Colorado; 

* As of April 16, 2009, the state had not drawn down any of its 
increased FMAP grant awards; 

* State officials noted they are working to ensure that the state is in 
compliance with Recovery Act provisions governing eligibility for the 
increased FMAP. 

Transportation--Highway Infrastructure Investment: 

* Colorado was apportioned about $404 million for highway 
infrastructure investment on March 2, 2009, by the U.S. Department of 
Transportation; 

* As of April 16, 2009, the U.S. Department of Transportation had 
obligated $118.4 million for 19 projects; the Colorado Department of 
Transportation had advertised 17 of these projects, and 5 of the 17 had 
been awarded; 

* Colorado's Recovery Act transportation funds are being directed to 
projects that can be advertised within 90 to 180 days of the passage of 
the act, can be completed within 3 years, and will result in job 
creation; 

* Projects include resurfacing roads and replacing highway bridges in 
the Denver metropolitan area, as well as improvements to mountain 
highways; 

* Colorado will request reimbursement from the U.S. Department of 
Transportation as the state makes payments to contractors. 

U.S. Department of Education State Fiscal Stabilization Fund (Initial 
Release): 

* Colorado was allocated about $509 million from the initial release of 
these funds on April 2, 2009, by the U.S. Department of Education; 

* Before receiving the funds, states are required to submit an 
application that provides several assurances to the U.S. Department of 
Education. These include assurances that they will meet maintenance of 
effort requirements (or that they will be able to comply with waiver 
provisions) and that they will implement strategies to meet certain 
educational requirements, including increasing teacher effectiveness, 
addressing inequities in the distribution of highly qualified teachers, 
and improving the quality of state academic standards and assessments; 

* The Governor is working with the state legislature on a plan for 
spending the fiscal stabilization funds Colorado will receive to 
support education. Once legislative concurrence is obtained, the plan 
will be submitted to the U.S. Department of Education. A state official 
estimated that could happen as early as the week of April 20, 2009. 

Colorado is also receiving additional Recovery Act funds under other 
programs, such as those under Title I, Part A of the Elementary and 
Secondary Education Act of 1965 (ESEA) (commonly known as No Child Left 
Behind); programs under the Individuals with Disabilities Education Act 
(IDEA), Part B; programs under the Workforce Investment Act; and Edward 
Byrne Memorial Justice Assistance Grants. These are described 
throughout this appendix. 

Safeguarding and transparency: As the state makes its plans, some 
officials raised concerns about how well the state is positioned to 
track and oversee Recovery Act expenditures and identified general 
areas of vulnerability in spending Recovery Act funds. For example, 
Colorado's accounting system is 18 years old, which will make it 
challenging for the state to tag and track Recovery Act funds, 
according to state officials. State officials are determining what 
approach they will use in tracking funds and told us they currently 
plan to create an accounting fund to track state agencies' use of 
Recovery Act funds, employing a centrally defined budget-coding 
structure to distinguish between Recovery Act and non-Recovery Act 
federal funds. State officials were also concerned about tracking funds 
that bypass the state and flow directly to local entities. 

Assessing the effects of spending: The state is making plans to assess 
the effects of Recovery Act spending on Colorado's economy. Some 
agencies plan to use their existing performance indicators to assess 
the effects of recovery, while others have received guidance including 
new indicators. Some officials identified concerns with recipients' 
ability to submit reports more quickly or more frequently than normal, 
while some questioned how precisely economic effects can be measured. 

Colorado Beginning to Use Recovery Act Funds: 

Colorado has begun to use some of its Recovery Act funds, as follows: 

Increased Federal Medical Assistance Percentage Funds: Medicaid is a 
joint federal-state program that finances health care for certain 
categories of low-income individuals, including children, families, 
persons with disabilities, and persons who are elderly. The federal 
government matches state spending for Medicaid services according to a 
formula based on each state's per capita income in relation to the 
national average per capita income. The amount of federal assistance 
states receive for Medicaid service expenditures is known as the 
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP 
may range from 50 percent to no more than 83 percent, with poorer 
states receiving a higher federal matching rate than wealthier states. 
The Recovery Act provides eligible states with an increased FMAP for 27 
months between October 1, 2008, and December 31, 2010.[Footnote 63] On 
February 25, 2009, the Centers for Medicare & Medicaid Services (CMS) 
made increased FMAP grant awards to states, and states may 
retroactively claim reimbursement for expenditures that occurred prior 
to the effective date of the Recovery Act.[Footnote 64] Generally, for 
fiscal year 2009 through the first quarter of fiscal year 2011, the 
increased FMAP, which is calculated on a quarterly basis, provides for 
(1) the maintenance of states' prior year FMAPs; (2) a general across- 
the-board increase of 6.2 percentage points in states' FMAPs; and (3) a 
further increase to the FMAPs for those states that have a qualifying 
increase in unemployment rates. The increased FMAP available under the 
Recovery Act is for state expenditures for Medicaid services. However, 
the receipt of this increased FMAP may reduce the funds that states 
must use for their Medicaid programs, and states have reported using 
these available funds for a variety of purposes. 

As of April 3, 2009, CMS had made about $227 million in increased FMAP 
grant awards to Colorado. As of April 16, 2009, state officials had not 
drawn down any of the state's increased FMAP grant awards. State 
officials noted they are working to ensure that the state is in 
compliance with Recovery Act provisions governing eligibility for the 
increased FMAP. Officials also indicated that, in order to account for 
the increased FMAP funds available through the Recovery Act, the state 
has created unique codes that will calculate the additional federal 
reimbursement. The state will use these codes to assist with the proper 
drawing down and reporting of these expenditures on quarterly Medicaid 
reports. 

Transportation--Highway Infrastructure Investment: The Recovery Act 
provides additional funds for highway infrastructure investment using 
the rules and structure of the existing Federal-Aid Highway Surface 
Transportation Program, which apportions money to states to construct 
and maintain eligible highways and to undertake other surface 
transportation projects. States must follow the requirements for the 
existing programs, and in addition, the Governor must certify that the 
state will maintain its current level of transportation spending, and 
the Governor or other appropriate chief executive must certify that the 
state or local government to which funds have been made available has 
completed all necessary legal reviews and determined that the projects 
are an appropriate use of taxpayer funds. Colorado provided this 
certification but noted that the state's level of funding was based on 
"planned nonbond state expenditures" and represented the best 
information available at the time of the state's certification. 
[Footnote 65] 

Colorado was apportioned about $404 million in Highway Infrastructure 
Investment Recovery Act funds by the U.S. Department of Transportation 
on March 2, 2009. As of April 16, 2009, the U.S. Department of 
Transportation had obligated $118.4 million for 19 Colorado 
projects.[Footnote 66] Seventeen of these projects, which include 
resurfacing roads and replacing highway bridges in the Denver 
metropolitan area and improvements to mountain highways, had been 
advertised for bid, and 5 of the 17 projects had been awarded. 
According to Colorado Department of Transportation officials, the 
department has a well-established process for distributing funds and 
contracting projects and has already begun to use this process in 
applying for Recovery Act funds. In order to spend funds quickly and 
create jobs, Colorado is directing Recovery Act transportation funds to 
projects that can be advertised within 90 to 180 days of the passage of 
the Recovery Act, can be completed within 3 years, and will result in 
job creation. Department officials told us they are emphasizing 
construction projects rather than projects in planning or design 
phases, in order to maximize job creation. 

U.S. Department of Education State Fiscal Stabilization Fund: The 
Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be 
administered by the U.S. Department of Education (Education). The SFSF 
provides funds to states to help avoid reductions in education and 
other essential public services. The initial award of SFSF funding 
requires each state to submit an application to Education that assures 
it will take action to meet certain educational requirements such as 
increasing teacher effectiveness and addressing inequities in the 
distribution of highly qualified teachers. 

The Governor has proposed a plan for spending the majority of the $760 
million in stabilization funds Colorado will receive to support 
education, focusing on offsetting current and planned reductions in 
state funding for higher education. Officials told us that funding cuts 
were directed primarily toward higher education rather than 
kindergarten through 12th grade education because of a state 
constitutional provision requiring guaranteed annual increases in state 
funding of kindergarten through 12th grade education[Footnote 67]--and 
as a result, SFSF funds are more urgently needed in higher education. 
The state will receive its first allocation of funds--$509 million or 
67 percent of the total--after it has applied to Education, which it 
plans to do once the Governor's office and legislature agree on the 
plan and the state's budget. As of April 20, 2009, the state's General 
Assembly was negotiating the final budget and a school finance bill 
that could affect the specific use of the SFSF funds. A Colorado 
official said that if the state approves a budget the week of April 20, 
2009, the proposal could go to Education soon after that date. The 
Governor is also developing a plan for the Government Services Fund, a 
component of the SFSF, which will provide $138 million of SFSF funds 
that may be used for public safety and other government services. 

Colorado Will Manage Recovery Act Funds through an Oversight Board and 
State Executive Departments: 

Following passage of the Recovery Act, Colorado's Governor established 
an oversight board, the Colorado Economic Recovery Accountability 
Board, to oversee Colorado's Recovery Act funding and ensure funds are 
spent effectively and transparently. The board is chaired by the 
Director of the Colorado Office of Economic Development, who has also 
been charged with being Colorado's recovery coordinator. The board is 
composed of 12 public-and private-sector leaders from across the state, 
including the state treasurer, a state senator and a state 
representative, and a number of business leaders. To date, the board 
has held three public meetings during which members discussed the short 
time frames for disbursing Recovery Act funds and a lack of federal 
guidance, among other issues. The board has also developed a Web site 
to publicize information about the Recovery Act.[Footnote 68] 

Management of and decisions about Recovery Act funds are the 
responsibility of the Governor, according to state officials. The 
Governor's office is directly responsible for exercising discretion 
with regard to certain funds such as portions of the SFSF. The Governor 
is working in consultation with the executive directors of Colorado's 
state departments and agencies to develop plans for spending Recovery 
Act funds, which are to be publicly available on the state's Web site. 
Officials told us the Governor has directed that all departmental 
decisions on spending Recovery Act funds are to be made in line with 
the original charge of the Recovery Act to promote job creation or 
preservation and economic development, as well as the Governor's 
agenda. The decision process for using Recovery Act funds depends on 
the program, consistent with federal and state statutes and guidance. 
Officials from several departments, such as the Departments of Public 
Safety, Labor and Employment, and Local Affairs, told us they have made 
initial programmatic decisions for Recovery Act funds. Other programs 
have not made such decisions; for example, Colorado Department of 
Education officials told us the department will distribute funds such 
as those under the ESEA and IDEA programs directly to local school 
districts to make programmatic decisions about the funds. 

Many Colorado officials said the Recovery Act would increase their 
departments' workloads and said they would like to add personnel and 
perhaps systems to manage the funds, but the overall extent to which 
Recovery Act funds are permitted to be used for those costs is 
uncertain. While some officials we interviewed said their departments 
had received or would receive Recovery Act funds to cover 
administrative or management activities, officials in other departments 
did not know whether they would receive funds for that purpose. 
Officials at the Colorado Department of Labor and Employment, for 
example, said they can spend about $1.5 million in Recovery Act funding 
to cover administrative costs associated with Workforce Investment Act 
programs,[Footnote 69] consistent with their normal procedures for 
administration of the programs, while officials from the Colorado 
Department of Education said they were uncertain what, if any, funds 
they were going to receive to administer and manage recovery programs. 
State officials told us they believe the government services portion of 
the SFSF can be used by the Colorado Department of Education and other 
state departments to cover administrative costs.[Footnote 70] 

Colorado Officials Expressed Concerns Related to Tracking of, Internal 
Controls over, and Safeguards for Recovery Act Funds: 

Colorado officials identified general areas of vulnerability in 
spending Recovery Act funds, as well as specific concerns about their 
ability to oversee Recovery Act funds coming into the state. Areas of 
vulnerability include new programs and localities that may be ill- 
equipped to manage the influx of new funds. In addition, state 
officials are concerned about their ability to oversee Recovery Act 
funds because of three primary challenges: (1) the state's accounting 
system is 18 years old, which may make it challenging to tag and track 
Recovery Act funds; (2) adequate resources to administer and audit 
expenditures of Recovery Act funds may not be available; and (3) state 
officials are still determining what they will be required to track and 
report on and are particularly concerned about tracking funds that 
bypass the state and flow directly to local entities. 

Colorado Officials Identified Potential Areas of Vulnerability in 
Spending Recovery Act Funds: 

The state's departments have begun to identify potential areas of 
vulnerability in spending Recovery Act funds, according to officials. 
One area that officials identified is the influx of new Recovery Act 
funds that must be adequately managed as they are spent quickly. For 
example, some programs, such as Medicaid, already have known weaknesses 
in managing existing funds (identified, for example, in audits 
conducted by the Colorado state auditor) and may be challenged in 
managing large amounts of additional funds. A second vulnerable area, 
according to officials, involves new programs that do not have well- 
established processes, or programs that will need to establish 
additional processes, to accommodate significant funding increases, 
such as the state's energy program, which will receive funds for 
weatherization and other energy projects. Funds that go directly to 
localities are a third area that may be vulnerable because, according 
to officials, the state does not currently oversee these funds and 
cannot provide assistance to local entities, some of which may not be 
well-equipped to manage the increased funds. 

Colorado's Accounting System Is Outdated: 

State officials were concerned that Colorado's accounting system--the 
Colorado Financial Reporting System (COFRS)--is 18 years old, which may 
make it difficult for the state to use and track Recovery Act funds. 
For example, state officials are concerned about Colorado's ability to 
report quickly on Recovery Act expenditures. Because of limitations 
associated with COFRS, officials told us the state will have 
difficulties meeting reporting requirements established for certain 
Recovery Act expenditures, such as the requirement in section 1512 of 
Title I, Division A of the Recovery Act calling for recipient reports 
within 10 days of the end of the calendar quarter. In addition, some 
individual state departments do not use the COFRS grant module and 
therefore must manually post aggregate revenue and expenditure data to 
COFRS. Consequently, given the state's current capabilities, data on 
total Recovery Act funding received by the state may not be able to be 
drawn from COFRS and may have to be compiled through a manual exercise 
outside of the central financial management system, raising internal 
control concerns among some officials we talked with. These concerns 
include inadequate audit documentation on how the information is 
compiled, potential human error in inputting and aggregating 
information, and potentially inconsistent or duplicative reporting from 
various agencies on the extent and nature of Recovery Act funding 
received and used. Finally, state officials also voiced concerns that 
COFRS uses Catalog of Federal Domestic Assistance numbers to track 
grants from each federal agency, but some federal departments are not 
establishing unique Catalog of Federal Domestic Assistance numbers for 
some Recovery Act funds, which will make automated reporting difficult. 

Procurement and Audit Resources May Be Inadequate: 

Officials with the Colorado Department of Personnel & Administration 
were concerned that vacancies in procurement positions posed an 
impediment to effective tracking and control over the state's Recovery 
Act funds. Many Colorado state agencies have vacancies for procurement 
officers, which have been left unfilled due to the state budget 
shortfall and a consequent hiring freeze. For example, the Department 
of Personnel & Administration, which administers statewide contracts 
and supports several state agencies that have little or no purchasing 
authority, currently has three vacancies in its purchasing agent and 
contracting positions. Filling these vacancies would enable this 
department to better assist state agencies receiving Recovery Act 
funds, according to department officials. Similar purchasing agent 
vacancies exist, according to these officials, in the Colorado 
Departments of Corrections, Education, Human Services, Labor and 
Employment, and Local Affairs. Colorado Department of Personnel & 
Administration officials hope to hire former or retired state employees 
with procurement experience on a 6-month basis to alleviate this 
problem, but additional funding--and possibly legislative and budgetary 
approval--may be needed in order to hire temporary procurement 
personnel, which could potentially delay hiring if the state needs to 
await legislative action. 

State officials were also concerned with the amount of audit coverage 
throughout the state. For example, officials with the Colorado state 
auditor's office told us their office would have difficulty absorbing 
additional work associated with the Recovery Act, and believed that 
state oversight capacity was limited. For example, according to these 
officials, the Department of Health Care Policy and Financing (the 
state's Medicaid agency) has had three controllers in the past 4 years; 
these officials also told us the state legislature's Joint Budget 
Committee recently cut field audit staff levels for the state 
Department of Human Services in half. Officials with the Department of 
Personnel & Administration told us their department's internal auditor 
position is vacant, while officials with the Colorado Department of 
Transportation told us that two of their department's financial 
management positions, including the deputy controller position, are 
vacant. At the county level, Jefferson County recently terminated its 
internal auditor and eliminated its internal control audit office. 

The reduced number of staff in oversight positions resulted in part 
from budget cuts and staffing decisions during the state's last 
economic downturn, and state officials told us certain positions would 
be difficult to fill because of the state's current hiring freeze. 
Officials said because the "ratchet effect" of Colorado's 
constitutional and legislative requirements limits the growth of 
spending, it can be difficult to re-establish and fill positions that 
are eliminated during economic downturns.[Footnote 71] Officials told 
us, for example, that some state agencies have not refilled all of the 
staff positions they lost to budget cuts during Colorado's 2001-2003 
downturn. 

Colorado Officials Are Still Determining State Reporting Requirements: 

Colorado officials said they have not received state-specific guidance 
on Recovery Act reporting from the federal Office of Management and 
Budget. They said the guidance provided in February and April 2009 was 
addressed to federal departments and agencies, and it was necessary to 
determine whether and how this guidance applied to state governments. 
Officials wondered, for example, whether the state would be required to 
report centrally on all funds coming through the state or whether state 
agencies will report as normal through federal departments, or both; 
what the frequency and form of reports will be; and the level to which 
funds will need to be tracked and reported (e.g., at the recipient 
level, subrecipient level, etc.). Officials were especially concerned 
that a substantial portion of funds provided to Colorado will go 
directly to local entities, making it difficult for state officials to 
be aware of and track all funds within the state. 

In the absence of state-specific guidance, state officials were taking 
some steps on their own to track the use of Recovery Act funds. 
Department of Personnel & Administration officials said they 
anticipated that statewide reporting on the use of Recovery Act funds 
will be necessary, in addition to having individual state departments 
and agencies reporting directly to their respective federal granting 
agencies. The department discussed various tracking and reporting 
methodologies with state department controllers to determine what 
tracking method would be the most effective and least disruptive; the 
department determined that the state would create an accounting fund 
through which it could track state agencies' use of Recovery Act funds 
and would employ a centrally defined budget-coding structure for 
Recovery Act funds, which should be able to distinguish between 
Recovery Act funds and other federal non-Recovery Act funds. This 
accounting process would capture only those funds flowing through state 
agencies. State officials said they are still determining how they will 
capture funds that do not flow through the state and said that guidance 
will be important in order to prevent duplicate reporting of Recovery 
Act funds by state and federal agencies. Although they are moving 
forward, state officials are hesitant to establish statewide reporting 
requirements for fear they could waste state resources developing and 
implementing an approach that is not consistent with the federal 
guidance ultimately established. 

Colorado Is Developing Plans to Assess the Effects of Recovery Act 
Funds: 

Colorado's state departments with responsibility for the funds we 
examined described a range of approaches to assess and report on the 
effects of recovery spending in the state. Some agencies plan to use 
their existing performance indicators to assess the effects of Recovery 
Act funding, as they have not yet received reporting guidance from the 
federal departments involved. For example, Colorado Housing and Finance 
Authority officials said they plan to use existing indicators, such as 
the number of affordable housing units created and the relative income 
levels of populations served by those units, to assess the effects of 
Recovery Act funding for the Low-Income Housing Tax Credit. Other 
agencies, such as the Colorado Department of Transportation, have 
received guidance to report on existing and new indicators, such as 
direct jobs associated with Recovery Act projects; the indicators will 
involve a significant increase in data collection and reporting by the 
department, including gathering data from more entities and reporting 
more frequently than the department has reported in the past, according 
to department officials. In another example, the Colorado Department of 
Public Safety, which did not report on jobs in the past, will report on 
the jobs created or retained with the spending of justice assistance 
grants. In addition, it will report on a set of new performance 
measures being developed by the federal Department of Justice Bureau of 
Justice Assistance. Department of Public Safety officials are concerned 
about the timing of reporting job creation and retention data, however, 
because the Recovery Act requires states to report 10 calendar days 
after the end of each quarter, which is faster than the normal 
reporting time frames and, according to officials, will necessitate 
that recipients report to the department within 5 calendar days of the 
end of the quarter. Some grantees will have difficulty reporting within 
such short time frames, according to one department official, because 
they still mail or hand deliver their reports. 

State and local officials raised other concerns about tracking the 
economic effects of Recovery Act funds. Officials with the state 
auditor's office, for example, said that tying specific funding to the 
creation of particular jobs is problematic. One state official pointed 
out that increased FMAP available under the Recovery Act would reduce 
the amount of funds that Colorado will need to spend on its Medicaid 
program, allowing the state to use these funds for other purposes and 
avoid cutting other programs to balance the state budget. However, 
because specific program cuts were not determined, identifying the 
preserved programs and their economic effects is impossible. While some 
state departments have received guidance on counting jobs created or 
retained, officials from at least one local department said they needed 
more guidance about how to measure the number of new jobs created. 
Another official said that her department will report jobs created or 
retained but questioned how indirect jobs would be counted. According 
to this official, spending Recovery Act funds to purchase items such as 
equipment or vehicles will have substantial economic effects, 
particularly the creation of indirect jobs, but she was not certain how 
these jobs would be counted and asked whether clarification would come 
through Office of Management and Budget or other guidance. To measure 
such impacts for the state, an economic impact assessment would need to 
be conducted, according to a member of the Colorado Economic Recovery 
Accountability Board. The board is considering contracting for such an 
assessment, according to the member, but has not yet decided on whether 
or when to do it. 

Colorado's Comments on This Summary: 

We provided the Governor of Colorado with a draft of this appendix on 
April 17, 2009. State officials from the Governor's office responded 
for the Governor on April 20, 2009. In general, they agreed with this 
summary of Colorado's recovery efforts to date. The officials also 
provided technical comments that were incorporated, as appropriate. 

GAO Contacts: 

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

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

Staff Acknowledgments: 

In addition to the contacts named above, Steve Gaty, Susan Iott, Tony 
Padilla, Ellen Phelps Ranen, Lesley Rinner, Glenn Slocum, and Mary 
Welch made significant contributions to this report. 

[End of section] 

Appendix VI: Florida: 

Overview: 

Use of funds: An estimated 90 percent of Recovery Act funding provided 
to states and localities nationwide in fiscal year 2009 (through Sept. 
30, 2009) will be for health, transportation and education programs. 
The three largest programs in these categories are the Medicaid Federal 
Medical Assistance Percentage (FMAP) awards, the State Fiscal 
Stabilization Fund, and highways. 

Medicaid Federal Medical Assistance Percentage (FMAP) Funds: 

* As of April 3, 2009, the Centers for Medicare & Medicaid Services 
(CMS) had made about $1.4 billion in increased FMAP grant awards to 
Florida; 

* As of April 1, 2009, Florida has drawn $817 million, or 58.6 percent 
of its increased FMAP grant awards to date; 

* From January 2008 to January 2009, the state's Medicaid enrollment 
increased from 2,151,917 to 2,391,569, with most enrollment changes 
attributable to two population groups: (1) children and families and 
(2) other individuals, including those with disabilities; 

* While funds are made available as a result of the increased FMAP, the 
state legislature is still determining how to make use of these funds. 

Transportation--Highway Infrastructure Investment; 

* Florida was apportioned about $1.3 billion for highway infrastructure 
investment on March 2, 2009, by the U.S. Department of Transportation; 

* As of April 16, 2009, the U.S. Department of Transportation had not 
obligated any Recovery Act funds for Florida projects; 

* On April 1, 2009, the Florida Department of Transportation (FDOT) 
prepared a final listing of potential Recovery Act funded projects and 
on April 15, 2009, the Florida Legislative Budget Commission approved 
the list of projects. The U.S. Department of Transportation, Federal 
Highway Administration must also approve the final listing of projects 
before the state can advertise bids for contracts; 

* These projects include activities such as resurfacing roads, 
expanding existing highways, repairing bridges and installing 
sidewalks. 

U.S. Department of Education State Fiscal Stabilization Fund (Initial 
Release): 

* Florida was allocated about $1.8 billion from the initial release of 
these funds on April 2, 2009, by the U.S. Department of Education; 

* Before receiving the funds, states are required to submit an 
application that provides several assurances to the Department of 
Education. These include assurances that they will meet maintenance-of-
effort requirements (or that they will be able to comply with waiver 
provisions) and that they will implement strategies to meet certain 
educational requirements, including increasing teacher effectiveness, 
addressing inequities in the distribution of highly qualified teachers, 
and improving the quality of state academic standards and assessments. 
According to Florida officials, Florida plans to apply for a waiver to 
obtain these funds after the Department of Education issues final 
instructions for waiver applications. 

Florida is also receiving Recovery Act funds under other programs, such 
as programs under Title I, Part A of the Elementary and Secondary 
Education Act of 1965 (ESEA) (commonly known as No Child Left Behind); 
programs under the Individuals with Disabilities Education Act (IDEA); 
and Workforce Investment Act employment and training programs. The 
status of plans for using these funds is described throughout this 
appendix. 

Safeguarding and transparency: The Governor has created the Florida 
Office of Economic Recovery to oversee, track and provide transparency 
in how Recovery Act funds are spent. In addition, according to Florida 
officials, Florida's accounting system will be able to separately track 
the Recovery Act funds flowing through the state government. Florida 
plans to publicly report its Recovery Act spending on a state Web site. 
Florida state accountability organizations have identified areas where 
Recovery Act funds may be at greater risk of fraud, waste, and abuse, 
such as Medicaid, and have begun to collaborate in developing plans for 
oversight. 

Assessing the effects of spending: Florida state officials are in the 
early stages of developing plans to assess the effects of Recovery Act 
spending and told us that guidance from the federal government would be 
instrumental in developing their plans. On April 3, 2009, the U.S. 
Office of Management and Budget (OMB) issued guidance indicating that 
it will be developing a comprehensive system to collect information, 
including jobs retained and created, on Recovery Act funds sent to all 
recipients. Florida state officials told us that they will ask OMB to 
allow the state to obtain data from this system on local entities in 
Florida that receive Recovery Act funds directly from federal agencies. 

Florida Beginning to Use Recovery Act Funds: 

Florida has begun to use some of its funds made available as a result 
of the Recovery Act, as follows: 

Increased Federal Medicaid Assistance Percentage Funds: Medicaid is a 
joint federal-state program that finances health care for certain 
categories of low-income individuals, including children, families, 
persons with disabilities, and persons who are elderly. The federal 
government matches state spending for Medicaid services according to a 
formula based on each state's per capita income in relation to the 
national average per capita income. The amount of federal assistance 
states receive for Medicaid service expenditures is known as the 
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP 
may range from 50 percent to no more than 83 percent, with poorer 
states receiving a higher federal matching rate than wealthier states. 
The Recovery Act provides eligible states with an increased FMAP for 27 
months between October 1, 2008 and December 31, 2010.[Footnote 72] On 
February 25, 2009, the Centers for Medicare & Medicaid Services (CMS) 
made increased FMAP grant awards to states, and states may 
retroactively claim reimbursement for expenditures that occurred prior 
to the effective date of the Recovery Act.[Footnote 73] Generally, for 
federal fiscal year 2009 through the first quarter of federal fiscal 
year 2011, the increased FMAP, which is calculated on a quarterly 
basis, provide for: (1) the maintenance of states' prior year FMAPs; 
(2) a general across-the-board increase of 6.2 percentage points in 
states' FMAPs; and (3) a further increase to the FMAPs for those states 
that have a qualifying increase in unemployment rates. The increased 
FMAP available under the Recovery Act is for state expenditures for 
Medicaid services. However, the receipt of this increased FMAP may 
reduce the funds that the state must use for their Medicaid programs, 
and states have reported using these available funds for a variety of 
purposes. 

As of April 1, 2009, Florida has drawn down $817 million in increased 
FMAP grant awards, which is about 58.6 percent of its awards to date. 
[Footnote 74] The state is determining how to make use of the state 
funds made available as a result of the increased FMAP grant awards. 
Officials told us that each state agency with a budget impact resulting 
from Recovery Act funding has prepared budget amendments for the 
current state fiscal year (July 1, 2008, to June 30, 2009) for 
consideration by the Executive Office of the Governor and the 
Legislative Budget Commission (LBC). On April 15, 2009, the LBC 
approved 17 amendments to the 2008-2009 state appropriation to 
authorize the use of Recovery Act funds. The state has drawn down funds 
that are for Medicaid expenditures retroactive to October 1, 2008. 
Florida officials told us they require additional guidance from CMS on 
the prompt payment requirements, and for CMS to provide the state 
guidance, if applicable, on any additional reporting requirements. 
[Footnote 75] 

Transportation--Highway Infrastructure Investment: The Recovery Act 
provides additional funds for highway infrastructure investment using 
the rules and structure of the existing Federal-Aid Highway Surface 
Transportation Program, which apportions money to states to construct 
and maintain eligible highways and for other surface transportation 
projects. States must follow the requirements for the existing 
programs, and in addition, the governor must certify that the state 
will maintain its current level of transportation spending, and the 
governor or other appropriate chief executive must certify that the 
state or local government to which funds have been made available has 
completed all necessary legal reviews and determined that the projects 
are an appropriate use of taxpayer funds. Florida provided this 
certification, but conditioned it, noting that state funding for the 
transportation programs is provided from dedicated funding sources that 
are subject to fluctuations resulting from economic conditions. 
[Footnote 76] 

On April 15, 2009, the Florida LBC approved the Recovery Act funded 
projects that the FDOT had submitted. As of April 16, 2009, the U.S. 
Department of Transportation had not obligated any Recovery Act funds 
for Florida projects.[Footnote 77] The Federal Highway Administration 
must approve this final listing of projects before the FDOT can 
advertise bids or request reimbursement from the Federal Highway 
Administration. The state's projects include activities such as 
resurfacing roads, expanding existing highways, repairing bridges, and 
installing sidewalks. 

U.S. Department of Education State Fiscal Stabilization Fund: The 
Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be 
administered by the U.S. Department of Education (Education). The SFSF 
provides funds to states to help avoid reductions in education and 
other essential public services. The initial award of SFSF funding 
requires each state to submit an application to Education that assures, 
among other things, it will take actions to meet certain educational 
requirements such as increasing teacher effectiveness and addressing 
inequities in the distribution of highly qualified teachers. Florida's 
initial SFSF allocation is about $1.8 billion. However, according to 
Florida officials, the state will not be able to meet the maintenance- 
of-effort requirement to readily qualify for these funds because 
revenue declines led to cuts in the state's education budget in recent 
years. The state will apply to Education for a waiver from this 
requirement; however, they are awaiting final instructions from 
Education on submission of the waiver. Florida plans to use SFSF funds 
to reduce the impact of any further cuts that may be needed in the 
state's education budget. 

Florida's Planning Process Has Set the Stage for Decisions on Spending 
of Recovery Act Funds: 

Florida state officials began preparing for the use of Recovery Act 
funds prior to the receipt of the funds. Florida officials believe that 
Recovery Act funds are critical to addressing the state's budgetary 
crisis and maintain necessary services to its citizens. According to 
state officials, the state plans to use about $3 billion of Recovery 
Act funds to reduce the state's $6 billion budget shortfall for state 
fiscal year 2009-2010. One reason for this shortfall is the significant 
declines in revenue Florida has faced in recent years--23 percent since 
state fiscal year 2005-2006, from about $27.1 billion to $20.9 billion 
in state fiscal year 2008-2009--due to such factors as the recession 
and housing crisis. State officials estimate that Florida will receive 
about $15 billion in Recovery Act funds over 3 state fiscal years. 
Florida estimates that approximately $14.1 billion of this amount will 
flow through state agencies, with at least $4.7 billion of this amount 
allocated to local entities. In addition, approximately $1.2 billion in 
funding will be directly allocated to local entities from federal 
agencies. 

On March 3, 2009, the Governor established the Florida Office of 
Economic Recovery that is responsible for overseeing, tracking and 
providing transparency of Florida's Recovery Act funds. The office is 
headed by the Special Advisor to the Governor for the Implementation of 
the American Recovery and Reinvestment Act (Recovery Czar) and includes 
three other staff members on loan from state agencies. The Florida 
Office of Economic Recovery also established an implementation team 
that meets twice a week and includes representatives from each of the 
state's program agencies and administrative offices, such as the Office 
of Policy and Budget, the Chief Inspector General, the State Auditor 
General, the Department of Financial Services, as well as 
representatives from the Florida Association of Counties and the 
Florida League of Cities. On March 17, 2009, pursuant to Section 1607 
of division A, title XVI of the Recovery Act, the Governor certified 
that the state would request and use funds provided by the act. 
Additional certifications for transportation, energy, and unemployment 
compensation have also been submitted. 

According to state officials, before Florida agencies can use the 
Recovery Act funds, the Florida legislature must authorize the use of 
all funds received by state agencies, including those passed-through to 
local governments. On April 15, 2009, the joint Legislative Budget 
Commission met and approved 17 amendments to the 2008-2009 state budget 
authorizing appropriations totaling almost $4 billion in Recovery Act 
funds. The Florida state legislature is still in session and developing 
the state's fiscal year 2009-2010 budget. As explained by state 
officials, if the legislature does not pass the authorization for the 
Recovery Act funds before the end of the session (May 1, 2009), a joint 
legislative budget committee can later amend the Appropriation Act and 
authorize the use of the Recovery Act funds or the legislature can 
reconvene. 

To promote transparency, the Florida Office of Economic Recovery 
implemented a state Recovery Act Web site that became operational on 
March 19, 2009.[Footnote 78] The Web site is intended to provide 
information to the public on the amount and uses of Recovery Act funds 
the state receives and on resources being made available to citizens, 
such as unemployment compensation and workforce training. 

Florida Has a System to Track Recovery Act Funds but Anticipates 
Challenges in Obtaining Timely Data from Localities: 

Officials from Florida's Department of Financial Services said that the 
state's accounting system--Florida Accounting Information Resource 
(FLAIR)--will be used to track Recovery Act funds that will flow 
through the state government. The state agencies will record the 
Recovery Act funds separately from other state and federal funds using 
selected identifiers in FLAIR such as grant number or project number. 
Officials in some Florida state program agencies raised concerns that 
local areas will not be able to provide timely data to enable state 
agencies to meet financial reporting deadlines for the quarterly 
reports required by the Recovery Act. These reports on the uses of 
Recovery Act funds are due 10 days after the end of each quarter. 
[Footnote 79] In addition, Florida officials and a group representing 
local school superintendents were particularly concerned about the 
ability of school districts to meet these deadlines after having 
experienced reductions in administrative staff due to recent budget 
cuts. 

Florida officials submitted feedback to OMB suggesting that OMB 
consider providing guidance on reconciling the information provided in 
the Recovery Act quarterly reports with other federal reporting 
requirements to avoid confusion. According to Florida officials, 
quarterly reports on many federal grants are due 45 days after the end 
of the quarter and reporting systems are currently oriented towards 
these requirements. Florida officials added that it is likely that 
meeting the Recovery Act quarterly reporting requirement will 
necessitate the submission of preliminary reports. 

State Agencies Are Providing Guidance to Localities on Use of Funds: 

Some state agencies have issued or are developing guidance to assist 
local areas in planning for the use of Recovery Act funds that will be 
passed through the state to local areas. For example, on April 1, 2009, 
Florida received about $580 million for Title I, Part A of ESEA and for 
IDEA, which will be passed through to local school districts. In 
anticipation of these funds, the Florida Department of Education 
provided guidance to school districts on strategies for using education 
funds, such as assigning high-performing teachers to low-performing 
schools, providing reading coaches to schools, and investing in 
intensive professional development for teachers. 

On March 19, 2009, Florida received almost $143 million for the 
Workforce Investment Act Adult, Youth, and Dislocated Worker employment 
and training programs and made $121 million available to regional 
workforce areas the next day. As of April 13, 2009, regional workforce 
areas had drawn down about $744,000 of these funds, according to a 
Florida official. Florida's Agency for Workforce Innovation had 
previously established various task teams, composed of state and 
regional workforce officials that created action plans for implementing 
these funds. For example, to facilitate the rapid expansion of summer 
youth employment programs, the state plans to develop a local 
implementation checklist and a toolkit of summer youth materials. 

Plans for Safeguards and Controls Being Developed at State Level: 

Florida has various oversight entities responsible for monitoring, 
tracking, and overseeing financial expenditures, assessing internal 
controls and ensuring compliance with state and federal laws and 
regulations: the Office of the Chief Inspector General, Auditor 
General, Office of Program Policy Analysis and Government 
Accountability (OPPAGA), and the Department of Financial Services. Each 
state agency has an Office of Inspector General (OIG) that is 
responsible for conducting audits, investigations, and technical 
assistance, and promoting accountability, integrity and efficiency in 
the state government. The Auditor General has broad audit authority 
with respect to audits of government agencies in Florida and routinely 
conducts Single Audits of the State of Florida reporting entities and 
of the state's district school boards. The single audits include 
determining if federal and state expenditures are in compliance with 
applicable laws and regulations and assessing the effectiveness of key 
internal controls. Florida's OPPAGA--the research unit of the state's 
legislature--is responsible for conducting studies on the performance 
of state agencies and programs to identify ways to improve services and 
cut costs. In addition, the Florida Department of Financial Services is 
responsible for overseeing state expenditures and financial reporting. 
Independent certified public accountants also conduct annual financial 
audits of local governmental entities, such as counties and 
municipalities. According to state officials, Florida law requires that 
the scope of such audits encompass federal and state Single Audit 
requirements, as applicable. 

Potential Areas of Vulnerability with Florida Recovery Act Funds: 

Past experience has highlighted financial management vulnerabilities in 
agencies that will receive Recovery Act funds. Auditor General and 
state OIG reports identified several high-risk areas that are 
vulnerable to fraud, waste, and abuse. For example, in 2008: 

* State officials identified Medicaid as the highest risk program. The 
Auditor General reported breakdowns in internal controls over the 
Medicaid program because state Medicaid program officials failed to 
properly document and verify recipients' income, which increased the 
risk of ineligible individuals receiving program benefits. 

* The Auditor General reported that, for some federal programs, the 
Florida Department of Education failed to provide monitoring that 
reasonably ensured sub-recipient adherence to program requirements. 

* The Auditor General reported that the Florida Department of Community 
Affairs failed to provide information that was needed to assess the 
success or progress of its federal low-income housing community 
development block grant program. 

* The agency OIGs continue to provide oversight through audits and 
investigations of contracting and grant activities associated with 
federal funds. For instance, FDOT and Florida's Department of Education 
OIG reported on contractors' inaccurate reporting of expenditures and 
inadequate oversight of sub-contractors. Moreover, in July 2008, the 
FDOT OIG reported their review of contract files disclosed that 
differences between the state's accounting system payments and the 
recipient expenditures were not adequately explained. 

State officials also expressed some broader concerns about other 
potential risks. For example, state officials identified new programs 
in the Recovery Act as potentially risky and noted that the state's 
fiscal year 2009 Single Audit report that will cover such new programs 
will not be completed until spring 2010. State officials also expressed 
concern about potential risk in programs receiving large funding 
increases under the Recovery Act. For example, Florida Department of 
Law Enforcement officials stated that the amount of Recovery Act funds 
received for the Edward Byrne Memorial Justice Assistance Grant 
Program, which is designed to help prevent and control crime and 
improve the operations of the criminal justice system will be four to 
five times the amounts received in prior years. For these programs, 
they estimate that about $52 million will be passed through to 67 local 
Florida counties, which have had grants collectively totaling only $12 
million to $15 million in past years. 

Plans for Oversight of Florida Recovery Act Funds: 

In response to the Recovery Act, Florida's Chief Inspector General 
established an enterprisewide working group of agency OIG's to evaluate 
risk assessments, and promote fraud prevention, awareness, and 
training. The group members are updating their annual work plans by 
including the Recovery Act funds in their risk assessments and will 
leave flexibility in their plans to address issues related to these 
funds. In preparing to conduct the Single Audits for 2008-2009 and 
subsequent fiscal years, the Auditor General is monitoring the state's 
plans for accounting for and expending Recovery Act funds, tracking the 
expected changes in OMB's Single Audit requirements, and participating 
in the National State Auditors Association's efforts to provide input 
on Recovery Act accounting, reporting, and auditing issues. The Auditor 
General expects the number of major federal programs to increase as a 
result of the large infusion of Recovery Act funds into the state, thus 
increasing the number of federal programs that the Auditor General must 
audit as part of the state's annual Single Audit. Officials from 
Florida's OPPAGA expect an increase in the number of legislative 
requests for their studies--particularly those focused on education 
programs--as Recovery Act funds are disbursed to recipients. 

The OIGs are developing and refining strategies to ensure oversight of 
Recovery Act funds. For example, the FDOT OIG is developing plans to 
increase its up-front monitoring activities for transportation funds to 
mitigate the potential risk of fraud, waste, and abuse. Some of these 
activities include: 

* Designating a team of seven auditors to monitor Recovery Act 
expenditures and other related activities; 

* Developing fraud awareness training specifically for Recovery Act 
projects; 

* Conducting risk assessments of Recovery Act transportation projects; 
and: 

* Monitoring and providing oversight for the pre-construction, 
advertisement, bid, award, and contract-letting activities for Recovery 
Act projects. 

Florida officials told us that separate accounts have been established 
for receipt of increased FMAP grant awards. The OIG in the Agency for 
Health Care Administration will follow established recovery protocol 
and processes to prevent and detect Medicaid overpayments by conducting 
detection analyses and audits, imposing sanctions, and making referrals 
to the Medicaid Fraud Control Unit and other regulatory and 
investigative agencies as appropriate. 

According to Florida state officials, the state completed an initiative 
to strengthen contracting requirements several years ago. For example, 
the majority of state contracts greater than $1 million are required to 
be reviewed for certain criteria by the Department of Financial 
Services' Division of Accounting and Auditing before the first payment 
is processed. The contract must also be negotiated by a contract 
manager certified by the Florida Department of Management Services, 
Division of State Purchasing Training and Certification Program. 

Availability of Resources for Oversight: 

In light of decreased state budgets that have resulted in prior staff 
reductions, Florida state auditing officials expressed concern about 
the adequacy of staff resources to provide oversight of Recovery Act 
funds beyond that required under existing federal Single Audit Act 
requirements. For example, the Auditor General told us that the office 
has not hired new staff for over a year and about 10 percent of the 
office's positions remain unfilled. In addition, OPPAGA officials told 
us their staff has decreased by 10 percent in the past 2 years. State 
officials told us that the efficient use of existing and projected 
resource levels will require an ongoing assessment of risks and 
priorities and the allocation of staff resources to ensure the required 
oversight of state and federal funds, including Recovery Act funds. 

Plans to Assess Impact of Recovery Act Funds Are in Initial Stages: 

Florida state agencies were in the early stages of developing plans to 
assess the effects of the Recovery Act spending because they were 
waiting for guidance from OMB on how to measure jobs retained and 
created with Recovery Act funds. For example, Florida Department of Law 
Enforcement (FDLE) officials said that they could count the number of 
staff hired to implement a new program, but they did not know how to 
count the number of jobs retained or created if Recovery Act funds are 
used for purchases of goods such as new police cruisers. In addition, 
FDLE and other state officials said they needed clear OMB guidance in 
order to build this information upfront into the data reporting 
requirements. Florida's Department of Education has created a new form 
that school districts will use to report quarterly Recovery Act 
expenditures and the number of jobs retained and created, but they need 
additional guidance from OMB to develop instructions for school 
districts on how to count these jobs. 

Florida's Agency for Workforce Innovation is encouraging recipients of 
Recovery Act funds throughout the state to list jobs created with the 
funds in the state's existing online job bank. By including tags in the 
system to identify the jobs linked to Recovery Act funds, the agency 
expects to be able to count specific jobs created with the funds. A 
local workforce investment board official told us that the board is 
publicizing the use of the job bank for Recovery Act jobs through radio 
and town hall appearances and mailings to potential recipients of 
Recovery Act funds. 

Because Florida is only required to collect data on jobs created with 
Recovery Act funds for which Florida is the recipient, Florida 
officials plan to include data on the state Recovery Act Web site on 
all jobs created with Recovery Act funds in Florida. On April 3, 2009, 
OMB issued guidance indicating that it will be developing a 
comprehensive system to collect information, including jobs retained 
and created, from all recipients of Recovery Act funds. The state plans 
to ask OMB if they can obtain data relevant to Florida collected by the 
national reporting system on jobs retained and created with Recovery 
Act funds. According to Florida officials, this will reduce duplication 
and increase the efficiency of their reporting. 

Florida's Comments on This Summary: 

We provided the Governor of Florida with a draft of this appendix on 
April 17, 2009. The Special Advisor to Governor Charlie Christ, Florida 
Office of Economic Recovery, responded for the Governor on April 20, 
2009. In general, the Florida official concurred with the information 
in the appendix. The official also provided technical suggestions that 
were incorporated, as appropriate. 

GAO Contacts: 

Andrew Sherrill, (202) 512-7252 or sherrilla@gao.gov: 

Zina Merritt, (202) 512-5257 or merrittz@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Fannie Bivins, Carmen Harris, 
Kathy Peyman, Robyn Trotter, and Cherie' Starck made major 
contributions to this report. 

[End of section] 

Appendix VII: Georgia: 

Overview: 

Use of funds: An estimated 90 percent of Recovery Act funding provided 
to states and localities nationwide in fiscal year 2009 (through Sept. 
30, 2009) will be for health, transportation and education programs. 
The three largest programs in these categories are the Medicaid Federal 
Medical Assistance Percentage (FMAP) awards, the State Fiscal 
Stabilization Fund, and highways. 

Medicaid Federal Medical Assistance Percentage (FMAP) Funds: 

* As of April 3, 2009, the Centers for Medicare & Medicaid Services 
(CMS) had made about $521 million in increased FMAP grant awards to 
Georgia; 

* As of April 1, 2009, Georgia had drawn down about $312 million, or 60 
percent of its initial increased FMAP grant awards; 

* State officials plan to use funds made available as a result of the 
increased FMAP to address increased caseloads, offset general fund 
needs, and maintain current benefit levels and provider reimbursement 
rates in the state's Medicaid program. 

Transportation--Highway Infrastructure Investment: 

* Georgia was apportioned about $932 million for highway infrastructure 
investment on March 2, 2009, by the U.S. Department of Transportation; 

* As of April 16, 2009, the U.S. Department of Transportation had not 
obligated any Recovery Act funds for Georgia projects; 

* On April 7, 2009, the Governor certified that the Georgia Department 
of Transportation plans to spend $208 million on 67 projects throughout 
the state. The department plans to award contracts for most of these 
projects by May 22, 2009; 

* These projects include maintenance, bridge work, and other 
activities. 

U.S. Department of Education State Fiscal Stabilization Fund (Initial 
Release): 

* Georgia was allocated about $1 billion from the initial release of 
these funds on April 2, 2009, by the U.S. Department of Education; 

* Before receiving the funds, states are required to submit an 
application that provides several assurances to the Department of 
Education. These include assurances that they will meet maintenance of 
effort requirements (or that they will be able to comply with waiver 
provisions) and that they will implement strategies to meet certain 
educational requirements, including increasing teacher effectiveness, 
addressing inequities in the distribution of highly qualified teachers, 
and improving the quality of state academic standards and assessments. 
Georgia plans to submit its application in late April or early May; 

* The state's fiscal year 2010 budget, which passed on April 3, 2009, 
included $521 million in state fiscal stabilization funds for 
education. 

Georgia also is receiving Recovery Act funds under other programs, such 
as Title I, Part A of the Elementary and Secondary Education Act of 
1965 (ESEA) (commonly known as No Child Left Behind); the Individuals 
with Disabilities Education Act, Part B; and the Tax Credit Assistance 
Program. The status of plans for using these funds is discussed 
throughout this appendix. 

Safeguarding and transparency: A small core team consisting of 
representatives from the Office of Planning and Budget, State 
Accounting Office, and Department of Administrative Services (the 
department responsible for procurement) is taking steps to establish 
safeguards for Recovery Act funds and mitigate identified areas of 
risk. For example, the State Accounting Office has issued guidance on 
tracking Recovery Act funds separately, and the Office of Planning and 
Budget is developing a state-level strategy to monitor high-risk 
agencies. The State Auditor and Inspector General will monitor the use 
of Recovery Act funds. 

Assessing the effects of spending: While waiting for additional federal 
guidance, the state has taken some steps to assess the impact of 
Recovery Act funds on the state, including adapting an automated system 
currently used for financial management to meet Recovery Act reporting 
requirements. 

Georgia Beginning to Use Recovery Act Funds: 

Although Georgia is still awaiting final information from the federal 
government, the state estimates it will receive about $7.3 billion in 
funding under the Recovery Act. Of that amount, about $467 million (or 
6 percent) will be awarded by federal agencies directly to localities 
and other nonstate entities. As shown in figure 5, the majority of 
Recovery Act funds will support education (36 percent), health programs 
(35 percent, of which 23 percent will go toward Medicaid), and 
transportation (15 percent). The Governor completed the blanket 
certification for Recovery Act funds on March 25, 2009, confirming that 
the state will use the funds to create jobs and promote economic 
growth.[Footnote 80] 

Figure 5: Georgia's Estimated Recovery Act Funding, by Major Programs, 
as of April 17, 2009: 

[Refer to PDF for image: pie-chart] 

Education: 36%; 
Health: 35% (Medicaid: 23%); 
Transportation: 15%; 
Other programs: 14%. 

Source: Georgia Office of Planning and Budget. 

Note: Other programs include those for housing, energy, and employment 
and training. The Office of Planning and Budget estimates are based on 
federal announcements and estimates from Federal Funds Information for 
States. The primary mission of Federal Funds Information for States is 
to track and report on the fiscal impact of federal budget and policy 
decisions on state budgets and programs. 

[End of figure] 

The state has begun to use or plans to use funds for the following 
purposes: 

Increased Federal Medical Assistance Percentage Funds: Medicaid is a 
joint federal-state program that finances health care for certain 
categories of low-income individuals, including children, families, 
persons with disabilities, and persons who are elderly. The federal 
government matches state spending for Medicaid services according to a 
formula based on each state's per capita income in relation to the 
national average per capita income. The amount of federal assistance 
states receive for Medicaid service expenditures is known as the 
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP 
may range from 50 percent to no more than 83 percent, with poorer 
states receiving a higher federal matching rate than wealthier states. 
The Recovery Act provides eligible states with an increased FMAP for 27 
months between October 1, 2008, and December 31, 2010.[Footnote 81] On 
February 25, 2009, the Centers for Medicare & Medicaid Services (CMS) 
made increased FMAP grant awards to states, and states may 
retroactively claim reimbursement for expenditures that occurred prior 
to the effective date of the Recovery Act.[Footnote 82] Generally, for 
fiscal year 2009 through the first quarter of fiscal year 2011, the 
increased FMAP, which is calculated on a quarterly basis, provides for 
(1) the maintenance of states' prior year FMAPs, (2) a general across- 
the-board increase of 6.2 percentage points in states' FMAPs, and (3) a 
further increase to the FMAPs for those states that have a qualifying 
increase in unemployment rates. The increased FMAP available under the 
Recovery Act is for state expenditures for Medicaid services. However, 
the receipt of this increased FMAP may reduce the funds that states 
must use for their Medicaid programs, and states have reported using 
these available funds for a variety of purposes. 

As of April 1, 2009, Georgia had drawn down $311.5 million in increased 
FMAP grant awards, which is about 59.8 percent of its awards to date. 
[Footnote 83] Officials noted that these funds were drawn down 
retroactively for the period October 1, 2008, through February 25, 
2009, but funds can now be drawn down on a more frequent basis. Georgia 
officials reported they plan to use funds made available as a result of 
the increased FMAP to address increased caseloads, offset general fund 
deficits, and maintain current eligibility and benefit levels in the 
state Medicaid program. 

Transportation--Highway Infrastructure Investment: The Recovery Act 
provides additional funds for highway infrastructure investment using 
the rules and structure of the existing Federal-Aid Highway Surface 
Transportation Program, which apportions money to states to construct 
and maintain eligible highways and for other surface transportation 
projects. States must follow the requirements for the existing 
programs, and in addition, the governor must certify that the state 
will maintain its current level of transportation spending, and the 
governor or other appropriate chief executive must certify that the 
state or local government to which funds have been made available has 
completed all necessary legal reviews and determined that the projects 
are an appropriate use of taxpayer funds. Georgia provided these 
certifications, but qualified its maintenance of effort certification, 
noting that the Georgia General Assembly still was considering the 
Georgia Department of Transportation's (GDOT) fiscal year 2010 budget, 
which could impact the state's highway spending plans for that year. 
[Footnote 84] 

Georgia has been apportioned $932 million for highway infrastructure. 
On April 7, 2009, the Governor certified the first round of projects to 
be funded with Recovery Act funds. As of April 16, 2009, the U.S. 
Department of Transportation had not obligated any Recovery Act funds 
for Georgia projects.[Footnote 85] Georgia plans to spend $208 million 
on 67 projects throughout the state. Of that amount, $97 million will 
be spent in economically distressed areas. The funds will be spent on 
maintenance (53 percent), bridges (23 percent), capacity projects (17 
percent), safety projects (6 percent), and enhancements (1 percent). 
The Georgia Department of Transportation plans to award contracts for 
the majority of these projects (73 percent) by May 22, 2009.[Footnote 
86] Figure 6 illustrates the implementation time line for Recovery Act 
highway projects. 

Figure 6: Georgia Department of Transportation's Project Implementation 
Schedule: 

[Refer to PDF for image: illustration] 

Federal Appropriation of Funds; 

Board Approval of Projects; 

STIP Amendments/Modifications; 

FHWA Approval; 

Governor Certification; 

Authorization: FHWA Funding Authorization for projects; 0-30 days; 

Bid Advertisement: Projects posted on Web site. Contractors prepare 
bids; 4 weeks; 

Bid Opening: GDOT opens contractors’ bids on projects; 1 day; 

Contract Awarded: GDOT reviews bids. Project awarded to contractor. 1 
week; 

Contract Documents to Awardee: Includes sub-contractor approval if 
required; 1 week; 

Contractor Execution: Contractor signs agreement; 1 week; 

GDOT Execution: GDOT signs agreement; 0-30 days; 

Notice to Proceed: Document sent to contractor; 1 week; 

Pre-Construction Conference: Contractor assembles materials and 
workers; 0-30 days; 

Construction Begins. 

Source: Georgia Department of Transportation. 

[End of figure] 

U.S. Department of Education State Fiscal Stabilization Fund: The 
Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be 
administered by the U.S. Department of Education (Education). The SFSF 
provides funds to states to help avoid reductions in education and 
other essential public services. The initial award of SFSF funding 
requires each state to submit an application to Education that assures, 
among other things, it will take actions to meet certain educational 
requirements such as increasing teacher effectiveness and addressing 
inequities in the distribution of highly qualified teachers. 

Georgia's initial SFSF allocation was about $1 billion. According to 
state officials, the state's fiscal year 2010 budget passed on April 3, 
2009, and included $521 million in state fiscal stabilization funds for 
education and $140 million in state fiscal stabilization funds for 
public safety.[Footnote 87] Georgia plans to use the education funds 
for elementary, secondary, and public higher education. For instance, 
Georgia intends to use three established formulas to allocate funds to 
local education agencies, universities, and technical colleges. Georgia 
plans to use the public safety funds to help maintain safe staffing 
levels at state prisons, appropriately staff the state's forensic 
laboratory system, and avoid cuts in the number of state troopers. 
Georgia plans to submit its application for fiscal stabilization funds 
in late April or early May. 

In addition to the major programs we discussed earlier, table 6 shows 
how Georgia and two local entities plan to use Recovery Act funds for 
other selected programs.[Footnote 88] 

Table 6: Planned Uses of Selected Recovery Act Funds: 

Transportation: 

Selected programs: Transit Capital Assistance Grants; 
Anticipated funds (in millions of dollars)[A]: $144; 
Examples of planned uses: Funds will be used to help with needs that 
were deferred as a result of budget cuts, such as bus replacement and 
the purchase of cleaner fuel vehicles. 

Selected programs: Fixed-Guideway Infrastructure; 
Anticipated funds (in millions of dollars)[A]: $7; 
Examples of planned uses: Funds will go to the Metropolitan Atlanta 
Rapid Transit Authority. 

Education: 

Selected programs: Title I of the Elementary and Secondary Education 
Act of 1965 (commonly known as No Child Left Behind); 
Anticipated funds (in millions of dollars)[A]: $351 (grants to local 
education agencies); $104 (school improvement); 
Examples of planned uses: State will encourage local education agencies 
to focus on professional learning opportunities for staff and 
intervention programs for students who need help with math and writing. 

Selected programs: Individuals With Disabilities Education Act, Parts B 
and C; 
Anticipated funds (in millions of dollars)[A]: $339; 
Examples of planned uses: Among other things, the state plans to 
encourage local education agencies to (1) provide professional 
development for special education teachers, (2) expand the availability 
and range of inclusive placement options for preschoolers, and (3) 
obtain state-of-the-art assistive technology devices and provide 
training in their use to enhance access to the general curriculum for 
students with disabilities. 

Other programs: 

Selected programs: Workforce Investment Act programs; 
Anticipated funds (in millions of dollars)[A]: $88; 
Examples of planned uses: State plans to use a portion for 
administration, oversight of local workforce agencies, as well as rapid 
response during major layoffs; the majority of the funds will be 
allocated to the 20 local areas within the state for adult, youth, and 
dislocated worker programs. The Atlanta Regional Workforce Board--the 
local workforce board for seven counties in the Atlanta metropolitan 
area--is concentrating on plans for using the $3.1 million it will 
receive for summer youth programs.[B] 

Selected programs: Tax Credit Assistance Program; 
Anticipated funds (in millions of dollars)[A]: $54; 
Examples of planned uses: State will focus on fiscal year 2008 projects 
that received tax credits and those on the waiting list; for projects 
that received tax credits but are having difficulty using them, the 
state will either provide gap financing or exchange the tax credits for 
grants. 

Selected programs: Public Housing Capital Fund; 
Anticipated funds (in millions of dollars)[A]: $112[C]; 
Examples of planned uses: The Atlanta Housing Authority will use $18.6 
million to rehabilitate 13 public housing developments and an 
additional $8 million to complete the demolition of 3 public housing 
developments. 

Selected programs: Neighborhood Stabilization Program; 
Anticipated funds (in millions of dollars)[A]: To be determined; 
Examples of planned uses: State plans to apply, but the competition 
criteria have not yet been published. 

Selected programs: Edward Byrne Memorial Justice Assistance Grants; 
Anticipated funds (in millions of dollars)[A]: $36; 
Examples of planned uses: State is currently developing a strategy to 
allocate the funds that must be passed through to local governments. 

Source: GAO. 

[A] The anticipated funds are based on federal agency announcements as 
of April 17, 2009. 

[B] The Atlanta Regional Workforce Board is administered by the Atlanta 
Regional Commission. 

[C] These funds go directly to local public housing authorities. 

[End of table] 

In Addition to Addressing Specific Program Areas, Recovery Act Funding 
Also Will Help Mitigate Ongoing Fiscal Challenges: 

The recent economic downturn adversely affected Georgia in a number of 
ways: 

* Higher unemployment rate--as of February 2009, the state's 
unemployment rate was 9.3 percent. This rate surpassed the national 
unemployment rate (8.1 percent) and was almost double the state 
unemployment rate from a year earlier (5.4 percent). 

* Increases in Medicaid enrollment--from January 2008 to January 2009, 
the state's Medicaid enrollment increased from 1,265,136 to 1,314,689, 
with increased enrollment attributable to three population groups: (1) 
children and families, (2) disabled individuals, and (3) other 
populations, which includes refugees and women with breast and/or 
cervical cancer. 

* Declining revenue--through March 2009, the state's net revenue 
collections for fiscal year 2009 were 8 percent less than they were for 
the same time period in fiscal year 2008, representing a decrease of 
approximately $1 billion in total taxes and other revenues collected. 
[Footnote 89] 

* Use of reserves--to offset shortages in revenue, the state used $200 
million from its Revenue Shortfall Reserve, or "rainy day" fund, in 
fiscal year 2009 and will use an additional $259 million in fiscal year 
2010. 

* Recent budget cuts--overall, the state's budget was cut by 8 percent 
from fiscal year 2008 to fiscal year 2009.[Footnote 90] As shown in 
table 2, some individual agencies were cut more significantly than 
others. Georgia officials plan to use Recovery Act funds to limit 
additional budget cuts. 

Table 7: Budget for Selected State Agencies in Georgia, Fiscal Years 
2008 and 2009: 

Selected state agencies: Department of Community Affairs; 
Amended fiscal year 2008 budget[A]: $35,718,525; 
Amended fiscal year 2009 budget[A]: $17,011,787; 
Percentage change from fiscal years 2008 to 2009: -52.4. 

Selected state agencies: Criminal Justice Coordinating Council; 
Amended fiscal year 2008 budget[A]: $898,061; 
Amended fiscal year 2009 budget[A]: $472,465; 
Percentage change from fiscal years 2008 to 2009: -47.4. 

Selected state agencies: State Accounting Office; 
Amended fiscal year 2008 budget[A]: $7,205,916; 
Amended fiscal year 2009 budget[A]: $4,089,053; 
Percentage change from fiscal years 2008 to 2009: -43.3. 

Selected state agencies: Department of Administrative Services; 
Amended fiscal year 2008 budget[A]: $9,707,880; 
Amended fiscal year 2009 budget[A]: $7,767,003[B]; 
Percentage change from fiscal years 2008 to 2009: -20.0. 

Selected state agencies: Department of Community Health; 
Amended fiscal year 2008 budget[A]: $2,347,794,015; 
Amended fiscal year 2009 budget[A]: $1,879,185,744; 
Percentage change from fiscal years 2008 to 2009: -20.0. 

Selected state agencies: State Inspector General; 
Amended fiscal year 2008 budget[A]: $833,534; 
Amended fiscal year 2009 budget[A]: $679,410; 
Percentage change from fiscal years 2008 to 2009: -18.5. 

Selected state agencies: State Housing Finance Agency; 
Amended fiscal year 2008 budget[A]: $3,287,829; 
Amended fiscal year 2009 budget[A]: $2,700,020; 
Percentage change from fiscal years 2008 to 2009: -17.9. 

Selected state agencies: Department of Human Resources; 
Amended fiscal year 2008 budget[A]: $1,631,068,194; 
Amended fiscal year 2009 budget[A]: $1,394,208,017; 
Percentage change from fiscal years 2008 to 2009: -14.5. 

Selected state agencies: Department of Labor; 
Amended fiscal year 2008 budget[A]: $55,081,172; 
Amended fiscal year 2009 budget[A]: $47,934,616; 
Percentage change from fiscal years 2008 to 2009: -13.0. 

Selected state agencies: Office of Planning and Budget; 
Amended fiscal year 2008 budget[A]: $9,474,735; 
Amended fiscal year 2009 budget[A]: $8,419,050; 
Percentage change from fiscal years 2008 to 2009: -11.1. 

Selected state agencies: Department of Audits and Accounts; 
Amended fiscal year 2008 budget[A]: $34,429,800; 
Amended fiscal year 2009 budget[A]: $30,654,383; 
Percentage change from fiscal years 2008 to 2009: -11.0. 

Selected state agencies: Office of the Governor; 
Amended fiscal year 2008 budget[A]: $7,653,328; 
Amended fiscal year 2009 budget[A]: $7,113,270; 
Percentage change from fiscal years 2008 to 2009: -7.1. 

Selected state agencies: Department of Education; 
Amended fiscal year 2008 budget[A]: $7,973,900,641; 
Amended fiscal year 2009 budget[A]: $7,506,343,096; 
Percentage change from fiscal years 2008 to 2009: -5.9. 

Selected state agencies: Department of Transportation; 
Amended fiscal year 2008 budget[A]: $832,725,819; 
Amended fiscal year 2009 budget[A]: $865,193,794; 
Percentage change from fiscal years 2008 to 2009: 3.9. 

Source: GAO analysis of Georgia Office of Planning and Budget data. 

Notes: The state agencies in the table are those we interviewed or 
surveyed during this first reporting period. The Department of 
Administrative Services serves as the state's procurement office. The 
State Accounting Office serves as the state's controller. The Office of 
Planning and Budget is the state's budget office. The Department of 
Audits and Accounts is the state auditor. 

[A] The amended budgets for fiscal years 2008 and 2009 represent state 
funds only. 

[B] The fiscal year 2009 amount for the Department of Administrative 
Services includes $5,424,149 in agency reserves used to supplement 
appropriations. 

[End of table] 

Georgia Has Adapted Existing Processes to Approve Uses of Recovery Act 
Funding: 

Georgia moved quickly to implement an infrastructure to manage Recovery 
Act funds. A small core team was in place as of December 2008 to begin 
planning for implementation. Within 1 day of enactment, the Governor 
had appointed a Recovery Act Accountability Officer, and she formed a 
Recovery Act implementation team shortly thereafter. The implementation 
team includes a senior management team, officials from 31 state 
agencies, a group to support accountability and transparency, and cross-
agency teams (see figure 7).[Footnote 91] The Recovery Act 
Accountability Officer and senior management team are responsible for 
analyzing and disseminating federal and state guidance to the state 
agencies receiving Recovery Act funds. The accountability and 
transparency support group comprises representatives from the Office of 
Planning and Budget, State Accounting Office, and Department of 
Administrative Services. The State Auditor will serve as the primary 
auditor of the funds, and the Inspector General will provide 
investigative support and respond to complaints of fraud. The first 
implementation team meeting was held on February 24, 2009. Since then, 
the implementation team has met almost every week. 

Figure 7: Organizational Chart of Georgia's Recovery Act Implementation 
Team: 

[Refer to PDF for image: organizational chart] 

Recovery Act Accountability Officer; 

* Recovery Act Management Team; 

- Cross Agency Implementation Teams (5 Teams); 

- Recovery Act Implementation Team (31 State Agencies); 

- Accountability and Transparency Support: Office of Planning and 
Budget; State Accounting Office; Department of Administrative Services. 

Oversight: 

* Department of Audits and Accounts; 

* Office of the Inspector General. 

Source: Georgia Recovery Act Accountability Officer. 

[End of figure] 

According to state officials, each year the Governor is required to 
present to the General Assembly a recommended state budget for the 
upcoming fiscal year and an amended budget for the current fiscal year. 
Prior to submitting the budget for the upcoming year, the Governor sets 
the state's revenue estimate, which when added to surplus and reserve 
funds, determines the size of the forthcoming appropriations bill. 
Furthermore, state officials told us that the Governor has the 
authority to approve the appropriations bill in its entirety or choose 
individual expenditure items to veto.[Footnote 92] 

To approve the use of Recovery Act funds, Georgia has enhanced its 
existing budget process. The majority of Recovery Act funds will be 
added into state budgets via an amendment process through the 
Governor's Office of Planning and Budget. A monthly Recovery Act 
budgeting and amendment process has been established to account for 
federal dollars. The Recovery Act approval process requires that each 
state agency submit an action plan to the Office of Planning and Budget 
that includes information on the agency, funding sources, 
accountability measures, and details on individual projects funded (see 
figure 8).[Footnote 93] For Recovery Act funds the state government 
receives, the budget office also is requiring state agencies to 
complete a tool that assesses risk. The budget office then reviews the 
plans submitted by the agency, provides feedback to the agency, and, in 
conjunction with the agency, finalizes the plans and risk assessment 
tool. The Governor, the Recovery Act Accountability Officer, budget 
office staff, and agency officials meet to vet the action plan and make 
a final decision on applying for funding. As of April 17, 2009, all 
state agencies had submitted action plans, and the budget office had 
begun its review of these plans.[Footnote 94] 

Figure 8: State of Georgia Review Process for Recovery Act Funds: 

[Refer to PDF for image] 

1) State agency completes Recovery Act action plan. 

2) Office of Planning and Budget reviews action plan. 

3) Questions: 
No: continue; 
Yes: Request for additional information (step 1). 

4) Executive team/agency head review; 
No: continue; 
Yes: Request for additional information (step 1). 

5) Agency head meeting with governor; 
No: continue; 
Yes: Request for additional information (step 1). 

6) Decision; 
Yes: continue; 
No: Process end. No funding application. 

7) Agency applies for federal funding. 

Source: Georgia Office of Planning and Budget. 

Note: The executive team for the action plan process includes the 
Recovery Act Accountability Officer, the Chief Financial Officer, the 
Chief Operating Officer, the Governor's policy staff, Office of 
Planning and Budget staff, and agency officials. 

[End of figure] 

Georgia Has Been Establishing Internal Controls for Recovery Act Funds: 

Georgia's most recent Single Audit Act report identified a number of 
material weaknesses. Recognizing the risks associated with the influx 
of Recovery Act funds, the state has taken a number of steps to 
establish internal controls and safeguards for these funds. 

Georgia's Most Recent Single Audit Report Identified Material 
Weaknesses: 

Georgia's most recent Single Audit Act findings indicate that the state 
may have difficulty accounting for the use of some Recovery Act funds. 
In its fiscal year 2008 Single Audit report, the State Auditor 
identified 28 financial material weaknesses and 7 compliance material 
weaknesses. Three state agencies that expect to receive a substantial 
amount of Recovery Act funds were cited for most of the financial 
material weaknesses--the Department of Transportation (10), Department 
of Labor (4), and Department of Human Resources (2). For example, the 
Department of Transportation's financial accounting system was deemed 
unsuitable for day-to-day management. It also did not have a system in 
place to correctly identify fund sources, and as a result, auditors 
found that $138 million of federal funds were misclassified. 

In addition, auditors found that the Department of Labor was unable to 
provide detailed account balances for the Unemployment Insurance 
Program because it maintained an inadequate general ledger that 
consisted of manually updated spreadsheets.[Footnote 95] The auditors 
also found that the Department of Human Resources' process of 
allocating indirect costs to programs had multiple deficiencies. They 
noted that inadequate internal controls and failure to follow 
established policies increases the risk of material misstatement in the 
financial statements, including misstatements due to fraud and 
noncompliance with federal regulation. In addition, the Department of 
Human Resources was cited for four compliance material weaknesses, such 
as requesting federal funds in excess of program expenditures. 

To ensure that the affected state agencies will address these material 
weaknesses, the State Accounting Office will be monitoring corrective 
action plans developed in response to the Single Audit report. The 
office plans to issue guidance on the monitoring process by the end of 
April 2009 and has asked agencies to start tracking actions taken to 
address material weaknesses. 

State Agencies Are Taking Steps to Safeguard and Oversee Recovery Act 
Funds: 

Georgia recognizes the importance of accounting for and monitoring 
Recovery Act funds and, despite recent budget cuts, has directed state 
agencies to safeguard Recovery Act funds and mitigate identified risks. 
At one of the first implementation team meetings, the Recovery Act 
Accountability Officer disseminated an implementation manual to 
agencies, which included multiple types of guidance on how to use and 
account for Recovery Act funds. For example, the Office of Planning and 
Budget provided details on the budgeting process for Recovery Act 
funds. New and updated guidance is disseminated at the weekly 
implementation team meetings. At the direction of the Recovery Act 
Accountability Officer, the three agencies tasked with accountability 
support--the Office of Planning and Budget, State Accounting Office, 
and Department of Administrative Services--and other state agencies 
have instituted the following safeguards: 

* The Office of Planning and Budget, in collaboration with the State 
Accounting Office and others, is developing a state-level strategy to 
monitor high-risk agencies.[Footnote 96] Additional risk-mitigation 
strategies will be developed and implemented for these agencies. 

* The State Accounting Office issued two accounting directives to all 
state agencies. The first provides guidance on accounting for Recovery 
Act funds separately from other funds. The state plans to use Catalog 
of Federal Domestic Assistance numbers to track Recovery Act funds 
separately. Funds will also be segregated through a set of unique 
Recovery Act fund sources in the state's financial accounting system. 
For example, the state is tracking increased FMAP funds for Medicaid 
through the development of a unique identifier for each grant award. 
The second accounting directive supplies language that should be 
included in all contracts issued under the Recovery Act. In addition, 
the office is reviewing the current accounting internal controls and 
assessing how they can be enhanced for Recovery Act funds.[Footnote 97] 

* The Georgia Department of Administrative Services plans to issue a 
communication alert stating that any state agency planning to award 
contracts with Recovery Act funds should contact the department for 
guidance. The department has developed standard contract language that 
should be included in all Recovery Act contracts and plans to publicize 
and offer training for state agency contracting staff. Further, the 
department plans to continue its compliance reviews of agencies with 
delegated purchasing authority to ensure they are following proper 
policies and procedures.[Footnote 98] 

* All of the agencies we met with that directly administer programs had 
monitoring processes in place that they plan to adapt or enhance for 
Recovery Act oversight. For example, the Georgia Department of 
Community Affairs' plans for monitoring the Tax Credit Assistance 
Program include a front-end analysis of costs, third-party inspections 
prior to the release of funds, and an audit of the general contractor 
by a certified public accountant. The last requirement is unique to 
projects funded with Recovery Act tax credits. 

In addition, the State Auditor, Inspector General, and internal audit 
divisions within state agencies have taken or plan to take the 
following steps to mitigate risk and oversee the use of Recovery Act 
funds: 

* The State Auditor issued two audit risk alerts. One urged all agency 
officials to include appropriate contractual provisions in Recovery Act 
contracts and to not rush the distribution of Recovery Act funds before 
adhering to proper internal control processes and understanding federal 
guidelines. The other alert discussed limits on the use of funds. The 
State Auditor also plans to provide internal control training to state 
agency personnel in late April. The training will discuss basic 
internal controls, designing and implementing internal controls for 
Recovery Act programs, best practices in contract monitoring, and 
reporting on Recovery Act funds. 

* Currently, the State Auditor conducts routine statewide risk 
assessments as a means of identifying high-risk agencies and 
determining where to best focus audit resources.[Footnote 99] Officials 
plan to target future risk assessments on programs receiving Recovery 
Act funding and are awaiting additional audit guidance from the Office 
of Management and Budget (OMB). 

* The Inspector General issued a directive requiring all state agencies 
to insert new contractual language in any contracts, subcontracts, 
grants, and bid solicitations financed with Recovery Act funds. 
[Footnote 100] The new language specifically gives her the right to 
inspect all records of outside vendors, subcontractors, and 
consultants. 

* In conjunction with the State Accounting Office, the Inspector 
General plans to conduct unannounced visits to state agencies receiving 
Recovery Act funding. 

* The Inspector General also developed a database to specifically track 
Recovery Act complaints and a public service announcement to alert the 
public of how to report fraud, waste, and abuse. 

* Some state agencies, such as the Departments of Human Resources and 
Transportation, have internal audit divisions that plan to monitor the 
use of Recovery Act funds. For instance, the Department of Human 
Resources' internal auditor has developed a plan to assess the risk of 
each program prior to receiving Recovery Act funding. 

Resources Available for Oversight May Be Limited: 

As these actions and plans indicate, Georgia recognizes the importance 
of instituting safeguards for Recovery Act funds. However, state 
officials also stressed the costs of such efforts. Both the Governor's 
Office and the State Auditor noted that they had not received 
additional funding for Recovery Act oversight. As shown in table 2, 
several agencies with oversight responsibilities experienced 
significant budget reductions in fiscal year 2009, including the State 
Accounting Office (43 percent), Inspector General (19 percent), Office 
of Planning and Budget (11 percent), and State Auditor (11 percent). 

The State Auditor noted that, if state fiscal conditions do not improve 
or federal funding does not become available for audit purposes, 
additional budget and staffing cuts may occur within the department. 
Directives from OMB, due by May 1, will provide guidance on the audit 
requirements for Recovery Act programs. Officials noted that the scope 
of pending audit requirements may greatly impact the State Auditor's 
ability to audit Recovery Act programs on top of existing audit 
requirements. In addition, some state officials that directly 
administer programs told us that overseeing the influx of funds could 
be a challenge, given the state's current budget constraints and hiring 
freeze. In some cases, state agencies told us that they planned to use 
Recovery Act funds to cover their administrative costs. Other state 
agencies wanted additional clarity on when they could use program funds 
to cover such costs. 

Plans to Assess Impact of Recovery Act Funds Are in Initial Stages: 

In general, Georgia is awaiting additional federal guidance on 
reporting requirements before making detailed plans to assess impact. 
However, the State Auditor is adapting an existing system (used to 
fulfill its Single Audit Act responsibilities) to help the state report 
on Recovery Act funds. The statewide Web-based system will be used to 
track expenditures, project status, and job creation and retention. The 
state will make data from this system available on its Recovery Web 
site. The Governor is requiring all state agencies and programs 
receiving Recovery Act funds to use this system. State officials do not 
expect to track and report on funds going directly to localities, but 
some said they would like to be informed of these funds so that the 
state can coordinate with localities. They cited broadband initiatives 
and health funding to nonprofit hospitals as areas where a lack of 
coordination could result in a duplication of services or missed 
opportunities to leverage resources. 

In addition, some state agencies appear to have more experience 
tracking jobs than others. For example, the Georgia Department of 
Community Affairs has experience tracking jobs for the Community 
Development Block Grant program; therefore, agency officials do not 
expect to have difficulty tracking jobs for the Neighborhood 
Stabilization Program. For another program it will administer, the Tax 
Credit Assistance Program, Community Affairs surveyed potential 
applicants in March 2009 to gain a better understanding of performance 
measures that could be tracked as a part of its monitoring efforts, 
including job creation. In contrast, officials from other programs, 
such as the Edward Byrne Memorial Justice Assistance Grant program and 
the Transit Capital Assistance Grant program expressed concerns about 
identifying appropriate measures of job creation and retention within 
the purpose of their programs and were waiting for more guidance from 
federal agencies and OMB. 

Georgia's Comments on This Summary: 

We provided the Governor of Georgia with a draft of this appendix on 
April 17, 2009. The Recovery Act Accountability Officer responded for 
the Governor on April 19, 2009. In general, she noted that the report 
accurately and succinctly captures the implementation status of the 
Recovery Act process in Georgia. 

GAO Contacts: 

Terri Rivera Russell, (404) 679-1925 or russellt@gao.gov: 

Alicia Puente Cackley, (202) 512-7022 or cackleya@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Paige Smith, Assistant 
Director; Nadine Garrick, analyst-in-charge; Stephanie Gaines; Alma 
Laris; Marc Molino; Barbara Roesmann; Robyn Trotter; and Mark Yoder 
made major contributions to this report. 

[End of section] 

Appendix VIII: Illinois: 

Overview: 

Use of funds: An estimated 90 percent of Recovery Act funding provided 
to states and localities nationwide in fiscal year 2009 (through Sept. 
30, 2009) will be for health, transportation and education programs. 
The three largest programs in these categories are the Medicaid Federal 
Medical Assistance Percentage (FMAP) awards, highways, and the State 
Fiscal Stabilization Fund. 

Medicaid Federal Medical Assistance Percentage (FMAP) Funds: 

* As of April 3, 2009, the Centers for Medicare & Medicaid Services 
(CMS) had made about $992 million in increased FMAP grant awards to 
Illinois; 

* As of April 1, 2009, Illinois has drawn down about $117.1 million, or 
about 12 percent of its initial increased FMAP grant awards; 

* Illinois plans to use funds made available as a result of the 
increased FMAP in fiscal years 2009 and 2010 to fill a Medicaid budget 
gap, permitting the state to move from an average 90-day payment cycle 
to a cycle of no more than 30 days for all of its providers, including 
payments hospitals and nursing homes. 

Transportation--Highway Infrastructure Investment: 

* Illinois was apportioned about $936 million for highway 
infrastructure investment on March 2, 2009, by the U.S. Department of 
Transportation; 

* As of April 16, 2009, the U.S. Department of Transportation had 
obligated $606.3 million for 214 Illinois projects. Illinois Department 
of Transportation officials stated that they will award most contracts 
based on a competitive bidding process, but they will use a quality 
based selection process for approximately $27 million in engineering 
services contracts; 

* These projects include activities such as resurfacing highways and 
repairing bridge decks; 

* Illinois will request reimbursement from the U.S. Department of 
Transportation as the state makes payments to contractors. 

U.S. Department of Education State Fiscal Stabilization Fund (Initial 
Release): 

* Illinois was allocated about $1.4 billion from the initial release of 
these funds on April 2, 2009 by the U.S. Department of Education. On 
April 20, 2009, these funds became available to the state. Illinois is 
expecting to receive an additional $678 million by September 30, 2009; 

* Before receiving the funds, states are required to submit an 
application that provides several assurances to the Department of 
Education. These include assurances that they will meet maintenance of 
effort requirements (or that they will be able to comply with waiver 
provisions) and that they will implement strategies to meet certain 
educational requirements, including increasing teacher effectiveness, 
addressing inequities in the distribution of highly qualified teachers, 
and improving the quality of state academic standards and assessments. 
The state submitted its application on April 10, 2009; 

* Illinois plans to use all of its $2 billion in State Fiscal 
Stabilization funds for K-12 and higher education activities to address 
the layoffs and other cutbacks many district and public colleges and 
universities are facing in their fiscal year 2009 and 2010 budgets. 

Illinois is also receiving additional Recovery Act funds under other 
programs, such as programs under Title I, Part A of the Elementary and 
Secondary Education Act of 1965 (ESEA) (commonly known as No Child Left 
Behind); programs under the Individuals with Disabilities Education Act 
(IDEA); and two programs of the U.S. Department of Agriculture--one for 
administration of the Temporary Food Assistance Program and one for 
competitive equipment grants targeted to low income districts from the 
National School Lunch Program. 

Safeguarding and transparency: To provide accountability and 
transparency in how these funds are being spent, the state has 
established a high level Executive Committee and a separate working 
group to oversee Recovery Act compliance across agencies and 
departments. It has also developed a Web site [hyperlink, 
http://www.recovery.illinois.gov] that contains information about the 
use of Recovery Act funds. The state is in the process of performing a 
risk assessment of all state programs receiving Recovery Act funds to 
identify potential vulnerabilities. It will use the state's Single 
Audit--a state-level audit of the largest programs receiving federal 
money--as a tool in identifying these risks. State agencies also 
reported that they are capable of tracking their Recovery Act funds 
separately from other program funds by tagging them with a special 
accounting or funding code. For the most part, these codes will permit 
agencies to then rely on existing processes to monitor and report on 
how these funds are being spent. 

Assessing the effects of spending: Officials at several state agencies 
indicated that they can track various performance measures for projects 
funded through the Recovery Act by utilizing existing systems. However, 
according to officials in the Governor's office and other state 
agencies, more guidance is needed on definitions for job creation and 
retention measures to adequately measure their impact. 

Illinois Beginning to Use Recovery Act Funds: 

Illinois has started to use some of its Recovery Act funds, and high 
level state officials we spoke with described several overarching 
priorities and goals that the state plans to achieve through use of 
these funds. These include averting layoffs and creating new jobs, 
concentrating resources on economically distressed areas, and funding 
infrastructure improvements, as described below. 

Increased Federal Medical Assistance Percentage Funds: Medicaid is a 
joint federal-state program that finances health care for certain 
categories of low-income individuals, including children, families, 
persons with disabilities, and persons who are elderly. The federal 
government matches state spending for Medicaid services according to a 
formula based on each state's per capita income in relation to the 
national average per capita income. The amount of federal assistance 
states receive for Medicaid service expenditures is known as the 
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP 
may range from 50 percent to no more than 83 percent, with poorer 
states receiving a higher federal matching rate than wealthier states. 
The Recovery Act provides eligible states with an increased FMAP for 27 
months between October 1, 2008, and December 31, 2010.[Footnote 101] On 
February 25, 2009, the Centers for Medicare & Medicaid Services (CMS) 
made increased FMAP grant awards to states, and states may 
retroactively claim reimbursement for expenditures that occurred prior 
to the effective date of the Recovery Act.[Footnote 102] Generally, for 
federal fiscal year 2009 through the first quarter of federal fiscal 
year 2011, the increased FMAP, which is calculated on a quarterly 
basis, provides for (1) the maintenance of states' prior year FMAPs; 
(2) a general across-the-board increase of 6.2 percentage points in 
states' FMAPs; and (3) a further increase to the FMAPs for those states 
that have a qualifying increase in unemployment rates. The increased 
FMAP available under the Recovery Act is for state expenditures for 
Medicaid services. However, the receipt of the increased FMAP may 
reduce the funds that states must use for their Medicaid programs, and 
states have reported using these available funds for a variety of 
purposes. 

From January 2008 to January 2009, Illinois's Medicaid enrollment 
increased slightly from 2,184,963 to 2,298,802, with the highest share 
of the enrollment increase attributable to two population groups: (1) 
children and families and (2) non-disabled non-elderly adults. Illinois 
is estimated to receive a total of $2.9 billion in increased FMAP 
funding, of which $992 million has already been awarded to the state 
for the first three quarters of federal fiscal year 2009. For the 
second quarter of federal fiscal year 2009, Illinois received an FMAP 
of 60.48 percent--an increase of 10.48 percentage points over its 
fiscal year 2008 FMAP. As of April 1, 2009, Illinois has drawn down 
$117.1 million in Recovery Act funds, which is almost 12 percent of the 
amount awarded to Illinois to date. Illinois state officials indicated 
that the main focus in using funds made available as a result of the 
Recovery Act will be to meet financial obligations and to ensure 
compliance with the prompt payment provisions of the Recovery 
Act.[Footnote 103] Specifically, Illinois is using funds made available 
as a result of the Recovery Act to fill a Medicaid budget gap, 
permitting the state to move from a 90-day payment cycle to a 30-day 
cycle for all of its providers, including payments to hospitals and 
nursing homes. The state has also decided to include pharmacists in its 
prompt payment initiative. These actions will also help avoid potential 
layoffs in provider organizations. 

Transportation--Highway Infrastructure Investment: The Recovery Act 
provides additional funds for highway infrastructure investment using 
the rules and structure of the existing Federal-Aid Highway Surface 
Transportation Program, which apportions money to states to construct 
and maintain eligible highways and for other surface transportation 
projects. States must follow the requirements for the existing 
programs, and in addition, the governor must certify that the state 
will maintain its current level of transportation spending. The 
governor or other appropriate chief executive must also certify that 
the state or local government to which funds have been made available 
has completed all necessary legal reviews and determined that the 
projects are an appropriate use of taxpayer funds. Illinois provided 
the first of these certifications but noted that the state's level of 
funding was based on the best information available at the time of the 
state's certification.[Footnote 104] 

The Illinois Department of Transportation (IDOT) is planning to spend a 
large share of its estimated $655 million in Recovery Act 
funds[Footnote 105] for highway and bridge construction and maintenance 
projects in economically distressed areas. Equally important criteria 
are that projects must be shovel-ready and can be completed by February 
2012. These funds will expand the amount of money the state can invest 
in highway projects beyond the amounts the state had listed in its 
State Transportation Improvement Program. The projects will include 
resurfacing roads across the state, repairing bridge decks, replacing 
guardrail sections, and improving pavement markings. As of April 16, 
2009, the U.S. Department of Transportation had obligated $606.3 
million for 214 Illinois projects.[Footnote 106] IDOT officials stated 
that they will award most contracts based on a competitive bidding 
process, but they will use a quality based selection process for 
approximately $27 million in engineering services contracts. 

U.S. Department of Education State Fiscal Stabilization Fund: The 
Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be 
administered by the U.S. Department of Education (Education). The SFSF 
provides funds to states to help avoid reductions in education and 
other essential public services. The initial award of SFSF funding 
requires each state to submit an application to Education that assures, 
among other things, it will take actions to meet certain educational 
requirements, such as increasing teacher effectiveness and addressing 
inequities in the distribution of highly qualified teachers. The 
Illinois Office of the Governor submitted the state's application for 
these funds to Education on April 10, 2009. On April 20, 2009, these 
funds became available to the state. Illinois is expecting to receive 
an additional $678 million by September 30, 2009. 

The U.S. Department of Education has allocated a total of about $2 
billion in SFSF monies to Illinois. Approximately $1.4 billion of this 
amount was allocated in an initial release on April 2, 2009. Illinois 
plans to use all of the $2 billion from the SFSF for K-12 and higher 
education activities and hopes to avert layoffs and other cutbacks many 
districts and public colleges and universities are facing in their 
fiscal year 2009 and 2010 budgets. State Board of Education officials 
also noted that U.S. Department of Education guidance allows school 
districts to use stabilization funds for education reforms, such as 
prolonging school days and school years, where possible. However, 
officials said that Illinois districts will focus these funds on 
filling budget gaps rather than implementing projects that will require 
long-term resource commitments. 

Additional Plans for Use of Funds Made Available as a Result of the 
Recovery Act Include Offsetting State's Budget Deficit and Implementing 
New Capital Plan: 

The State of Illinois has been in a recession since December 2007 and 
continues to face financial difficulties. The state's unemployment rate 
surged by 46 percent from 5.9 percent in February 2008 to 8.6 percent 
in February 2009. Major job losses are expected to continue in 
manufacturing, construction, and retail. On the housing front, 
foreclosure filings in February 2009 were up 62 percent over 2008. 
While state general fund revenue grew 4.5 and 5.7 percent in fiscal 
years 2007 and 2008, respectively, revenues declined by 0.5 percent in 
fiscal year 2009. The state estimates that it faces a projected $11.6 
billion operating budget deficit for fiscal years 2009 and 2010. To 
address this deficit, the Governor has proposed a number of measures in 
the state's 2010 budget proposal, including the following: 

* Spending cuts, including 4 furlough days for state employees and a 2- 
percent spending reduction in grant programs;[Footnote 107] 

* State employee pension reform, including provisions that would align 
the state's eligible age for full benefits with that of Social 
Security, adjust benefit formulas, and increase contribution rates for 
current employees; 

* Creation of a taxpayer board to improve accountability and efficiency 
across state programs; and: 

* Revenue increases, including income tax increases that would raise an 
estimated $2.8 billion from individuals and $350 million from 
corporations in fiscal year 2010; higher health care contributions from 
current and retired state employees; and higher vehicle registration, 
title, and license fees. 

Illinois officials expect that the state will receive at least $9 
billion in direct Recovery Act funds to the state, and those local 
entities--such as public housing and transit authorities--will receive 
additional Recovery Act funds. State officials said they have 
identified about $4.3 billion of Recovery Act funds, including use of 
the previously mentioned SFSF, that could be utilized to address the 
operating budget shortfall for fiscal years 2009 and 2010.[Footnote 
108] They noted that these funds would potentially reduce pressure on 
the state for further tax increases and spending cuts. In addition, the 
state plans to use some of the remaining Recovery Act funds to help 
launch the Governor's proposed infrastructure building program--a $26.5 
billion proposal to fund schools, roads and bridges, public transit, 
and energy and environmental capital projects during Illinois fiscal 
years 2010 through 2015. The $26.5 billion plan would be paid for with 
funds from the state ($10.6 billion), federal sources ($11.6 billion), 
local sources ($2.4 billion), and the Recovery Act ($2.0 billion). 
[Footnote 109] 

In addition to funds administered by state agencies, local entities 
will also receive funds through the Recovery Act for programs 
administered at the local level. We met with one local agency that will 
receive Recovery Act funds and will use its funds to address overdue 
capital improvements. The Chicago Transit Authority (CTA), an 
independent governmental agency that provides rail and bus service in 
the greater Chicago area, has already put plans in place to spend its 
$240 million. CTA has a backlog of $6.8 billion in unfunded capital 
projects necessary to update its infrastructure and fleet. The agency 
has begun work on an $87.8 million project that will replace rails, 
ties, and fasteners for one subway line. The agency also expects to 
complete hybrid bus purchases, a bus and rail car fleet overhaul, and 
numerous facility improvements by the end of 2009. Finally, 
reconstruction of at least one rail station is expected to be completed 
by late 2010. 

While we found examples of programs that have received Recovery Act 
funds and have projects that are already underway, we spoke with state 
officials who said they needed more guidance about how they should use, 
track, and report on these funds at their agencies. State Board of 
Education officials said that understanding the reporting requirements 
and eligible uses for Recovery Act funds is the biggest challenge they 
face as they prepare to disseminate funds to the local school 
districts. They also expressed concern with the Recovery Act's dual 
emphases on accountability and quick expenditure of funds. The Illinois 
Criminal Justice Information Authority expressed similar concerns about 
the need for federal guidance in regard to reporting time frames that 
may not completely align with previous reporting procedures. 

Illinois Is Taking Steps to Assess Risk and Develop Plans for 
Safeguards Related to Recovery Act Funds: 

During our meetings with high-level state officials, they said that 
efforts are underway to ensure accountability and transparency in the 
use of Recovery Act funds. The Governor's office has established an 
Executive Committee and working group to identify concerns across state 
agencies and help them implement Recovery Act provisions. Also, state 
internal audit officials are developing a variety of internal control 
techniques to assure compliance with the Recovery Act's requirements. 
To properly track funds, state agency officials explained that they 
plan to use unique identifiers or codes so that these funds can be 
separately tracked in their existing financial or grants management 
systems. 

Illinois Has Established a Recovery Act Executive Committee and Working 
Group: 

To ensure accountability and transparency in the use of Recovery Act 
funds, the state has established an Executive Committee, a Recovery Act 
Working Group, and an Illinois Recovery Web site. The Executive 
Committee is comprised of state executives, including the Deputy Chief 
of Staff for Economic Recovery, the Chief Internal Auditor, the Budget 
Director, and the Chief Information Officer. According to state 
officials we spoke with, the Executive Committee is working to identify 
common risks to all state agencies in the use of Recovery Act funds. To 
address crosscutting Recovery Act issues, such as legal matters and 
procurement, the committee is also establishing subcommittees with 
agency subject matter experts to review critical information and 
develop policies on these subject matters.[Footnote 110] The Recovery 
Act Working Group consists of a contact point for each state agency for 
Recovery Act related matters and, according to state officials, meets 
to communicate requirements, guidance, and implementation related to 
the act. 

The Governor's Office has also established an Illinois Recovery Web 
site at [hyperlink, http://www.recovery.illinois.gov], which contains 
information on the programs receiving Recovery Act funds, amounts 
available through the act, and certifications signed by the Governor. 
[Footnote 111] The Web site will also include reports on Recovery Act 
program expenditures, and eventually users will have the ability to 
download raw data on project or program descriptions, budgets, 
spending, and job creation. Another feature of Illinois's Web site is 
that it allows the public to submit suggestions for projects that the 
state could fund through the Recovery Act. 

State Audit Officials Are Developing Internal Control Measures: 

Every state is required to have an annual Single Audit in accordance 
with U.S. Office of Management and Budget (OMB) requirements. This 
audit is required when $500,000 or more in federal funds is expended in 
any fiscal year. Officials from the Illinois Office of Internal Audit 
(OIA) stated that they will utilize the Office of the Auditor General's 
(OAG) single audits to identify programs that may require additional 
scrutiny. In Illinois's fiscal year 2007 Single Audit, the OAG 
identified four material weaknesses in internal controls over financial 
reporting and classified 46 findings as significant deficiencies and 
material weaknesses in internal controls related to compliance. 
Significant agency findings classified as a material weakness that are 
relevant to the Recovery Act and recipients of Recovery Act funds 
included: 

* The State Board of Education not sanctioning a Local Education Agency 
that did not meet the comparability of services requirement under the 
Title I Grants to Local Educational Agencies Program; 

* IDOT not obtaining certifications from subrecipients for not having 
been suspended or debarred from participation for the Airport 
Improvement Program; 

* Multiple agencies inadequately conducting or failing to conduct on- 
site monitoring of subrecipient awards for federal programs; and: 

* Multiple agencies inadequately monitoring subrecipient audit reports 
for federal programs. 

The OAG explained that to the extent that federal programs receiving 
Recovery Act funds are addressed in the OMB compliance supplement, it 
will be performing its required audit procedures. The OAG stated that 
OMB guidance will be critical for planning future audits of federal 
funds. Furthermore, the OAG conducted an analysis of programs receiving 
Recovery Act funds, and found that a few additional programs will 
likely be included in future single audits. OIA officials told us that 
they are using the Single Audit results to assist in conducting a risk 
assessment of all state-administered programs receiving Recovery Act 
funds. OIA officials said that they will use the results of this risk 
assessment to target their audit efforts to programs that demonstrate a 
high level of risk. OIA and OAG officials said that they plan to follow 
up on their respective prior audit findings to make sure that state 
agencies have taken appropriate corrective action. OIA officials said 
that in addition to large programs, they plan to follow up on prior 
internal audit findings on federal Recovery Act programs under $30 
million that are not covered by the statewide single audit. 

State Agencies Plan to Use Unique Identifiers or Codes to Track 
Recovery Act Funds: 

Most agency officials we spoke with stated that their systems are 
capable of tracking Recovery Act funds separately from other funds for 
the same programs. For example, IDOT officials stated that Recovery Act 
projects are being noted in different systems, typically with special 
funding codes. In addition, when IDOT officials access Recovery Act 
funds, those transactions will have special codes and notations. 
Similarly, officials at the Illinois Department of Human Services told 
us that any funds the agency receives through the Recovery Act for the 
Neighborhood Stabilization Program will have accounting codes separate 
from any previous funds received through the program. In order to track 
increased FMAP funds, Illinois officials said they will use the state's 
existing accounting systems and will use existing processes to review 
and reconcile expenditures. For example, state officials will record 
draw downs of increased FMAP funds separately from other Medicaid 
funds. State officials will also use special receipt, expenditure, and 
contract codes for all increased FMAP funds and related Medicaid 
expenditures. A CTA official we spoke with stated that his agency will 
use its existing financial system to track Recovery Act funds by unique 
project numbers or descriptions. Finally, officials from the State 
Comptroller's Office told us that separate appropriation codes will 
likely be used to track Recovery Act expenditures statewide. One agency 
official indicated that while funds can easily be tagged at the state 
level, he was concerned that this might not be the case once funds are 
distributed to subrecipients. 

Agencies Are Considering Ways to Assess Impacts, but Additional 
Guidance Is Needed: 

Officials at several state agencies we spoke with indicated that they 
can use various performance measures for projects funded through the 
Recovery Act by utilizing existing systems. For example, IDOT officials 
stated that they will track and monitor data for Recovery Act projects 
in the same manner as they do for regular program reporting, and should 
be able to report on and provide evidence regarding the status of 
project goals and objectives. Officials with the Illinois Housing 
Development Authority stated that they also track performance and goals 
for each project through current systems and should be able to build on 
these systems to customize reports as necessary for the Recovery Act. 

On the other hand, several state officials said that additional 
guidance is needed for measuring the potential impact of Recovery Act 
funds. According to officials from the Governor's office and state 
agencies we spoke with, additional guidance is needed on definitions of 
"jobs saved," "jobs created," "jobs sustained," and other similar terms 
included in the Recovery Act. Illinois Department of Commerce and 
Economic Opportunity officials stated that they had concerns regarding 
the evaluation of job retention as it relates to the Workforce 
Investment Act program. Specifically, they said OMB Recovery Act 
guidance focuses on quick job placement, but jobs created through the 
act may have lower retention than those under past program grants. 
Furthermore, while officials at most agencies we visited stated that 
they are considering plans to track the impact of Recovery Act funds, 
none of these plans have been finalized. Officials at two state 
agencies said that their systems do not track such specific performance 
measures, and they may need to develop additional mechanisms to link 
Recovery Act funds with their performance results. 

Illinois's Comments on This Summary: 

We provided the Governor of Illinois with a draft of this appendix on 
April 17, 2009. The Deputy Chief Of Staff responded for the Governor on 
April 20, 2009. In general, the state concurred with our statements and 
observations. The official also provided technical suggestions that 
were incorporated, as appropriate. 

GAO Contacts: 

Leslie Aronovitz, (312) 220-7712 or aronovitzl@gao.gov: 

Cynthia Bascetta, (202) 512-7114 or bascettac@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Paul Schmidt, Assistant 
Director; Tarek Mahmassani, Analyst-in-Charge; Rick Calhoon; Katherine 
Iritani; David Lehrer; Lisa Reynolds; and Mark Ryan made major 
contributions to this report. 

[End of section] 

Appendix IX: Iowa: 

Overview: 

Use of funds: An estimated 90 percent of Recovery Act funding provided 
to states and localities nationwide in fiscal year 2009 (through Sept. 
30, 2009) will be for health, transportation, and education programs. 
The three largest programs in these categories are the Medicaid Federal 
Medical Assistance Percentage (FMAP) awards, the State Fiscal 
Stabilization Fund, and highways. 

Medicaid Federal Medical Assistance Percentage Funds: 

* As of April 3, 2009, Centers for Medicare and Medicaid Services (CMS) 
had made about $84 million in increased FMAP grant awards to Iowa; 

* From January 2008 to January 2009, Iowa's Medicaid enrollment 
increased from 358,112 to 392,813, with the highest enrollment increase 
attributable to two population groups: (1) children and families and 
(2) nondisabled nonelderly individuals; 

* As of April 15, 2009, Iowa had drawn down about $86 million, or 63 
percent of its increased FMAP grant awards; 

* Officials plan to use funds made available as a result of the 
increased FMAP to cover increased caseloads, maintain existing 
populations of recipients, and avoid reductions to benefits for 
Medicaid recipients. 

Transportation--Highway Infrastructure Investment: 

* Iowa was apportioned about $358 million for highway infrastructure 
investment on March 2, 2009, by the U.S. Department of Transportation; 

* As of April 16, 2009, the U.S. Department of Transportation had 
obligated $221.2 million for 107 Iowa projects; 

* As of April 15, 2009, the Iowa Department of Transportation had 
competitively awarded 25 contracts valued at $168 million, or 47 
percent of the Recovery Act funds apportioned; 

* Contracts were awarded for projects such as bridge replacements and 
highway resurfacing--"shovel ready" projects that could be initiated 
and completed quickly. 

U.S. Department of Education State Fiscal Stabilization Fund (Initial 
Release): 

* Iowa was allocated about $316 million from the initial release of 
these funds on April 2, 2009, by the U.S. Department of Education; 

* Before receiving the funds, states are required to submit an 
application that provides several assurances to the Department of 
Education. These include assurances that they will meet maintenance of 
effort requirements (or that they will be able to comply with waiver 
provisions) and that they will implement strategies to meet certain 
educational requirements, including increasing teacher effectiveness, 
addressing inequities in the distribution of highly qualified teachers, 
and improving the quality of state academic standards and assessments; 

* Iowa plans to submit its application as soon as it can be accurately 
completed; 

* Iowa's Department of Education plans to use these funds to maintain 
spending for grades K-12 and postsecondary education at fiscal year 
2009 levels for fiscal years 2010 and 2011. 

In addition, Iowa estimates that other funding will be provided to the 
state under the Recovery Act for the following program areas: 

* Education--$214 million (includes programs such as those to provide 
grants to local education agencies and assist individuals with 
disabilities). 

* Housing and infrastructure--$252 million (includes programs such as 
the Weatherization Assistance Program). 

* Agriculture/natural resources--$152 million (includes programs such 
as the clean water state revolving fund). 

* Economic development--$94 million (includes programs such as the 
unemployment insurance program). 

The status of plans for using these funds is discussed throughout this 
appendix. 

Safeguarding and transparency: Iowa has a foundation of safeguards and 
controls that could help assure proper spending of Recovery Act funds. 
For example, the State Auditor is responsible for audits of state and 
local entities, such as counties, cities, and school districts, and 
must provide guidelines to public accounting firms that perform such 
audits. In addition, many state agencies have internal audit groups 
that focus on programmatic and financial issues. Furthermore, according 
to state officials, administrative and statutory mechanisms are in 
place that could oversee Recovery Act funds and provide information to 
the public on how these funds are being spent. For example, while 
previous audits have shown few financial weaknesses, the State Auditor 
is updating its 2009 audit plan risk assessment to reflect the 
increased risk associated with Recovery Act funding. Iowa is also 
enhancing its accounting systems to track all Recovery Act funds that 
will flow through the state government to ensure that the state can 
adjust its spending plans as needed. Furthermore, Iowa is developing or 
planning systems to track funds provided to cities, counties, local 
governments, and other entities. Finally, Iowa is working to establish 
a framework that will provide transparency on the use of Recovery Act 
funds. This framework includes the state's Recovery Act Web site, which 
is designed to provide up-to-date information on the use of Recovery 
Act funds by program, a state board to recommend improvements to 
existing practices to prevent fraud, waste, and abuse and oversee the 
spending of Recovery Act funds, and mechanisms provided through the 
state's Accountable Government Act. 

Assessing the effects of spending: State agencies have begun to 
consider how to measure outcomes and assess the effect of the Recovery 
Act. Some agencies have mechanisms in place to collect data in order to 
calculate outcomes. Other state agencies are awaiting guidance such as 
a consistent approach to quantifying the number of jobs created and 
sustained. In the meantime, Iowa's Legislative Services Agency plans to 
work closely with the Iowa Department of Management to create outcome 
measures for the Recovery Act and report results. 

Iowa Beginning to Use Recovery Act Funds: 

Most Iowa state officials said they plan to follow established 
allocation formulas while waiting for federal guidance on the use and 
tracking of Recovery Act funds. For example, the Iowa Department of 
Economic Development, which manages the state's Community Development 
Block Grants and Neighborhood Stabilization Program, intends to follow 
the state-established allocation formula for the Community Development 
Block Grants program. This formula allocates funding in thirds: one- 
third to affordable housing, one-third to economic development, and one-
third to infrastructure. 

Some agencies have gone even further in their spending of Recovery Act 
funds. For example, the Iowa Department of Transportation has funded 
some "shovel ready" projects within 3 days of the enactment of the 
Recovery Act. Additionally, the Iowa Department of Economic Development 
has already established guidance for allocating Neighborhood 
Stabilization Program funding to eligible entities, should the state be 
awarded competitive grant funds. 

As of April 15, 2009, Iowa had drawn down about $86 million of its 
increased FMAP grant awards for the Medicaid program, which is 63 
percent of its awards to date. The state plans to use funds made 
available as a result of the increased FMAP to cover increased 
caseloads and maintain current levels of benefits, noting that without 
these funds, the program would have faced budget shortfalls. 
Additionally, the state plans to use $110 million of funds made 
available as a result of the increased FMAP to fully fund Medicaid in 
the current fiscal year and $145 million of these funds to fully fund 
Medicaid in fiscal year 2010. 

Iowa has begun to use some of its Recovery Act funds, as follows. 

Increased Federal Medical Assistance Percentage Funds: Medicaid is a 
joint federal-state program that finances health care for certain 
categories of low-income individuals, including children, families, 
persons with disabilities, and persons who are elderly. The federal 
government matches state spending for Medicaid services according to a 
formula based on each state's per capita income in relation to the 
national average per capita income. The amount of federal assistance 
states receive for Medicaid service expenditures is known as the 
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP 
may range from 50 percent to no more than 83 percent, with poorer 
states receiving a higher federal matching rate than wealthier states. 
The Recovery Act provides eligible states with an increased FMAP for 27 
months between October 1, 2008, and December 31, 2010.[Footnote 112] On 
February 25, 2009, CMS made increased FMAP grant awards to states, and 
states may retroactively claim reimbursement for expenditures that 
occurred prior to the effective date of the Recovery Act.[Footnote 113] 
Generally, for fiscal year 2009 through the first quarter of fiscal 
year 2011, the increased FMAP, which is calculated on a quarterly 
basis, provides for (1) the maintenance of states' prior year FMAPs; 
(2) a general across-the-board increase of 6.2 percentage points in 
states' FMAPs; and (3) a further increase to the FMAPs for those states 
that have a qualifying increase in unemployment rates. The increased 
FMAP available under the Recovery Act is for state expenditures for 
Medicaid services. However, the receipt of this increased FMAP may 
reduce the funds that states must use for their Medicaid programs, and 
states have reported using these available funds for a variety of 
purposes. 

For the first two quarters of 2009, Iowa's FMAP rate was 68.82 percent, 
a 7.09 percentage point increase over fiscal year 2008. Iowa has 
received increased FMAP grant awards of $136 million for fiscal year 
2009, and, as of April 15, 2009, Iowa had drawn down $86 million in 
increased FMAP grant awards, which is about 63 percent of its awards to 
date. Iowa officials indicated they will use funds made available as a 
result of the increased FMAP to cover increased caseloads, maintain 
existing populations of recipients, avoid cuts to eligibility, and 
maintain current levels of benefits. In addition, such funds will 
provide Iowa officials with the means to offset budget shortfalls, 
including shortfalls for the state's Medicaid program. Iowa officials 
indicated that they expect the recession to continue longer for the 
state than for the nation as a whole, and if the increased FMAP funds 
are not available for all of federal fiscal year 2011, the resulting 
deficit will likely be addressed through the use of reserve funds or 
cuts in program funding. According to state officials, the use of FMAP 
funds requires an appropriation from the state legislature. 

Transportation--Highway Infrastructure Investment: The Recovery Act 
provides additional funds for highway infrastructure investment using 
the rules and structure of the existing Federal-Aid Highway Surface 
Transportation Program, which apportions money to states to construct 
and maintain eligible highways and for other surface transportation 
projects. States must follow the requirements for existing programs, 
and in addition, the Governor must certify that the state will maintain 
its current level of transportation spending, and the Governor or other 
appropriate chief executive must certify that the state or local 
government to which funds have been made available has completed all 
necessary legal reviews and determined that the projects are an 
appropriate use of taxpayer funds. Iowa's Governor certified that the 
state would "maintain its efforts" for Department of Transportation 
programs funded under the Recovery Act. However, Iowa noted in its 
certification that transportation spending would be influenced by the 
difference in the definition of the word "expend" for different covered 
programs; the uncertainty of the amount collected from state user fees 
to fund the programs; and variables (such as weather) that may affect 
the state's timeline for spending Recovery Act transportation funds. 
[Footnote 114] 

Within 3 days of the enactment of the Recovery Act, the Iowa Department 
of Transportation competitively awarded contracts for 19 highway and 
bridge projects valued at about $56 million. Contracts were awarded for 
projects such as bridge replacements and highway resurfacing--shovel- 
ready projects that could be initiated and completed quickly. As of 
April 15, 2009, Iowa had competitively awarded a total of 25 contracts 
valued at $168 million, or 47 percent of the Recovery Act funds 
apportioned. As of April 16, 2009, the U.S. Department of 
Transportation had obligated $221.2 million for 107 Iowa projects. 
[Footnote 115] According to Iowa transportation officials, the agency 
could begin spending Recovery Act funds quickly because it maintained 
an inventory of shovel-ready projects and its accounting system needed 
few changes to track the projects. 

U.S. Department of Education State Fiscal Stabilization Fund: The 
Recovery Act created a State Fiscal Stabilization Fund (SFSF), to be 
administered by the U.S. Department of Education. The SFSF provides 
funds to states to help avoid reductions in education and other 
essential public services. The initial award of SFSF funding requires 
each state to submit an application to the U.S. Department of Education 
that assures, among other things, that it will take actions to meet 
certain educational requirements, such as increasing teacher 
effectiveness and addressing inequities in the distribution of highly 
qualified teachers. 

On April 2, Iowa was allocated $316 million for the education portion 
of the SFSF. Overall, Iowa expects that the state's total SFSF 
allocation will be $472 million. In April, the Governor proposed using 
almost 82 percent of this amount, or $386 million, to support 
elementary, secondary, and higher education, as required. These funds 
will be used for activities such as updating standards and implementing 
a new data system. For the remaining 18 percent of the SFSF allocation, 
or $86 million, the Governor proposes to fund universities and 
community colleges, law enforcement, and corrections in fiscal year 
2010. The Governor also proposed using $600,000 of the $86 million to 
oversee Recovery Act funds. Iowa plans to submit its application as 
soon as the application can be accurately completed. 

Iowa Has Established a Strategy for Spending Recovery Act Funds: 

Beginning in April 2008, unemployment began to rise and in October 
2008, state revenues began to slow. As of February 2009, Iowa's 
unemployment rate was 4.9 percent, up from 3.9 percent in February 
2008. According to a March 27, 2009, report by the Rural Policy 
Research Institute, the nation's rural economy is losing jobs at a rate 
faster than the rest of the United States. Iowa state budget officials 
estimated that the state's unemployment rate could increase to 7 
percent by December 2009. 

Regardless of this economic downturn, Iowa's Governor and General 
Assembly have statutory responsibility to balance the budget and meet 
expenditure limitations and are required to use the revenue estimates 
agreed to by Iowa's Revenue Estimating Conference, which convenes 
quarterly, as the basis for determining the budget for the general 
fund, according to state officials. If revenue estimates are revised 
downward for the current fiscal year, state officials explained that 
the law still requires the budget to be balanced. In the current fiscal 
year, and for the first time since fiscal year 2003, Iowa's general 
fund revenues of almost $6 billion are expected to be lower than in the 
previous fiscal year, a decrease of 1.9 percent from fiscal year 2008 
to fiscal year 2009.[Footnote 116] In response to this downturn, in 
December 2008, the Governor directed an across-the-board 1.5 percent 
reduction in the state's general fund appropriations, effective 
December 22, 2008. On April 3, 2009, the Governor released a revised 
budget for fiscal year 2010 of $5.9 billion for the state's general 
fund, representing a 7.9 percent reduction for many state programs, 
even with the addition of more than $535 million in Recovery Act funds. 
According to state officials, decisions regarding the use of Recovery 
Act funds require approval by the General Assembly. Since the Iowa 
General Assembly is scheduled to adjourn on or around May 1, 2009, it 
may have to develop strategies if funding decisions are necessary after 
adjournment. For example, the Governor may request that the General 
Assembly return for a special session. 

In March 2009, the Governor established a Recovery Act implementation 
working group to provide a coordinated process for (1) reporting on 
Recovery Act funds available to Iowa through various federal grants and 
(2) tracking the federal requirements and deadlines associated with 
those grants. The implementation working group comprises 
representatives from nearly two dozen state agencies, led by an 
executive-level working group, and assisted by groups that will focus 
on implementation issues such as budget and tracking, intergovernmental 
coordination, and communications. The implementation working group 
includes several issue-specific small groups focusing on key program 
areas: education, energy, environment, health care, housing, 
information technology, public safety, transportation and 
infrastructure, and workforce. On April 14, 2009, the working group 
issued a progress report on Recovery Act funds in Iowa. For example, 
the working group reported on the planned and spent funding of the 
state's energy program to reduce per capita energy consumption, loans 
for wastewater infrastructure projects, and neighborhood stabilization 
programs to provide emergency assistance to acquire and redevelop 
foreclosed properties. 

In addition to FMAP, Transportation, and the State Fiscal Stabilization 
Fund programs, the Governor's office estimates that the state will 
receive Recovery Act funding as follows: 

* Education: Of $214 million, a large majority involves two formula 
grant programs--grants to local education agencies ($52 million) and 
special education grants to assist individuals with disabilities ($122 
million). 

* Housing and infrastructure: Of $252 million, 32 percent ($81 million) 
is for the Weatherization Assistance Program to provide energy-related 
improvements to homes and educate residents about energy conservation. 

* Agriculture/natural resources: Of $152 million, more than one-third 
(36 percent or $54 million) is for the clean water state revolving 
fund. 

* Economic development: Of $94 million, more than three-quarters (76 
percent or $71 million) is to modernize the unemployment insurance 
program. 

To supplement Recovery Act funds, Iowa is considering other stimulus 
proposals, such as the Iowa Infrastructure Investment Initiative, or I- 
JOBS, and another bonding initiative. I-JOBS is designed to create 
jobs, strengthen the state's economy, and rebuild the state's 
infrastructure over 3 years. If approved by the General Assembly, I- 
JOBS, as described by state officials, is expected to provide funding 
for various infrastructure projects, such as transportation, public 
buildings, and wastewater improvements, and will be funded through 20- 
year tax-exempt bonds paid for by gaming revenue, current tax revenue, 
or both. The General Assembly is also considering another bonding 
initiative to provide economic stimulus. As of April 17, 2009, the Iowa 
General Assembly had not authorized the issuance of bonds for either of 
these initiatives. 

In the absence of OMB and program-specific guidance, associations and 
organizations have provided guidance and assistance to Iowa on the use 
and reporting of Recovery Act funds. Among these associations are the 
National Association of Crime Victim Compensation Boards, the National 
Association of Victims of Crime Act Assistance Administrators, and the 
Association for Stop Violence Against Women Administrators. For 
example, justice associations have helped the Iowa Attorney General's 
Office complete grant applications. 

Iowa Is Developing Systems to Track Recovery Act Funds: 

Many Iowa agencies expect that they will be able to track the Recovery 
Act funds they use through the state's central accounting system. The 
state is also evaluating options for reporting Recovery Act funds 
provided to cities, counties, local governments, and other entities 
that will help satisfy reporting requirements for these funds. 
Specifically, state accounting officials are developing special codes 
to track Recovery Act funds and have begun to train state agencies' 
accounting officials in the use of these new codes. However, Iowa's 
central accounting system does not track Recovery Act funds provided 
directly to some agencies because they are not part of the system. For 
example, the central accounting system does not track Recovery Act 
funding provided to the Iowa Department of Transportation. In this 
case, Iowa transportation officials said the agency is establishing 
separate accounting codes to track Recovery Act funds by project. 
Similarly, the central accounting system does not track Recovery Act 
funds provided to state-funded universities. The state and Board of 
Regents are discussing how to track these funds. While local governing 
authorities are not required to report through the state, the Iowa 
Department of Management is in discussions with these entities to 
report Recovery Act spending on the state's Web site. At the local 
level, some agencies can track these funds, while others are developing 
guidance to require such tracking, according to state officials. 

In order to track increased FMAP funds, Iowa is adapting its existing 
systems. In addition, Iowa's state Medicaid agency uses a data 
warehouse for Medicaid payments made to counties, subcontractors, and 
medical facilities, and U.S. Health and Human Services' Office of 
Inspector General has audited the state's data warehouse. 

The General Assembly may also track Recovery Act spending. In 
particular, the assembly's Legislative Services Agency--a nonpartisan 
analysis and research agency serving the Iowa General Assembly-- 
assisted members in interpreting the Recovery Act and provided 
preliminary estimates of funds provided to the state. Furthermore, the 
Legislative Services Agency will be able to access Iowa's central 
accounting system to monitor agencies' spending in real time. 

Even as Iowa plans for tracking Recovery Act funds, state officials 
said that they continue to have some questions about how to report 
Recovery Act funds. For example, Iowa officials noted that they need 
additional guidance on reporting increased FMAP funds to CMS. 
Specifically, Iowa officials said that they need guidance on the timing 
for drawing down increased FMAP grant awards, reporting receipts and 
expenditures, and submitting claims for expenditures made retroactively 
to October 2008. 

Iowa Has a Foundation of Safeguards and Controls That Could Help Assure 
Proper Spending of Recovery Act Funds: 

There are various entities in Iowa that are responsible for monitoring, 
tracking, and overseeing financial expenditures, including the Iowa 
State Accounting Enterprise (collects and reports state financial 
information and processes financial transactions); the State Auditor 
(audits state and local entities, such as counties, cities, and school 
districts, and provides guidelines to public accounting firms that 
perform such audits); and the Attorney General (prevents and prosecutes 
fraud). Finally, many state agencies have internal audit groups that 
focus on programmatic and financial issues. 

While Prior Audits Indicate Few Financial Weaknesses, State Auditor Is 
Identifying Potential Areas Needing Oversight: 

Prior years' audits indicate few weaknesses in Iowa's financial 
management systems and controls. Iowa's fiscal year 2007 single audit 
found one material weakness in internal controls related to a public 
assistance grant provided to the Iowa Department of Transportation: a 
computer program error resulted in a $3.6 million overpayment to the 
agency by the Federal Emergency Management Agency for materials related 
to disaster recovery. In 2009, Iowa refunded the $3.6 million. Iowa's 
fiscal year 2008 single audit did not identify any material weaknesses. 

While prior audits indicate few financial weaknesses, the Office of the 
State Auditor is updating its 2009 audit plan risk assessment to 
reflect the increased risk associated with Recovery Act funding. Of 
great concern to officials of the State Auditor's office are possible 
limits on the ability to charge fees for audit services. According to 
state officials, these limits would significantly reduce the 
effectiveness of the State Auditor to audit federal funds received, 
including those under the Recovery Act, as required by the Single Audit 
Act. If limits on audit fees were enacted, officials said that the 
state's comprehensive annual financial report and the single audit 
report are likely to result in qualified opinions. 

Iowa Has Administrative and Statutory Mechanisms in Place That Could 
Help Oversee Iowa's Recovery Act Funds: 

The Iowa state government is working to establish a framework to 
provide transparency on the use of Recovery Act funds. In March 2009, 
the Governor's office launched an economic Recovery Act Web site-- 
[hyperlink, http://www.recovery.iowa.gov] --to provide information on 
Recovery Act funding by program. Iowa plans to add a "dashboard" 
feature to the Web site--a user-friendly search capability that will 
provide detailed information on how and where Recovery Act funds are 
spent. The Governor's office expects OMB to provide guidance on how to 
report information on Iowa's Recovery Act Web site, including the 
dashboard feature, and how to forward that information to the national 
Recovery Act Web site. In addition, the state is developing a system 
that will allow information on Recovery Act funding that does not come 
through the state government, such as grants federal agencies provide 
directly to localities, to be available on the state's Web site. 

On April 14, the Governor created the Iowa Accountability and 
Transparency Board--which has similarities to the federal Recovery 
Accountability and Transparency Board--to, among other duties, assess 
existing practices to prevent fraud, waste, and abuse; recommend 
opportunities for improvement in these areas; and oversee real-time 
audits and reporting. The board will be made up of 14 members. Voting 
members include the Governor or his designee, the State Auditor or his 
designee, the State Treasurer or his designee, three local government 
members, and three citizens. Nonvoting members of the board include the 
Director of Iowa's Department of Management or his designee and four 
members of the state's General Assembly. The Iowa Accountability and 
Transparency Board will recommend improvements and oversee the spending 
of Recovery Act funds. 

Iowa's Accountable Government Act could serve as a mechanism to 
safeguard Recovery Act funding. Under this act, Iowa is required to 
provide for the efficient and effective use of state funds. Among other 
things, Iowa's Accountable Government Act requires grant recipients to 
certify that information on internal controls relating to processes are 
available for inspection by the state agency, and the Legislative 
Services Agency if the recipients provide a service of more than 
$500,000 that is paid for with local, state, or federal funds. In 
addition, recipients must report on financial information, reportable 
conditions in internal control or material noncompliance, and 
corrective actions taken or planned in response to these reportable 
conditions. State agencies can enforce this monitoring by terminating 
payments and recovering any expended government funds. Furthermore, the 
Legislative Services Agency tracks personnel services contracts--that 
is, contracts for consulting services or temporary hires--within all 
state agencies (except the Iowa Department of Transportation and the 
Iowa Board of Regents) regardless of the value of the contract. State 
officials could require a similar certification and monitoring of 
Recovery Act funds. 

Iowa officials said that they recognize the need for greater oversight 
and proper management of programs in light of the infusion of 
significant funds under the Recovery Act. According to state officials, 
the Recovery Act did not provide funds for oversight. For example, one 
state agency official in the Iowa Department of Education expressed 
concern about the adequacy of resources available for ensuring the 
appropriate use of the Recovery Act funds--an estimated $386 million 
from the state fiscal stabilization program for education--particularly 
because the agency anticipates further state-imposed staff reductions. 
Recognizing that the Recovery Act did not specifically provide funds 
for state oversight, the Governor proposed using $600,000 of the $86 
million in fiscal stabilization funds in his 2010 budget to be made 
available for general government services to oversee Recovery Act 
funds. 

Iowa officials indicated that they are identifying ways to use the 
state's internal audit functions to address Recovery Act-related 
issues. Iowa state audit officials indicated that state programs that 
receive significant Recovery Act funds while maintaining a high level 
of discretion over use of those funds--such as the state's Medicaid 
program--present an increased risk to the state and will receive 
greater scrutiny during internal state audits. 

State Agencies Are Considering How to Assess the Effects of Recovery 
Act Funds: 

Iowa has just begun to consider how to measure outcomes and assess the 
effect of Recovery Act funding while it awaits federal guidance on a 
consistent approach to measuring the number of jobs created and 
sustained. State officials identified Iowa's Accountable Government Act 
as a mechanism that has familiarized state agencies with results- 
oriented management and could help them assess the impact of Recovery 
Act funds. The Iowa Accountable Government Act requires each state 
agency to measure and monitor progress toward achieving program goals 
and report the progress toward those goals. In addition, the Iowa 
Department of Management, in consultation with the Legislative Services 
Agency, the State Auditor, and agencies, must periodically conduct 
performance reviews to assess the effectiveness of programs and make 
recommendations to improve agency performance. 

State agency officials said that they expect to be able to track 
information on the number of jobs created while others said they need 
further guidance. For example, the Iowa Department of Transportation 
tracks the number of worker hours by highway project on the basis of 
contractor reports. An Iowa Transportation official said that this 
information may be used to calculate the number of jobs created. Iowa 
education officials, in contrast, may need more guidance. Iowa teachers 
are notified by school districts in mid-March whether their jobs are 
guaranteed for the next school year, pending passage of school budgets. 
Once the budgets are passed, teachers are asked to return for the 
following school year. Officials said that they believed that federal 
guidance would help them determine how to characterize whether these 
jobs would be created or sustained. 

According to Iowa's Department of Management, once it receives federal 
guidance on how to assess the impact of Recovery Act funding, it plans 
to disseminate the information across state agencies. It intends to 
measure the impact of Recovery Act funds through the state's Recovery 
Act Web site and current tracking software. The Legislative Services 
Agency plans to work closely with the Department of Management to 
create outcome measures for the Recovery Act and report the results. 
Additionally, the Iowa Department of Economic Development has already 
established output and outcome measures for the Neighborhood 
Stabilization Program. 

Although most state agencies are waiting for federal guidance on how to 
assess results from Recovery Act funding, officials from some state 
agencies told us that they have accounting systems in place to measure 
programmatic outcomes. For example, the Iowa Department of Economic 
Development will monitor its Recovery Act funds by using systems 
adopted for tracking federal disaster recovery funds, including systems 
that the federal Department of Housing and Urban Development uses to 
monitor and report on funding spent to recover from natural disasters. 
The Iowa Department of Economic Development plans to put in place 
procedures for working with the State Auditor to leverage oversight of 
stimulus funds. Similar procedures have been established to oversee 
funding the state expects to receive to recover from disastrous floods 
in 2008. The Department of Economic Development expects a 20-fold 
increase in Community Development Block Grants in 2009 to help the 
recovery effort from these floods. 

Officials noted the potential difficulty of measuring Recovery Act 
outcomes separately from other recovery initiatives, such as Iowa's 
proposed I-JOBS program. While state officials said that they believe 
there are benefits to supplementing federal efforts, the state may find 
it difficult to separate outcomes among the recovery programs. 

Iowa's Comments on This Summary: 

We provided the Governor of Iowa with a draft of this appendix on April 
17, 2009. The Director, Iowa Office of State-Federal Relations and the 
Director for Performance Results, Department of Management responded 
for the Governor on April 20, 2009. In general, officials agreed with 
our findings and conclusions. The officials also offered several 
technical suggestions that we have incorporated, as appropriate. 

GAO Contacts: 

Lisa Shames (202) 512-3841 or shamesl@gao.gov: 

Belva Martin (202) 512-4285 or martinb@gao.gov: 

Staff Acknowledgments: 

In addition to the individuals named above, Thomas Cook, Assistant 
Director; Christine Frye, Analyst-in-Charge; Alisa Beyninson; Gary 
Brown; Daniel Egan; Nancy Glover; Marietta Mayfield; Mark Ryan; and 
Carol Herrnstadt Shulman made key contributions to this appendix. 

[End of section] 

Appendix X: Massachusetts: 

Overview: 

Use of funds: An estimated 90 percent of fiscal year 2009 Recovery Act 
funding provided to states and localities will be for health, 
transportation, and education programs. The three largest programs in 
these categories are the Medicaid Federal Medical Assistance Percentage 
(FMAP) awards, the State Fiscal Stabilization Fund, and highways. 

Medicaid Federal Medical Assistance Percentage Funds: 

* As of April 1, 2009, Centers for Medicare & Medicaid Services (CMS) 
had made about $1.2 billion in increased FMAP grant awards to 
Massachusetts; 

* As of April 1, 2009, the state had drawn down about $273 million, or 
23 percent, of its initial increased FMAP grant awards; 

* Officials plan to use funds made available as a result of the 
increased FMAP to avoid additional cuts in health care and social 
service programs, restore certain provider rates, and provide caseload 
mitigation for Medicaid and Commonwealth Care (an expansion of its 
Medicaid program). 

Transportation--Highway Infrastructure Investment: 

* Massachusetts was apportioned about $425 million for highway 
infrastructure investment as of April 16, 2009, by the U.S. Department 
of Transportation; 

* As of April 16, 2009, the U.S. Department of Transportation had 
obligated about $63.9 million for 19 projects in Massachusetts; 

* As of April 4, 2009, the Massachusetts Executive Office of 
Transportation had advertised 19 projects for competitive bids totaling 
more than $62 million; the earliest announcements were scheduled to 
close on April 14, 2009, and work on the projects is expected to begin 
this spring; 

* These projects include activities such as road repaving and sign 
replacement; 

* Massachusetts will request reimbursement from the U.S. Department of 
Transportation as project phases are completed by contractors. 

U.S. Department of Education State Fiscal Stabilization Fund (Initial 
Release): 

* Massachusetts was allocated about $666 million from the initial 
release of these funds on April 2, 2009, by the U.S. Department of 
Education; 

* Before receiving the funds, states are required to submit an 
application that provides several assurances to the Department of 
Education. These include assurances that they will meet maintenance of 
effort requirements (or that they will be able to comply with waiver 
provisions) and that they will implement strategies to meet certain 
educational requirements, including increasing teacher effectiveness, 
addressing inequities in the distribution of highly qualified teachers, 
and improving the quality of state academic standards and assessments. 
In early April 2009, state officials reported that the commonwealth 
will file its application for this money around April 15, 2009, when it 
would better understand the state fiscal year 2010 budget situation; 

* The Governor has announced that he intends to provide funds to 166 
school districts to help them increase spending to prior levels and 
avoid program cuts and teacher layoffs in fiscal year 2010. He also 
intends to use some of these funds at public colleges and universities 
to reduce layoffs, program cuts, and student fee hikes. 

The commonwealth of Massachusetts is also receiving additional Recovery 
Act funds under programs, such as Title I, Part A of the Elementary and 
Secondary Education Act of 1965 (ESEA, commonly known as No Child Left 
Behind); the Individuals with Disabilities Education Act, Part B 
(IDEA); and two programs of the U.S. Department of Agriculture--one for 
administration of the Temporary Food Assistance Program and one for 
competitive equipment grants targeted to low-income districts from the 
National School Lunch Program. The status of plans for using Recovery 
Act funds is discussed throughout this appendix. 

Safeguarding and transparency: Task forces, established by the 
Governor, encouraged the state to adopt accountability and transparency 
measures. Further, Massachusetts is expanding its accounting system to 
track funds flowing through the state government. Although 
Massachusetts has plans to publicly report its Recovery Act spending, 
officials have said that the state may not be aware of all funds sent 
directly to other entities, such as municipalities and independent 
authorities. The commonwealth's oversight community has identified 
situations that raise concerns about the adequacy of safeguards, such 
as funding for larger projects and new programs, but is waiting for 
further information on what specific programs will receive funding 
before developing plans to address those concerns. 

Assessing the effects of spending: Massachusetts agencies are in the 
early stages of developing plans to assess the effects of Recovery Act 
spending. According to state officials, they are awaiting further 
guidance from the federal government, particularly related to measuring 
job creation. 

Massachusetts Beginning to Use Recovery Funds: 

Massachusetts has begun to use some of its Recovery Act funds, as 
follows. 

Increased Federal Medical Assistance Percentage Funds: Medicaid is a 
joint federal-state program that finances health care for certain 
categories of low-income individuals, including children, families, 
persons with disabilities, and persons who are elderly. The federal 
government matches state spending for Medicaid services according to a 
formula based on each state's per capita income in relation to the 
national average per capita income. The amount of federal assistance 
states receive for Medicaid service expenditures is known as the 
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP 
may range from 50 percent to no more than 83 percent, with poorer 
states receiving a higher federal matching rate than wealthier states. 
The Recovery Act provides eligible states with an increased FMAP for 27 
months between October 1, 2008, and December 31, 2010.[Footnote 117] On 
February 25, 2009, the Centers for Medicare & Medicaid Services (CMS) 
made increased FMAP grant awards to states, and states may 
retroactively claim reimbursement for expenditures that occurred prior 
to the effective date of the Recovery Act.[Footnote 118] Generally, for 
fiscal year 2009 through the first quarter of fiscal year 2011, the 
increased FMAP, which is calculated on a quarterly basis, provides for 
(1) the maintenance of states' prior year FMAPs; (2) a general across- 
the-board increase of 6.2 percentage points in states' FMAPs; and (3) a 
further increase to the FMAPs for those states that have a qualifying 
increase in unemployment rates. The increased FMAP available under the 
Recovery Act are for state expenditures for Medicaid services. However, 
the receipt of the increased FMAP may reduce the funds that states must 
use for their Medicaid programs, and states have reported using these 
available funds for a variety of purposes. 

Under the Recovery Act, the commonwealth's FMAP will increase to at 
least 56.2 percent, up from 50 percent. As of April 1, 2009, 
Massachusetts had drawn down $272.6 million, or 23 percent, of its 
increased FMAP grant awards. In fiscal years 2009 and 2010, officials 
plan to use a significant portion of funds made available as a result 
of the increased FMAP funds to avoid additional cuts in health care and 
social service programs, restore certain provider rates, and provide 
caseload mitigation for Medicaid and Commonwealth Care. 

Transportation--Highway Infrastructure Investment: The Recovery Act 
provides additional funds for highway infrastructure investment using 
the rules and structure of the existing Federal-Aid Highway Surface 
Transportation Program, which apportions money to states to construct 
and maintain eligible highways, and for other surface transportation 
projects. States must follow the requirements for the existing 
programs, and in addition, the governor must certify that the state 
will maintain its current level of transportation spending, and the 
governor or other appropriate chief executive must certify that the 
state or local government to which funds have been made available has 
completed all necessary legal reviews and determined that the projects 
are an appropriate use of taxpayer funds. Massachusetts provided these 
certifications, but conditioned the state's level of funding for these 
programs, noting that this spending will be financed through issuing 
bonds and may need to be decreased, depending on the state of the 
economy. The commonwealth's debt affordability policy will determine 
the amount of debt that can be issued.[Footnote 119] 

As of April 4, 2009, the Massachusetts Executive Office of 
Transportation had advertised 19 projects for competitive bid totaling 
more than $62 million. These projects included, for example, replacing 
traffic and guide signs along sections of Route I-95 and paving Route 6 
in southeastern Massachusetts. As of April 16, 2009, the U.S. 
Department of Transportation had obligated about $63.9 million for 19 
projects in Massachusetts.[Footnote 120] Massachusetts will request 
reimbursement from the U.S. Department of Transportation as project 
phases are completed by contractors. 

U.S. Department of Education State Fiscal Stabilization Fund: The 
Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be 
administered by the U.S. Department of Education (Education). The SFSF 
is intended to help states avoid reductions in education and other 
essential public services. The initial award of SFSF funding requires 
each state to submit an application to Education that assures, among 
other things, it will take actions to meet certain educational 
requirements, such as increasing teacher effectiveness and addressing 
inequities in the distribution of highly qualified teachers. 

Massachusetts' initial SFSF allocation is $666,152,997. In early April 
2009, state officials reported that the state would file its 
application for this money around April 15, 2009, when it would better 
understand the state's revenue projections and after the Massachusetts 
House issues its fiscal year 2010 budget proposal. In March 2009, the 
Governor of Massachusetts had announced he intended to fund $168 
million in SFSF to 166 school districts to help them increase funding 
and avoid program cuts and teacher layoffs in fiscal year 2010. He also 
announced he intended to provide $162 million in SFSF to public 
university and college campus budgets to reduce layoffs, program cuts, 
and student fee hikes. 

Massachusetts' Planning Process Has Set the Stage for Decisions on 
Spending of Recovery Act Funds: 

Massachusetts officials began preparing for receipt of federal Recovery 
Act funds prior to enactment of the act. Faced with deteriorating 
revenue projections, the potential for expanding caseloads in some 
safety net programs, such as Medicaid, and a requirement to balance the 
budget, Massachusetts officials believe that funds made available as a 
result of the Recovery Act are critical to addressing the 
commonwealth's immediate fiscal pressures. State officials envision a 
sizable portion of the state-projected $8.7 billion in Recovery Act 
funds (over 2 years) going directly toward budget stabilization. 
According to state officials, as of April 2009, the state is addressing 
a budget gap of approximately $3.0 billion. This gap is driven largely 
by lower-than-anticipated revenues. State fiscal year 2009 revenue is 
significantly lower than budgeted and has left the state unable to 
support previously approved spending levels, and revenues are expected 
to fall short of planned expenditures for 2010, as well. 

In December 2008, anticipating a major infusion of federal funding, 
especially for infrastructure projects, the Governor established task 
forces to identify "shovel-ready" projects and address obstacles to 
project implementation. Ten task forces were created--seven focused on 
specific types of infrastructure investment, such as transportation, 
energy, and information technology, and three focused on crosscutting 
issues like workforce mobilization and procurement. In conducting their 
work, the task forces were guided by several principles, including 
investing for the long term and limiting investments to those that 
would not add to the state's operating budget. 

Although other program areas, such as Medicaid and education, likely 
will receive more funding than will infrastructure, the work of the 
task forces was influential. The task forces developed work plans for 
projects that could be implemented using the anticipated funding and 
were instrumental in the appointment of a director of infrastructure 
investment (a "recovery czar") to coordinate and monitor state 
agencies' and municipalities' implementation of projects. The task 
forces also encouraged the creation of a central Web site to enhance 
transparency, called for the involvement of the oversight community in 
contract oversight to ensure accountability, and prompted the 
introduction of legislation (now being considered by the legislature) 
intended to ease some of the procurement and contracting processes that 
might delay quick implementation of construction projects. The task 
force efforts helped prepare the state to submit several certifications 
required under the Recovery Act to the federal government. In late 
February, the Governor certified that the state would request and use 
all funds provided by the act. Additional certifications for 
transportation and energy have also been submitted. 

Revenue from the state's "rainy-day" fund,[Footnote 121] a reserve fund 
built up during more favorable economic conditions to be used during 
difficult economic times, will give the commonwealth additional 
flexibility to avoid some cuts in fiscal year 2010. The commonwealth's 
budget already calls for using about $925 million from the rainy-day 
fund in fiscal year 2009, and the Governor's proposed 2010 budget calls 
for using about $489 million of the rainy-day funds. According to 
budget documents, the combination of funds made available as a result 
of the increased FMAP and rainy-day funds will help the state avoid 
cuts in several areas, including health care, education, and public 
safety. 

State documents suggest that officials are concerned about using one- 
time federal and rainy-day funds to make longer-term operational and 
program commitments that could require additional revenue in the future 
to avoid job and service cuts.[Footnote 122] State officials note that 
using temporary funds, such as Recovery Act and rainy-day funds, make 
budgeting uncertain and require strategic fiscal management. 

Massachusetts Has a System to Track Recovery Act Funds but Cannot 
Ensure Local Entities' Ability to Meet Recovery Act Reporting 
Requirements: 

The commonwealth is expanding the use of its existing accounting system 
to track all Recovery Act funds that will flow through the state 
government. New codes are being added to the existing system in order 
to segregate and track the Recovery Act funds. The Office of the 
Comptroller has issued guidance on the required use of these newly 
created account codes for all Recovery Act transactions and has 
stipulated that all the Recovery Act-funded contracts include 
provisions to segregate Recovery Act money. While these changes have 
been made, officials were still testing the system and developing 
reporting capabilities as of April 13, 2009. 

The portion of Recovery Act funds going directly to recipients other 
than Massachusetts government agencies, such as independent state 
authorities, local governments, or other entities, will not be tracked 
through the state comptroller's office. While state officials 
acknowledged that the commonwealth lacks authority to ensure adequate 
tracking of these funds, they are concerned about the ability of 
smaller entities to manage Recovery Act funds--particularly 
municipalities that traditionally do not receive federal funds and that 
are not familiar with Massachusetts' tracking and procurement 
procedures, as well as recipients receiving significant increases in 
federal funds. In order to address this weakness, the administration 
introduced emergency legislation that, according to state officials, 
includes a provision requiring all entities within Massachusetts that 
receive Recovery Act money to provide information to the state on their 
use of Recovery Act funds. Alternatively, the two large nonstate 
government entities we spoke with to date--the city of Boston and the 
Massachusetts Bay Transportation Authority (MBTA, a quasi-independent 
authority responsible for metropolitan Boston's transit system)-- 
believe that their current systems, with some modifications, will allow 
them to meet Recovery Act requirements. For example, the city of Boston 
hosted the Democratic National Convention in 2004, and city officials 
said that their system was then capable of segregating and tracking a 
sudden influx of one-time funds. 

State Agencies Have Made Some Spending Decisions: 

Some state programs have received actual allocations of federal 
Recovery Act funds, while for other state programs, officials have 
developed spending plans based on preliminary figures provided by 
federal departments. The U.S. Department of Transportation, through the 
Federal Transit Administration, published apportionment amounts for the 
Transit Capital Assistance and the Fixed Guidance Infrastructure 
Investment Programs on March 5, 2009.[Footnote 123] The Massachusetts 
Executive Office of Transportation (EOT) and the MBTA have been able to 
develop spending plans with a degree of certainty and EOT has 
advertised requests for bids on 19 projects totaling about $62 million. 
Other program officials have had to develop plans with preliminary 
estimates. For example, as of mid-March 2009, state officials from the 
Department of Elementary and Secondary Education said that local 
education officials reported that one of their biggest challenges was a 
lack of reliable information on federal Recovery Act allocations that 
they could use to plan their budgets. However, on April 1, 2009, 
Education announced the release of state allocations of ESEA Title I 
and IDEA funds, along with more detailed guidance for these programs. 

Some state and local officials said that while clear, specific guidance 
takes time to develop, the lack of guidance from federal agencies had 
limited their ability to make spending decisions. Officials from some 
of the entities we spoke with, including the state Department of 
Elementary and Secondary Education, the Department of Housing and 
Community Development, and the city of Boston, said they are 
comfortable making spending decisions with money slated to flow through 
pre-existing grant programs. However, the lack of specific guidance for 
federal Recovery Act funds for some programs has presented challenges, 
according to some state officials. An area of significant challenge for 
education officials concerns how to use federal Recovery Act funding to 
supplement state and local revenues for existing educational programs, 
rather than use these funds to supplant state and local revenue. State 
education officials said they anticipated that to prove funds have not 
been supplanted will be very challenging for local school districts and 
have requested additional guidance from the U.S. Department of 
Education to help them make better decisions about spending priorities. 
For example, state housing officials are seeking clarification from the 
U.S. Department of Housing and Urban Development (HUD) on whether the 
Tax Credit Assistance Program can be used to provide loans rather than 
grants to subrecipients, and state transportation officials are waiting 
for guidance on whether competitive grants can be used for "signature 
projects." 

Some state agencies told us they anticipate they will be able to manage 
additional Recovery Act funding coming through well-established grant 
programs with existing agency resources but, in some cases, will hire 
additional staff to manage Recovery Act programs. For example, the 
state's Department of Housing and Community Development (DHCD) reported 
it is expecting to receive significant Recovery Act funds and has plans 
to hire staff to help manage the programs. DHCD has well-established 
methods for managing expenditures and accomplishments, so agency 
officials believe they can effectively administer Recovery Act funds 
using existing structures. MBTA officials told us that given the 
enhanced transparency and reporting requirements associated with an 
additional $230 million in project spending, they anticipate that 
managing these Recovery Act projects will present some new challenges 
and will require that they hire a project management firm. Finally, a 
Department of Elementary and Secondary Education official told us they 
anticipate a need to hire additional staff, for a limited term, to 
manage competitive grant programs funded under the Recovery Act. 

Plans for Safeguards and Controls Being Developed at State Level: 

The commonwealth has entities responsible for monitoring, tracking, and 
overseeing financial expenditures. The comptroller, who is responsible 
for implementing accounting policies and practices, oversees fiscal 
management functions, including internal controls. The State Auditor 
audits the administration and expenditure of state funds, ands partners 
with an accounting firm to perform the state's annual Single Audit--a 
comprehensive review of all state agencies' accounts and activities. 
The state Inspector General, with a broad mandate to prevent fraud, 
waste, and abuse, conducts operational and management reviews and has 
authority to examine independent authorities and municipalities. The 
Attorney General also plays a role, including preventing and 
prosecuting fraud. Further, according to state officials, some state 
departments have internal audit groups that focus on programmatic 
issues. In addition to these entities, the commonwealth has laws that 
provide further safeguards. 

Potential Areas of Vulnerability with Massachusetts Recovery Act Funds: 

Past experience has shown financial management vulnerability involving 
organizations that will receive funds under the Recovery Act. The 
Office of the Attorney General has documented improper Medicaid 
payments and has concerns regarding the funds from the Recovery Act 
going to the Medicaid program. They plan to take a risk-based approach, 
but are waiting for firm information on which programs and recipients 
will receive Recovery Act funds. The Inspector General stated that his 
office will need to emphasize oversight of larger procurement projects, 
which may be vulnerable. In addition, officials pointed to the 
multibillion-dollar cost overruns on a federally funded highway project 
in Boston (the "Big Dig") as an example of what can go wrong when a 
large project lacks sufficient oversight. The Massachusetts fiscal year 
2007 Single Audit report identified vulnerabilities that included 
insufficient monitoring of subrecipients of federal grants to the 
state. For example, the Massachusetts Department of Early Education and 
Care programs, which will receive Recovery Act funds, did not conduct 
any on-site monitoring of the Child Care Resource and Referral Agencies 
(subrecipients), which received approximately $11 million in child care 
development funds and $122 million in Temporary Assistance for Needy 
Families funds. Since that audit, the department has implemented 
numerous improvements and controls to address these issues. The State 
Auditor has also identified financial management concerns with 
nonprofit entities that receive federal funds and will receive 
additional funds under the Recovery Act. 

In addition, oversight officials noted some more general situations 
raising concerns. For example, some oversight officials identified new 
programs as potentially risky; however, new programs would have little 
impact on the fiscal year 2009 Single Audit report. New programs would 
probably be included on the fiscal year 2010 Single Audit report, which 
typically comes out some months after the end of the state's fiscal 
year. Oversight officials also expressed concern about programs 
receiving large increases under the Recovery Act, and recipients that 
do not typically receive federal funds--and therefore may not have 
systems in place to track them--are also at risk. 

In order to better understand areas of potential vulnerability, the 
Governor asked all commonwealth agencies in late January 2009 to 
conduct self-assessments identifying existing oversight and 
accountability mechanisms. Most agencies submitted reports, which 
included varying levels of detail. The reports we reviewed showed that 
the agencies are generally comfortable with the mechanisms currently in 
place. One report expressed a need for additional resources to oversee 
any new funding. The self-assessments were shared with the State 
Auditor, Inspector General, and Comptroller's offices. The State 
Auditor has provided comments to the Governor's office, noting that 
while the self-assessments indicated existing control mechanisms in 
place to manage, account for, and monitor the spending of the Recovery 
Act funds, he expressed two areas of concern. He was concerned about 
tracking funds that bypass the state government and, based on past 
audits, about subgrantee monitoring. The Inspector General plans to 
provide comments on the needs assessments to the Governor's office by 
the end of April. The Comptroller is using the assessments to monitor 
agencies' controls over Recovery Act funds on an ongoing basis. 

Plans for Oversight of Massachusetts' Recovery Act Funds: 

While the commonwealth's oversight community has come together to 
discuss issues such as avoiding areas of duplication and preventing 
oversight gaps, as a whole, it has yet to develop a coordinated plan 
describing which programs and departments it will focus on or how it 
will conduct critically needed oversight. Both the Inspector General 
and Attorney General recognize the need for training for local 
officials, specifically related to procurement. The Inspector General 
stated that his department would continue its training of local 
procurement officials and announced in its March 2009 Procurement 
Bulletin that his office should be contacted regarding any questions on 
procurement or Recovery Act expenditures. While the Inspector General 
identified the need for increased oversight, particularly related to 
procurements, oversight officials generally stated that once they 
determine the total distribution of Recovery Act money, they then would 
begin selecting areas for review. The Attorney General has convened a 
task force to coordinate on oversight issues with the federal and state 
oversight community. 

The state legislature will also provide oversight of the Recovery Act 
funds through the newly created Joint Committee on Federal Stimulus 
Oversight. This committee has already held three hearings with plans to 
hold more regarding the oversight of Recovery Act spending. According 
to committee members, the impetus for creating this committee was 
Massachusetts' failure to control fraud, waste, and abuse in the 
federally funded "Big Dig" construction project. The purpose of the 
joint committee is to ensure compliance with federal regulations and to 
review current state laws, regulations, and policies to ensure they 
allow the commonwealth to access Recovery Act funding and streamline 
processes to quickly stimulate the economy. In addition to the co- 
chairmen having the capability to subpoena individuals, a co-chairman 
said that the Joint Committee has broad authority and its jurisdiction 
extends to wherever public federal, state, and local money is spent. 
[Footnote 124] 

Massachusetts' administration has emphasized transparency of Recovery 
Act spending and identified the state recovery Web site as a 
transparency tool. In addition, the Web site has links to planning 
documents, guidance, and intended uses of Recovery Act money, and 
officials are planning to enhance the Web site with a goal of making it 
the central portal for all Recovery Act information and reporting. 
Their goal is to include the ability to track Recovery Act money by 
town and by project, as well as to include each project's budget, 
schedule, awarded contracts (with contract details), and its on-time 
status. In addition, the public can send e-mails regarding stimulus 
issues to this site and the Recovery czar's staff is responsible for 
replying. 

Availability of Resources for Oversight: 

Several Massachusetts officials expressed concern that the Recovery Act 
did not provide funding specifically for state oversight activities, 
despite the importance of ensuring that Recovery Act funds are used 
appropriately and effectively. In addition, the task forces the 
Governor convened in December 2008 concluded that it is critical the 
Inspector General and State Auditor have resources to audit Recovery 
Act contracts and management of Recovery Act funds, as well as 
recommended that the Attorney General's office should be provided with 
the resources to promptly and effectively pursue fraud and abuse. 

However, due to the present economic conditions, state officials said 
the Massachusetts oversight community is facing budget cuts of about 10 
percent at a time when increased oversight and accountability is 
critically needed. To illustrate the impact of the impending budget 
situation, the Inspector General told us that his department does not 
have the resources to conduct any additional oversight related to 
Recovery Act funds. This significantly impacts the Inspector General's 
capacity to conduct oversight since the budget of the Inspector 
General's office is almost entirely composed of salaries, and any cuts 
in funding would result in fewer staff available to conduct oversight. 
In addition, the State Auditor described how his office has already 
furloughed staff for 6 days and anticipates further layoffs before the 
end of fiscal year 2009. Similar to the Inspector General's office, 94 
percent of his department's budget is for labor and any cuts in funding 
generally result in cuts in staff. 

Some of these vulnerabilities may be mitigated by emergency legislation 
that the Governor recently filed, which included a provision to allow 
the pooling of administrative costs. This new legislation may make some 
Recovery Act funds available to the audit community for oversight, as 
long as federal law permits. Meanwhile, officials stated they are 
moving forward with developing and implementing enhancements to the 
Massachusetts recovery Web site, yet they are doing so without any 
Recovery Act funds. One senior state official stated she did not 
believe the Recovery Act provided funding for any state-level 
centralized information technology planning or development but noted 
that the Recovery Act provided a considerable level of funding for 
information technology development at the program level. 

Plans to Assess Impact of Recovery Act Funds Are in Initial Stages: 

Although they are awaiting federal guidance on how to assess the impact 
of the Recovery Act, Massachusetts agencies are in the process of 
considering how to assess the number of jobs that will be created. For 
example, officials from DHCD are examining different methodologies for 
identifying job creation, while the city of Boston is using an economic 
forecasting model to evaluate job creation and other economic effects 
of projects. In addition, DHCD officials told us that they asked Tax 
Credit Assistance Program project managers to report estimates on the 
number of jobs, by trade, that will be needed to complete projects and 
are also looking for a reliable economic forecasting model to use for 
this reporting objective. DHCD officials also said they are waiting for 
guidance from HUD on how to calculate and document job creation for 
programs funded under the Neighborhood Stabilization Program. DHCD 
officials said they plan to use a pre-existing process developed for 
community action programs to collect information on job creation for 
projects funded by the Weatherization Program. MBTA officials said they 
feel confident they can estimate the number of new jobs created using 
Recovery Act funds; however, they are waiting for specific guidance 
from the U.S. Federal Transit Administration or the Office of 
Management and Budget on what to include in job creation calculations, 
as well as how to track indirect (jobs created to manufacture goods 
used in the project) and leveraged jobs (jobs created by new building 
projects that result from transportation improvements). MBTA officials 
also said they are looking to outsource some of the required oversight, 
including documenting job creation. Finally, state transportation 
officials are concerned that incentives may encourage contractors to 
overinflate the number of jobs created by their projects. They told us 
that, in the absence of specific guidance on how to account for job 
creation, some smaller contractors might overreport the number of jobs 
created. Furthermore, the cold weather conditions in the commonwealth 
can prohibit construction from continuing during the winter months. 
Officials suggested the pressure to show that the projects are 
contributing to the recovery may encourage some contractors to inflate 
the number of jobs created in some months when weather conditions 
decrease employment. 

Massachusetts's Comments on This Summary: 

We provided the Governor of Massachusetts and representatives of 
oversight agencies with a draft of this appendix on April 17, 2009, and 
representatives from the Governor's office and the oversight agencies 
responded that day. In general, they agreed with our draft and provided 
some clarifying information, which we incorporated. The officials also 
provided technical suggestions that were incorporated, as appropriate. 

GAO Contacts: 

Stanley J. Czerwinski, (202) 512-6806 or czerwinskis@gao.gov: 

Denise de Bellerive Hunter, (617) 788-0575 or hunterd@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Carol L. Patey, Assistant 
Director; Ramona L. Burton, analyst-in-charge; Kathleen M. Drennan; 
Salvatore F. Sorbello, Jr.; and Robert D. Yetvin made major 
contributions to this report. 

[End of section] 

Appendix XI: Michigan: 

Overview: 

Use of funds: In estimated 90 percent of fiscal year 2009 Recovery Act 
funding provided to states and localities nationwide will be for 
health, transportation, and education programs. The three largest 
programs in these categories are the Medicaid Federal Medical 
Assistance percentage (FMAP) awards, the State Fiscal Stabilization 
Fund, and highways. 

Medicaid Federal Medical Assistance Percentage (FMAP) Funds: 

* As of April 3, 2009, the Centers for Medicare & Medicaid Services 
(CMS) had made about $701 million in increased FMAP grant awards to 
Michigan; 

* From January 2008 to January 2009, the state's Medicaid enrollment 
increased from 1,547,259 to 1,624,245 with the highest share of 
increased enrollment attributable to two population groups: (1) 
children and families and (2) disabled individuals; 

* As of April 1, 2009, Michigan has drawn down about $463 million--
which represents funds drawn down for two quarters--or 66.1 percent of 
its initial increased FMAP grant awards; 

* Officials plan to use funds made available as a result of the 
increased FMAP to cover increased caseloads, offset general fund 
shortfalls, ensure compliance with prompt payment provisions, maintain 
existing populations of Medicaid recipients, avoid eligibility 
restrictions, increase provider payments, maintain current levels of 
benefits, and avoid benefit cuts. 

Transportation--Highway Infrastructure Investment: 

* Michigan was apportioned about $847 million for highway 
infrastructure investment on March 2, 2009, by the U.S. Department of 
Transportation; 

* As of April 16, 2009 the U.S. Department of Transportation had 
obligated $110.8 million for 27 Michigan projects; 

* As of April 13, 2009, the Michigan Department of Transportation had 
advertised 16 projects for competitive bid totaling more than $41 
million. These projects included resurfacing I-196 in Grand Rapids and 
M-13 in Genesee County. 

U.S. Department of Education State Fiscal Stabilization Fund (Initial 
Release): 

* Michigan was allocated about $1.1 billion from the U.S. Department of 
Education's initial release of these funds on April 2, 2009; 

* Before receiving the funds, states are required to submit an 
application that provides several assurances to the Department of 
Education. These include assurances that they will meet maintenance of 
effort requirements (or that they will be able to comply with waiver 
provisions) and that they will implement strategies to meet certain 
educational requirements, including increasing teacher effectiveness, 
addressing inequities in the distribution of highly qualified teachers, 
and improving the quality of state academic standards and assessments. 
Michigan plans to submit its application on or after May 15, 2009, once 
it completes its review of all program priorities for which it intends 
to use stabilization funds; 

* Michigan Department of Education officials told us they consulted 
with local education agencies to develop plans and establish priorities 
for the use of State Fiscal Stabilization Fund funds that were 
consistent with the state's priorities, policies and programs, such as 
increasing support for the lowest performing schools. 

Michigan is receiving additional Recovery Act funds under other 
programs, such as programs under Title I, Part A of the Elementary and 
Secondary Education Act of 1965 (ESEA) (commonly known as No Child Left 
Behind); the Individuals with Disabilities Education Act (IDEA), Part 
B; Federal Transit Administration Transit Grants; and the Edward Byrne 
Justice Assistance Grants. These are described in this appendix. 

Safeguarding and transparency: All of the state and local agency 
officials we interviewed indicated they plan to use existing systems to 
separately identify and track Recovery Act funding. State officials 
were confident that their existing processes, modified to incorporate 
specific Recovery Act codes, would be sufficient to allow them to 
separately account for funds as required by the act. However, officials 
were uncertain whether local entities have the capacity to similarly 
track federal funds that go directly to local entities rather than 
through the state. 

Michigan also plans to continue using existing internal controls and 
processes to provide assurances over Recovery Act spending. Michigan 
has established a new Recovery Office to, among other things, provide 
oversight and enhance transparency over the availability and use of 
funds and maintain a Web site on Michigan's Recovery and Reinvestment 
Plan [hyperlink, http://www.michigan.gov/recovery]. Michigan's existing 
processes also include ongoing risk-based self-assessments of controls 
by major state agencies that are next due on May 1, 2009. However, 
these assessments are limited to state agencies. In addition, the state 
Auditor General has identified material weaknesses in two key 
departments that have received Recovery Act funds--Michigan's 
Department of Human Services and Department of Community Health. The 
state Auditor General plans to continue working on a biennial basis, 
reviewing and reporting on about one-half of the state agencies each 
year. The state Auditor General's oversight responsibilities do not 
include efforts to ensure accountability over federal funds going 
directly to localities. For example, the U.S. Department of Education's 
Inspector General identified weak internal controls that resulted in 
problems in how the city of Detroit school district used federal funds 
for programs under Tile I of ESEA.[Footnote 125] Specifically, its July 
2008 report found that Detroit Public Schools, among other things, did 
not always properly support compensation charges against ESEA Title I 
funds. Detroit Public Schools officials told us that in the spring of 
2009 they hired new staff to develop corrective action plans for 
addressing existing internal control weaknesses. 

Assessing the effects of spending: Michigan officials have some 
experience in measuring the impact of funds in creating jobs and 
promoting economic growth. The state plans to rely on experts in 
economic modeling. The state's financial management system, however, is 
old and does not have the capability to track impacts, so the state 
will have to rely upon its agencies for this. State officials also told 
us that the state information technology group will implement a 
database system at the end of April 2009 that will support its 
financial management system in recording the impact of Recovery Act 
funds. 

Michigan Beginning to Use Recovery Act Funds: 

Faced with the highest unemployment rate of all the states (as of 
February 2009), heavy reliance on the deteriorating car manufacturing 
sector, and declining tax revenue, Michigan officials plan to use 
Recovery Act funds to address the state's immediate fiscal needs as 
well as to help develop long-term capacity. From an employment peak in 
June 2000, Michigan had lost about 520,000 jobs as of December 2008. 
Unemployment sharply increased from 7.4 percent in February 2008 to 12 
percent in February 2009, and several local communities had even higher 
rates. For example, since domestic auto manufacturing dominates 
Detroit's economy, the unemployment levels in the city have been 
consistently higher than in the rest of the state. As of December 2008, 
the city's jobless rate was 18.6 percent and according to Detroit 
officials reached nearly 22.8 percent in March 2009. To help address 
these issues, prior to the enactment of the Recovery Act on February 
17, 2009, the federal government provided $23.7 billion to two auto 
companies and two financing companies operating in Michigan as part of 
the Troubled Asset Relief Program.[Footnote 126] 

Michigan has been experiencing declines in state revenues. In January 
2009, Michigan reported an expected budget gap of approximately $1.4 
billion for fiscal year 2010. In response, the Governor has proposed 
budget cuts for fiscal year 2010 of $670 million in key state programs 
such as public education, corrections, and community health; $232 
million in revenue enhancements, such as tax increases and elimination 
of tax exemptions; and using funds made available as a result of $500 
million in increased FMAP funds to offset the budget gap. 

In March 2009, Michigan's legislature estimated that the state would 
receive approximately $7 billion in Recovery Act funding. These 
estimates show that the majority of Recovery Act funds would support 
education (36 percent), Medicaid (32 percent), and transportation (14 
percent), with smaller amounts of funding available for other programs 
(18 percent). 

Michigan has begun to use some of its Recovery Act funds, as follows. 

Increased Federal Medical Assistance Percentage Funds: Medicaid is a 
joint federal-state program that finances health care for certain 
categories of low-income individuals, including children, families, 
persons with disabilities, and persons who are elderly. The federal 
government matches state spending for Medicaid services according to a 
formula based on each state's per capita income in relation to the 
national average per capita income. The amount of federal assistance 
states receive for Medicaid service expenditures is known as the 
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP 
may range from 50 percent to no more than 83 percent, with poorer 
states receiving a higher federal matching rate than wealthier states. 
The Recovery Act provides eligible states with an increased FMAP for 27 
months between October 1, 2008, and December 31, 2010.[Footnote 127] On 
February 25, 2009, the Centers for Medicare & Medicaid Services (CMS) 
made increased FMAP grant awards to states, and states may 
retroactively claim reimbursement for expenditures that occurred prior 
to the effective date of the Recovery act.[Footnote 128] Generally, for 
federal fiscal year 2009 through the first quarter of federal fiscal 
year 2011, the increased FMAP, which is calculated on a quarterly 
basis, provides for (1) the maintenance of states' prior year FMAPs; 
(2) a general across-the-board increase of 6.2 percentage points in 
states' FMAPs; and (3) a further increase to the FMAPs for those states 
that have a qualifying increase in unemployment rates. The increased 
FMAP available under the Recovery Act is for state expenditures for 
Medicaid services. However, the receipt of this increased FMAP may 
reduce the funds that states must use for their Medicaid programs, and 
states have reported using these available funds for a variety of 
purposes. 

Under the Recovery Act, Michigan's FMAP will increase to at least 69 
percent, up from 58 percent in 2008. From January 2008 to January 2009, 
the state's Medicaid enrollment increased from 1,547,259 to 1,624,245, 
with the highest share of increased enrollment attributable to two 
population groups: (1) children and families and (2) disabled 
individuals. As of April 1, 2009, Michigan has drawn down $463 million, 
66.1 percent, of its awards to date.[Footnote 129] Michigan officials 
indicated that they will use funds made available as a result of the 
increased FMAP to cover increased caseloads, offset general fund 
shortfalls, ensure compliance with prompt payment provisions, maintain 
existing populations of Medicaid recipients, avoid eligibility 
restrictions, increase provider payments, maintain current levels of 
benefits, and avoid benefit cuts. 

Transportation--Highway Infrastructure Investment: The Recovery Act 
provides additional funds for highway infrastructure investment using 
the rules and structure of the existing Federal-Aid Highway Surface 
Transportation Program, which apportions money to states to construct 
and maintain eligible highways and for other surface transportation 
projects. States must follow the requirements for the existing 
programs, and in addition, the governor must certify that the state 
will maintain its current level of transportation funding, and the 
governor or other appropriate chief executive must certify that the 
state or local government to which funds have been made available has 
completed all necessary legal reviews and determined that the projects 
are an appropriate use of taxpayer funds. Michigan has submitted these 
certifications. 

As of April 16, 2009, the U.S. Department of Transportation had 
obligated $110.8 million for 27 Michigan projects.[Footnote 130] On 
March 31, 2009, the Governor signed state legislation authorizing the 
use of federal Recovery Act funds for transportation projects that are 
expected to create about 25,000 jobs.[Footnote 131] As of April 13, 
2009, the Michigan Department of Transportation (MDOT) had advertised 
16 projects totaling more than $41 million for competitive bidding. 
These projects included resurfacing I-196 in Grand Rapids and M-13 in 
Genesee County. Michigan was apportioned about $982 million for 
transportation projects, including $847 million for highway 
infrastructure investment projects and $135 million for urban and rural 
transit projects. MDOT was apportioned about 75 percent of Recovery Act 
highway infrastructure investment funds and remaining funds will be 
suballocated to metropolitan, regional, and local organizations. 

MDOT identified 178 road and bridge projects that would, among other 
things, improve road pavement conditions on 1,300 lane miles of 
roadways, add lanes to four major roads to reduce congestion, and 
perform work on 112 bridges, of which 41 are structurally deficient. 
According to MDOT officials, the priority was to select shovel-ready 
projects that could be initiated and completed quickly. In Michigan, 
Recovery Act funds are being used primarily to fund transportation 
projects in fiscal year 2009 that were originally scheduled to begin in 
fiscal year 2010 or beyond, as well as some projects that had been 
identified but had no source of funding. MDOT officials told us they 
intend to complete selecting and approving specific road and bridge 
projects to be funded with Recovery Act money by May 1, 2009. 

U.S. Department of Education State Fiscal Stabilization Fund: The 
Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be 
administered by the U.S. Department of Education (Education). The SFSF 
provides funds to states to help avoid reductions in education and 
other essential public services. The initial award of SFSF funding 
requires each state to submit an application to Education that assures, 
among other things, it will take action to meet certain educational 
requirements, such as increasing teacher effectiveness and addressing 
inequities in the distribution of highly qualified teachers. 

Michigan's initial SFSF allocation is $1.1 billion. The Recovery Act 
provided State Fiscal Stabilization Funds to increase funding for 
education over the next several years and avoid program cuts and 
teacher layoffs in fiscal year 2010. The amount of funding for each of 
the initiatives has not yet been determined. Michigan plans to submit 
its application for SFSF funds on or after May 15, 2009, once the state 
completes its review of all program priorities for which it intends to 
use stabilization funds. Michigan Department of Education officials 
told us they consulted with local education agencies to develop plans 
and establish priorities for the use of SFSF funds that were consistent 
with the state's priorities, policies, and programs, such as increasing 
support for the lowest performing schools. 

U.S Department of Education ESEA Title I and Individuals with 
Disabilities Education Act (IDEA) Funds: Michigan Department of 
Education officials told us that although the amount of funding for 
each of these two initiatives has not yet been determined they 
anticipate that Recovery Act funds for ESEA Title I ($390 million) and 
IDEA ($426 million) will generally be used to support the same 
priorities that are funded in part by U.S. Department of Education 
funds that the state now receives. The state plans to use Recovery Act 
funds to support specified educational outcomes--reading, mathematics, 
and other learning proficiencies--and foster enhanced access to 
education programs for special needs students. Michigan's Department of 
Education also intends to use Recovery Act funds to support 
professional development among teachers that can help sustain 
achievement of educational outcomes beyond the time limits of Recovery 
Act funding. 

U.S. Department of Justice Edward Byrne Memorial Justice Assistance 
Grant Program: Michigan plans to apply for $67 million in Recovery Act 
funds for crime control and prevention activities. Michigan Department 
of Community Health officials told us that about $41 million of these 
funds will support, among other things, state efforts to reduce the 
crime lab backlog, funding for multi-jurisdictional courts, and 
localities' efforts regarding law enforcement programs, community 
policing, and local correctional resources. An additional $26 million 
in Recovery Act funds will go directly to localities to support efforts 
against drug-related and violent crime. On April 13, 2009, Michigan 
began accepting grant applications from local Michigan jurisdictions 
for Byrne Justice Assistance grants funding administered by the state 
and will continue to accept them until May 11, 2009. 

Michigan Is Augmenting Its Approach to Safeguarding and Transparency of 
Recovery Act Funds but Gaps Exist: 

All state and local agency officials we interviewed indicated that they 
plan to use their existing systems to tag and track Recovery Act 
funding, including increased FMAP funds. State officials were confident 
that their existing processes for receiving, coding, and monitoring 
federal funds could be used to separately account for the use of 
Recovery Act funds as required by the Act. For example, Michigan's 
Department of Education has used the Michigan Electronic Grants System 
since 2001 to generate recipient reports on the use of ESEA Title I, 
IDEA, and State Fiscal Stabilization Funds. According to its officials, 
Michigan Department Education plans to continue to use the grants 
system for reporting on recipients' use of Recovery Act funds by 
creating new accounting codes for Recovery Act funds. 

Although state government officials told us they believed that their 
departments have sufficient capabilities to segregate Recovery Act 
funds, many expressed less confidence in the capabilities of sub- 
recipients to separately account for the use of Recovery Act funds. 
State officials expressed concerns about the capacity of smaller 
agencies and organizations to separately track and monitor Recovery Act 
funds. For example, Detroit Public Schools officials told us that the 
school district has not had a clearly specified process for segregating 
funds from different funding streams and for how it intends to use 
Recovery Act funds. According to the officials, in the last several 
years, the district has commingled ESEA Title I funds with its general 
funds, making it difficult to track the use of ESEA Title I funds and 
show that they were used only for allowable expenditures. In addition, 
according to Detroit Public Schools officials, without improvements to 
its oversight of these funds, Detroit Public Schools may continue 
experiencing oversight challenges with respect to Recovery Act funds 
provided through ESEA Title I and IDEA funding streams. For example, 
according to a July 2008 report from the U.S. Department of Education's 
Office of Inspector General, the Detroit Public Schools district, among 
other things, did not always properly support compensation expenses 
charged to ESEA Title I funds.[Footnote 132] District officials told us 
that in April 2009 they hired new staff to develop corrective action 
plans for addressing existing internal control weaknesses. 

Safeguarding Recovery Act Funds: 

In anticipation of the opportunity to receive additional federal 
funding and the need to act quickly, Michigan began preparations before 
the Recovery Act was enacted. For example, the Governor established a 
working group of executive branch officials from Michigan state 
agencies and departments, known as Economic Recovery Coordinators 
(ERC), to plan for the use of anticipated Recovery Act funds. 

On February 13, 2009, the Governor established a Recovery Office for 
coordination of all Recovery Act activities, including communication 
with stakeholders within and outside the state. The Recovery Office is 
responsible for helping develop priorities for the use of Recovery Act 
funds by the state consistent with the objectives of the Recovery Act 
and with the state's priorities identified to fully maximize the impact 
of these federal funds.[Footnote 133] Similarly, Detroit officials told 
us that they began planning in November 2008 for the receipt of 
Recovery Act funds and identified over 160 city projects that could be 
funded by working closely with city departments and community action 
organizations. Lansing Schools District officials told us that they 
began planning early for use of Recovery Act funding for the district's 
34 schools. The Recovery Office has also been working with state 
agencies to develop strategies for overseeing and tracking the use of 
Recovery Act funds to comply with requirements of the act and minimize 
fraud, waste, and abuse of funds and to help ensure consistent, timely, 
and accurate compliance with all reporting and certification 
requirements under the Recovery Act. Michigan is also maintaining a Web 
site on Michigan's Recovery and Reinvestment Plan [hyperlink, 
http://www.michigan.gov/recovery]. 

According to state officials, Recovery Act funds must be appropriated 
by the state legislature before the state is authorized to spend the 
money. In addition, the Michigan Senate created a special committee, 
known as the Senate Federal Stimulus Oversight subcommittee, to oversee 
Recovery Act funds. 

Michigan Department of Management and Budget officials told us that 
they are prepared to manage Recovery Act funds because they plan to use 
existing processes for purchasing goods and services. For example, 
Michigan will use existing processes to obtain competitive bids for 
contracts awarded by state agencies under the Recovery Act in 
accordance with state law, which state officials described as requiring 
competitive bids (other than certain exceptions such as emergencies or 
imminent protection).[Footnote 134] In January 2009, Michigan created a 
prequalification program for vendors to provide an inventory of 
prequalified vendors ready to quickly respond to bids for work that 
will spend Recovery Act funds. As part of preparing to spend Recovery 
Act funds, Michigan Department of Management and Budget officials also 
told us they have been looking at ways to further streamline awarding 
contracts. Michigan also allows local units of government to join state 
contracts to leverage the state's negotiating and purchasing power. 

Michigan Using Existing Internal Controls: 

Michigan will continue to use existing internal controls to provide 
assurances over Recovery Act spending, including ongoing self- 
assessments of controls by major state departments that are next due to 
the state Auditor General on May 1, 2009. The self-assessments include 
identification of internal controls and programmatic weaknesses and 
developing and tracking actions taken in response to corrective action 
plans. 

The state Auditor General told us his office will include specific 
audit procedures to address Recovery Act funding as part of the planned 
procedures for its ongoing federal Single Audits of state departments 
which will start again in July 2009. However the state Auditor General 
does not yet have specific plans to audit Recovery Act funds. The state 
Auditor General's Single Audit approach is to audit and report on 
individual state departments. Approximately one-half of Michigan's 18 
departments are audited each year, with the audits covering 2 fiscal 
years of departmental activity. 

Recent state Auditor General Single Audit Act reports identified 
numerous material weaknesses in key state operations that are slated to 
receive significant amounts of Recovery Act funds. For example, the 
state Auditor General reported in August 2007 that, for fiscal years 
2005 and 2006, Michigan's Department of Human Services did not 
materially comply with federal program requirements regarding allowed 
or unallowed costs, subrecipient monitoring, and eligibility. The 
October 2008 Single Audit report on Michigan's Department of Community 
Health stated that internal controls were not sufficient to ensure the 
accuracy of financial accounting and reporting and compliance with 
federal requirements for 10 of 11 major programs. 

The Michigan Auditor General's oversight responsibilities do not 
include most subrecipients[Footnote 135] that receive federal funding, 
so any upfront safeguards to track or ensure accountability over 
Recovery Act funds going directly to localities have not been 
determined. Officials from Detroit's Office of the Auditor General told 
us that they intend to audit the use of Recovery Act funds. The 
superintendent of the Lansing school district told us the district, 
along with all the other 840 local school districts in the state, 
contract with independent public accountants to perform annual 
financial statement audits. 

State Has Identified Staffing and Resource Constraints as a Significant 
Challenge in Monitoring the Use of Recovery Act Funds: 

A lack of staff and uncertainty of funding available under the Recovery 
Act to oversee the use of federal funds may pose challenges for 
Michigan. Michigan officials reported that a hiring freeze may not 
allow some state agencies to hire staff to increase their Recovery Act 
oversight efforts. Officials with the state's Departments of Community 
Health and Education and the Lansing School District are concerned 
about available administrative resources to cover increased oversight 
activities on the use of Recovery Act funds. For example, the state 
Department of Community Health said that because it has been downsizing 
for several years through attrition and early retirement, it does not 
have sufficient staff to cover its current responsibilities and that 
further reductions are planned for fiscal year 2010. However, state 
officials told us that they will take the actions necessary to ensure 
that state departments have the capacity to provide proper oversight 
and accountability for Recovery Act funds. 

Michigan Officials Concerned about the Lack of Federal Guidance: 

Michigan officials we spoke with in March 2009 wanted additional 
federal guidance related to state responsibilities and reporting 
requirements under the Recovery Act and expressed concern about 
spending funds before they had received such guidance. For example, 
officials were unclear about the state's responsibilities concerning 
tracking or reporting on funds that go directly to local entities, such 
as transportation funding going directly to localities for urban 
transit. In addition, Michigan Department of Education officials 
expressed concern about the lack of guidance from the U.S. Department 
of Education regarding several aspects of how to manage the receipt, 
allocation, use, and reporting of Recovery Act funds. In particular, 
state officials said they had not yet received guidance on tracking 
funds under IDEA, Part C and were concerned that recipients of grant 
funds might report information inconsistently. On April 1, 2009, the 
U.S. Department of Education issued additional guidance on the use of 
Recovery Act funds. 

Plans to Assess Impact of the Recovery Act Are Preliminary: 

Michigan may face challenges in assessing the impact of Recovery Act 
funds because the state's financial management system is old and does 
not have the capability to track impacts, so the state will have to 
rely upon its agencies for this. Furthermore, state officials said they 
are aware of the requirement that the state measure the extent that 
certain Recovery Act funds create jobs and promote economic growth and 
have identified prospective participants to estimate the impact of 
Recovery Act funds. State officials also told us that the state 
information technology group will implement a database system at the 
end of April 2009 that will support its financial management system in 
recording the impact of Recovery Act funds. They told us that the 
Michigan Economic Development Corporation, universities in the state 
and other experts in economic modeling are expected to participate in 
prospective analysis supporting the potential impact of Recovery Act 
funds on a project basis. Additionally, the Department of Energy, Labor 
and Economic Growth and the state Treasurer will also be involved in 
analysis related to the impact of Recovery Act's funds. 

Michigan's Comments on This Summary: 

We provided the Governor of Michigan with a draft of this appendix on 
April 17, 2009. Michigan's Recovery Czar responded for the Governor on 
April 20, 2009, stating that staff in the Michigan Governor's office 
and the Michigan Economic Recovery Office have reviewed the draft 
appendix and, in general, agree with its overview of the state's 
preparations for receiving and spending Recovery Act funding. These 
officials provided technical comments on the draft which were 
incorporated, as appropriate. 

GAO Contacts: 

Susan Ragland, (202) 512-8486 or raglands@gao.gov: 

Revae Moran, (202) 512-3863 or moranr@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Robert Owens, Assistant 
Director; Jeffrey Isaacs, Analyst-in-Charge; Manuel Buentello; Leland 
Cogliani; Anthony Patterson; and Mark Ward made major contributions to 
this report. 

[End of section] 

Appendix XII: Mississippi: 

Overview: 

Use of funds: An estimated 90 percent of Recovery Act funding provided 
to states and localities nationwide in fiscal year 2009 (through Sept. 
30, 2009) will be for health, transportation and education programs. 
The three largest programs in these categories are the Medicaid Federal 
Medical Assistance Percentage (FMAP) awards, the State Fiscal 
Stabilization Fund, and highways. 

Medicaid Federal Medical Assistance Percentage (FMAP) Funds: 

* As of April 1, 2009, Centers for Medicare and Medicaid Services (CMS) 
had made about $225.5 million in increased FMAP grant awards to 
Mississippi; 

* As of April 1, 2009, the state had drawn down $114.1 million, or just 
more than 50 percent of its initial increased FMAP grant awards; 

* State officials reported that they plan to use funds made available 
as a result of the increased FMAP to cover their increased Medicaid 
caseload and to offset expected state budget deficits due to lower 
general fund revenue collections. 

Transportation--Highway Infrastructure Investment: 

* On March 2, 2009, the U.S. Department of Transportation apportioned 
Mississippi about $355 million for highway infrastructure investment; 

* As of April 16, 2009, the U.S. Department of Transportation had 
obligated approximately $137 million for 32 Mississippi projects; 

* As of April 1, 2009, Mississippi had signed contracts for 10 projects 
totaling approximately $77 million. The Mississippi Department of 
Transportation (MDOT) used a competitive and transparent process to 
select projects. These projects include activities such as road 
construction and road maintenance. 

U.S. Department of Education State Fiscal Stabilization Fund (Initial 
Release): 

* On April 2, 2009, the U.S. Department of Education allocated 
Mississippi about $321 million from the initial release of these funds; 

* Before receiving the funds, states are required to submit an 
application that provides several assurances to the Department of 
Education. These include assurances that they will meet maintenance of 
effort requirements or will be able to comply with waiver provisions 
and that they will implement strategies to meet certain educational 
requirements, including increasing teacher effectiveness, addressing 
inequities in the distribution of highly qualified teachers, and 
improving the quality of state academic standards and assessments. 
Mississippi plans to submit its application for state fiscal 
stabilization funds after it receives and reviews the final program 
guidance; 

* Mississippi expects to use these funds to help restore funding for 
elementary, secondary, and public higher education to prior levels in 
order to minimize reductions in education services in fiscal years 
2009, 2010, and 2011. The state does not foresee having leftover funds 
for additional subgrants to local education agencies. 

Mississippi is receiving additional Recovery Act dollars to fund other 
programs, including employment and training programs under the 
Workforce Investment Act, capital and management activities under the 
Public Housing Capital Fund, and gap financing for low-income housing 
tax credit projects under the Taxpayer Credit Assistance Program. The 
status of Mississippi's plans for using these funds is described 
throughout this appendix. 

Safeguarding and transparency: The State Auditor's office has taken 
steps to ensure accountability. For example, the office hosted a 
meeting with state agency heads to discuss accountability requirements 
and expectations, and the office plans to conduct training seminars on 
accounting for and controlling the use of Recovery Act funds. In 
addition, officials with the auditor's office said Mississippi plans to 
add special accounting codes to the statewide accounting system in 
order to track the expenditure of Recovery Act funds. The state also 
plans to publicly report Recovery Act spending that state agencies 
receive directly. State officials noted that the statewide accounting 
system would not capture those funds that the federal government 
allocates directly to local and regional governmental organizations, 
nonprofit organizations, or higher education entities. According to the 
Governor's office, the state is developing a framework that would 
require these entities to report Recovery Act revenues and expenses to 
a central website. 

Assessing the effects of spending: According to state officials, they 
are waiting for the federal government to provide more specific 
guidance for measuring job creation and retention. For example, the 
officials noted that the federal government's Office of Management and 
Budget (OMB) should provide more guidance for estimating job creation 
and retention. 

Mississippi Beginning to Use Recovery Act Funds: 

Mississippi has begun to use some of its Recovery Act funds, as 
follows. 

Increased Federal Medical Assistance Percentage Funds: Medicaid is a 
joint federal-state program that finances health care for certain 
categories of low-income individuals, including children, families, 
persons with disabilities, and persons who are elderly. The federal 
government matches state spending for Medicaid services according to a 
formula based on each state's per capita income in relation to the 
national average per capita income. The amount of federal assistance 
states receive for Medicaid service expenditures is known as the 
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP 
may range from 50 percent to no more than 83 percent, with poorer 
states receiving a higher federal matching rate than wealthier states. 
The Recovery Act provides eligible states with an increased FMAP for 27 
months between October 1, 2008, and December 31, 2010.[Footnote 136] On 
February 25, 2009, the Centers for Medicare & Medicaid Services (CMS) 
made increased FMAP grant awards to states, and states may 
retroactively claim reimbursement for expenditures that occurred prior 
to the effective date of the Recovery Act.[Footnote 137] Generally, for 
federal fiscal year 2009 through the first quarter of federal fiscal 
year 2011, the increased FMAP, which is calculated on a quarterly 
basis, provides for (1) the maintenance of states' prior year FMAPs; 
(2) a general across-the-board increase of 6.2 percentage points in 
states' FMAPs; and (3) a further increase to the FMAPs for those states 
that have a qualifying increase in unemployment rates. The increased 
FMAP available under the Recovery Act is for state expenditures for 
Medicaid services. However, the receipt of the increased FMAP may 
reduce the funds that states must use for their Medicaid programs, and 
states have reported using these available funds for a variety of 
purposes. 

Under the Recovery Act, Mississippi's FMAP will increase to 83.62 
percent, an increase of 7.33 percentage points over its fiscal year 
2008 FMAP. As of April 1, 2009, Mississippi had drawn down $114.1 
million or just more than 50 percent of its initial increased FMAP 
grant awards. Mississippi officials plan to use funds made available as 
a result of the increased FMAP to cover their increased Medicaid 
caseload and to offset expected state budget deficits due to lower 
general fund revenue collections, avoiding cuts in services. 
Mississippi officials indicated that simplifications to CMS expenditure 
reporting systems are needed to automatically generate the increased 
FMAP applicable to qualifying expenditures. Officials also reported a 
need for CMS guidance regarding programmatic changes that were made to 
its Family Planning Waiver since July 1, 2008, and whether these 
changes affect the state's ability to draw down the increased FMAP. 

Transportation--Highway Infrastructure Investment: The Recovery Act 
provides additional funds for highway infrastructure investment using 
the rules and structure of the existing Federal-Aid Highway Surface 
Transportation program, which apportions money to states to construct 
and maintain eligible highways and for other surface transportation 
projects that could affect highways. States must follow the 
requirements for the existing programs, and in addition, the governor 
must certify that the state will maintain its current level of 
transportation spending, and the governor or other appropriate chief 
executive must certify that the state or local government to which 
funds have been made available has completed all necessary legal 
reviews and determined that the projects are an appropriate use of 
taxpayer funds. Mississippi's Governor provided this certification in a 
letter dated March 17, 2009. The Governor noted that transportation 
spending authority in Mississippi is granted annually by the state 
Legislature to the Mississippi Department of Transportation (MDOT), 
which operates under the guidance of independently elected 
transportation commissioners. As such, MDOT's Executive Director also 
provided this certification. 

As of April 1, 2009, MDOT had signed contracts for 10 projects totaling 
approximately $77 million.[Footnote 138] The agency used a transparent 
and competitive process for awarding contracts for these projects. MDOT 
issued an advance notice on its Web site to inform contractors of the 
opportunity to bid on the projects. Furthermore, MDOT used cost as a 
key criterion for awarding contracts. MDOT awarded the contract to the 
lowest bid, provided that the lowest bid did not exceed the state's 
cost estimate for the project by more than 10 percent. These projects 
include the expansion of State Route 19 in eastern Mississippi into a 
four-lane highway. This project fulfills part of MDOT's 1987 Four-Lane 
Highway Program, which seeks to link every Mississippian to a four-lane 
highway within 30 miles or 30 minutes. In addition, MDOT plans to 
upgrade a section of a major road, US-78, which runs across northern 
Mississippi. An MDOT official anticipated the project would have major 
economic benefits for Mississippi. 

U.S. Department of Education State Fiscal Stabilization Fund: The 
Recovery Act created a State Fiscal Stabilization Fund (SFSF), to be 
administered by the U.S. Department of Education (Education). The SFSF 
provides funds to states to help avoid reductions in education and 
other essential public services. The initial award of SFSF funding 
requires each state to submit an application to Education that assures, 
among other things, it will take actions to meet certain educational 
requirements, such as increasing teacher effectiveness and addressing 
inequities in the distribution of highly qualified teachers. 

Mississippi's initial SFSF allocation is about $321 million. The 
Recovery Act specifies that 81.8 percent is to be used for support of 
elementary, secondary and postsecondary education, and early childhood 
programs. The Recovery Act also authorizes the Governor to use 18.2 
percent of these funds for "public safety and other government 
services," which may include education. Mississippi's Governor has not 
yet announced specific plans for the use of these other government 
services funds. According to state education officials, Mississippi 
will file its application for these funds after receiving and reviewing 
sufficient guidance. The funds will be appropriated to the state 
education agencies by the Mississippi State Legislature when it returns 
to session later this spring. The funding is expected to be used to 
stabilize education budgets in fiscal years 2009, 2010, and 2011 to 
help avoid reductions in education services. Restoring funding in those 
years to required levels is expected to consume all of the 
stabilization funds to be received by the state. 

Mississippi Is Planning for Recovery Act Funding: 

Mississippi began planning for how the state would provide oversight of 
Recovery Act funding in February 2009. Officials from the Governor's 
Office said that the state did not establish a new office to provide 
statewide oversight of Recovery Act funding, in part because they did 
not believe that the act provided states with funds for administrative 
expenses--including additional staff. The Governor's Director of 
Federal Policy is serving as the stimulus coordinator for the state 
with support from a loaned executive from a statewide business 
development association. The stimulus coordinator told us she met 
individually with state agency heads to discuss their plans for 
spending funds allocated under the Recovery Act. In late March 2009, 
the Governor submitted a letter certifying that Mississippi would 
request funds available under the Recovery Act and such funds will be 
used to create jobs and promote economic growth. The Governor added in 
the certification letter that the state would continue to examine the 
various guidelines and fund-specific requirements associated with the 
Recovery Act funds. In April 2009, the Governor hosted a Mississippi 
Stimulus Summit where state agency heads provided information on the 
detailed steps that were already being taken or were planned regarding 
the use of Recovery Act funds. Finally, the Governor established a 
state stimulus Web site [hyperlink, http://www.stimulus.ms.gov] to 
provide information to the public on the Recovery Act funding received 
by the state. 

Addressing State's Fiscal Challenges Is Mississippi's Goal for Using 
Recovery Act Funding: 

Mississippi officials plan to use the anticipated $2.8 billion in 
Recovery Act funding to address fiscal challenges the state has 
experienced due to a weakened economy. State officials reported that 
Mississippi entered a recession in late 2008. One indicator of 
Mississippi's weakened economy is the state's unemployment rate, which 
was 8.7 percent in January 2009 compared with 6.9 percent in June 2008. 
The state's weakened economy has also resulted in lower-than-expected 
tax revenues for the state's current fiscal year. According to the 
Governor, Mississippi's Revenue Estimating Committee projected that the 
state's fiscal year 2009 general fund revenue will fall $301 million, 
or 5.9 percent, short of expectations. In response to anticipated 
budget shortfalls, the Governor made two cuts to most state agency 
budgets. In November 2008, the Governor cut most agency budgets by 2 
percent, or $42 million. In January 2009, the Governor cut state 
agencies' budgets by an additional $158.3 million, bringing the total 
cuts to date for the fiscal year to $200 million. Each agency or 
department received a budget cut of up to 5 percent (see table 
8).[Footnote 139] Although the Governor anticipated that Congress would 
pass a stimulus package, he ordered the cuts in agency budgets to 
comply with state law that requires a balanced budget for the fiscal 
year, which ends on June 30. 

Table 8: Budget Reductions for Selected State Agencies in Mississippi 
for Fiscal Year 2009: 

Selected agency: Corrections; 
Appropriations for fiscal year 2009: $328,180,918; 
Total budget cuts in fiscal year 2009: $16,409,046; 
Percentage change during fiscal year 2009: -5.0. 

Selected agency: Highway Safety Patrol; 
Appropriations for fiscal year 2009: $48,440,661; 
Total budget cuts in fiscal year 2009: $2,422,033; 
Percentage change during fiscal year 2009: -5.0. 

Selected agency: Judiciary and Justice; 
Appropriations for fiscal year 2009: $63,799,714; 
Total budget cuts in fiscal year 2009: $3,189,985; 
Percentage change during fiscal year 2009: -5.0. 

Selected agency: Economic Development; 
Appropriations for fiscal year 2009: $25,748,751; 
Total budget cuts in fiscal year 2009: $1,287,438; 
Percentage change during fiscal year 2009: -5.0. 

Selected agency: Higher Education; 
Appropriations for fiscal year 2009: $961,063,754; 
Total budget cuts in fiscal year 2009: $46,649,166; 
Percentage change during fiscal year 2009: -4.9. 

Selected agency: Fiscal Affairs; 
Appropriations for fiscal year 2009: $72,724,225; 
Total budget cuts in fiscal year 2009: $3,577,428; 
Percentage change during fiscal year 2009: -4.9. 

Selected agency: Hospitals and Hospital Schools; 
Appropriations for fiscal year 2009: $278,480,866; 
Total budget cuts in fiscal year 2009: $13,226,449; 
Percentage change during fiscal year 2009: -4.7. 

Selected agency: Public Education; 
Appropriations for fiscal year 2009: $2,517,323,677; 
Total budget cuts in fiscal year 2009: $92,021,567; 
Percentage change during fiscal year 2009: -3.7. 

Selected agency: Public Health; 
Appropriations for fiscal year 2009: $61,264,961; 
Total budget cuts in fiscal year 2009: $1,705,331; 
Percentage change during fiscal year 2009: -2.8. 

Selected agency: Social Welfare; 
Appropriations for fiscal year 2009: $692,477,684; 
Total budget cuts in fiscal year 2009: $6,603,119; 
Percentage change during fiscal year 2009: -1.0. 

Source: GAO analysis of Mississippi Department of Finance and 
Administration data. 

[End of table] 

To mitigate the impact of economic fluctuations on state revenues, 
Mississippi has historically set aside 2 percent of projected revenues 
into a budget stabilization fund. In 2008, however, the state did not 
set aside any revenues for this fund, which made available an 
additional $100 million for Mississippi's 2009 fiscal year budget. 
Going forward, Mississippi faces budgetary challenges for fiscal year 
2010. According to the Governor, the state's Revenue Estimating 
Committee projects that Mississippi's revenues will be $402.7 million, 
or 7.9 percent, short of expectations. State officials anticipate that 
the recession will increase the demand for certain government services, 
including unemployment benefits, Medicaid, food stamps, and rental 
assistance. Some Mississippi officials believe that the state's 
recession could continue through fiscal year 2012. 

Most of the Recovery Act funds that Mississippi will receive are 
directed toward education, Medicaid, and transportation programs (see 
figure
 9). According to the Governor's office, state law provides for state 
agencies to escalate their spending plans to account for federal funds 
received under the Recovery Act. State officials also told us that the 
Legislature was considering adding further escalation language to the 
current fiscal year's appropriations bills that would authorize state 
agencies to spend any Recovery Act funds received. The Legislature 
normally conducts its regular session between the beginning of January 
and the end of March. However, the Legislature recessed early during 
the 2009 regular session in part because of uncertainty regarding how 
the state's portion of Recovery Act funds should be spent. The 
Legislature plans to reconvene in early May 2009 to complete its work 
on the state's fiscal year 2010 budget. 

Figure 9: Estimated Allocation of Mississippi's Recovery Act Funding by 
Major Programs: 

[Refer to PDF for image: pie-chart] 

Education: 46% (Fiscal Stabilization Fund: Government Services Fund[A]: 
3%0; 
Medicaid: 27%; 
Transportation: 14%; 
Other programs: 13%. 

Source: GAO analysis of data provided by Mississippi Joint Committee on 
Performance Evaluation and Expenditure Review. 

[A] A portion of the Fiscal Stabilization Fund is allocated for the 
Government Services Fund. The Government Services Fund may be used for 
public safety and other government services, including assistance for 
elementary and secondary education and public institutions of higher 
education. 

[End of figure] 

Mississippi Has an Accounting System to Track Recovery Act Spending: 

Officials with the State Auditor's office told us that special 
accounting codes will be added to the Statewide Automated Accounting 
System (SAAS) in order to track the expenditure of Recovery Act funds. 
The state also plans to publicly report Recovery Act spending that 
state agencies receive directly. However, state officials noted that 
SAAS would not track Recovery Act funds allocated directly to local and 
regional governmental organizations, nonprofit organizations, or higher 
education entities. For example, cities with a population of more than 
50,000 residents can apply directly to federal agencies for certain 
programs, such as Community Development Block Grants. In addition, 
Mississippi has 10 regional planning and development districts that may 
receive funding directly from federal agencies. Finally, Mississippi 
localities may receive Recovery Act funds directly from the Appalachian 
Regional Commission or Delta Regional Authority, federally chartered 
regional commissions charged with promoting economic development in 
certain parts of the state. According to the Governor's office, the 
state is developing a framework that would require these entities to 
report Recovery Act revenues and expenses to a central website. 

Some State Agencies Have Made Spending Decisions for Recovery Act 
Funds: 

A few state agencies have made spending decisions for Recovery Act fund 
apportionments received: 

* The Mississippi Department of Employment Security (MDES) received 
about $40.7 million in Recovery Act funding for adult, dislocated 
worker, and youth activity programs under the Workforce Investment Act. 
MDES officials told us they planned to use the youth activity funding 
to provide summer youth programs across the state. 

* The Jackson Public Housing Authority received a $1.1 million 
allocation to its Public Housing Capital Fund from the Department of 
Housing and Urban Development (HUD) for capital and management 
activities, including modernization and development of public housing 
projects. The officials told us they planned to use the Recovery Act 
allocation to fund projects already included in their 5-year Capital 
Fund Plan--for instance, one project will redevelop housing in 
Jackson's North Midtown Community. 

* The Mississippi Home Corporation (MHC) was allocated approximately 
$21.9 million to provide additional gap financing to Low Income Housing 
Tax Credit (LIHTC) projects under the Taxpayer Credit Assistance 
Program (TCAP). MHC officials told us they had provided an initial 
notice to developers of LIHTC projects in the state about the 
additional funding provided under the Recovery Act for the TCAP but 
were waiting for HUD to issue final guidance before releasing details 
on their plans for administering the Recovery Act funding. 

State Auditor Coordinating Plans for Safeguards and Controls: 

The State Auditor's office has taken and plans to take a number of 
steps to establish accountability. For example, in March 2009 the 
office hosted a meeting with staff from state agencies that are 
expected to receive Recovery Act funds to discuss accountability 
requirements and expectations. The office is planning to conduct 
training seminar for local officials and others concerned about 
accounting for and controlling the use of Recovery Act funds. Overall, 
the State Auditor believes the state has adequate controls for the use 
of Recovery Act funds but is concerned that the funding of new programs 
and the significant increase in funding of current programs will stress 
the control system. In addition to the State Auditor, a legislative 
oversight committee and internal audit offices within each agency may 
provide oversight of Recovery Act funds. For example, the legislative 
committee staff in March 2009 said they began tracking the Recovery Act 
and the state's Recovery Act-related legislation and funding provided 
to Mississippi. 

Mississippi's most recent Single Audit Act findings highlight two 
material weaknesses in internal control over financial reporting at one 
state agency that will receive Recovery Act funds. In its Single Audit 
report for fiscal year 2008, the State Auditor found that the 
Mississippi Department of Employment Security did not record the tax 
liens receivable account and corresponding Unemployment Insurance 
Premiums revenue account on the department's financial statements in 
accordance with generally accepted accounting principles. As a result, 
the State Auditor proposed, and management made an audit adjustment of, 
approximately $35.5 million to properly state the department's current 
year financial statements. In addition, the State Auditor found that 
the department's internal controls over its tax lien receivable system 
were inadequate, and management proposed audit adjustments totaling 
approximately $6.4 million to properly state the department's tax lien 
receivables. The State Auditor also identified one material weakness in 
internal control over compliance at the Mississippi Department of Human 
Services for the department's failure to verify and document compliance 
with the Davis-Bacon Act requirements for the Social Services Block 
Grant, which could result in questioned costs and funds due back to the 
federal granting agency. 

Resources for Conducting Oversight Are Limited: 

State officials stated that the Recovery Act does not provide funding 
to oversight entities, but the federal government expects states to 
ensure accountability and transparency over expenditures. For example, 
officials from the State Auditor's office told us they had experienced 
significant staff turnover in recent years and relied on less- 
experienced staff to conduct audit work. In addition, the Lieutenant 
Governor expressed concern about whether the State Auditor could be 
funded to conduct additional Recovery Act-related auditing 
responsibilities, as was done for Hurricane Katrina related oversight. 
Officials from the State Auditor's office added that they normally 
charged the audit agency for the cost of audit services provided, but 
they were not sure whether Recovery Act funds could be used for this 
purpose. The State Auditor noted that the office would like to hire 
certified public accounting firms to conduct Recovery Act oversight 
work rather than increase staff. Further, the officials noted that OMB 
should provide guidance regarding state level oversight, auditing, and 
administrative costs--such as how costs should be paid for and with 
what funds. 

The legislative oversight committee also expressed concerns about the 
capabilities of the State Auditor's office and some state agency 
internal audit functions. For example, in a recent report, the 
committee noted that low staffing levels and high turnover in the 
office's Department of Audit's Financial and Compliance Audit Division 
had resulted in a decreased experience level of audit staff and reduced 
institutional knowledge to use in forming auditor judgment.[Footnote 
140] In addition, the committee noted there were limitations in the 
internal audit functions of some state agencies--for instance, state 
law required 19 agencies to establish an internal audit function; 13 
had done so as of December 2008. Further, the committee reviewed the 
internal audit functions of 8 agencies and found that most focused on 
reviewing agency programs rather than testing internal controls. 
Finally, the committee found that the Executive Director for these 
agencies reviewed and approved the plans for their internal audit 
function, but this could limit the internal auditor's freedom to 
determine the internal controls tested and programs reviewed. 

Assessing the Impact of Recovery Act Funds Requires Clear Federal 
Guidance: 

Officials from the State Auditor's office recommended that the federal 
government provide specific guidance for reporting on the use of 
Recovery Act funds to support job creation or retention because the 
reliability of such estimates depends critically on using a solid 
methodology. Furthermore, the officials recommended that OMB provide a 
clear definition of time-limited, part-time, full-time, and permanent 
jobs. Another concern was how to report on jobs created from the use of 
funds for programs, such as unemployment, food stamps, and Medicaid. 
These funds make up a large portion of the Recovery Act funding, but, 
according to state officials, the purpose of these programs is not job 
creation and retention. 

The State Auditor's office also expressed concerns about data 
reliability. For example, staff noted that standardization of data was 
lacking and the various decentralized reporting mechanisms, while 
certainly cheaper and less burdensome on state agencies, will not 
likely provide meaningful data on the impact of Recovery Act funds. 
Additionally, the staff noted that, if state agencies require their 
subrecipients to provide nonstandardized and nonuniform data, it will 
be difficult to identify trends at the state level. They also expressed 
concern that decentralized reporting would bypass the state-level 
efforts of accountability. Ultimately, they said state-level, 
centralized reporting using standardized and uniform data collection 
elements would be beneficial for state and federal oversight and would 
raise both the actual and perceived level of accountability. 

As an example of state efforts to assess the impact of Recovery Act 
funds, MDOT hired a contractor to conduct an economic impact analysis 
of projects MDOT had preselected to receive Recovery Act funding. 
According to one of the contractor's staff, these projects were 
preselected on the basis that they were "shovel ready" during the first 
90 days of the state receiving stimulus funds. The contractor used a 
forecasting model to measure the impact that an estimated $726 million 
in transportation stimulus funding would have on the state of 
Mississippi with regard to increased economic spending and the number 
of jobs from 2009 through 2011.[Footnote 141] 

Mississippi's Comments on This Summary: 

We provided the Governor of Mississippi with a draft of this appendix 
on April 17, 2009. The Director of Federal Policy, who serves as the 
stimulus coordinator, responded for the Governor on April 20, 2009. The 
official provided technical suggestions that were incorporated, as 
appropriate. 

GAO Contacts: 

John K. Needham, (202) 512-5274 or needhamjk1@gao.gov: 

Norman J. Rabkin, (202) 512-9723 or rabkinn@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Chris Keisling, assistant 
director; Marshall Hamlett, analyst-in-charge; David Adams; Michael 
O'Neill; Carrie Rogers, and Erin Stockdale made major contributions to 
this report. 

[End of section] 

Appendix XIII: New Jersey: 

Overview: 

Use of funds: An estimated 90 percent of Recovery Act funding provided 
to states and localities nationwide in fiscal year 2009 (through Sept. 
30, 2009) will be for health, transportation and education programs. 
The three largest programs in these categories are the Medicaid Federal 
Medical Assistance Percentage (FMAP) awards, the State Fiscal 
Stabilization Fund, and highways. 

Medicaid Federal Medical Assistance Percentage (FMAP) Funds: 

* As of April 3, 2009, the Centers for Medicare & Medicaid Services 
(CMS) had made about $550 million in increased FMAP grant awards to New 
Jersey. As of April 1, 2009, the state has drawn down $362.2 million, 
which is almost 66 percent of its awards to date; 

* Officials stated that the funds made available as a result of the 
increased FMAP allow the state to cover the increase in caseload and 
maintain current populations and benefits. In addition, these funds 
will help balance the state's budget and allow the state to eliminate 
premiums for children in families with incomes less than 200 percent of 
the federal poverty level in New Jersey's State Children's Health 
Insurance Program. 

Transportation--Highway Infrastructure Investment: 

* New Jersey was apportioned about $652 million for highway 
infrastructure investment on March 2, 2009, by the U.S. Department of 
Transportation. As of April 16, 2009, the U.S. Department of 
Transportation had obligated $280.8 million for 12 projects. Under the 
Recovery Act, highway funds are reimbursable, and New Jersey will 
receive funds after all or part of each project is completed; 

* As of April 16, 2009, the New Jersey Department of Transportation 
(NJDOT) had advertised competitive bids on 10 projects totaling about 
$269.5 million. New Jersey has determined that it can meet Recovery Act 
requirements for obligating highway infrastructure investment funds; 

* These projects included road improvements, pavement and signal 
rehabilitation, bridge deck repairs, and major design elements for 
major projects. 

U.S. Department of Education State Fiscal Stabilization Fund (SFSF): 

* New Jersey was allocated about $891 million from the initial release 
of these funds on April 2, 2009, by the U.S. Department of Education; 

* Before receiving the funds, states are required to submit an 
application that provides several assurances to the Department of 
Education. These include assurances that they will meet maintenance of 
effort requirements (or that they will be able to comply with waiver 
provisions) and that they will implement strategies to meet certain 
educational requirements, including increasing teacher effectiveness, 
addressing inequities in the distribution of highly qualified teachers, 
and improving the quality of state academic standards and assessments. 
State officials estimated that most of the SFSF funds will have an 
impact on the state's fiscal year 2010 budget, which will start on July 
1, 2009. As of April 16, 2009, New Jersey had not applied for SFSF 
funds; 

* State officials stated that, pending a New Jersey Supreme Court 
decision on the state's new education funding formula, the SFSF funds 
for primary education would follow that formula. The state's use of 
SFSF funds for higher education is unclear. State officials are 
currently trying to determine what portion of these funds will be 
allocated to higher education. New Jersey expects to make that 
determination in late April. 

New Jersey is also receiving additional Recovery Act funds under other 
programs, such as transit capital assistance and fixed guideway 
modernization funds, Edward Byrne Memorial Justice Assistance Grants, 
and housing capital assistance. The status of plans for using these 
funds are described throughout this appendix. 

Safeguarding and transparency: New Jersey plans to use several entities 
to oversee its Recovery Act funds. The Governor has established a state 
Recovery Accountability Task Force to coordinate and review how state 
and local agencies use Recovery Act funds as well as provide guidance 
and best practices for project selection and internal controls, among 
other things. The state has several accountability agencies that will 
undertake different aspects of Recovery Act oversight. New Jersey's 
agencies are adding capabilities to their accounting systems to track 
Recovery Act funds. Although New Jersey will publicly report the 
state's Recovery Act spending, state officials said they might not be 
aware of all federal funds sent directly to other entities, such as 
public housing authorities. State officials have some concerns about 
the use of some Recovery Act funds, such as by independent local 
entities in the state, and they are developing some strategies to 
mitigate those risks. 

Assessing the effects of spending: New Jersey state agencies are in the 
early stages of developing plans to assess the effects of Recovery Act 
spending. Different state and local agencies will have different ways 
of collecting or estimating jobs created or retained. New Jersey is 
planning to develop a methodology to collect this data but is waiting 
to see what federal guidance requires. 

New Jersey Beginning to Use Recovery Act Funds: 

New Jersey has begun to use some of its Recovery Act funds, as follows. 

Increased Federal Medical Assistance Percentage Funds: Medicaid is a 
joint federal-state program that finances health care for certain 
categories of low-income individuals, including children, families, 
persons with disabilities, and persons who are elderly. The federal 
government matches state spending for Medicaid services according to a 
formula based on each state's per capita income in relation to the 
national average per capita income. The amount of federal assistance 
states receive for Medicaid service expenditures is known as the 
Federal Medical Assistance Percentage (FMAP). Across states, the FMAP 
may range from 50 percent to no more than 83 percent, with poorer 
states receiving a higher federal matching rate than wealthier states. 
The Recovery Act provides eligible states with an increased FMAP for 27 
months between October 1, 2008, and December 31, 2010.[Footnote 142] On 
February 25, 2009, the Centers for Medicare & Medicaid Services (CMS) 
made increased FMAP grant awards to states, and states may 
retroactively claim reimbursement for expenditures that occurred prior 
to the effective date of the Recovery Act.[Footnote 143] Generally, for 
fiscal year 2009 through the first quarter of fiscal year 2011, the 
increased FMAP, which is calculated on a quarterly basis, provides for 
(1) the maintenance of states' prior year FMAPs; (2) a general across- 
the-board increase of 6.2 percentage points in states' FMAPs; and (3) a 
further increase to the FMAPs for those states that have a qualifying 
increase in unemployment rates. The increased FMAP available under the 
Recovery Act is for state expenditures for Medicaid services. However, 
the receipt of the increased FMAP may reduce the funds that states must 
use for their Medicaid programs, and states have reported using these 
available funds for a variety of purposes. 

As of April 1, 2009, New Jersey has drawn down $362.2 million in 
increased FMAP grant awards, which is almost 66 percent of its awards 
to date.[Footnote 144] New Jersey officials reported that they plan to 
use funds made available as a result of the increased FMAP to offset 
state general fund deficits, cover the state's increased Medicaid 
caseload and maintain current populations and benefits.[Footnote 145] 
This funding will also be used to help ensure that the Medicaid prompt 
payment requirements are met.[Footnote 146] Additionally, state 
officials noted that the funds made available as a result of the 
increased FMAP are allowing them to eliminate premiums for children in 
families with incomes less than 200 percent of the Federal Poverty 
Level in New Jersey's State Children's Health Insurance Program 
(SCHIP).[Footnote 147] This will help the state retain children in 
SCHIP who would otherwise be terminated from the program for nonpayment 
of premiums. 

Transportation--Highway Infrastructure Investment: The Recovery Act 
provides additional funds for highway infrastructure investment using 
the rules and structure of the existing Federal-Aid Highway Surface 
Transportation Program, which apportions money to states to construct 
and maintain eligible highways and for other surface transportation 
projects that could affect highways. States must follow the 
requirements for the existing programs, and in addition, the governor 
must certify that the state will maintain its current level of highway 
spending and the governor or other appropriate chief executive must 
certify that the state or local government to which funds have been 
made available has completed all necessary legal reviews and determined 
that the projects are an appropriate use of taxpayer funds. New Jersey 
provided these certifications but noted that the state's level of 
funding was based on the best information available at the time of the 
state's certification.[Footnote 148] 

At the Governor's direction, NJDOT had begun planning for a federal 
stimulus package for federal-aid eligible highway projects in November 
2008. NJDOT originally developed a list of highway projects worth about 
$1.4 billion, which was pared down to meet the actual apportioned 
amount. NJDOT selected 40 total projects that it could deliver as 
quickly as possible. As of April 16, the U.S. Department of 
Transportation had obligated $280.8 million for 12 New Jersey projects. 
[Footnote 149] The projects that were selected concentrated mainly on 
replacing in-kind projects that require little or no environmental 
clearance or extensive design work, such as pavement and signal 
rehabilitation and highway bridge painting and deck replacement. Of the 
40 projects selected, 5 are in the design stage, while the rest are in 
the construction or right-of-way acquisition phases. NJDOT staff 
indicated they were allocating over a third of their Recovery Act 
transportation funding to 3 large projects, including one in an 
economically distressed area. As of April 16, 2009, 10 projects 
totaling about $269.5 million have been put out for bid through a 
competitive process. NJDOT officials estimate that Recovery Act funds 
will save the state about $100 million in interest charges over 12 
years for one of the selected projects, as the state will not have to 
borrow to start and complete it. Not all of the selected projects were 
on the State Transportation Improvement Plan (STIP), but New Jersey, in 
consultation with the Federal Highway Administration, amended its STIP 
to include all of the selected projects. 

U.S. Department of Education State Fiscal Stabilization Fund: The 
Recovery Act created a State Fiscal Stabilization Fund (SFSF), to be 
administered by the U.S. Department of Education (Education). The SFSF 
provides funds to states to help avoid reductions in education and 
other essential public services. The initial award of SFSF funding 
requires each state to submit an application to Education that assures, 
among other things, it will take actions to meet certain educational 
requirements, such as increasing teacher effectiveness and addressing 
inequities in the distribution of highly qualified teachers. 

The state expects to receive $891.4 million in SFSF funds, about 82 
percent of which is for education and about 18 percent of which is for 
the state to use for "public safety and other government services." 
State officials said that, pending a New Jersey Supreme Court decision 
on the state's new education funding formula, the SFSF funds for 
primary education would follow that formula. The state's use of SFSF 
funds for higher education is unclear. The Governor's Chief of Staff 
stated that New Jersey is currently trying to determine what portion of 
the SFSF education and other government services funds will be used for 
higher education and will not submit its application for SFSF funding 
until it completes this determination. New Jersey expects those 
determinations to be made sometime in April. The state expects that the 
receipt of stabilization funds will help balance its fiscal year 2009 
budget and avoid layoffs or tax increases. 

New Jersey state education officials said in March that the lack of 
clear, specific guidance from Education limited their ability to 
provide guidance to local institutions. As a result, school district 
officials we interviewed in Newark and Trenton in late March stated 
that they are waiting for state officials to tell them what their 
allocations are for each of the federal Recovery Act education 
programs. The timing of the federal and state guidelines for these 
funds are important as the local schools districts are currently 
planning their upcoming fiscal year budgets and would like to know how 
the Recovery Act funds would complement their upcoming school spending. 
On April 1, 2009, Education issued guidance to the states on how 
Recovery Act funds could be used for education. State officials are 
continuing to review the guidance and on April 16, 2009, issued 
guidance to local school districts outlining each district's allocation 
of additional funds made available under the Recovery Act for programs 
authorized under Title I of the Elementary and Secondary Education Act 
and the Individuals with Disabilities Education Act. 

Transportation--Urban/Rural Transit Capital Assistance and Fixed 
Guideway Modernization Grants: New Jersey Transit (NJT), the primary 
public operator of bus and commuter rail transit lines in the state, 
was apportioned all of the Recovery Act funds for transit for New 
Jersey, which amounted to about $425 million in three pre-existing 
federal transit programs. NJT has selected 15 projects that will use 
Recovery Act funds, all of which were on their 20-year capital plan. 
About 70 percent of the funds are allocated to capacity expansion and 
improvement projects, with the remainder allocated to maintenance 
projects, as its regular funds are concentrated on safety, security and 
maintenance needs. According to NJT officials, NJT can move quickly to 
use these funds as the Federal Transit Administration (FTA), through 
its preaward authority, will reimburse the agency for funds expended 
for the selected projects, even though the funding for those projects 
has not yet been obligated by the FTA. The largest allocation of NJT's 
Recovery Act funds ($130 million) will be used toward designing and 
undertaking some construction activity for new train tunnels under the 
Hudson River. The tunnels are expected to double the number of NJT 
trains going into and out of New York City. 

Housing and Urban Development--Housing Capital Assistance: HUD 
allocated approximately $104 million to 86 public housing authorities 
in New Jersey for capital and management activities, including 
modernization and development of public housing developments. Officials 
from the Newark Housing Authority (NHA), which is receiving an 
allocation of about $27.4 million, told us they planned to use the 
allocation to fund projects already included in their 5-year capital 
plan--including rehabbing 700 vacant units and 300 occupied units-- 
which will generate income and additional HUD subsidies to NHA and 
provide new and improved affordable units for additional families. 

Justice--Edward Byrne Memorial Justice Assistance Grants: State 
officials expect to receive a Recovery Act allocation of $48 million 
from the Byrne Justice Assistance Grant Program.[Footnote 150] Local 
law enforcement officials stated that this program may provide for some 
additional facilities and other law enforcement equipment. For example, 
the Trenton Police Department is planning to use its Byrne Justice 
Assistance Grant funds on projects that will enhance its crime 
reduction efforts by sharing information with Mercer County's 
Prosecutor's Office and enhancing the department's forensic crime 
analysis capabilities. In contrast, according to Newark's Chief of 
Police, the amount of Byrne Justice Assistance Grants allocated to the 
Newark Police Department may be sufficient to provide some new 
equipment but not fund a major capital program. 

New Jersey's Plans for Spending Recovery Act Funds Are Forming As Funds 
Are Being Distributed: 

New Jersey revenues for fiscal year 2009 fell short of expectations by 
about $3 billion. As a result, New Jersey had to rebalance the state's 
budget by cutting spending and taking personnel actions in January and 
February 2009 before the Recovery Act was enacted. In addition, as part 
of its actions in February, the state used $450 million of its $600 
million surplus.[Footnote 151] New Jersey's Office of Management and 
Budget is accounting for Recovery Act funds that come into state 
agencies, but there is no concerted effort to independently aggregate 
estimates of total funding across state agencies.[Footnote 152] As of 
April 3, 2009, the state had received about $583.8 million in Recovery 
Act funds, mainly for increased FMAP grant awards and unemployment 
insurance. Other funds have been allocated but are not yet available, 
such as for some education and energy efficiency programs. 

Anticipating even less revenue in fiscal year 2010, which begins on 
July 1, 2009, the Governor has proposed a $29.8 billion budget. 
According to the Governor, if New Jersey did nothing to curtail growth 
in state spending or adjust its mandatory obligations, the fiscal year 
2010 budget would be about $36 billion, or $7 billion above anticipated 
revenues. In response to declining revenue, the Governor has proposed 
about $4 billion in cuts to programs, rebates, pension payments, and 
state worker personnel costs. In all, more than 850 line items in the 
budget have been cut. The largest cuts will come from scaling back 
state rebates of local property taxes by $500 million and reducing 
state payments to the pension fund by $895 million. The Governor is 
also proposing to save $400 million in personnel costs through a wage 
freeze and furloughs for state employees, avoiding an otherwise 
anticipated layoff of up to 7,000 state workers. 

Some New Jersey officials began preparing for receipt of Recovery Act 
funds prior to passage of the Recovery Act. Anticipating federal 
stimulus spending for infrastructure, the Governor asked NJDOT to 
identify projects that could be ready for federal funding and quick 
implementation in November 2008. NJDOT officials identified about $1.4 
billion in potential eligible projects but had to scale this list back 
to meet New Jersey's eventual apportionment of Recovery Act 
transportation funds. The city of Newark also prepared a process with 
evaluative criteria for selecting local projects for Recovery Act funds 
before the Recovery Act was enacted. 

New Jersey officials stated that New Jersey's plans for spending 
Recovery Act funds have been complicated by not having guidance from 
federal agencies immediately available and by preparations for the 
state's upcoming fiscal year 2010 budget. For example, the state 
Department of Education could not determine how the state could 
distribute its allocation of Recovery Act education funds until the 
U.S. Department of Education released its guidance on April 1, 2009. 
Officials from the state's Department of Community Affairs (DCA), which 
is responsible for housing and urban development programs in the state, 
stated that they lacked guidance from federal agencies for most of the 
programs that they administer, which hindered their preparation for use 
of those funds.[Footnote 153] The Governor's Chief of Staff stated that 
some of the federal funds, especially the state's allocation of the 
SFSF funds, will be disbursed to the state in its fiscal year 2010 
budget, which is currently being debated by the state legislature. 

New Jersey officials have been and are planning to continue submitting 
certifications for the state's use of Recovery Act funds. The Governor 
issued a certification memo to the Secretary of the U.S. Department of 
Transportation that the state would maintain its efforts with regard to 
state funding for the types of projects funded under the Recovery Act. 
Other local officials told us they would issue or had issued similar 
certifications for Recovery Act funds for which they are directly 
responsible. For example, NHA staff told us their Executive Director 
signed a certification letter for the Recovery Act funds that the NHA 
was responsible for. 

New Jersey Will Use Existing Resources for Recovery Act Oversight, but 
Lack of Additional State Funding May Hinder Its Efforts: 

According to state officials, the Governor and executive branch 
agencies have primary responsibility for controlling the state's 
receipt of Recovery Act funds, with legislative approval.[Footnote 154] 
To this end, the Governor has created the state Recovery Accountability 
Task Force, co-chaired by the Governor's Chief of Staff and the state's 
Comptroller and consisting of active and former state and federal 
officials. The task force will, among other things, monitor the 
distribution of Recovery Act funds in the state and promote the 
effective and efficient use of those funds. The task force has 
established a public Web site and will provide guidance for internal 
controls for complying with Recovery Act provisions. As part of the 
task force, the state Comptroller has responsibility for coordinating 
all of the oversight agencies in the state. These entities will have 
different roles in the state's Recovery Act oversight efforts: 

* the state Auditor, who is appointed by the legislature and handles 
financial and some performance audits of state agencies; 

* the state Comptroller, who is generally responsible for performance 
audits at the state and local levels of government and reviews 
government contracts over $2 million; 

* the state Inspector General, who is responsible for investigations of 
fraud related to state government; and: 

* the internal audit offices that exist within most agencies, including 
the state Medicaid Inspector General and the contract compliance audit 
units within the Division of Purchase and Property (DPP) ad the 
Division of Property Management and Construction (DPMC). 

According to the state's Comptroller, the legislature's State 
Commission on Investigation, which is concerned with investigations on 
enforcement of state law, particularly regarding racketeering and 
organized crime, will also be among the agencies helping to ensure that 
the state's public employees who administer Recovery Act funds do so 
effectively and in compliance with federal or state requirements. In 
addition, the state legislature, state agencies, and many local 
entities (e.g., housing authorities, school districts, and metropolitan 
planning organizations) also have a role in overseeing these funds. 

As described by state officials, Recovery Act funds must be used by 
state agencies pursuant to appropriation by the state legislature, and 
Recovery Act funds were appropriated in legislation enacted in March 
2009.Under that legislation, the specific programs and activities 
conducted by those agencies with Recovery Act funds are also subject to 
approval by the legislature's Joint Budget Oversight Committee. 
However, according to state officials, any Recovery Act funds directly 
received by local governments or other entities in the state would not 
be budgeted or appropriated by the state legislature. State officials 
describe New Jersey as a strong "home rule" state and its constitution 
as giving localities many rights and responsibilities for providing 
local services. Therefore, New Jersey has more than 1,900 cities, 
counties, towns, townships, and local authorities or taxing districts, 
including 86 housing authorities, 566 municipal governments, and 616 
school districts that can apply for, use, and potentially be held 
accountable for Recovery Act funds. 

The Governor's Chief of Staff stated there is oversight of certain 
local activities at the state level. For example, state oversight of 
local public school districts has been enhanced in recent years in part 
through state mandated limitations on compensation practices[Footnote 
155] and proficiency targets for state assessments have been raised. 
Additionally, the state has a significant amount of oversight over the 
three districts that are under state control to review and control 
their budgets. The U.S. Department of Education and the county 
superintendent have the authority to review these school districts 
budgets, as well. Further, according to the Governor's Chief of Staff, 
because the state already funds local school districts with $8.8 
billion in state funds, ensuring accountability for the use of state 
funds by school districts is not a new challenge to the state oversight 
agencies. 

Many of the state and local agencies interviewed stated that their 
current accounting systems can track Recovery Act funds by program and 
project and can generate reports showing the use of those funds: 

* Both the Newark and Trenton Housing Authorities stated that they use 
the Line of Credit Control System (LOCCS) accounting system, which HUD 
uses to provide funds to public housing authorities. LOCCS includes 
special accounting codes under which housing authorities can track 
Recovery Act funds by program and by type of use. Housing authorities 
can also use LOCCS to generate the required reports back to HUD showing 
how they have used Recovery Act funds. 

* Both NJDOT and NJT stated that their accounting systems can track 
Recovery Act funds separately from their regular funds because they 
have created separate accounting codes